HM Hire Pty Ltd v National Plant and Equipment Pty Ltd & Anor [2013] QCA 6

[1] MARGARET McMURDO P: I agree with Fraser JA's reasons for dismissing this appeal with costs.

[2] FRASER JA: The appellant ("HM Hire") both supplies earthmoving and other equipment for hire and carries out earthmoving work at mine sites. It entered into a subcontract with Thiess Burton ("Thiess") to carry out work at the Burton Coal Mine in central Queensland. Pursuant to two rental agreements made between the first respondent ("NPE") and HM Hire, NPE hired four dump trucks and one loader to HM Hire for a minimum period of three months. HM Hire needed that equipment to perform part of its subcontract work at the mine whilst some of its own equipment was being reconditioned and upgraded. The rental agreements were made on the same date and upon the same terms. Nothing was submitted to turn upon the fact that there were two rental agreements rather than one. For ease of reference, I will refer to those agreements by the collective term "the rental agreement".

[3] After NPE and HM Hire fell into dispute about payment of the hire charges due under the rental agreement, NPE made a payment claim under the Building and Construction Industry Payments Act 2004. Section 7 of that Act describes its object as being to ensure that "... a person is entitled to receive, and is able to recover, progress payments if the person ... (a) undertakes to carry out construction work under a construction contract; or ... (b) undertakes to supply related goods and services under a construction contract." Section 12 of the Act creates a statutory right to a progress payment in a person who has undertaken to carry out construction work or to supply related goods and services under a "construction contract". Section 17 confers upon such a person who is or who claims to be entitled to a progress payment an entitlement to serve a payment claim on the person who is or may be liable to make the payment under the construction contract.

[4] The Act includes provisions for the adjudication of disputes about payment claims. NPE's payment claim was referred to adjudication and the second respondent was duly appointed to adjudicate the claim. He determined that HM Hire was obliged to pay NPE a progress payment of $516,586.95.

[5] HM Hire applied in the Trial Division for a declaration that the second respondent's adjudication decision was void. HM Hire contended that the adjudicator lacked jurisdiction because the rental agreement was not a "construction contract" as defined in the Act. That was so, HM Hire argued, because none of the work described in HM Hire's subcontract was "construction work". One aspect of that argument was HM Hire's contention that its work was "... the extraction ... of minerals" which s 10(3)(b) excluded from the scope of "construction work".

[6] As was common ground, the jurisdiction of the adjudicator under the Act depended upon the rental agreement being a "construction contract".[1] That term is defined as meaning "... a contract, agreement, or other arrangement under which one party undertakes to carry out construction work for, or to supply related goods and services to, another party". Expressions used in that definition are defined in ss 10 and 11. I have emphasised the words which are directly relevant in this appeal:

10 (1) Construction work means any of the following work -

(a) the construction, alteration, repair, restoration, maintenance, extension, demolition or dismantling of buildings or structures, whether permanent or not, forming, or to form, part of land;

(b) the construction, alteration, repair, restoration, maintenance, extension, demolition or dismantling of any works forming, or to form, part of land, including walls, roadworks, powerlines, telecommunication apparatus, aircraft runways, docks and harbours, railways, inland waterways, pipelines, reservoirs, water mains, wells, sewers, industrial plant and installations for land drainage or coast protection;

(c) the installation in any building, structure or works of fittings forming, or to form, part of land, including heating, lighting, airconditioning, ventilation, power supply, drainage, sanitation, water supply, fire protection, security and communications systems;

(d) the external or internal cleaning of buildings, structures and works, so far as it is carried out in the course of their construction, alteration, repair, restoration, maintenance or extension;

(e) any operation that forms an integral part of, or is preparatory to or is for completing, work of the kind referred to in paragraph (a), (b) or (c), including -

(i) site clearance, earthmoving, excavation, tunnelling and boring; and

(iii) the erection, maintenance or dismantling of scaffolding; and

(iv) the prefabrication of components to form part of any building, structure or works, whether carried out on-site or off-site; and

(v) site restoration, landscaping and the provision of roadways and other access works;

(f) the painting or decorating of the internal or external surfaces of any building, structure or works;

(g) carrying out the testing of soils and road making materials during the construction and maintenance of roads;

(h) any other work of a kind prescribed under a regulation for this subsection.

