ADMINISTRATIVE LAW - judicial review - reviewable decisions and conduct - whether jurisdictional error in making Adjudicator Determination
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ADMINISTRATIVE LAW - judicial review - reviewable decisions and conduct - whether jurisdictional error in making Adjudicator Determination
Judgment (5 paragraphs)
[1]
Introduction
In these proceedings, the plaintiff, Fairfield City Council (the Council), seeks to quash a determination of the third defendant (the Adjudicator) in favour of the first defendant, Abergeldie Contractors Pty Ltd (Abergeldie), made under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act) in the amount of $1,286,603.96 (incl. GST) on the ground that no valid reference date existed in respect of the payment claim made by Abergeldie which was the subject of the determination.
[2]
Background
The facts are not in dispute.
On 18 August 2015, the Council and Abergeldie entered into an amended AS 4000 contract for the construction of upgrades to Cumberland Highway and Wetherill Street for the contract sum of $6,355,216.21.
The contract nominated the Manager - Major Projects and Planning of the Council as the Superintendent.
Clause 44 of the contract includes the following:
Final Reference Date
For the purpose of section 8(2) of SOP Act, there are only two reference dates after practical completion being:
i) the first date for a progress claim arising immediately after practical completion (as determined by subclause 37.1); and
ii) the date provided in subclause 37.4 for the Contractor to give its final payment claim.
Clause 37.1, which incorporates Item 28 of the Schedule, provides that a progress claim may be made on the 28th day of each month for "Works under Contract" done to the 28th day of that month.
"Practical completion" is defined by the contract to mean:
… that stage in the carrying out and completion of WUC [work under the Contract] when:
a) the Works are complete except for minor defects:
i) that do not prevent the Works from being reasonably capable of being used for their stated purpose;
ii) that the Superintendent determines the Contractor has reasonable grounds for not promptly rectifying; and
iii) the rectification of which will not prejudice the convenient use of the Works;
b) those tests which are required by the Contract to be carried out and passed before the Works reach practical completion have been carried out and passed;
c) the Contractor has provided the Principal with all documents and other information required under the Contract which, in the Superintendent's opinion, are essential for the use, operation and maintenance of the Works;
d) the Contractor has removed all rubbish, Contractor's plant and surplus material from the site;
e) Deleted.
f) the Contractor has provided the Principal with copies of all necessary approvals, certificates, design documents and operating and/or maintenance documentation relating to the Works including without limitation:
i) approvals and consents obtained from a relevant authority concerning the Works;
ii) warranties and certificates from consultants and subcontractors concerning the Works;
iii) a final occupation certificate for all of the Works pursuant to the Environmental Planning and Assessment Act 1979, Part 4A;
iv) all compliance certificates pursuant to the development consent and the Environmental Planning and Assessment Act 1979; Part 4A; and
v) any other certificate or approval which must be issued or given by any authority having jurisdiction as a precondition to the use and occupation of each building comprising the Works;
g) Deleted
h) the Contractor has satisfied all legislative requirements concerning the Works.
"Certificate of practical completion" is defined to have "the meaning in subclause 34.6". That subclause provides:
The Contractor shall give the Superintendent at least 14 days written notice of the date upon which the Contractor anticipates that practical completion will be reached.
When the Contractor is of the opinion that practical completion has been reached, the Contractor shall in writing request the Superintendent to issue a certificate of practical completion. Within 14 days after receiving the request, the Superintendent shall give the Contractor and the Principal either a certificate of practical completion evidencing the date of practical completion or written reasons for not doing so.
If the Superintendent is of the opinion that practical completion has been reached, the Superintendent may issue a certificate of practical completion even though no request has been made.
The contract defines "date of practical completion" as meaning:
a) the date evidenced in a certificate of practical completion as the date upon which practical completion was reached; or
b) where another date is determined in any arbitration or litigation as the date upon which practical completion was reached, that other date.
Apart from the occurrence of reference dates, a number of other rights and obligations under the contract are tied to events relating to practical completion. Clause 5.4 provides for the reduction in security held by the Principal "Upon the Issue of the certificate of practical completion". Under cl 14.1, the Contractor is responsible for the care of the work "to 4.00 pm on the date of practical completion". Under cl 35, the defects liability period "shall commence on the date of practical completion at 4.00 pm". Under cl 34.7, the Contractor is obliged to pay liquidated damages "If WUC does not reach practical completion, by the date for practical completion".
