John Holland Pty Limited v Cardno MBK - [2004] NSWSC 258 - NSWSC 2004 case summary — Zoe

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John Holland Pty Limited v Cardno MBK

[2004] NSWSC 258

Supreme Court of NSW|2004-04-20|Before: Einstein J

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Court

Supreme Court of NSW

Decision date

2004-04-20

Before

Einstein J

Source

Original judgment source is linked above.

Judgment (98 paragraphs)

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CITATION : John Holland Pty Limited v Cardno MBK (NSW) Pty Limited & Ors [2004] NSWSC 258 HEARING DATE(S) : 31/03/04 JUDGMENT DATE : 20 April 2004

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JURISDICTION: Equity Division Technology and Construction List JUDGMENT OF : Einstein J DECISION : Jurisdictional error and denial of natural justice shown to have occurred.

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CATCHWORDS : Challenge to determination of adjudicator under the Building and Construction Industry Security of Payment Act 1999 - Statutory scheme dictates that the adjudication response be relevantly tied to the payment schedule [such that the adjudication response cannot include any reasons for withholding payment unless those reasons have already been included in the payment schedule - Section 20 (2B)] - Whether adjudication application should also be relevantly tied to the payment claim [such that the adjudication application cannot include reasons supporting the payment claim unless those reasons had been included in the payment claim] - Scheme of legislation - Adjudicator's powers - Adjudicator does not have the power to consider materials supplied by a claimant in its adjudication application which go outside [ie fall outside the ambit or scope of] the materials which were provided in the payment claim LEGISLATION CITED : Building and Construction Industry Security of Payment Act 1999 Supreme Court Act Abacus v Davenport & Ors [2003] NSWSC 1027 Anisminic Limited v Foreign Compensation Commission [1969] 2 AC 147 Brambles Australia Ltd v Davenport [2004] NSWSC 120 Brodyn Pty Limited t/as Time Cost and Quality (ACN 001 998 830) v Philip Davenport & Ors [2003] NSWSC 1019 Craig v The State of South Australia (1995) 184 CLR 163 CASES CITED : Hill v King (1993) 31 NSWLR 654 Multiplex Constructions Pty Limited v Luikens & Ors [2003] NSWSC 1140 Musico & Ors v Davenport & Ors [2003] NSWSC 977 Newcastle City Council v GIO General Ltd [1997] 191 CLR 85 Quasar Constructions v Demtech Pty Ltd [2004] NSWSC 116 R v Alley; Ex parte New South Wales Plumbers and Gas Fitters Employees' Union (1981) 153 CLR 376 Transgrid v Siemens Ltd [2004] NSWSC 87 John Holland Pty Limited (Plaintiff) PARTIES : Cardno MBK (NSW) Pty Limited (First Defendant) Graeme Robinson (Second Defendant) The Institute of Arbitrators and Mediators Australia (Third Defendant) FILE NUMBER(S) : SC 55002/04 Mr M Christie (Plaintiff) COUNSEL : Mr D Miller (First Defendant) No appearance for Second and Third Defendants Clayton Utz (Plaintiff) SOLICITORS : David Campbell-Williams Construction Lawyer Bradfield Scott (Sydney Agent) (First Defendant) Philips Fox (submitting appearance)

