The claims made by Siemens
9 Siemens' submissions were that the adjudication determination was void for the following reasons:
First , the adjudicator concluded that clause 13.4 of the contract (which established a time restriction within which Tolco could make a claim for costs arising from an extension of time) was void by reason of section 34 of the Act. This conclusion was reached in circumstances where neither party had advanced such a submission pursuant to the Act. The adjudicator reached such a conclusion without notifying Siemens that he intended to so and without providing Siemens with an opportunity to make submissions with respect to the adjudicator's proposed decision that clause 13.4 was void. Siemens submits that for these reasons, there has been a denial of natural justice, rendering the determination void.
Secondly, the adjudicator accepted Siemens' submission that the contract contained no provision which allowed Tolco to make a claim for delay, disruption or acceleration costs. However, the adjudicator held that Tolco was entitled to make a claim for delay, disruption or acceleration costs by reason of sections 10(1)(b) or 10(2)(b) of the Act. As in the case of the finding referred to above with respect to the application of section 34 of the Act to clause 13.4 of the Contract, this conclusion was not based on any submission made by either of the parties. Prior to reaching this conclusion, the adjudicator failed to notify Siemens that he proposed to do so and failed to provide Siemens with an opportunity to make submissions with respect to the adjudicator's proposed decision with respect to sections 10(1)(b) or 10(2)(b). For this reason, Siemens submits that there has been a denial of natural justice, rendering the determination void.
The third basis for challenging the adjudication determination concerns the conclusion that, by reason of section 34 of the Act, clause 13.4 of the Contract was void. Siemens submits that the adjudicator reached this conclusion without bona fide considering whether the criteria for the application of section 34 were satisfied.
Fourthly , and alternatively to the third basis, such a conclusion was reached without the adjudicator bona fide addressing the requirement to provide reasons as required by section 22(3)(b) of the Act.
Fifthly, Siemens submits that the adjudicator failed to afford Siemens procedural fairness with respect to the adjudicator's conclusion concerning manhours, and failed to exercise in good faith the power conferred upon him.
The first challenge - procedural unfairness concerning clause 13.4 of the Contract
10 Tolco's claim was for delay and disruption costs totalling $376,188.92 and acceleration costs of $163,287.90. Clause 13.4 of the contract between the parties provided:
"If the Vendor [i.e. Tolco] wishes to make a claim for any extensions of time to the delivery date(s) or claim any additional costs, then he shall notify Siemens in writing within 48 hours of the event that the Vendor is claiming an extension of time and/or additional costs, and, provide to the Purchaser within seven (7) calendar days of the claim, full details of the claim."
11 Siemens relied upon this clause in its payment schedule in rejecting the claim. Indeed Tolco in its payment claim had anticipated such a submission and had suggested that Siemens had waived the requirements of written notices under the contract in this respect.
12 The adjudicator's conclusion with respect to clause 13.4 was as follows:
"Clause 13.4 establishes a time restriction within which the claimant can make a claim for any costs arising out of an extension of time. Such costs would in my view include costs arising from delay, disruption or acceleration occasioned by an act or omission by a party other that the claimant. Such costs, where valued pursuant to the Act relate to additional costs arising from additional construction work or the provision or related goods and services. In my view the claimant is therefore entitled to make a claim for a progress payment, to do otherwise would be to restrict the claimant's rights pursuant to the Act".
13 Plainly the adjudicator was referring to section 34 of the Act which is in the following terms:
"34 No contracting out
(1) The provisions of this Act have effect despite any provision to the contrary in any contract.
(2) A provision of any agreement (whether in writing or not):
(a) under which the operation of this Act is, or is purported to be, excluded, modified or restricted (or that has the effect of excluding, modifying or restricting the operation of this Act), or
(b) that may reasonably be construed as an attempt to deter a person from taking action under this Act,
is void."
14 Siemens' submissions were that in Tolco's adjudication application and its own response the matter was only dealt with by reference to clause 13.4 of the contract. A perusal of the application and response would suggest to the contrary.
15 In the adjudication application Tolco dealt with its application under six headings. The second heading was the primary submissions. In clause 2.12 it said the following:
"The amount claimed in the payment claim, subject to the revised calculation set out below, is the value of the indemnity that is provided by the respondent which cannot be legally limited or excluded under the contract and the Act because to limit a progress payment is void under s 34 of the Act."
