St Hilliers Contracting Pty Limited v Dualcorp Civil Pty Ltd

Supreme Court of NSW|2010-12-06|Before: Hammerschlag J, Einstein J

CITATION : St Hilliers Contracting Pty Limited v Dualcorp Civil Pty Ltd [2010] NSWSC 1468

HEARING DATE(S) : 2 & 6 December 2010 JUDGMENT OF : Hammerschlag J

DECISION : The Adjudicator's Adjudication Determination dated 22 February 2010 be quashed and set aside. The money standing in Court forthwith to be paid out to the plaintiff. The first defendant to pay the plaintiff's costs of the proceedings

LEGISLATION CITED : Building and Construction Industry Security of Payment Act 1999 (NSW)

Chase Oyster Bar v Hamo Industries [2010] NSWCA 190 CASES CITED : Bauen Constructions v Westwood Interiors [2010] NSWSC 1359 Laing O'Rourke Australia Construction v H&M Engineering & Construction [2010] NSWSC 818 Trysams Pty Ltd v Club Constructions (NSW) Pty Ltd [2008] NSWSC 399

St Hilliers Contracting Pty Limited [Plaintiff] PARTIES : Dualcorp Civil Pty Ltd [First Defendant] Helen Durham [Second Defendant]

COUNSEL : M.G. Rudge SC with D.A.C. Robertson [Plaintiff] M.A. Ashhurst SC [First Defendant]

SOLICITORS : Colin Biggers & Paisley [Plaintiff] Moray & Agnew [First Defendant]

1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION TECHNOLOGY & CONSTRUCTION LIST

2010/66117 ST. HILLIERS CONTRACTING PTY LTD V DUALCORP CIVIL PTY LTD EX TEMPORE JUDGMENT INTRODUCTION 1 HIS HONOUR: By its Further Amended Summons dated 24 May 2010 and its Further Amended Technology & Construction List Statement dated 13 October 2010, the plaintiff seeks a declaration that the second defendant's adjudication determination ("the Adjudication") under the Building and Construction Industry Security of Payment Act 1999 (NSW) ("the Act") dated 22 February 2010 for $1,358,090.14 (including GST) is void. The recent decision of the Court of Appeal in Chase Oyster Bar v Hamo Industries [2010] NSWCA 190 ("Chase Oyster Bar") makes it clear that the appropriate form of relief is an order in the nature of certiorari quashing or setting aside the adjudication. 2 In the alternative, the Summons seeks an order restraining the first defendant from acting upon the Adjudication on the grounds that it would have little prospect of recovering any money paid over to the first defendant because the first defendant is in a precarious financial position. During final submissions however, it was correctly accepted by the plaintiff that this relief was inapposite because if the plaintiff were to fail the first defendant would have the benefit of a valid adjudication determination upon which it could act. There might in that event be room for an application staying any order for the payment out of the monies presently in Court (referred to below) but that application cannot be made now. 3 The Summons also seeks final judgment for monies which the plaintiff says it is owed by the first defendant. That contest is for another day. The only question for immediate determination is whether the Adjudication should be set aside. 4 Mr M. G. Rudge SC together with Mr D. A. C. Robertson of counsel appeared for the plaintiff. Mr M.A. Ashhurst SC appeared for the first defendant. The second defendant filed a submitting appearance. 5 The proceedings were commenced on an urgent basis on 15 March 2010 when Einstein J granted the plaintiff interlocutory relief restraining the first defendant from acting on the Adjudication. On 19 March 2010, upon the plaintiff by its counsel giving the usual undertaking as to damages and paying into Court the adjudicated amount, the first defendant was restrained until further order from acting upon the Adjudication. On the same day, the proceedings were set down for hearing on 7 June 2010 on the validity of the Adjudication on an estimate of one day. 6 On 28 May 2010, effectively by consent, the hearing date was vacated to await the outcome of the appeal proceedings which resulted in the judgment of the Court of Appeal in Chase Oyster Bar. Judgment was delivered by the Court of Appeal on 24 September 2010. On 8 October 2010 I set the matter down for hearing to be heard on 2 December 2010, still on an estimate of one day. 7 The result has been that the proceedings have been delayed in a manner inconsistent with the usual expedition these type of proceedings are afforded, having regard to the objects of the Act.