(2) To remove doubt, it is declared that construction work includes building work within the meaning of the Queensland Building Services Authority Act 1991.

(3) **Despite subsections (1) and (2), construction work does not include any of the following work - **

(a) the drilling for, or extraction of, oil or natural gas;

(b) the extraction, whether by underground or surface working, of minerals, including tunnelling or boring, or constructing underground works, for that purpose.

11 (1) Related goods and services, **in relation to construction work, means any of the following - **

(i) materials and components to form part of any building, structure or work arising from construction work;

(ii) plant or materials (whether supplied by sale, hire or otherwise) for use in connection with the carrying out of construction work;

(i) the provision of labour to carry out construction work;

(ii) architectural, design, surveying or quantity surveying services relating to construction work;

(iii) building, engineering, interior or exterior decoration or landscape advisory services relating to construction work;

(iv) soil testing services relating to construction work;

(c) goods and services, in relation to construction work, of a kind prescribed under a regulation for this subsection.

(2) In this Act, a reference to related goods and services includes a reference to related goods or services."

[7] The primary judge held that the adjudicator did have jurisdiction and dismissed HM Hire's application. His Honour considered that HM Hire's earthworks included "construction work" comprising "... works forming ... part of land, including ... roadworks" (s 10(1)(b)) and (s 10(1)(e)) an "operation that forms an integral part of, or is preparatory to or is for completing, work of the kind referred to in paragraph ... (b)", and ("very arguably"[2]) "... installations for land drainage ..." (s 10(1)(b)). The primary judge noted that the definition of "related goods and services" in s 11 comprehended plant but did not relate that definition to his Honour's conclusion that HM Hire's subcontract work comprehended construction work. That approach reflected the emphasis in the parties' arguments in the Trial Division.

[8] HM Hire's contentions in its appeal were to the following effect:

(a) The primary judge erred in holding that some of HM Hire's work under its subcontract with Thiess was "construction work" because:

(i) None of that work fell within the definition of "construction work" in s 10(1) of the Act, or

(ii) All of that work was excluded from that definition of "construction work" by s 10(3)(b) as "...the extraction...of minerals". (The work done by HM Hire did not include any excavation of the coal itself, but it contended that all of its work formed part of the coal mining operation.)

(b) The adjudication determination was outside jurisdiction even if some of HM Hire's work was "construction work" because the rental agreement between it and NPE was not a "construction contract";

(c) The adjudication determination was outside jurisdiction because at least some amount of NPE's payment claim which was included in the adjudicated amount was for work which was not "construction work".

[9] HM Hire acknowledged that some of those contentions might fall away upon delivery of the decision on appeal from Thiess v Warren Brothers Earthmoving Pty Ltd & Anor.[3] That appeal was dismissed.[4] One result of that decision is that the contention in (a)(ii) should be rejected. It was held by Fryberg J, and it was affirmed on appeal (Philippides J, with whose reasons in this respect Holmes and White JJA agreed), that the same kind of earthworks as were done by HM Hire was not "... the extraction ... of minerals" within s 10(3)(b); furthermore, the Court expressly endorsed the analysis by the primary judge in this matter.[5] HM Hire's contention in (c) must also be rejected. It was held that an error in the determination of how much of a payment claim is for "construction work" or "related goods and services" and its extent and value is not a jurisdictional error which would invalidate the adjudication determination.[6]

[10] That leaves for decision in this appeal the contentions in (a)(i) and (b).

Did the primary judge err in holding that some of HM Hire's work under its subcontract with Thiess was "construction work" within s 10(1)?

