New South Wales Land and Housing v Clarendon Homes

Supreme Court of NSW|2012-03-20|Before: McDougall J

Judgment - Ex tempore (revised 23 March 2012) 1HIS HONOUR: The plaintiff (the Corporation) seeks an order quashing a determination made by the second defendant (the adjudicator) on 13 February 2012. The adjudication determination was made pursuant to the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act).

The contract 2The Corporation and the first defendant (Clarendon) entered into a written agreement on about 9 December 2009 (the contract). Under that contract, Clarendon agreed to demolish certain existing dwellings on a property at Fairfield East and to construct a number of home unit apartments, detached dwellings and other improvements. There is no doubt that the contract was one whereby Clarendon undertook to perform construction work, and no doubt also to supply related goods and services, for the purposes of the Act.

Inground latent conditions 6The first item in dispute related to "inground latent conditions". That was the subject of a provisional sum allowance in the contract. Clarendon said that it was required to remove certain asbestos, that its removal was necessary, that it was a latent condition, and thus that it was entitled to a payment out against the provisional sum allowance. 7The issue before the adjudicator appears to have been whether or not this was a latent condition covered by the provisional sum allowance. The adjudicator dealt with this argument relatively briefly. He said at [133] that he was "in no doubt that this work is covered by the relevant provisional sum item..." in the contract. 8He expanded on that in the following paragraph, [134]. He said that the superintendent's representative had agreed, in an assessment made by him, that Clarendon was entitled to be paid for asbestos removal on the "latent condition" basis. That followed, the adjudicator said, because the superintendent had assessed the claim in a particular way, to which he referred. He noted that the Corporation had paid the claim so assessed. 9Mr Christie of Senior Counsel, who appeared with Ms Culkoff of Counsel for the Corporation, submitted that there was a want of reasoning shown. He relied on a number of decisions on this point, including my own decision in Bauen Constructions v Westwood Interiors [2010] NSWSC 1359 at [22] to [24] and again at [40] to [42]. Since it appeared to be accepted that I had stated the relevant approach correctly in those paragraphs, and the debate before me proceeded on that basis, I shall relieve myself of the necessity of restating what I there said by setting out those paragraphs in these reasons: [22] Adjudicators are required, by s 22(3)(b) of the Act, to give the reasons for their determination unless the parties have dispensed them from doing so. That engages the problem of sufficiency of reasons. In the context of the courts, that question was considered by Hayne J (with whom McHugh and Gummow JJ agreed) in Waterways Authority v Fitzgibbons (2005) 79 ALJR 1816. His Honour said at [129] that reference to the sufficiency of reasons may give rise to "some doubt about what principles are engaged". At [130], his Honour explained one of those principles as follows: ... because the primary judge was bound to state the reasons for arriving at the decision reached, the reasons actually stated are to be understood as recording the steps that were in fact taken in arriving at that result. [23] Although adjudicators work under significantly greater time pressures than judges, and their reasons should not be scrutinised with the attention to detail to which the reasons of trial judges and intermediate appellate courts are subjected in ultimate courts of appeal, nonetheless the reasons must indicate why it was that the adjudicator arrived at the determination given in accordance with s 22(1). Just as there is with judges, so too with adjudicators there is a presumption that the stated reasons are all of the reasons for coming to the conclusion expressed. [24] Of concern in Waterways Authority v Fitzgibbons was the primary judge's acceptance of the evidence of one medical practitioner over that of others. It appears from what Hayne J said at [131] that the trial judge concluded that the evidence of a particular practitioner should be accepted and preferred "but disclosed no reasoning supporting that conclusion". As his Honour said at the end of the same paragraph, "[t]he absence of explanation for, and reasoning and support of, the conclusion expressed ... reveals that the process of fact finding miscarried". ... [40] In this case, para 11 of the determination gives no intellectual justification for the decision that was made. It does not involve any process of consideration or reasoning; it is, in my view, an abdication of the obligation to reason. As Mr Christie of Senior Counsel (who appeared with Mr Shipway of counsel for Bauen) submitted, if para 11 were a sufficient statement of reasons, adjudicators could deal with applications very quickly and their determinations would be very short. Whilst ordinarily one should be wary of "floodgates" arguments, I think that there is substance in that submission. I repeat that it is not appropriate to expect the detail of reasoning from adjudicators that litigants rightly expect from judges of this Court, from judges of equivalent courts, and from judges of intermediate and ultimate appellate courts. But the parties to an adjudication application are still entitled to see some intellectual process that leads to the conclusion, particularly where, in many cases, very substantial sums of money are involved. [41] In those circumstances, it seems to me, this is again a case of jurisdictional error, because on the face of the reasons, and by application of what was said in Halkat, the adjudicator did not perform his statutory function; and of denial of natural justice. [42] I should note that Halkat was a decision given when the grounds of review were understood to be as stated in Brodyn Pty Limited v Davenport (2004) 61 NSWLR 421. The position is now somewhat different, having regard to the decision of the Court of Appeal in Chase Oyster Bar v Hamo Industries [2010] NSWCA 190. The changes that flow from the decision in Chase are focused more on the juristic basis on which, and the way in which, the Court grants relief than on the substance of the bases upon which relief is granted. 10As I noted, there must be some statement of an intellectual justification for the decision that was made: some process of reasoning leading to the conclusion stated by the adjudicator. 11In my view, the adjudicator did display a process of reasoning, involving an intellectual exercise, in the paragraphs of the determination to which I have referred. He took it that the superintendent had already looked at the question of whether or not the claim was for a relevant latent condition, and concluded that he had. The adjudicator took it further: that the Corporation had accepted that conclusion, because it had paid for the work in question. Thus, he reasoned, the matter was not properly in dispute before him and he need do no more than rest on what the superintendent had to say and, in the adjudicator's view, the Corporation had accepted. 12I express no view as to whether this process of reasoning was correct or not. I am not concerned with assessing the merits of reasons given, in the sense that I am not required, as if on some form of appeal, to consider whether the adjudicator was right or wrong in the conclusion to which he came. The question is whether he gave a process of reasoning that justified his conclusion that Clarendon had demonstrated an entitlement to be paid on the basis that it claimed. He concluded that it had. He gave reasons for this. In my view, those reasons are sufficient to discharge the obligation to which I referred in Bauen Constructions. 13It follows that this ground of complaint is not made out.