8 The present hearing did not conclude on 2 December 2010 and was continued on the afternoon of 6 December 2010 to suit the convenience of counsel. FACTUAL BACKGROUND 9 The plaintiff was the head contractor for a project known as Artarmon Home HQ North Shore.

10 On or about 18 June 2008, the plaintiff and the first defendant entered into a sub-contract ("the contract") under which the first defendant was to carry out demolition, excavation, piling and shoring work at the project. The contract was terminated on 26 June 2009.

11 On 23 December 2009, the first defendant served a payment claim under the Act on the plaintiff. The payment claim was a substantial document running to several volumes including a significant number of invoices. 12 On 13 January 2010, the plaintiff served a payment schedule on the first defendant in response to the payment claim. In the payment schedule, the plaintiff asserted that the first defendant was liable to it for liquidated damages in the sum of $5,271,000, which exceeded by a long way the first defendant's claim against it. The payment schedule was supported, amongst others by a Statutory Declaration by Mr Jake Burford, a senior project administrator with the plaintiff.

13 On 29 January 2010, the first defendant lodged an adjudication application which was referred to the second defendant as adjudicator ("the Adjudicator"). 14 In its adjudication application, which was supported by a Statutory Declaration by its director, Mr Vince Santoro, the first defendant contended that it was delayed by variations brought about by the plaintiff and was entitled under cl 13 of the contract to make a claim for extensions of time, which neutralised the plaintiff's claim for liquidated damages. It submitted that the plaintiff was not entitled to claim liquidated damages because of the principle commonly described as the prevention principle, which it put applied because there was no mechanism under the contract for the first defendant to make a claim for an extension of time to reach practical completion when delayed by variations. The relevant parts of cl 13 provided as follows: 13. COMMENCEMENT AND COMPLETION […] If prior to the Completion Date, the Works are critically delayed by a breach of the Subcontract by St Hilliers, the Subcontractor will be entitled to an extension of time to the Completion Date if it submits a written notice ("Notice") within four (4) days of commencement of the events giving rise to the delay. […] The Subcontractor's liability for liquidated damages is a debt due and payable by the Subcontractor to St Hilliers and in addition to exercising any other rights or remedies, St Hilliers may set off such debt against any retention or security or any amount due or which becomes payable to the Subcontractor by St Hilliers. The Subcontractor has no Claim in connection with any delay to the Works except as expressly set out in this Clause 13. The Subcontractor acknowledges that the issue of a Construction Program does not constitute an extension of time for Completion. 15 On 8 February 2010, the plaintiff lodged its adjudication response.

16 With respect to liquidated damages, the plaintiff took the position that the prevention principle did not apply because, it said, it only arises if there is no power to extend time, and in the present case there was power.