[11] The subcontract generally described the services to be performed by HM Hire as "Provision of Operators, Supervision, Machinery & Equipment for Clear & Grub Works, Topsoil Stripping & Placement and Dam Construction ...". It was uncontentious at the hearing of the appeal that none of HM Hire's work did involve the construction of dams. The term "roadworks" and related terms were not mentioned in the pricing schedule, which included estimated quantities and unit rates for work described in general terms such as "Clear, Grub and Stockpile", "Strip Topsoil", "Haul to Stockpile one way", "Cut", "Fill", and "Haul".

[12] Mr Kemp, HM Hire's sole director and shareholder, deposed[7] that in his statutory declaration in the adjudication application he had stated that he believed that the adjudicator did not have jurisdiction by reason that "the work being carried out did not involve any works forming (or to form) part of land such as ..." (there followed a catalogue which reproduced the descriptive terms used in s 10(1), including "roadworks" and "land drainage"); and that HM Hire used the hired equipment "... in connection with the excavation and removal of topsoil from the mine site ..." and the equipment was "suitable for use in connection with earthmoving work typically required by the coal mining industry" but was "mostly not suitable for use in general civil earthmoving".

[13] In response to Mr Kemp's affidavit, Mr Spotswood, the manager employed by NPE with responsibility for overseeing the maintenance of its fleet of plant and equipment, deposed that whilst NPE's equipment was on site he visited the mine site on two occasions. He was aware from his own observations "... that the work undertaken by HM Hire included the construction and formation of an access road for the purposes of creating a means of access to the site of the works", the road ran from the area where Thiess had established its site office and facilities to the area where HM Hire was undertaking its work, and it was "... approximately 14 metres wide and several kilometres in length and was constructed with a camber on the surface and drainage".[8] Mr Spotswood deposed that he saw HM Hire graders of a kind suitable for road construction on the site. Mr Spotswood denied that the equipment supplied to HM Hire was mostly not suitable for use in general civil earthmoving and deposed that the equipment could be used both in mining applications and in civil earthworks on a mine site. No objection was taken to Mr Spotswood's evidence. He was not cross-examined. HM Hire did not adduce any evidence in reply.

[14] As HM Hire submitted, the evidence was that it did not hire any graders from NPE, but Mr Spotswood's evidence about the graders was adduced in support of an inference that HM Hire constructed the road. HM Hire argued that, if it did construct a road, it was not obliged to do so under the subcontract. But it does not follow that the fact that the subcontract did not expressly refer to "roadworks" or any similar term that the work described in more general terms in the subcontract did not comprehend "the construction ... of any works forming, or to form, part of land, including ... roadworks ...". As NPE argued, it could be inferred from Mr Spotswood's evidence that HM Hire constructed the road. It is not likely that it did so unless its subcontract obliged it to carry out that work. Accordingly, the conclusion was open, upon a series of inferences from Mr Spotswood's evidence, that the construction of the road itself formed part of the "work under the Subcontract" as defined in the subcontract: "the work which the Subcontractor is or may be required to execute under the Subcontract and includes variations, remedial work, Constructional Plant, Material, the Subcontract Work and work used in the execution of the work under the Subcontract but not forming part of the Subcontract Work."

[15] Having regard to the oblique and general terms of Mr Kemp's affidavit evidence, and HM Hire's failure to adduce any evidence in reply to Mr Spotswood's very clear evidence, including of his observations on the site, the inferences upon which that conclusion was founded could more confidently be drawn.[9] I am not persuaded that the primary judge erred in finding that HM Hire's work comprehended "works forming ... part of land including ... roadworks" within the meaning of s 10(1)(b) of the Act.

[16] As to whether the construction of drains described in the subcontract amounted to "construction work" it is probably sufficient to observe that Fryberg J's conclusion in Thiess v Warren Brothers Earthmoving Pty Ltd & Anor, that the excavation of a channel through the earth to construct drains was "construction work", was affirmed on appeal.[10] Nonetheless, I will discuss HM Hire's arguments on this topic.

[17] In Schedule 2 of the subcontract, the "Schedule of Prices & Scope of Work", areas, thicknesses, and volumes of "topsoil stripping" were assigned for identified drains. There is also a statement under the heading "s 2.4.3 Dam Construction & Drains" that "[c]ompaction [is] to be carried out to the required standard as stated in the specifications in Schedule 3", but the copy of the subcontract in evidence did not include Schedule 3. Estimated quantities of work in relation to drains referred to "cut", "fill", and "haul". That work formed a substantial part of the works described in the subcontract. According to the calculation by NPE's counsel with reference to the unit prices and estimated quantities for the work, the total cost amounted to more than $600,000.

[18] In relation to the reference to "compaction", Mr Kemp deposed that no compaction specifications were in fact provided by Thiess to HM Hire.[11] Mr Kemp also deposed that whilst the relevant pages of the subcontract referred to drainage works as part of the works, they "... were excised from the contract works ..." by an email from Thiess to Mr Kemp dated 25 March 2011 and that the drainage was for the drainage of areas the subject of the work of clearing and topsoil removal.

[19] HM Hire contended that the drainage works required by its subcontract did not amount to "installations for land drainage". It argued that the requirement in s 10(1)(b) that the relevant work "formed ... part of land" and the ordinary meaning of the word "installations" exclude drainage which was effected merely by cutting or pushing the earth itself; that an element of annexation or addition to the land was required if drainage was to amount to "construction work".

[20] The definition of "installation" which HM Hire quoted from the New Shorter Oxford Dictionary refers to "an apparatus, system, etc that has been installed for service or use". The reference to "system" suggests that the ordinary meaning did not necessarily require the introduction of any new material beyond what was already in situ. The fact that no new "fitting" was to be added to form the drains would preclude them from falling within s 10(1)(c) but that is not a requirement of the installations for land drainage described in s 10(1)(b). Furthermore, the work of constructing the drains apparently involved more than "cut", "fill", and "haul". The subcontract expressly required compaction in relation to both dams and drains. That presumably reflected a requirement for the operational efficiency of the drains. The better view is that the work in constructing the drains described in the subcontract was "the construction ... of any works forming, or to form, part of land, including ... installations for land drainage ...". And if the compaction work was always intended to be done by someone other than HM Hire, then HM Hire's earthmoving work in relation to the drains was within s 10(1)(e) as an "operation that forms an integral part of" the installations for land drainage.

[21] HM Hire also relied upon the evidence that the requirement that it construct drains was omitted from the subcontract. NPE pointed out that the omission occurred after the rental period for its equipment. HM Hire replied that the omission of the drainage work in the email from Thiess to HM Hire of 25 March 2011 operated "ab initio such that the contract is treated as having never contained any provision for drainage work."[12] That the drainage work was originally intended to form part of HM Hire's work is suggested by the express, detailed provisions for it in the subcontract, Mr Kemp's statement in his affidavit that "... such drainage was for the purposes of drainage of the areas the subject of construction of clearing and top soil removal",[13] and the absence from Mr Kemp's evidence of any statement that drainage work was not originally agreed between HM Hire and Thiess to form part of the subcontract work. There was no evidence that the inclusion in HM Hire's subcontract of work for drains was originally a mistake.

[22] I conclude that the work described in the subcontract included a substantial component of "construction work" being "the construction ... of any works forming, or to form, part of land, including ... installations for land drainage...".

Was the adjudication determination outside jurisdiction because the rental agreement between it and NPE was not a "construction contract"?

[23] The issue is whether the rental agreement between NPE and HM Hire was a "construction contract". I approach the issue on the premise that, as I have concluded, the work which HM Hire undertook to carry out under its subcontract with Thiess included a substantial quantity of "construction work" as well as other work.

[24] Reading the definition "construction contract" together with the definition "related goods and services" in s 11(1)(a)(ii) of the Act, the question is whether under the rental agreement NPE undertook to supply plant "for use in connection with the carrying out of construction work". In expressing the question in that way I have preferred the view that the expression in the introductory text of s 11(1) "in relation to construction work" does not introduce as a criterion of a "construction contract" that the goods or services are in fact supplied under the contract.[14] In Thiess v Warren Brothers Earthmoving Pty Ltd & Anor Fryberg J held that "for use in connection with" was not satisfied upon proof only that the plant or materials supplied were in fact used in connection with the carrying out of the construction work; the word "for" was a word of wide denotation which, in the present context, had a purposive meaning; the requirement must be satisfied before the plant or materials are used; and evidence of their use might support an inference as to the purpose which they were intended to be used at the time of the transaction but that evidence could not satisfy the requirement without such an inference.[15] His Honour also held that the relevant contract or arrangement would supply important evidence, but not the only relevant evidence, for the identification of the proposed use of the plant or materials.[16] For the purpose of the case before Fryberg J, his Honour regarded as an adequate test the question whether "... one party undertook to supply the plant with the object or purpose of use in connection with the carrying out of construction work by the other party"; the object or purpose of supply is "...an objective construct to be determined by the court" by reference to what a reasonable person in the position of the parties would conclude as to the object or the purpose of the contract having regard to what its terms provided as to what the party had undertaken to carry out, the surrounding circumstances known to the parties (including the nature of the plant hired), and evidence of the genesis, background, context and market in which the parties were operating.[17]

[25] In this case, as in Thiess v Warren Brothers Earthmoving Pty Ltd & Anor,[18] whilst the rental agreement contained no provision identifying the purpose of the hire, it should be inferred that the parties to it envisaged that it would be used for the purpose of performing the hirer's obligations under its own contract (HM Hire's subcontract, which required the carrying out of substantial quantities of "construction work"). Fryberg J reached that conclusion at least in part because the rental agreement in that case referred to the head contract between Thiess and Warren. Whilst the rental agreement in this case did not refer to the HM Hire subcontract, it did identify the site at which the equipment was to be used as the Burton coal mine, Mr Kemp deposed that his dealings with NPE were "in connection with" the HM Hire subcontract and that HM Hire "... required to dry hire from a third party such as NPE, some further equipment for the purposes of the initial stages of the Contract with Thiess, whilst [HM Hire] was still reconditioning and upgrading some of its own equipment",[19] Mr Spotswood swore that he was aware that the equipment was to be used by HM Hire in the work it was undertaking for Thiess at the Burton coal mine,[20] and on 12 April 2011 HM Hire's accountants and taxation advisors, Kern Group, wrote to NPE's solicitor that NPE's equipment was hired by HM Hire "...to assist with an earthworks contract that HM Hire Pty Ltd has with Theiss [sic] Burton ...".

[26] HM Hire nevertheless contended that it could not be inferred that the equipment was to be used in the then current expansion of the mine because the HM Hire subcontract was made on 22 September 2010 and the rental agreement was made at an earlier date, on 1 September 2010. However, Mr Spotswood deposed that the rental agreement was made on or about 13 September 2010 and, whilst the subcontract formal instrument of agreement records that it was made on 22 September 2010, a term of the subcontract fixed 25 August 2010 as the date for commencement of the subcontract works. It seems that, as commonly occurs, the execution of that subcontract was delayed for some time after an arrangement had been concluded between Thiess and HM Hire. In the event, it does not matter whether the rental agreement or the subcontract was concluded first. The evidence I have summarised puts it beyond doubt that the parties' contemplation, whether subjectively or objectively ascertained, was that NPE's equipment was to be supplied to HM Hire for use by it in carrying out the work under its subcontract with Thiess.

[27] In this case, as was also the case in Thiess Pty Ltd v Warren Brothers Earthmoving Pty Ltd, the hired equipment was to be used by the hirer in carrying out work a substantial quantity of which was "construction work" and some of which was not. The fact that some of the work was not construction work does not preclude a finding that the rental agreement was a "construction contract"; Fryberg J's conclusion that "[a] contract or arrangement is a construction contract if it contains an undertaking of the type specified in the definition of construction contract, notwithstanding that it contains other undertakings or imposes other obligations not within the definition" was affirmed on appeal.[21]