Balcony changes 14The next disputed item relates to a variation for "balcony changes". It appears from what the adjudicator said at [141] to [146] that there was a dispute as to whether these changes were a variation for which Clarendon was entitled to be paid. He noted that the Corporation had raised various grounds of dispute, some of which at least did not appear to have been shared by the superintendent previously appointed. I interpose that the superintendent at the time relevant to assessment of the particular payment claim which is the subject of the adjudication application appears to have been different to the superintendent who had made earlier assessments. Whether the change in superintendent has some bearing on the resurfacing of disputes that appear to have been, if not relevant, then at least accepted for the time being in respect of earlier claims, is not a matter that it is necessary to investigate. 15The passage of the adjudicator's reasoning that is attacked is at [147]. In dealing with the question of whether Clarendon had established a contractual entitlement to the variation, the adjudicator said that the previous superintendent's representative had accepted that this was an area covered by a variation. He said that he accepted the assessment in that regard. I set out that paragraph: [147] The Respondent said that the Claimant had not met "Contractual conditions precedent". Clearly that did not prevent the SR from accepting that the Claimant had an entitlement to payment by way of a variation for Provisional Sum work. I accept the assessment of the SR in that regard. In any case, in my view, meeting Contractual conditions is not necessarily a prerequisite for establishing an entitlement to payment under the Act. 16Mr Christie attacked the first three sentences of [147] by noting that the adjudicator had given no reason for accepting the superintendent's representative's assessment. However, in my view it is not legitimate to read the first three sentences of [147] divorced from the fourth. In that fourth sentence the adjudicator appears to have reasoned, in addition to what he had said, that it was not necessary, for an entitlement to payment to be made out pursuant to the Act, that some contractual condition precedent be satisfied. 17There is no doubt that in principle it is correct to say that "meeting contractual conditions is not necessarily a prerequisite for establishing an entitlement to payment under the Act." Hodgson JA made that point in Plaza West Pty Ltd v Simon's Earthworks (NSW) Pty Ltd [2008] NSWCA 279 at [54]. The fact that the adjudicator did not give any reference for his statement of the relevant principle does not seem to me to matter. It is sufficient that a correct principle be stated and, if it is relevant, that it be acted on. 18The adjudicator's reasons are certainly sparse. However, reading them together, I think what he was saying was, first, that the attitude taken by the superintendent's representative was correct; and, second, that in any event, even if it were not correct, the entitlement to payment was not dependent on satisfying a contractual condition precedent. In saying that, in my view, the adjudicator gave sufficient reasons for justifying his conclusion that the entitlement or, rather, the question of entitlement, had been made good. 19It is important to note why it was that the superintendent's representative had stated the conclusion on which the adjudicator relied. The relevant assessment was in evidence. It stated that the allowance was made "pursuant to clause 3 of the general conditions of contract". Clause 3 of the general conditions of contract provides that a provisional sum included in the contract is not payable unless the work to which it relates is carried out or supplied pursuant to a direction, in which case the work is to be priced and the difference taken into account. 20It follows, from the form of the superintendent's representative's certification, either that there had been a direction of the kind to which general condition 3 applies or that the adjustment note itself constituted such a direction. 21Thus, it seems to me, when one reads the relevant paragraph of the determination in conjunction with the particular determination to which the adjudicator made reference, the reasoning process is amplified. 22It is important to note that the principal purpose of requiring adjudicators to give reasons is to enable the parties to understand the process of reasoning by which the dispute between them has been considered and resolved. The parties, of course, should be taken to have in mind relevant matters, such as (in this case) the assessment of the superintendent's representative on which reliance was placed. It does not seem to me to be necessary, for the purposes of an adjudication determination, for such matters to be set out in full in the determination itself. 23It follows, in my view, that this aspect of the complaint in relation to the balcony changes has not been made good. 24Mr Christie also attacked, as showing no process of reasoning at all, what the adjudicator said at [149]. He there recorded that he had read additional submissions in the adjudication response contained at pp 35 to 43. He said that they related to "submissions on directions and drawings which do not in my opinion advance the [Corporation's] case." 25That is certainly a somewhat Delphic pronouncement. However, if I am correct in my understanding of the reasoning process set out at [147], it follows that because the adjudicator had concluded that the contractual pre-requisite was made good, the additional submissions setting out further material did not negate that conclusion. In this, I think, he was correct. If it were correct to regard what the superintendent's representative had done as either acknowledging the existence of a direction for the purposes of general condition 3 or, alternatively, as constituting such a direction, then the fact that there was no direction in the "submissions on directions and drawings" could not undo that conclusion. 26Equally, if it was correct to say that there was no necessary requirement for the contractual pre-condition to be established before an entitlement to payment was made good, it would follow once more that "submissions on directions and drawings" directed to showing that there was no satisfaction of the contractual pre-condition would not alter the matter. 27I do not think that there is error in this aspect of the adjudicator's reasons sufficient to entitle the Court to intervene.