17 On 22 February 2010, the second defendant issued the Adjudication under which she allowed the amount of $1,358,090.14 to the first defendant. 18 With respect to the plaintiff's liquidated damages claim, the Adjudicator determined as follows: 49. The respondent claims liquidated damages in the sum of $5,271,000. 50. In the adjudication application, the claimant says that the respondent is not entitled to deduct liquidated damages because the liquidated damages clause is a penalty and because acts of prevention by the respondent have caused time to be set at large. 51. In the adjudication response, the respondent denies that the liquidated damages clause is a penalty and says: (a) there is no room for the application of the 'prevention principle' where, as in this case, there is a power to extend time; (b) the works were not varied; and (c) if the works were varied, the claimant has not demonstrated that it was delayed as a result of these variations. 52. The respondent offers no authority for the proposition that there is no room for the application of the 'prevention principle' where, as here, there is a power to extend time. I accordingly am not satisfied that above proposition is a correct statement of the law. 53. For the reasons set out at paragraphs 26 to 36 above, I am also satisfied that the contract works were varied. 54. The only remaining issue concerns whether the claimant was delayed by these variations. The respondent says that the claimant has not demonstrated that it was delayed, that it has not provided a contract program or demonstrated any impact on the critical path. On the other hand, the respondent offers no alternative explanation for the fact that, on the respondent's case, the works were not complete almost one year after the Date for Practical Completion. In these circumstances, I am satisfied that the claimant was delayed and that this delay was, at least in part, attributable to variations. 19 Clause 15 of the contract provided relevantly that the plaintiff was to pay payment claims within 31 days after the last day of the month in which they were served. 20 With respect to the date for payment of the adjudicated amount, the Adjudicator determined as follows: 59. Neither party submits that clause 15 is void for uncertainty, but as the term month is not defined, it seems to me that it is. The due date for payment is therefore the date 10 business days after the payment claim was served. The payment claim was served on 23 December 2009. The due date for payment is therefore 14 January 2010.

THE RELEVANT SECTIONS OF THE ACT 21 Section 10(1) of the Act provides as follows:

Valuation of construction work and related goods and services

(1) Construction work carried out or undertaken to be carried out under a construction contract is to be valued: (a) in accordance with the terms of the contract, or (b) if the contract makes no express provision with respect to the matter, having regard to: (i) the contract price for the work, and (ii) any other rates or prices set out in the contract, and (iii) any variation agreed to by the parties to the contract by which the contract price, or any other rate or price set out in the contract, is to be adjusted by a specific amount, and (iv) if any of the work is defective, the estimated cost of rectifying the defect. 22 Section 11(1) provides as follows: (1) A progress payment under a construction contract becomes due and payable: (a) on the date on which the payment becomes due and payable in accordance with the terms of the contract, or (b) if the contract makes no express provision with respect to the matter, on the date occurring 10 business days after a payment claim is made under Part 3 in relation to the payment.

23 Section 11(2) provides as follows: (2) Interest is payable on the unpaid amount of a progress payment that has become due and payable at the rate: (a) prescribed under section 101 of the Civil Procedure Act 2005 , or (b) specified under the construction contract, whichever is the greater.

24 Section 22(1) provides as follows: (1) An adjudicator is to determine: (a) the amount of the progress payment (if any) to be paid by the respondent to the claimant (the adjudicated amount ), and (b) the date on which any such amount became or becomes payable, and (c) the rate of interest payable on any such amount. 25 Section 22(2) provides as follows: (2) In determining an adjudication application, the adjudicator is to consider the following matters only: (a) the provisions of this Act, (b) the provisions of the construction contract from which the application arose, (c) the payment claim to which the application relates, together with all submissions (including relevant documentation) that have been duly made by the claimant in support of the claim, (d) the payment schedule (if any) to which the application relates, together with all submissions (including relevant documentation) that have been duly made by the respondent in support of the schedule, (e) the results of any inspection carried out by the adjudicator of any matter to which the claim relates.

26 Section 22(3) provides as follows: (3) The adjudicator's determination must: (a) be in writing, and (b) include the reasons for the determination (unless the claimant and the respondent have both requested the adjudicator not to include those reasons in the determination). 27 Section 22(4) provides as follows: (4) If, in determining an adjudication application, an adjudicator has, in accordance with section 10, determined: (a) the value of any construction work carried out under a construction contract, or (b) the value of any related goods and services supplied under a construction contract, the adjudicator (or any other adjudicator) is, in any subsequent adjudication application that involves the determination of the value of that work or of those goods and services, to give the work (or the goods and services) the same value as that previously determined unless the claimant or respondent satisfies the adjudicator concerned that the value of the work (or the goods and services) has changed since the previous determination.