On 28 August 2016, Abergeldie sent to the Council Payment Claim No 14.
On 16 September 2016, Abergeldie wrote to the Superintendent stating relevantly:
This Letter provides notification to the Superintendent pursuant to clause 34.6 of the General Conditions of Contract that we are of the opinion that Practical Completion has been achieved on 16 September 2016.
We request that the Superintendent issue a Certificate of Practical Completion.
The Superintendent replied to that request on 30 September 2016 in the following terms:
I refer to your recent requests to issue the Certificate of Practical Completion for Wetherill Street and Cumberland Highway works at three intersections in accordance with the provisions of Clause 34.6 of the General Conditions of Contract AS 4000-1997.
Please note that Wetherill Street works were completed with the final switch on 1 July 2016. It was agreed that Practical Completion under separable portion can be issued in October 2016 once the defects rectification and handover documentation are completed.
Similarly, the Cumberland Highway works at three intersections at John Street, St Johns Road and Hamilton Road were completed with the final switch on 16th September 2016. It was agreed that Practical Completion under separable portion can be issued in October 2016 once the defects rectification and handover documentation are completed.
On 28 October 2016, Abergeldie sent the Council Payment Claim No 15.
On 25 November 2016, the Superintendent wrote to Abergeldie saying relevantly:
Practical Completion
In accordance with the provisions of Clause 34.6 of the General Conditions of Contract AS 4000-1997 (Contract) and our letter dated 30 September, 2016 (Copy attached) the Superintendent hereby certifies that Practical Completion of the Works was reached as follows:
1 July 2016 for Wetherill Street works
16 September, 2016 for Cumberland Highway works at three intersections at John Street, St Johns Road and Hamilton Road.
The letter went on to list a number of defects in the Works and to state that, pursuant to cl 5.4 of the contract, the Council agreed to release 50 percent of the security held under it and enclosed a cheque for the amount of $158,380.00.
Shortly before receiving the Superintendent's letter dated 25 November 2016, at 10.32 am on 25 November 2016, Abergeldie sent Payment Claim No 16 to the Council in the amount $2,292,325.17. That payment claim was substantially the same as Payment Claim No 15.
On 9 December 2016, the Council issued a Payment Schedule which scheduled an amount of $NIL. In the Payment Schedule, the Council raised as a ground for non-payment the absence of a reference date.
On 15 December 2016, Abergeldie made an Adjudication Application in respect of Payment Claim No 16 pursuant to the Act, which was lodged with the Resolution Institute.
The Adjudicator was nominated as the adjudicator by Resolution Institute.
On 22 December 2016, the Council lodged an Adjudication Response with Resolution Institute.
On 31 January 2017, the Adjudicator made an Adjudication Determination that Abergeldie was entitled to be paid a total amount of $1,286,603.96 (incl. GST) by the Council, as well as interest at a rate of 8 percent to be calculated from 19 December 2016. The Adjudication Determination was released to the Council and Abergeldie on 3 February 2017 and, on 13 February 2017, the Council issued Abergeldie an Adjudication Certificate pursuant to the Act.
Section 8 of the Act provides:
Rights to progress payments
(1) On and from each reference date under a construction contract, a person:
(a) who has undertaken to carry out construction work under the contract, or
(b) who has undertaken to supply related goods and services under the contract,
is entitled to a progress payment.
(2) In this section, reference date, in relation to a construction contract, means:
(a) a date determined by or in accordance with the terms of the contract as the date on which a claim for a progress payment may be made in relation to work carried out or undertaken to be carried out (or related goods and services supplied or undertaken to be supplied) under the contract, or
(b) if the contract makes no express provision with respect to the matter - the last day of the named month in which the construction work was first carried out (or the related goods and services were first supplied) under the contract and the last day of each subsequent named month.
It is common ground that the existence of a reference date in respect of Payment Claim No 16 was a pre-condition to the validity of that payment claim and that the question whether a reference date existed in respect of that payment claim was one ultimately for the court, not the Adjudicator: see Southern Han Breakfast Point Pty Ltd v Lewence Construction Pty Ltd [2016] HCA 52. It was also common ground that the answer to that question turned on whether and when "practical completion" occurred under the contract, since under cl 44 only two reference dates arose following that event.