[28] The relevant circumstances include that, on Mr Spotswood's evidence which Mr Kemp did not contradict, the equipment supplied by NPE to HM Hire was suitable for use by HM Hire in constructing roads and drains. The evidence suggests that this construction work was required for the mine expansion project and was included in HM Hire's subcontract and that at least some of it (the access road) was in fact carried out by HM Hire. The construction work was not suggested to be unusual or atypical for this project. In the circumstances, it may be inferred that parties experienced in this industry would have contemplated that HM Hire's fleet of equipment, which NPE's equipment was required to augment, would be used in work which included construction work of the kind which was actually required and carried out on the project. Accordingly, even though the construction work was not expressly identified by the parties as an intended use of NPE's equipment and even though it remained open to HM Hire to decide which equipment in its fleet would be used in which work, the rental agreement should be regarded as a contract under which NPE undertook to supply equipment to HM Hire for use "in connection with" the carrying out of construction work. That conclusion fits within the ordinary meaning of the text of the statutory definitions, notwithstanding some difficulties in ascertaining precisely what was intended by some aspects of them. It is therefore unnecessary to decide whether, as has been held to be the case by the New South Wales Court of Appeal in relation to similar legislation, the relevant provisions of the Act should be given a liberal interpretation.[22]

[29] I note that in Thiess Pty Ltd v Warren Brothers Earthmoving Pty Ltd & Anor[23] there was evidence of pre-contract conversations in which the hirer mentioned that it intended to use the hired equipment to construct work of various kinds, including some work of a kind which was held to be "construction work". There was no similar evidence in this case. My conclusion that the rental agreement was a "construction contract" perhaps implies that the relevant "use" in s 11(1)(a)(ii) may be expressed at a higher level of generality than was necessary for Fryberg J's decision, but that does not seem to produce any particularly surprising consequence in the circumstances of this case.[24]

[30] The rental agreement between NPE and HM Hire was a "construction contract". The primary judge was right to hold that the adjudication was not outside the jurisdiction conferred by the Act.

[32] GOTTERSON JA: I agree with the order proposed by Fraser JA and with the reasons given by his Honour.

[1] See Thiess Pty Ltd v Warren Brothers Earthmoving Pty Ltd & Anor [2012] QCA 276 at [101], citing decisions including Brodyn Pty Ltd v Davenport (2004) 61 NSWLR 421.

[2] [2012] QSC 4 at [8].

[3] [2011] QSC 345.

[4] Thiess Pty Ltd v Warren Brothers Earthmoving Pty Ltd & Anor [2012] QCA 276.

[5] [2012] QCA 276 at [62] - [68].

[6] [2012] QCA 276 at [3], [7], and [95]-[105].

[7] Affidavit of Kemp, 3 October 2011, paras [4] and [6].

[8] Affidavit of Spotswood, 26 October 2011, para [7].

[9] Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 per Kitto J at 308.

[10] [2011] QSC 345 at [13], [20], [28], [29], [79]; [2012] QCA 276 at [2], [6], [30], [50], [71].

[14] See Thiess v Warren Brothers Earthmoving Pty Ltd & Anor [2011] QSC 345 at [70] - [72].

[15] [2011] QSC 345.

[16] [2011] QSC 345 at [74], [76].

[17] [2011] QSC 345 at [68], [76].

[18] [2011] QSC 345 at [57].

[20] Affidavit of Spotswood, para [5].

[21] [2011] QSC 345 at [77]; [2012] QCA 276 at [56].

[22] Edelbrand Pty Ltd v HM Australia Holdings Pty Ltd [2012] NSWCA 31 at [30] (Bathurst CJ, McColl JA and Tobias AJA agreeing), concerning a different feature of an analogous provision in the Building and Construction Industry Security of Payment Act 1999 (NSW); see also Thiess Pty Ltd v Warren Brothers Earthmoving Pty Ltd & Anor [2012] QCA 276 at [62], but contrast Capricorn Quarries Pty Ltd v Inline Communication Construction Pty Ltd [2012] QSC 388 per Jackson J at [35] - [47].

[23] [2011] QSC 345 at [60], [62] - [63].

[24] cf Thiess Pty Ltd v Warren Brothers Earthmoving Pty Ltd & Anor [2011] QSC 345 at [77].