THE CONTEST 28 The plaintiff directed a number of discrete attacks on the Adjudication as well as an attack based on apprehended bias. The last mentioned attack was properly abandoned during submissions. However, one aspect of it is deserving of comment and it will be further referred to below. Both parties provided written submissions which were refined during oral submissions. 29 For the reasons which follow I have reached the conclusion that two of the plaintiff's attacks on the Adjudication are well founded and that the Adjudication should be set aside or quashed. 30 Having regard to the delay which has already been occasioned to these proceedings, to the approaching of the end of the law term in this busy list and to facilitate the giving of an ex tempore judgment, I do not propose to deal with the plaintiff's unsuccessful attacks. Also, these reasons are also somewhat more abbreviated than they otherwise would be. 31 Having regard to the first defendant's failure, it will in the substantive case no doubt being a cross-claim for the monies it asserts it is owed. 32 I consider it appropriate that this matter be fixed for hearing of the parties' substantive claims and cross-claims at the earliest time consistent with the availability of judicial resources and the parties having sufficient opportunity to prepare. The liquidated damages claim 33 The plaintiff put that the Adjudicator had failed to deal properly or at all with the prevention principle issue and was wrong to say that the plaintiff had not provided any authority for the proposition for which it contended. Although there is some substance in this complaint, it seems to me that the way in which the Adjudicator dealt with it arose from the manner in which the parties put their submissions. It may be that some authority was, in an indirect fashion, referred to by the plaintiff in support of the proposition that there is no room for the application of the prevention principle where there is a power to extend time. However, the Adjudicator had regard to the plaintiff's submission and resolved the issue against the plaintiff by making a finding of law which may or may not be right, but which was clearly made. In my view, the Adjudicator's approach in this respect did not reflect jurisdictional error. 34 However, in my view the manner in which she resolved the question of whether the first defendant was delayed by variations does reveal jurisdictional error. 35 In par 9 in his Statutory Declaration Mr Burford stated that the first defendant failed to meet its obligations under the contract and failed to meet its contract program. 36 The plaintiff put to the Adjudicator that the first defendant had not demonstrated that it was delayed, that the first defendant had not provided a contract program or demonstrated any impact on the critical path. Rather than approaching the matter by way of determining whether any delay had been established, the Adjudicator found delay because, as she put it, the plaintiff had offered no alternative explanation. 37 This approach discloses no logical or rational reasoning process for the conclusion that the delay was at least in part attributable to variations and in my view reflects a failure by the Adjudicator to make a bona fide attempt to carry out the function with which she was charged. An obvious possible reason for delay was, as the plaintiff submitted, that the first defendant was not working with sufficient diligence. In my view, in approaching the matter as she did, the Adjudicator did not carry out the task given to her by the Act and fell into jurisdictional error: see Bauen Constructions v Westwood Interiors [2010] NSWSC 1359, particularly at [20] - [27] and [36] - [43] and the authorities cited there. Date for payment 38 Under s 22(1)(b) of the Act the Adjudicator is to determine the date upon which the adjudicated amount became payable. This is an essential requirement. 39 As the Adjudicator recorded, neither party submitted that cl 15 was void for uncertainty because the term "month" is not defined in it. Yet without hearing from the parties on the subject or giving them an opportunity to be heard, the Adjudicator determined that the provision was void. 40 Leaving aside the eccentricity of this finding and the absence of any reasoning as to why even without a definition the word would or could not be given a meaning, the parties were undoubtedly denied natural justice by not having had an opportunity to make submissions on the question. 41 It was put by the first defendant that this error was not material because the effect of it, in financial terms, represents something of the order of $4,000 in an adjudication award of over $1.3 million. Reference was made to what McDougall J said in Laing O'Rourke Australia Construction v H&M Engineering & Construction [2010] NSWSC 818 at [25] and Trysams Pty Ltd v Club Constructions (NSW) Pty Ltd [2008] NSWSC 399 at [42] and following, to the effect that a denial of natural justice must be material, meaning that the requirement for natural justice to be afforded does not require an adjudicator to give parties opportunity to put submissions on a matter not germane to his or her decision. 42 The meaning of the term month was not merely germane to the Adjudicator's determination of an essential matter under the Act but was the very subject of it. It was thus clearly material and in proceeding as she did the Adjudicator fell into jurisdictional error. It is not for the Court to substitute its own determination for that of the Adjudicator and absent a valid determination of the date for payment the Adjudication lacks an essential element. 43 I consider that this error too warrants quashing the Adjudication. CONCLUSION 44 It follows that an order in the nature of certiorari quashing the Adjudication is appropriate. 45 I order that the Adjudicator's Adjudication Determination dated 22 February 2010 be quashed and set aside. The money standing in Court is forthwith to be paid out to the plaintiff. 46 The first defendant is to pay the plaintiff's costs of the proceedings.

ADDITIONAL COMMENTS 47 One of the significant claims which the payment claim made was for variations in relation to Demolition Works ($260,731.39) and Shoring ($913,540.02). 48 The payment schedule allowed nil in respect of the Demolition Works and Shoring claims on the basis that the work claimed for formed part of the contract works, the amounts claimed were not fair and reasonable and that a variation claim had not been submitted in accordance with the contract. The Adjudicator allowed the full amount of the Demolition Works and Shoring variations. The plaintiff made specific reference to difficulties with the invoices, drawing attention to doubling up and inconsistencies. The payment schedule was supported by Mr Burford's Statutory Declaration, in which he stated that he had reviewed the invoices which were said to relate to the demolition variation and the shoring variation and stated that on their face, some were not issued to the first defendant, some related to other jobs and some were claimed more than once. He attached spreadsheets setting out his review of the invoices and referring with respect to each invoice to the issue that the plaintiff was raising. 49 After dealing with and disposing of the plaintiff's contention that the first defendant was not entitled to claim these as variations, the Adjudicator dealt with their value and determined, relevantly, as follows:

The sole remaining issue is the value of the variations. The respondent's concerns in this regard are limited to the invoices relied upon by the claimant in establishing the costs incurred undertaking this work. The respondent's review of the invoices relied upon by the claimant is set out at annexure "JB-J" to the statutory declaration of Jake Burford. The respondent makes two complaints: firstly, that the invoices relied upon have not been issued to the claimant and, secondly, that it is not clear how certain invoices relate to the project in general and the demolition and shoring work in particular. Although these issues are not addressed in any detail in the claimant's submissions, they are touched upon in the statutory declaration of Vince Santoro, where he explains, again at a general level, the claimant's subcontracting arrangements. Despite the lack of any detailed response to the concerns expressed by the respondent, I am not satisfied that either reason is a proper basis for denying the claimant what are otherwise claimed, and not denied, to be the reasonable extra over costs of work undertaken. I am accordingly satisfied that the claimant is entitled to the full amount claimed for the demolition variation and the full amount pressed for the shoring variation. 50 Initially the plaintiff submitted that the manner in which the Adjudicator dealt with the Demolition Works and Shoring variations reflected apprehended bias against the plaintiff on the basis that there was no evidentiary foundation for her conclusion adverse to the plaintiff and that she had failed to grapple with the task required of her. The complaint was, however, abandoned when the plaintiff abandoned its bias submission. Nevertheless, and even though this aspect plays no part in the conclusion I have reached, it seems to me to be appropriate to observe that in approaching this matter as she did, the Adjudicator failed to carry out the task given to her by the Act in a number of material respects. Firstly, she did not, as was required by s 22(4), determine the value of the work claimed for. Secondly, she failed to provide any discernible reasons for her conclusion. Thirdly, Mr Burford's Statutory Declaration placed in issue the value of the work being claimed for. To regard the plaintiff as not having denied the amount as the reasonable extra cost of work undertaken reflects a lack of a bona fide attempt on the part of the Adjudicator to carry out the function with which she was charged.

51 I also should not let the occasion pass without emphasising that there appears to have arisen a practice whereby claimants and respondents under the Act mulct adjudicators with massive amounts of irrelevant and surplus material. This practice will in particular cases no doubt amount to an abuse of process and is at risk of being dealt with accordingly.

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