The Council contended that practical completion occurred on 16 September 2016 as Abergeldie had claimed in its letter of the same date. The Superintendent appears to have accepted this in his letter dated 25 November 2016. On that basis, the Council submitted that, apart from the final payment date (which has not yet arrived), the last reference date that arose under the contract was 28 September 2016, which was the first date for a progress claim arising immediately after 16 September. Abergeldie had already submitted a payment claim in respect of that date - that is, Payment Claim No 15. It was not entitled to serve a further payment claim in respect of that date: s 13(5) of the Act. Consequently, there was no valid reference date in respect of Payment Claim No 16. It followed that the determination of the Adjudicator was void. Abergeldie, on the other hand, submitted that practical completion for the purposes of cl 44 did not occur on 16 September 2016 and, indeed, has not yet occurred.
[3]
Consideration
Abergeldie contends that the reference to "practical completion" in cl 44 must be read as a reference to practical completion as determined in accordance with cl 34.6. Clause 34.6 provides two ways in which practical completion is determined. The first requires the Contractor to request the Superintendent to issue a certificate of practical completion and for the Superintendent either to comply with that request within 14 days by issuing a certificate "evidencing the date of practical completion" or to give written reasons for not doing so. The second permits the Superintendent to issue a certificate of practical completion even though no request has been made. In the latter case, cl 34.6 does not specifically say that the certificate must evidence the date of practical completion. Abergeldie submitted that this was a deliberate omission. Where the Superintendent takes it upon himself to issue the certificate, the intention is that practical completion occurs on the date of the certificate itself. If it were otherwise, there is a risk that the Superintendent could, in effect, impose a date of practical completion retrospectively, with the result, for example, that payment claims that were made and were thought to be valid, are made invalid.
Abergeldie submits that any other interpretation of cl 44 is unworkable or impractical for a number of reasons.
First, it is not possible to determine practical completion without a determination by the Superintendent. The definition of "practical completion" in the contract requires input from the Superintendent. In particular, para a) ii) requires the Superintendent to determine that there are reasonable grounds for not promptly rectifying a minor defect and para c) requires the Contractor to provide all documents and other information required under the contract "which, in the Superintendent's opinion, are essential for the use, operation and maintenance of the Works" (emphasis added). Those requirements can only be satisfied at the time when the Superintendent considers issuing a certificate.
Second, if "practical completion" were an event that was independent of a determination by the Superintendent for the purposes of cl 44, that would mean that there would be different dates of practical completion depending on the issue to which the question was relevant. In the case of the operation of cl 44, it would depend on the application of the requirements set out in the definition of "practical completion" (assuming that those requirements could be applied). On the other hand, in the case of other provisions that depend on the date of practical completion, such as the date from which the defects liability period begins to run, it would depend on a determination by the Superintendent. That is not what the parties could have intended.
Third, if the Council is right, the parties may not know whether practical completion has been reached or not, since they may not know, or there may be uncertainty about, whether all the conditions specified in the definition have been met. Consequently, they will not know whether further reference dates will arise under the contract or not. That may put Abergeldie in a difficult position because it will not know when it can serve its last periodic payment claim.
Abergeldie also submits that the Superintendent has not issued a valid certificate under cl 34.6. The letter dated 30 September 2016 in response to Abergeldie's request dated 16 September 2016 was not a certificate of practical completion. Rather, it gave reasons why a certificate could not be issued - namely, that the defects rectification and handover documentation had not been completed. Nor was the letter dated 25 November 2016 a valid certificate of practical completion. It was not issued within 14 days of a request from Abergeldie and it purported to nominate a retrospective date of practical completion, contrary to what was permitted by the second limb of cl 34.6.
I do not accept those submissions.
The contract draws a distinction between practical completion and the date on which that occurs, on the one hand, and the mechanism by which proof of those matters is facilitated, on the other. The former depends on satisfaction of the various conditions set out in the definition of "practical completion". The latter depends on the issuing of a certificate by the Superintendent.
The term "practical completion", consistently with the way in which it is commonly understood in the construction industry, is defined in a way that depends largely on objective facts concerning the completion of the work the subject of the contract. It is true that some of the matters depend on formation of an opinion by the Superintendent. But that opinion is in relation to matters that can be assessed objectively - such as whether the contractor has reasonable grounds for not rectifying a minor defect and whether certain documentation is essential for the use, operation and maintenance of the Works. Although, in the normal case, it might be expected that the Superintendent will form those opinions at the time the Superintendent is asked to issue a certificate, there is no reason why they could not be formed independently. Moreover, the failure of the Superintendent to form an opinion will not necessarily be fatal to the achievement of practical completion. Under cl 20 of the contract, the Council is required to ensure that at all times the Superintendent "fulfils all aspects of the role and functions reasonably and in good faith". Consequently, practical completion may be achieved even if the Superintendent does not form the relevant opinions if his failure to do so is unreasonable or lacks good faith.
The conclusions of the previous paragraph are supported by the definition of "date of practical completion", which recognises that it is open to the parties to dispute the conclusions of the Superintendent and contend for an alternative date of practical completion in court proceedings or an arbitration.
The question, then, is whether cl 44 was intended to operate by reference to the objective fact of practical completion or by reference to the mechanisms contained in the contract to facilitate proof of that objective fact.
Other provisions of the contract, the operation of which depends on the achievement of practical completion, are expressed to operate by reference to "the date of practical completion" or upon the issue of "a certificate of practical completion". Both those expressions pick up or are a reference to the mechanism set out in cl 34.6 for facilitation of proof of the objective fact. If the parties had intended cl 44 to pick up the operation of cl 34.6, it would have been a simple matter to say so, as other clauses in the contract do. So, for example, cl 44 could have said "there are only two reference dates after the date of practical completion being …" or "there are only two reference dates after a certificate of practical completion is issued being …". The fact that the parties chose not to do so is a strong indication that they did not intend for the operation of cl 44 to depend on the determination of the Superintendent or the issuing of a certificate.
In my opinion, an interpretation of cl 44 which makes its operation depend on the objective facts is not unreasonable or uncommercial. On some occasions it may be difficult to determine whether practical completion has been achieved and that may cause some practical difficulties. However, two points may be made about that.
First, in my opinion, the practical difficulties are exaggerated. Practical completion will not occur before the contracted-for works are substantially complete. When they are, Abergeldie will know that at that point there is at least a risk that it will only be entitled to one more periodic payment in accordance with the contract because practical completion under the contract has or is close to being achieved. From a practical point of view, Abergeldie will need to ensure that the payment claim it submits following completion of the work covers all remaining work if it is to recover an interim payment for that work before the final payment is due under the contract. But that does not appear to be a particularly onerous or difficult thing to do.
Second, the interpretation for which Abergeldie contends gives rise to its own practical difficulties. In particular, the interpretation for which it contends does not draw the clear distinction drawn in other clauses of the contract between the date of practical completion (as defined) and the issue of a certificate of practical completion. Abergeldie appears to have in mind that cl 44 operates from the date on which the Superintendent issues a certificate of practical completion in accordance with cl 34.6. But that would mean that if the Superintendent failed to issue a valid certificate in accordance with cl 34.6 (as Abergeldie contends in this case), Abergeldie would be entitled to continue to make progress claims, even though the work under the contract had been completed. That does not appear to be what the parties intended by cl 44. On the other hand, if Abergeldie's contention really is that the reference to "practical completion" in cl 44 is a reference to "date of practical completion", there will still be uncertainty about whether the clause operates where there is a dispute concerning the date of practical completion.
In the present case, Abergeldie asserted that practical completion occurred on 16 September 2016. If that assertion was correct (which Abergeldie must have believed it to be), then it knew that it could only issue one more periodic payment claim under the contract. Ultimately, the Superintendent accepted that practical completion had occurred on 16 September 2016 and purported to issue a certificate to that effect. The Council did not in these proceedings take issue with the position taken by Abergeldie and the Superintendent. Consequently, for the purposes of these proceedings, there is no dispute that practical completion occurred on 16 September 2016. That conclusion does not involve giving the certificate issued by the Superintendent (whether it was valid or not) any retrospective effect. Rather, it simply means that the position taken by Abergeldie concerning practical completion was correct and that the contract should take effect on that basis.
It follows that the Council is entitled to succeed in its application.
[4]
Orders
The orders of the court are:
1. Declare that the first defendant's purported Payment Claim dated 25 November 2016 was not a payment claim within the meaning of section 13 of the Building and Construction Industry Security of Payment Act 1999 (NSW).
2. An order in the nature of certiorari quashing the determination of the third defendant dated 31 January 2017 for Adjudication Reference Number 2016RINSW38.
3. An order that the amount held in court being $1,286,603.96, together with any interest accrued thereon, is to be paid to the plaintiff.
4. The first defendant to pay the plaintiff's costs of the proceedings.
[5]
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Decision last updated: 07 March 2017