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55002/04 John Holland Pty Limited v Cardno MBK (NSW) Pty Limited & Ors JUDGMENT The proceedings 1 These proceedings concern an adjudication application under the Building and Construction Industry Security of Payment Act 1999 ["the Act"]. Section 20 (2B) of the Act 2 The critical issue which is raised is encapsulated in the following contention by the plaintiff, John Holland Pty Ltd ["John Holland" or "the respondent"] which had entered into an agreement ["the Contract"] with the first defendant, Cardno MBK (NSW) Pty Ltd ["the applicant" or "the defendant"] pursuant to which the latter was to provide design services: · An applicant is entitled to submit a progress claim and a respondent is entitled to reply to the claim by providing a payment schedule. · The payment schedule must indicate why the scheduled amount is less and the reasons for withholding payments. · If an applicant disputes the payment schedule it can apply for an adjudication. · In that adjudication a respondent is expressly prevented from including in the adjudication response any reasons for withholding payment unless those reasons have already been included in the payment schedule provided to the claimant (s 20(2B) of the Act). · Given that prohibition an applicant could not, for reasons of procedural fairness or natural justice, raise for the first time in its adjudication application reasons which had not been included in the payment schedule, as a respondent would not have been able to deal with those reasons in its payment schedule and would thus be unable to respond to them in its adjudication response due to the prohibition in section 20 (2B) of the Act. 3 There is no provision to be found in section 17 which deals with adjudication applications equivalent to section 20 [2B]: as for example by providing that the claimant cannot include in the adjudication application, any reasons for claiming payment unless those reasons have already been included in the payment claim. The defendant's stance before this Court has been that the plaintiff's submissions seek to read such a provision into Section 17, which is said to be an impermissible exercise in terms of statutory construction. 4 Whilst logic and the authorities cited in this judgment would tend to suggest that in order to achieve consistency in the four steps [payment claim, payment schedule, adjudication application, adjudication response]: · the statutory scheme dictates that the adjudication response be relevantly tied to the payment schedule [such that the adjudication response cannot include any reasons for withholding payment unless those reasons have already been included in the payment schedule-section 20 (2B)] · the adjudication application should also be relevantly tied to the payment claim [such that the adjudication application cannot include reasons supporting the payment claim unless those reasons had been included in the payment claim]

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the fact is that the Act does not expressly require any form of reasons for the making of a payment claim to be included in the payment claim. 5 This judgment treats with the legislative scheme where in applying that scheme it becomes necessary to cope with these difficulties. 6 As will appear from what follows, the devil will often lie in the detail: what precisely in a given case, can be said to have been "reasons not already [included] in the payment schedule"? 7 The broader issues which arise are as follows: · whether the adjudication application made by the adjudicator contains submissions which were not duly made in support of the defendant's payment claim for the purposes of 17(3)(h) and 22(2)(c) of the Act; · whether the adjudicator relied on submissions of the defendant in the adjudication application which were not duly made in support of the payment claim contrary to section 22(2)(c) of the Act; · whether the adjudicator committed a jurisdictional error or otherwise committed an error justifying an order in the nature of certiorari quashing the determination; · whether the plaintiff was denied natural justice in the adjudication. The stance taken by the defendant 8 The defendant: · denies that it made submissions in the adjudication application on new claims which were not raised in the payment claim; · asserts that the matters alleged to be new matters in the defendant's adjudication submissions were in fact claims included in the payment claim and/or were further submissions made in response to the plaintiff's payment schedule and says that no claims were made in the adjudication submission that had not been incorporated in the payment claim; · in the alternative, asserts that it was entitled to include in its adjudication application any such further submissions relevant to the adjudication application as the first defendant chooses to include in accordance with section 17(3)(h) of the Act. The relevant provisions of the Act 9 The Act includes: · Section 13 which relevantly provides:

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(c) must state that it is made under the Act. 18 As will be seen from what follows below, my own view is that one commences with identifying what the statutory scheme puts forward as constituting a payment claim. A payment claim clearly is a claim to an entitlement to be paid a progress payment. The whole notion of a payment claim, it seems to me, requires as an essential condition thereof that the document by which the payment claim is put forward, include, whether in shorthand or in longhand and whether by one means or another, sufficient information to identify what the claim is. 19 There is a powerful argument that this effectively means that the statutory regime requires that the claim to be valid must be comprehensible by the respondent. The argument is supported by reference to the whole of the statutory scheme and most particularly by reference to the following considerations: · section 22(2)(c) clearly suggests (as does the whole of the environment being dealt with) [cf McDougall J in Multiplex supra at 76] that there will have been relevant documentation provided by the claimant in support of its claim; · the requirement stipulated for in section 14 (3) for the respondent to indicate why the scheduled amount is less than the claimed amount [and if it is less because the respondent is withholding payment for any reason, then to give the respondents reasons for withholding payment], can only be justified by the proposition that the payment claim will identify in a fashion comprehensible to a respondent, just what the claim is; · the statutory scheme is for an application [called an adjudication application]. The application must "relate to the payment claim" [section 22(2)(c)]. The application is for the adjudication of no more and no less than the payment claim as contradicted/traversed by the payment schedule. 20 However, as earlier observed, there are no words within section 13 (1) which require the claimant to do otherwise than: · to identify the subject construction work to which the progress payment relates [subsection (1) (a)]; · to indicate the amount of the progress payment that the claimant claims to be due [subsection (1) (b)]; · to state that the claim is made under the Act. [subsection (1) (c)]. 21 Ultimately it seems to me that the accepted principles of statutory construction simply do not permit the Court to take the further step of holding that in order to be valid, a payment claim must be comprehensible by the respondent in terms of its supporting materials [cf especially the abovementioned citation from McHugh J in Newcastle City Council v GIO General]. Approaching the question in terms of section 20 (2B) 22 The primary touchstone it seems to me, is section 20 (2B). Whilst a claimant which provides the most minimal amount of information in its payment claim may even so, be seen to technically comply with section 13, such a claimant will expose itself to an abortive adjudication determination if it be that: · the respondent is simply unable to discern from the content of the payment claim, sufficient detail of that claim to be in a position to meaningfully verify or reject the claim: hence not then being in a position to do otherwise than to reject the whole of the claim on the basis of its inability to verify any part of the claim; · the claimant then elects to include the missing detail in the adjudication application with the inexorable consequence that the respondent is barred by section 20 (2B) from dealing with that detail/matter in its adjudication response; · the adjudicator relies in determining the adjudication application upon the detail supportive of the payment claim which first emerged as part of the adjudication application 23 For those reasons whilst it is not permissible to construe section 13 as providing that in order to be a valid payment claim, such a claim must do more than satisfy the requirements stipulated for by subsection 2 (a), (b) and (c), the consequence to a claimant which does not include sufficient detail of that claim to be in a position to permit the respondent to meaningfully verify or reject the claim, may indeed be to abort any determination. Approaching the question in terms of the adjudicator's power 24 The matter may also be analysed by reference to the power of an adjudicator. An adjudicator does not have the power to consider materials supplied by a claimant in its adjudication application which go outside [ie fall outside the ambit or scope of] the materials which were provided in the payment claim, for the reason that the adjudicator only has power to make a determination based upon: · The payment claim [together with the claimant's submissions (and relevant documentation) in the adjudication application, which submissions have to have been "duly made by the claimant in support of the (payment) claim": see section 22 (2) (c)]. · The payment schedule (if any) [together with the respondents submissions (and relevant documentation) in the adjudication response, which submissions have to have been "duly made by the respondent in support of the (payment) schedule": see section 22 (2) (d)]. · The provisions of the Act: see section 22 (2) (a). · The provisions of the construction contract from which the application arose: see section 22 (2) (b). · The results of any inspection carried out by the adjudicator of any matter to which the claim relates: see section 22 (2) (e). 25 The emphasis upon submissions "duly made" makes clear that the scheme really addresses the issues which have been thrown up once the payment claim has been served and the responsive payment schedule then served. The steps which follow generally concern the materials to be exchanged and most particularly furnished to the adjudicator. The adjudication application will relate to a particular payment claim and payment schedule [section 17 (3) (f)]. The central significance of the entitlement of the applicant to include submissions as part of its adjudication application is because those submissions have to be supportive of the payment claim. Those submissions cannot constitute a payment claim or part of it. The central significance of the entitlement of the respondent to include submissions as part of its adjudication response is because those submissions have to be supportive of the payment schedule. Those submissions cannot constitute a payment schedule or part of it. Section 21 (4) - additional submissions 26 Whether or not any of these problems may be addressed by the adjudicator requesting further written submissions from either party may become the subject of curial examination on another occasion. However it would seem unlikely that the legislature would have intended the provisions of section 21 (4) (a) and (b) to permit a radical departure from the statutory scheme described above. Rather it seems likely that these sub-sections are to be read as permitting no more than additional submissions which clarify earlier submissions: those earlier submissions being constrained in the manner above described. Turning from the general to the particular 27 If one turns from the general to the particular, the circumstances in which a claimant for the first time treats in the adjudication application with parameters which were not telegraphed in the payment claim may occur across a number of different situations as for example: · where the claimant for the first time advances a new contractual basis for a payment claim in the adjudication application; · where the claimant for the first time seeks to deploy in the adjudication application, supporting documentation of one type or another. 28 These situations may have differing results. New contractual basis 29 The first situation seems to me to generally be quite plain. The abortive adjudication determination likely to result from the advancing [, within the adjudication application] of a new contractual basis for a payment claim, has already been explained.