Additional PC requirements 28The next disputed item relates to "additional practical completion requirements". Clarendon's claim was that the requirements for practical completion had been expanded by direction, and that it incurred significantly greater costs in complying with those than it would have done otherwise. In substance, the adjudicator agreed. 29There were two complaints. The first dealt with the way that the adjudicator treated the competing submissions on the quantum of the claim. The second dealt with the fact that he overlooked a concession by Clarendon, reducing its claim by approximately $2,000. 30The adjudicator first of all dealt with the question of whether there was additional or extra expense incurred. He concluded at [159] that this had happened, and that Clarendon was entitled to be paid. He then moved to the question of "how much?" He dealt with that at [160] to [162]. I set out those paragraphs: [160] The Respondent says that a realistic assessment of the Claimant's entitlement is "2 hours at $105 (Ex GST) inclusive of overheads and profits being $210 (Ex GST)". I do not accept this to be a realistic assessment in the alternative to the amount the Claimant seeks in the Payment Claim. [161] I am satisfied that the Claimant's assessment of its additional cost is more reasonable than the Respondent's. I accept that handover has been carried out according to the revised Completion Guidelines so that the Claimant has done as directed and completed the revised, more complex procedure as required. [162] I am satisfied that, for the purpose of an interim payment under the Act, the Claimant has established its entitlement to be paid the amount claimed: $10,361.32. 31It is necessary to pay some attention to the competing statements of position in the payment claim, payment schedule, adjudication application and adjudication response. In substance, what the Corporation said was that many of the items claimed could be valued at "nil" and in the alternative, that an allowance of two hours inclusive of overhead and profits at the stated rate should be made. 32Clarendon had set out a detailed summary of its claim. That summary itemised the amounts that were claimed and offered times and prices for the work involved in them. It was a detailed analysis of the claim and of the reasons why the amounts claimed were justified. The attitude, or approach, taken by the Corporation did not join issue with that detail. 33In those circumstances, it was for the adjudicator to decide whether the work that was itemised and priced in that claim was related to the additional completion requirements. He concluded that it was. He was then required to consider which of the assessments was appropriate or, indeed, whether there should be some intermediate assessment. He rejected the assessment made by the Corporation on the basis that it was obviously insufficient for the purposes of the work that had been described. He then turned to the assessment made by Clarendon and decided that it was "more reasonable" than the Corporation's assessment. I repeat, in doing this he was given some detailed description of the items of work involved and of the way in which their costing was derived. 34In my view, it was open to the adjudicator to proceed in this way and to apply his expertise to a decision on the competing positions, which he did. 35The second complaint relates to the fact that, in the adjudication application, Clarendon reduced its claim, as I have said, by about $2,000 to $8,155. The adjudicator appears to have overlooked that, because he determined that Clarendon should have the full amount claimed in the payment claim: $10,361.32. 36In my view, that is not an error of a kind that should be taken to invalidate the whole determination. It seems to me to be an error arising from an accidental slip or omission for the purposes of s 22(5) of the Act. I set out that subsection: 22 Adjudicator's determination (5) If the adjudicator's determination contains: (a)a clerical mistake, or (b) an error arising from an accidental slip or omission, or (c) a material miscalculation of figures or a material mistake in the description of any person, thing or matter referred to in the determination, or (d) a defect of form, the adjudicator may, on the adjudicator's own initiative or on the application of the claimant or the respondent, correct the determination. 37I have no doubt that if the error had been drawn to the adjudicator's attention, it would have been open to him to correct the determination pursuant to s 22(5). 38Mr Christie submitted that the adjudicator had denied his client natural justice, because it awarded Clarendon more than the amount that ultimately it claimed. Whether or not that is so in the abstract need not be decided. In circumstances where there was remedy available and where neither party (in particular the corporation as the aggrieved party) took the matter up with the adjudicator, it does not seem to me that there is any relevant denial of procedural fairness. That is because there remained, and, for that matter, still remains, an avenue for correction of the mistake.

Nexion door locks 39The next item relates to "Nexion door locks". Apparently, there was a change from Lockwood locks, as specified, to Nexion locks. The Corporation raised a number of reasons in answer to this claim. Of the five reasons identified, the adjudicator dealt specifically with three. As to the others, he said at [168] that the corporation: "relies on a number of other reasons but I am not persuaded by any of these that [Clarendon] is not entitled to be paid for the work it did, the cost incurred." 40Mr Christie submitted that this again involved an abdication of reasoning. 41In summary, the reasons raised by the Corporation were: (1) there was insufficient detail to enable it to identify and deal with the variation; (2) there were no contractual grounds for the variation; (3) there were contractual conditions precedent which were not satisfied: (4) the risk of the variation lay with Clarendon: and (5) as to the amount allowable. 42The adjudicator dealt with the first, second and fifth of those grounds. He decided in substance that there was enough detail to enable the Corporation to deal with the variation, and that there was a contractual basis for Clarendon to be entitled to payment. He dealt with the question of costing in a way that is not the subject of present complaint. 43Thus, the grounds that were not expressly dealt with were "condition precedent" and "risk with Clarendon". When one looks at the way the grounds are expressed in the payment schedule and adjudication response, they are really alternative statements, or are re-statements, of the second ground, relating to absence of contractual justification. Since the adjudicator dealt with that adversely to the Corporation (and in a way which is not the subject of present complaint), it necessarily follows, in my view, that the two that he did not deal with were, in effect, disposed of by what he had said in relation to the ground, as to contractual justification, with which he did deal. 44Thus, although again the reasoning could have been more fully stated, in my view there is no relevant abdication of function.

Liquidated damages 45The final complaint relates to liquidated damages. The Corporation asserted that it was entitled to set off against any amount payable to it by Clarendon, an amount of more than $75,000, in respect of liquidated damages. 46Clarendon asserted that the date for practical completion should be extended by approximately 43 weeks. Of that period of 43 weeks, about 20.9 weeks appear to have been substantially agreed. The balance, of 22.1 weeks, remains in dispute. 47Clarendon had made a claim for delay costs. That, too, depended on establishing what was the date for practical completion. To the extent that the parties were in agreement (as to the agreement of 20.9 weeks) there was no dispute. But until the dispute as to the remaining 22.1 weeks was resolved, the full entitlement to delay costs (and, conversely, the entitlement or final entitlement to liquidated damages) could not be determined. Thus, Clarendon withdrew its claim for delay costs. 48It is clear that the matter was put before the adjudicator in the payment claim and payment schedule as involving both a relatively uncontroversial period of delay and a still controversial period of delay. It is clear that, although the entitlement in respect of the controversial period of time was not resolved, he was not being asked to deal with it in the context of the claim for delay costs. 49The Corporation complains that he was required to deal with it in the context of its claim for liquidated damages to be offset. However, the adjudicator dealt with that on a different basis. At [182] to [185], he appears to have reasoned that before liquidated damaged could be set off against the progress claims in question, it was necessary for the superintendent's representative to have certified the amount of the liquidated damages in respect of the particular payment claim (or contractual progress claim). That followed, it appears, from cl 37.2, as the adjudicator understood it. 50The adjudicator reasoned that, since in the particular progress certificate that was the foundation for the payment schedule that was the subject of the dispute before him, there had been no certification of liquidated damages, there was no contractual entitlement to set them off. Whether or not that reasoning is correct is irrelevant. If it were a matter before the adjudicator, then it was a sufficient basis for disposing of the claim to set off the $75,000 in question. 51Mr Christie complained that this matter had not been raised before the adjudicator. I do not agree. The relevant contractual requirements had been clearly raised in the payment claim and payment schedule. Submissions had been addressed to this aspect of the dispute, in particular by reference to cl 37.2, in the adjudication response. They were the very arguments with which the adjudicator dealt in the paragraph of the determination to which I have referred. 52On that analysis, it seems to me that the adjudicator dealt with the claim to set off liquidated damages in a way that was open to him and that was not reviewably incorrect. 53However, he did not determine any question of the period to which liquidated damages might apply. He noted at [178] that he had not been asked to do so. I set out that paragraph: [178] The Claimant adds: "The duration of the period over which the [LDs] might apply is the subject of dispute, as is the applicable rate". In this regard, I accept that there are currently unresolved disputes relating to delay which, although included in the Payment Claim and responded to in the Payment Schedule, I have not been asked to determine. 54Having then reasoned in the manner that I have summarised, the adjudicator returned to this topic of "currently unresolved disputes" at [186]. I set out that paragraph. [186]I have read the Respondent's submissions relating to the issue of there being ongoing disputes over delay and LD related issues. It may well be true that the Respondent has an entitlement to LDs however, until the disputes in relation to delay/time/EOT issues are resolved, it is not possible for me or anybody else to satisfy him or herself as to the correct date of PC. 55Mr Christie submitted that the adjudicator erred in saying that he had not been asked to determine currently unresolved disputes relating to delay. Thus, he submitted, the adjudicator had failed entirely to deal with one of the issues raised by the Corporation, and thus had denied it natural justice. 56I suspect that the adjudicator may have been somewhat confused by the manner in which the dispute was both raised and reserved. Clarendon had taken the position that, since it was not pressing but rather was reserving its claim for delay costs, it was not necessary for the adjudicator to deal with the question of the unresolved 22.1 weeks. 57The Corporation appears to have been taking the position that it was necessary for the adjudicator to deal with this, at least to the extent that he needed to do so to determine its entitlement to liquidated damages. 58However, the adjudicator dealt with the entitlement to liquidated damages in a way that did not require him to consider the currently unresolved disputes. Because he decided that the requirements of cl 37.2 had not been satisfied, he held that the Corporation was not entitled to any amount of liquidated damages by way of offset. 59On that basis, to the extent that the adjudicator failed to carry out his functions in relation to the currently unresolved disputes, and thus denied the Corporation natural justice, there was no material impact on the outcome because, even if he had resolved it in a way that suggested there was some entitlement, nonetheless his view on cl 37.2 and certification would have prevailed. 60For those reasons I think that this complaint has not been made good.

Conclusion and orders 61Each of the complaints made fails. The amended summons should be dismissed with costs and I so order. The exhibits are to be handed back. The money paid into Court by the plaintiff should be paid out forthwith to the first defendant.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 11 April 2012

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