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[2024] VSC 361
Supreme Court of Victoria
2024-06-25
Stynes J
Original judgment source is linked above.
ADMINISTRATIVE LAW - Judicial review - Review of adjudication determination made under the Building and Construction Industry Security of Payment Act 2002 (Vic) - Whether adjudicator erred by taking into account an excluded amount within the meaning of s 10B of the Building and Construction Industry Security of Payment Act 2002 (Vic) in determining the adjudication application - Whether rectification costs for allegedly defective works are a debt due and payable under the terms of the construction contract or a claim for damages within the ambit of s 10B of the Building and Construction Industry Security of Payment Act 2002 (Vic) - Whether payment schedule constitutes a demand for payment under the construction contract - Finding rectification costs an excluded amount - Relief - Severance and partial remitter - of the (Vic) - Adjudication determination quashed only to the extent it took into account an excluded amount - Adjudication application remitted to the adjudicator for the purpose of determining the adjudicated amount in accordance with the law - , considered - , considered - (No 2) , distinguished - , applied - , applied - [2010] VSC 255; 30 VR 141, applied - , applied - , distinguished.
(a) on 28 September 2023, Hanson delivered and poured approximately 60m3 of concrete which had an incorrect cement to slag ratio into the foundation of wind turbine generator B44 ('WTG B44 foundation');[2]
(b) Hanson was liable to Decmil for Decmil's costs of rectifying the WTG B44 foundation in the sum of $1,087,910.24; and
(c) the WTG B44 foundation rectification costs were to be valued under the Subcontract and set-off against the Payment Claim.
(a) Ground 1: the Adjudicator erred because he took into account an "excluded amount" within the meaning of s 10B of the SOP Act (specifically the WTG B44 foundation rectification costs) when determining the amount of the progress payment to be paid by Decmil to Hanson.
(b) Ground 2: the Adjudication Determination, to the extent that it took into account the WTG B44 foundation rectification costs, is infected by a substantial and material denial of natural justice to Hanson.
(a) whether the Adjudicator misconstrued the Subcontract and thereby failed to value the construction works in accordance with the terms of the Subcontract;
(b) whether the Adjudicator's decision was infected by a substantial and material denial of natural justice to Hanson.
Subject to Clause 30.6, should any part of the work under the Subcontract be found to be Defective at any time prior to the expiration of the Defects Liability Period, the Contractor may:
(a) direct the Subcontractor to remedy such Defect at its own expense, as quickly as possible (and in any event not later than 10 Business Days after being instructed by the Contractor to do so), at times and in a manner which causes as little inconvenience to Third Parties as is reasonably possible and in accordance with the Contractor's instructions; or
(b) give notice that it will accept the defective work, or any part of it, despite the Defect, in which case the Contractor will assess an amount that represents the cost of correcting the accepted defective work and that amount will be a debt due and payable by the Subcontractor to the Contractor upon demand.
Should the Subcontractor fail to remedy a Defect in accordance with the Contractor's instructions, the Contractor may arrange for the Defect to be remedied by the Contractor or by others instead of the Subcontractor and the cost of doing so shall be valued under Clause 22.9 and shall be a debt due and payable by the Subcontractor to the Contractor upon demand.
Lab is sure that it will still meet strength, just unsure of what age that will be. There would have been quite a bit of mixing around the bolts with a mix that has been sitting around the 48mpa[.]
(a) the amount of incorrectly batched concrete delivered and poured;
(b) the circumstances in which the pour occurred;
(c) the implications of the pour, including:
(i) whether the pour constituted a defect under the Subcontract;
(ii) if the WTG B44 foundation is defective, whether it was caused by Hanson or Decmil;
(iii) what rectification works (if any) were required due to the pour.
Pursuant to subclause 30.3 of the Subcontract, failure by [Hanson] to remedy the Defective works...may result in [Decmil] arranging for the Defective works to be remedied by [Decmil] or others instead of [Hanson], with the cost of doing so being valued under clause 22.9 of the Subcontract and becoming thereafter a debt due and payable by [Hanson] to [Decmil] upon demand.
(a) $542,526.70 for the supply of construction related goods and services in September 2023;
(b) $1,015,657.06 for the supply of construction related goods and services in October 2023; and
(c) $253,063.89 for the supply of construction related goods and services in November 2023.
The works undertaken by Hanson in relation to B44 foundation are defective. Decmil has given notice of the defective work to Hanson pursuant to clause 30.2(a) of the Subcontract. The defective work to B44 foundation has not yet been rectified by Hanson. Therefore, Decmil is entitled to set-off or deduct the estimated costs of rectifying the defective work for B44 foundation in accordance with clauses 30.2 and 24.20 of the Subcontract.
The Payment Claim purports to include a claim for payment in respect of the B44 foundation works which are defective. [Decmil] has given notice of the defective work to [Hanson] pursuant to clause 30.2(a) of the Subcontract. The B44 foundation works are yet to be rectified by [Hanson]. Accordingly, [Hanson] is not entitled to claim for payment or to receive payment for the B44 foundation works until the defective work is rectified.
In addition, [Decmil] is entitled to set-off or deduct the estimated costs of rectifying the defective work for the B44 foundation in accordance with clauses 30.2 and 24.20 of the Subcontract. The defect rectification costs are estimated to be in the order of $2,633,235.61.
(a) Later on 6 March 2024, the Adjudicator wrote to the parties stating that the Adjudication Response included reasons for withholding payment that were not raised in the Payment Schedule ('Section 21(2B) Notice') and inviting a response from Hanson in two business days.
(b) On 8 March 2024, Hanson filed submissions in reply to the Section 21(2B) Notice.
(c) On 9 March 2024, the Adjudicator wrote to the parties indicating that he wanted assistance ascertaining which aspects of Hanson's reply submissions corresponded to which aspect of the Section 21(2B) Notice. He asked for submissions about (i) that issue; and (ii) whether, if he requested it, he would be entitled to a longer period than 15 business days from the date on which he accepted the Adjudication Application to make his determination.
(d) On 12 March 2024, the parties exchanged submissions on these points. In its submissions, Hanson argued that the effect of late determination was not invalidity and that Hanson did not intend to withdraw its Adjudication Application if it was not determined within the prescribed time.
(e) On 13 March 2024, the parties provided comments on the submissions exchanged the day before.
(a) pursuant to s 11(1)(a) of the SOP Act, his task was to value the works in accordance with the terms of the Subcontract;
(b) clauses 30.2, 30.3, 22.9 and 24.20 of the Subcontract, in combination, permitted Decmil to direct Hanson to remedy defective works, failing which it could remedy the defect itself. Decmil could demand the cost of rectification as a debt due and payable and set off that sum against payments otherwise due to Hanson;
(c) only the actual cost of remedying the work rather than the estimated cost of remedying the work could be set off;
(d) Hanson had supplied approximately 60m3 of incorrectly batched concrete on the morning of 28 September 2023. This concrete did not achieve the required compressive strength and was therefore a defect;
(e) there was no evidence, opinion, submission or proposal to show that the "defective concrete" could be remedied by any means that did not require removal of all of the concrete;
(f) there was no evidence to support a view that Decmil did not act reasonably at the time of pouring the foundation (ie, by requesting that over-strength concrete be poured in an attempt to bulk out the under-strength concrete), nor in proceeding with the rectification works;
(g) accordingly, Hanson was liable to Decmil for its costs incurred in rectifying the foundation of WTG B44, calculated to be $1,087,910.24, which costs were to be valued under the Subcontract and set-off against the $1,811,247.65 claimed in the Payment Claim. This yielded an Adjudicated Amount of $704,028.
C Did the Adjudicator take into account an excluded amount?
(a) the WTG B44 foundation rectification costs claimed by Decmil are an excluded amount for the purpose of s 10B of the SOP Act; and
(b) by taking that sum into account in determining the Adjudication Application the Adjudicator erred and the Adjudication Determination is void to that extent pursuant to ss 23(2A) and 23(2B) of the SOP Act.
(a) the granting of a statutory entitlement to that payment under the SOP Act; and
(b) the establishment of a procedure for the speedy determination of any disputed claim by an adjudicator.
(a) any other entitlement that a claimant may have under a construction contract; or
(b) any other remedy that a claimant may have for recovering that other entitlement.
(2A) In determining an adjudication application, the adjudicator must not take into account -
(a) any part of the claimed amount that is an excluded amount;
(b) if it takes into account any amount or matter referred to in subsection (2A), to the extent that the determination is based on that amount or matter.
(a) the Adjudicator determined that certain provisions of the Subcontract (notably 30.2, 30.3, 22.9 and 24.20) informed his valuation exercise. Specifically, he reasoned that:
(i) clause 30.2 permitted Decmil, should any part of the works be found to be defective prior to the expiry of the Defects Liability Period, to direct Hanson to remedy the defect;
(ii) clause 30.3 permitted Decmil to arrange for the defect to be remedied and the cost of doing so would become a debt due and payable upon demand if Hanson failed to remediate the defect;
(iii) the cost of rectification is to be valued in accordance with clause 22.9;
(iv) clause 24.20 permitted Decmil to set-off the rectification costs against payments otherwise due to Hanson; and
(v) he was not deducting rectification costs because it was "loss or damage occasioned by breach of contract" but rather because they related to "entitlements arising under contract";
(b) clause 30.3 is relied on by Decmil to underpin its debt claim. While clause 30.3 provides a mechanism for how the alleged costs of rectification might be brought to account in the valuation exercise, that provision had not been engaged in a manner that would entitle Decmil to claim any deduction. Specifically, no entitlement to a set off or deduction had arisen under clause 30.3 because Decmil had not demanded payment of those costs from Hanson;
(c) consequently, all Decmil had was an inchoate claim for damages for breach of Subcontract, not a claim for a debt due and payable; and
(d) the Adjudicator therefore erroneously took into account an excluded amount within the meaning of s 10B of the SOP Act.
(a) clause 30.3 of the Subcontract provides that where Hanson fails to remedy a Defect in accordance with Decmil's instructions, Decmil has the right to 'arrange for the Defect to be remedied by [itself] or by others', with the 'cost of doing so' to be: (i) valued under cl 22.9 of Subcontract; and (ii) a debt due and payable by Hanson to Decmil 'upon demand';
(b) in relation to the requirement for a 'demand' under cl 30.3, the Subcontract does not define that term, nor impose any conditions as to how or when a 'demand' is to be made. Decmil says the term must be given an objective construction, giving effect to its text, context, subject-matter and purpose and that the key question is what a reasonable business-person would have understood the term to mean;
(c) in Junemill Limited v FAI General Insurance Co Ltd,[8] in the context of construing an insurance policy where the term 'claim' was defined as 'the demand for compensation', Fryberg J with whom McPherson JA agreed referred to the following Oxford English Dictionary definition of 'demand':
An act of demanding or asking by virtue of right or authority; an authoritative or peremptory request or claim; also transf., the substance or matter of the claim, that which is demanded.
(d) the Payment Schedule constituted both Decmil's valuation of, and demand for, rectification costs within the meaning of cl 30.3 of the Subcontract. The substantive effect of the statements in the Payment Schedule was to assert Decmil's right or entitlement to an amount of $2,633,235.61 which it had determined as being the value of the rectification costs. The assertion of entitlement is synonymous with a demand; and
(e) the consequence of Decmil's demand was that cl 30.3 was enlivened with the effect of conferring an entitlement upon Decmil to the costs of rectification as a debt due and payable, not as a claim for damages within the purview of s 10B(2)(c) of the SOP Act.
(a) arranged for the Defect to be remedied and the cost of doing so valued under clause 22.9; and
(b) demanded payment of those costs from Hanson.
(a) the payment schedule to indicate the amount of the payment that the respondent proposes to make (the scheduled amount);[9] and
(b) if the scheduled amount is less than the claimed amount, the payment schedule must indicate why the scheduled amount is less and (if it is less because the respondent is withholding payment for any reason) the respondent's reasons for withholding payment.[10]
(a) Metacorp Pty Ltd v Andeco Construction Group Pty Ltd [No 2][12] in which the Court, having found a breach of the rules of natural justice in respect of an adjudication, quashed the adjudication determination and remitted the adjudication application back to the authorised nominating authority for reference to the original adjudicator to determine it in accordance with the law.
(b) Maxstra Constructions Pty Ltd v Joseph Gilbert & Ors[13] in which the Court observed that remitter was the usual form of relief when certiorari was granted and made an order to that effect following a finding that an adjudication determination was affected by jurisdictional error. The Court considered whether 'some elements of timing found in the provisions of the [SOP Act] would tend to suggest that the remedy of remitting a matter back to the original tribunal would not be open as a matter of implication' but found that no such implication could arise.[14] The Court concluded that an order for remitter was available (generally) and appropriate in the circumstances of the case.[15]
(c) SSC Plenty Road Pty Ltd v Construction Engineering (Aust) Pty Ltd[16] in which the court made an order for a partial remitter that reflected the Court's finding that the relevant adjudication determination was invalid only insofar as it related to two components of the determination. The orders made by the Court were not disturbed by the Court of Appeal.[17]
where relief is granted in this Court (or an equivalent superior court of record) on the basis that the inferior court or tribunal lacked jurisdiction to deal with the matter, the only necessary order is that the decision be quashed. There is no point in remitting the matter, because the outcome is necessarily determined by the quashing order.
(a) his observations about remittal of an adjudication were obiter;[19] and
(b) he accepted, at the level of basic principle, that if the order of an inferior court or tribunal is called up into a superior court, and the decision is quashed (which is the process involved in certiorari), the matter may be remitted to the inferior tribunal or court to be decided according to law.[20]
(a) the main purpose of the amendments was to make the SOP Act more effective in enabling any person who carries out building or construction work to promptly recover progress payments;[22]
(b) the proposed amendments, amongst other things, make it clear that claims for damages, delay costs and latent conditions are "excluded amounts" and cannot be claimed under the SOP Act;[23] and
(c) most significantly, the amendments would provide that an adjudicator's determination, insofar as it takes into account matters that are not permitted to be claimed under the SOP Act, is void and of no effect. He stated:[24]
This amendment will ensure that where an adjudicator steps beyond the scope of the [SOPA Act] those parts of the adjudicator's determination that are within power can be saved.
(a) put a line through those portions of the Adjudication Determination where he has taken into account the excluded amount;
(b) leave the valid portion of the Adjudication Determination without any material change; and
(c) then recalculate the adjudicated amount in accordance with this decision.
(a) the inability of the Adjudicator to comply with time limits imposed under the SOP Act;[26]
(b) whether remission would be futile;[27]
(c) whether the question of "clean hands" on the part of the claimant is relevant to the grant of relief;[28] and
(d) the time elapsed between the date of the adjudication application and the application for remission.[29]
(a) remission will be contradictory to the purpose and intent of the SOP Act to enable speedy resolution of disputes about payment claims according to a procedure that is subject to tight time-frames; and
(b) there are no time limits imposed by the SOP Act in relation to remitted applications and the time limit imposed on the Adjudicator in relation to the determination of Hanson's Adjudication Application has clearly passed.
(a) order:
(i) the Adjudication Determination be quashed only in so far as the Adjudicator took into account the costs of rectification of the WTG B44 foundation; and
(ii) the Adjudication Application be remitted to the Adjudicator for the purpose of determining the adjudicated amount in accordance with the law ('Second Adjudication Determination'); and
(b) declare the Second Adjudication Determination, when delivered, shall stand as the adjudication determination in place of the Adjudication Determination dated 21 March 2024 for all purposes under the SOP Act.
[1] All amounts are inclusive of GST unless stated otherwise.
[2] Although it is not necessary to determine the precise amount of incorrectly batched concrete for the purpose of my decision, I note that the Adjudicator refers to 60m3 of incorrectly batched concrete whereas Hanson refers to 40m3 of incorrectly batched concrete in its outline of submissions. This discrepancy was not addressed at trial.
[4] Building and Construction Industry Security of Payment Act 2002 (Vic), s 3(3) ('SOP Act').
[6] Goldwind Australia Pty Ltd v ALE Heavylift (Australia) Pty Ltd [2021] VSC 625, [43] ('Goldwind').
[8] [1999] 2 Qd R 136, 145.
[12] [2010] VSC 255; 30 VR 141, [18]-[19]
[13] [2013] VSC 243, [72]-[76].
[17] SSC Plenty Road Pty Ltd v Construction Engineering (Aust) Pty Ltd [2016] VSCA 119.
[18] [2016] NSWSC 1229 ('Richard Crookes').
[21] Victoria, Parliamentary Debates, Legislative Assembly, 9 February 2006, 219-221 (Rob Hulls, Minister for Planning) ('Second Reading Speech').
[25] [2018] VSC 808 ('Shape').
[30] Ian Street Developer Pty Ltd v Arrow International Pty Ltd [2018] VSCA 294 (Maxwell P, with whom McLeish and Niall JJA agreed) [66]-[78].
Hanson Construction Materials Pty Ltd
Decmil Australia Pty Ltd [2024] VSC 361