16 The fifth heading in the application was the claimant's responses to the respondent's payment schedule. It responded in detail to a number of points made in the payment schedule. The response to the claim concerning clause 13.4 was in the following terms: (p29)
" The claimant is entitled to an indemnity, for reasons set out above. Whilst clause 13.4 is there, it is not applicable to the claimant in the particular circumstances. All requirements waived. "
17 In its response Siemens dealt with each of these submissions. In respect of the first it replied in these terms: (p12)
"2.12 The respondent refers to its submissions above on the issues of the indemnity and the calculations set out below. Further the respondent says that section 34 has no application to this matter as there is no clause in the Contract which seeks to exclude, modify or restrict the operation of the Act. Rather the respondent considers that the claimant is seeking to modify the rights of the Respondent under the contract contrary to section 32 of the Act."
18 The response to the second submission included the following: (p32)
"The respondent denies that it waived any requirement of the contract. Further clause 3.5 requires any such waiver to be in writing signed by the respondent and the Claimant. No such document exists. "
19 It seems that Siemens submissions are in error as plainly the operation of section 34 was raised and Siemens has taken the opportunity to respond. In these circumstances there has been no procedural unfairness as the adjudicator has not dealt with the matter in circumstances where neither party has notified the other.
20 The only matter which needs to be dealt with is whether the argument should have been raised in the payment claim or payment schedule. In Holmwood Holdings v Halkat Electrical Contractors [2005] NSWSC 1129, Brereton J said at [129]:
"129 While I accept that, as a respondent to a payment claim is not able in its adjudication response to go beyond the matters raised in its payment schedule, so an adjudication application may not include materials which go outside, in the sense of falling outside the ambit or scope of the materials provided in the payment claim [ John Holland Pty Ltd v Cardno MBK (NSW) Pty Ltd [2004] NSWSC 258], neither this principle, nor the provisions of the Act - which plainly envisage that an "adjudication application" may contain such submissions relevant to the application as the claimant chooses to include [s.17(3)(h)] - have the consequence that no material which was not included in the payment claim can be included in the adjudication application. The test is whether the additional material is or is not within the scope or ambit of the payment claim. If it is, then evidentiary and argumentative material to support it can be included in the adjudication application."
21 In this case we are not dealing with material in the sense of further documents. All that has been included in the application is argument in support of existing claim that was clearly made in the payment claim. This course is permitted pursuant to s17(3)(h) of the Act. Indeed it is hard to see how it could have been included in the payment claim because it really is a matter to be raised in reply to Siemens' point in its payment schedule that the claim was barred by clause 3.14 of the contract.
22 In my view there has been no denial of procedural fairness by the adjudicator on this aspect.
The second challenge - procedural unfairness concerning section 10
23 Siemens' submission was founded upon the proposition that in its payment claim, Tolco contended that it was entitled to make a claim under the Act for compensation for losses caused by delays attributable to Siemens, on the basis that it had a contractual right to recover such compensation. Tolco relied upon the judgments of the Court of Appeal in Coordinated Construction Co Pty Ltd v Climatech (Canberra) Pty Ltd [2005] NSWCA 229 and Coordinated Construction Co Pty Ltd v J.M. Hargreaves (NSW) Pty Ltd (2005) 63 NSWLR 385) in support of its contention that it was entitled to "delay damages". Reference was made to the fact that Tolco stated in its payment claim that:
"Delay damages under a construction contract can be for construction work or related goods and services of which such delay damages can be included in a payment claim under the Act."
24 In its payment schedule, Siemens submitted that the claim by Tolco was distinguishable from the claims made in the Coordinated cases referred to above, because:
"The Contract in those cases included an express right to claim delay damages under the Contract whereas no such right exists under this contract and thus no contractual entitlement can be show [sic.] upon which to found a claim in the nature set out in the Claimant's Payment Claim".
25 The adjudicator dealt with this part of the claim and said in paragraph 21:
"The basis of the claim relates primarily to the costs associated with delay, disruption, acceleration, administrative cost in managing changes to documents, together with related overhead and profit. The terms of the purchase order do not contain a provision which allows the claimant to make a claim for delay, disruption or acceleration. In my view therefore the claimant is entitled to make a claim for such matters in accordance with ss10(1)(b) or 10(2)(b) of the Act as applicable."
26 It was submitted that in the second sentence in this passage, the adjudicator accepted Siemens' submission that the contract contained no provision, which allowed Tolco to make a claim for delay, disruption or acceleration. The adjudicator then concluded that because there was no contractual provision which allowed Tolco to make such a claim, it followed that Tolco was entitled to make the claim in accordance with sections 10 (1)(b) or 10 (2)(b).
27 It was submitted that this conclusion was not based upon any submission made by either party. Prior to reaching this conclusion, the adjudicator failed to notify Siemens that he proposed to do so and failed to provide Siemens with an opportunity to make submissions with respect to the adjudicator's proposed decision with respect to sections 10(1)(b) or 10(2)(b). It is for this reason that Siemens submits that there has been a denial of natural justice, rendering the determination void.
28 It is necessary to consider what was the basis of Tolco's payment claim to see if these submissions should be accepted. Siemens in its submissions characterised the claim of Tolco in these terms
"(i) the existence of an implied contractual term, which has its source in the Act. ("The Act provides the right to imply the terms of the Act into a contract…") (Payment claim para 18.2, page 6 of 16, Exhibit Vol. 1, page 27);
(ii) Siemens had given "a promise to pay on the basis that it had ordered a variation under the contract or under a separate or distinct contract with" Siemens. (Payment schedule para 18.5, page 7 of 16, Exhibit Vol. 1, page 28).
(iii)Siemens was "liable for breach of its duty by not exercising proper care and diligence". (Payment claim, para 18.10, page 8 of 16, Exhibit Vol. 1, page 29);
(iv)breach of the Trade Practices Act 1974 (Cth) (Payment schedule paras 6-7, page 2 of 16, Exhibit Vol.1, page 23-34).
In the alternative to specific heads of claim, Tolco claimed the same amount on the basis of a "total global costs method"; this claim was based upon an allegation that Siemens breached the contract, which caused Tolco loss (Exhibit Vol. 1, p 26 (para. 17), and see also at pp 34-35 (paras. 43.4 & 43.5))."
29 The characterisation of the claims set out above does not give full credence to the effect of paragraph 18 of the payment claim. A heading "Overarching entitlements" preceded that paragraph. It then went on to deal with different parts of those overarching entitlements. Clause 18.1 states:
"The claimed amount is for a fair and reasonable value due to the increased scope of supply consequent upon the drawing changes."
30 Clause 18.3 of the payment claim referred to an implied term in the contract for delay costs. Clause 18.4 then went on to make a somewhat different claim upon the basis that:
"During the course of the works, the Respondent impliedly instructed the Claimant to carry out additional work in order to administer the drawing revision changes or expressly instructed the claimant by:
18.4.1 Issuing and delivering the drawing revisions to the Claimant; and
18.4.2 Issuing and delivering various construction programmes to the Claimant that altered the timing and performance of the contract works."
31 Siemens' response to this in its payment schedule was not what was quoted in their submissions which I have quoted above. It also said prior to making the comment about the Coordinated cases the following: (p 55 of Exhibit Vol 1)
"The amounts are not properly claimable under the Act as they are not claims for progress payments for construction work or related goods and services calculated (or valued) in accordance with the terms of the Contract contrary to the provisions of the Act, in particular sections 3, 4, 6, 8, 9, 10(1), 11(1), 13, 17(1) or 22.
Rather the claims are based on alleged claims made outside the terms of the Contract and on bases other than a claim in Contract and are thus are in fact claims for damages which are not permitted under the Act (see Kembla Coal & Coke v Select Civil & Ors [2004] NSWSC 628 and Quasar Construction v Demtech Pty Ltd [2004] NSWSC 116)."
32 This is express reference to the fact that the amounts are not claimable under the Act under ss 9 and 10 and also a characterisation of the claims as being claims for damages which are not permitted under the Act. There was also later in the payment schedule a more detailed response to the individual paragraphs, which were set out in the payment claim.
33 In responding to 18.1, Siemens denied that they increased the scope of supply and suggested that the changes were of a minor nature. In relation to 18.4, the respondent denied that they impliedly or expressly instructed the claimant to carry out additional works. It gave reasons for that denial. Thus in the payment claim and the payment response there seemed to the claims of a variety and nature which would comprehend a claim under the Act and not merely some contractual entitlement.
34 In the adjudication application Tolco suggested, no doubt in response to what was in the payment schedule that their claim was not a claim for damages of any kind. In clause 1.5, it characterised the dispute in these terms: (p 77 of Evidence Vol 1)
"The salient issue in dispute is solely in respect of whether the claimant is entitled to be paid an amount over and above the price set out in the purchase order because extra work was carried out by the claimant or additional related goods and services were supplied for construction work within the meaning of s 6 of the Act. It follows that the payment claim does not take into account the purchase order price or any amounts paid by the respondent (which is set out below) in respect of that price as it is purely a claim for extra work under the contract."
35 In its adjudication response Siemens responded as its first reason in identical terms the matters which it had set out in its payment schedule which I have referred to above. In reference to the "salient issue" referred to in the adjudication application Siemens said: (129 of Evidence Volume 1)
"The Respondent denies that the claimant has carried out "extra work" as that term is defined in the Contract or that its claims in the Payment Claim are claims for "additional" related goods and services under the Contract within the meaning of Section 6 of the Act. The claims set out in the Payment Claim have the character set out in paragraph 1.3 above and are therefore not allowable under the Act."
36 It seems to me that the application in response merely repeated the positions which the parties had taken in the payment claim and schedule namely that the claim included a claim for payment under the Act and did not restrict it to a contractual claim. In these circumstances there has been no denial of natural justice.
The third challenge - no bona fide consideration of the effect of section 34 on clause 13.4 of the Contract
37 In paragraph 10 I have set out the terms of clause 13.4. Section 34 of the Building and Construction Industry Security of Payment Act (1999) NSW provides:
"34 No contracting out
(1) The provisions of this Act have effect despite any provision to the contrary in any contract.
(2) A provision of any agreement (whether in writing or not):
(a) under which the operation of this Act is, or is purported to be, excluded, modified or restricted (or that has the effect of excluding, modifying or restricting the operation of this Act), or
(b) that may reasonably be construed as an attempt to deter a person from taking action under this Act, is void."
38 The adjudicator said the following in reference to item 2.12:
"Clause 13.4 establishes a time restriction within which the claimant can make a claim for any costs arising out of an extension of time. Such costs would in my view include costs arising from delay, disruption or acceleration occasioned by an act or omission by a party other than the claimant. Such costs, where valued pursuant to the Act relate to additional costs arising from additional construction work or the provision of related goods and services. In my view the claimant is therefore entitled to make a claim for a progress payment, to do otherwise would be to restrict the claimant's rights pursuant to the Act."
39 Siemens has submitted that in dealing with the matter in the way set out in the paragraph above the adjudicator has simply stated a conclusion and has provided no reason as to why clause 13.4 is a provision which restricts the operation of the Act. It is of course necessary for the arbitrator to give reasons as this is provided for in section 22 (3)(b) of the Act. The failure to provide reasons without more would not constitute an error which would render the adjudication determinations void
40 Siemens submitted that in determining whether a time limitation provision is void a number of factors need to be taken into account. They made reference to John Goss Projects Pty Ltd v Leighton Contractors Pty Ltd [2006] NSWSC 798 at [73]-[83]. One factor they pointed to was whether the time provision "was one within which [the claimant] could not possibly or reasonably comply with in any given case": John Goss, at [83].
41 Siemens submitted that :
"Given the absence of reasons, there is no basis for concluding that the decision was other than arbitrary, in the sense that the adjudicator had no reason for concluding that clause 13.4 was void other than that it imposed a time restriction."
42 Reference was made to a number of cases that suggest that if an opinion formed is arbitrary it will be void. see Holmwood Holdings Pty Ltd v Halkat Electrical Pty Ltd [2005] NSWSC 1129, and Coordinated Construction Co Pty Ltd v Climatech (Canberra) (2005) 21 BCL 364 at 381[47] where Basten JA referred to the principle in R v Connell; Ex parte Hetton Bellbird Colleries Ltd (1944) 69 CLR 407 at 432, applied by Gummow J in Minister for Immigration and Multicultural Affairs v Eshetu (1999) 197 CLR 611 at [133].
43 Tolco suggested that the Siemens' submissions started from the incorrect premise that the adjudicator was required to, and was attempting to, determine whether clause 13.4 of the Contract was per se void under section 34 in all circumstances.