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The facts 32 The relevant facts fall into small compass although the volume of relevant materials [six lever arch folders having accompanied the adjudication application], may be considered somewhat daunting: · on or about 3 July 2003 the plaintiff entered into the Contract with the first defendant pursuant to which the defendant was to provide design services for an amount of $390,000 plus GST; · the Contract is comprised in a written document titled Parramatta Rail Link Project GC-3 Works Contract - Civil Works Boundary Street to Rail Enclosure Structure O'Brien Street - Agreement for Engagement of Consultant - Cardno MBK (NSW) Pty Ltd - July 2003; · on 10 November 2003 the defendant issued a purported payment claim under section 13 of the Act seeking payment of an amount of $1,281,703 plus GST; · on 24 November 2003 the plaintiff responded to the payment claim by issuing a payment schedule under section 14 of the Act disputing that any amount was payable to the defendant; · on 9 December 2003 the defendant served an adjudication application dated 8 December 2003 under section 17 of the Act on the plaintiff; · on 11 December 2003 the third defendant issued a letter nominating the second defendant as the adjudicator; · on 16 December 2003 the plaintiff served its adjudication response dated 16 December 2003 under section 20 of the Act on the first and second defendants; · the plaintiff informed the second defendant in the adjudication response that the plaintiff was precluded by section 20(2B) of the Act from including reasons for withholding payment which were not included in the payment schedule and that it would be a jurisdictional error if the second defendant relied on the new matters raised by the first defendant in the adjudication application; · following receipt of the adjudication application and the adjudication response, the second defendant did not request further written submissions from the plaintiff in relation to the matter particularised in paragraph 8 above, as he was entitled to do pursuant to section 21(4) of the Act; · the second defendant made his adjudication determination on 2 January 2004 and amended it on 2 January 2004 and 9 January 2004. Challenges numbers 1, 2, and 4 - ultimately pressed at the hearing. [challenge 3 was abandoned] 33 It is convenient to commence with challenge 4 as it seems to me to be the clearest case in which to consider and apply the above described statutory construction analysis. Detail of Challenge 4 34 This challenge is addressed by the plaintiff as follows:

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[I interpolate to note the terms of Clause 3.15: 3.15 LIAISON WITH REVIEWERS AND CHECKERS The work of the Consultant may be subject to review or checking by John Holland and/or the Principal or parties authorised by either. The Consultant shall provide all copies, documentation, assistance, explanations, liaison and the like as may be reasonably necessary to enable such review or checking to proceed expeditiously. If the Consultant receives any comments or the like from other than John Holland, he shall promptly inform John Holland in writing with particulars of the comments and their standing, potential impact and any other relevant matters. Only John Holland is entitled to ask for alterations, alternatives or the like and the Consultant shall not agree to or act upon requests of others without the written approval of John Holland. "] 39 Ultimately the adjudication determination accepted the alternative basis relying upon clause 3.14. 40 In those circumstances the respondent was clearly prevented by section 20 (2B) from including in its adjudication response a reason for withholding payment, which reason had not already been included in the payment schedule. But it needed in order to so respond, to treat with clause 3.14 and to invoke in particular the last sentence of clause 3.15. It could not do so. It did not do so. The Adjudicator nonetheless expressly determined the matter by upholding by the clause 3.14 proposition which had first come forward in the adjudication application. 41 The adjudication determination miscarried in this regard. This was jurisdictional error. It was also a denial of natural justice. The adjudicator took into account a new contractual basis for a claim which basis had not been put forward as part of the payment claim. The respondent was not invited to address submission in relation to the new contractual basis. Detail of challenge 1 pressed by the plaintiff - Progress Claim 39 42 This challenge, described as a timesheet related challenge, is addressed by the plaintiff as follows:

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(ii) clause 3 of Annexure B of the Contract. · John Holland did not mount any defence with respect to these matters in its payment schedule (pursuant to s.14). · The same matters were raised by Cardno MBK for the first time in its adjudication application. 47 Whilst the matter is certainly not clear beyond doubt my own view is that in this particular state of affairs it was impermissible for the claimant to raise these matters for the first time in the adjudication application. Had the respondent sought to treat with these issues in its adjudication response, it would have been in breach of section 20 (2B). 48 In result the adjudication miscarried - for the same reasons as have been given in relation to challenge 4. It was also a denial of natural justice - for the same reasons as have been given in relation to challenge 4. Challenge 2 49 Challenge 2 concerns a situation in which no detail whatever of how the claimed amount was comprised or made up was included in the payment claim. Ultimately the adjudicator treated with this as a claim for $59,370.00 awarding $54,019.90. However there was simply no reference in the payment claim to a claim for $59,370.00 [unless in some fashion, not apparent to me, this figure should be regarded as part of some global claim appearing in the payment claim]. 50 The matter is curious for the reason that somehow [again not explained to the Court] the respondent was able in the payment schedule [PX 116] to identify the payment claim number and the amount claimed. 51 This challenge, also a timesheet issue, is addressed by the plaintiff as follows: · the adjudicator determined that an amount of $54,019.90 was payable to Cardno MBK in relation to progress claim no. 8 [see PX 282]. John Holland challenges this award on the basis that it was either a jurisdictional error for the adjudicator to rely on the matters the subject of the adjudication application, which had not previously been raised in Cardno MBK's payment claim; · in the alternative, John Holland was denied natural justice by not having an opportunity to respond to this claim in its Payment Schedule and therefore was not able to present a defence to this claim in its adjudication response, being expressly barred from doing so pursuant to s.20(2B) of the Act; · Cardno MBK's payment claim did not include any claim in respect of this amount. Cardno MBK did not provide any details whatsoever in the payment claim of how the amount was comprised or how the claim was being made; · John Holland rejected this claim in its Payment Schedule [see PX 116] on the basis that no time sheets were provided in support of the claim in accordance with item 1.3 of Annexure C of the Contract; [I interpolate to note that clearly John Holland must have believed that this was a claim for Construction Stage Services will out how it came to that belief is not apparent] · in the adjudication application Cardno MBK, for the first time, set out various details in relation to this claim [see PX 156 to 161]. In particular, Cardno MBK included various time sheets which were said to support the claim. John Holland asserts that these time sheets were not approved by John Holland site personnel as required by item 1.3 of Annexure C of the Contract [see PX 35]. Cardno MBK alleged in its adjudication application that the works were performed pursuant to various directions by John Holland. Because it was introduced for the first time in Cardno MBK's adjudication application, John Holland asserts that it was denied the opportunity to make any submissions that the claimed extra work had not been the subject of directions by John Holland: · John Holland rejected this claim in its adjudication response [see PX 270.146] on the basis that Cardno MBK had not provided any substantiation of this claim prior to the adjudication application; · Ultimately, the adjudicator determined that an amount of $54,019.90 [see PX 282] was payable to Cardno MBK in respect of this claim. The adjudicator noted that the time sheets supporting the claim may not have been approved by John Holland, contrary to the requirements of item 1.3 of Annexure C of the Contract. However, the adjudicator found that he inspected the works and that the time sheets generally supported the labour hours claimed. The adjudicator determined this claim on the basis of time sheets which had never formed any part of the payment claim. 52 The burden of the plaintiff submission is that in these circumstances: