Sunshine Coast Regional Council v Earthpro Pty Ltd & Ors [

ADMINISTRATIVE LAW - JUDICIAL REVIEW - GROUNDS OF REVIEW - PROCEDURAL FAIRNESS - GENERALLY - where the adjudicator was mistaken about claim dates - where the adjudicator decided claims based on information not provided by either party - where the applicant claimed that the adjudicator failed to have proper regard to submissions made - whether the adjudicator's actions amounted to procedural unfairness

CONTRACTS - BUILDING, ENGINEERING AND RELATED CONTRACTS - REMUNERATION - STATUTORY REGULATION OF ENTITLEMENT TO AND RECOVERY OF PROGRESS PAYMENTS - OTHER MATTERS - where part of an adjudication decision is affected by jurisdictional error - where the proceeding to challenge the adjudicator's decision was brought before the Building Construction Industry Payment Act 2004 ("the Act") was amended to include s.100(4) - whether s.100(4) of the Act applies to the proceeding

ESTOPPEL - ESTOPPEL BY JUDGMENT - RES JUDICATA OR CAUSE OF ACTION ESTOPPEL - PARTICULAR CASES - where the respondent was unsuccessful in a previous adjudication - where the respondent brought a new claim based on similar facts using a different contractual clause - where the respondent adduced new evidence - whether the adjudicator was bound by an issue estoppel - whether the parties to the adjudication were bound by a decision of a previous adjudicator

Building and Construction Industry Payments Act 2004, ss 100, 116

Building and Construction Industry Payments Amendment Act 2014

AE & E Australia Pty Ltd v Stowe Australia Pty Ltd [2010] QSC 135, cited

BM Alliance Coal Operations Pty Ltd v BGC Contracting Pty Ltd & Ors [2012] QSC 346, cited

Caltex Refineries (Qld) Pty Ltd v Allstate Access (Australia) Pty Ltd [2014] QSC 223, cited

Hansen Yunken Pty Ltd v Ericson trading as Flea's Concreting [2011] QSC 327, cited

Hervey Bay (JV) Pty Ltd v Civil Mining and Construction Pty Ltd [2008] QSC 58, cited

James Trowse Constructions Pty Ltd v ASAP Plasterers Pty Ltd [2011] QSC 345, cited

John Holland Pty Ltd v TAC Pacific Pty Ltd [2009] QSC 205; [2010] 1 Qd R 302, cited

Ku-Ring-Gai Council v ICHOR Constructions Pty Ltd [2014] NSWSC 1534, cited

McNab Developments (Qld) Pty Ltd v MAK Construction Services Pty Ltd [2014] QCA 232, cited

Peninsula Balmain Pty Ltd v Abi Group Contractors Pty Ltd (2002) 18 BCLR 322, [2002] NSWCA 211, cited

Thiess Pty Ltd v Warren Brothers Earthmoving Pty Ltd [2012] QSC 373, cited

[1] Sunshine Coast Regional Council ("the Council") seeks a declaration that an adjudication decision made pursuant to the Building and Construction Industry Payments Act 2004 ("the Act") by the second respondent ("Mr Spain") is void for jurisdictional error, and consequential relief.

[2] Earthpro Pty Ltd ("Earthpro") contracted with the Council to carry out earthworks at a landfill site. The work included construction of a perimeter stormwater drain, site dewatering and removal of contaminated material.

[3] The contract was based on the general conditions of AS2124-1992.[1]

[4] Under the contract, practical completion was required by 3 June 2013.[2] The date was extended by the Superintendent. Practical completion, however, had not been achieved by 26 March 2014 when the Council terminated the contract.

[5] About four months after termination of the contract, Earthpro made its Payment Claim 13, seeking more than $3M. The Council's Payment Schedule acknowledged a liability of less than $6,500.

[6] Earthpro's Adjudication Application was made in late August 2014. The adjudicator, Mr Spain, determined that the Council should pay Earthpro about $1.4M. About $1.081M of that is for "delay costs" related to extension of time ("EOT") claims.

[7] In contending that the adjudication decision is void for jurisdictional error, the Council advances three grounds: denial of natural justice; that one of Mr Spain's determinations was beyond jurisdiction; and that he failed to consider the Council's case properly.

[8] Payment Claim 13 made several EOT claims. Those that resulted in adjudications in Earthpro's favour were: EOT 2 (22 days); EOT 10 (29 days); EOT 18 (9 days); EOT 19 (49 days), and EOT 25 (61 days): in aggregate, 170 days.

[9] Before Mr Spain, the Council contended that three of those EOT claims - 18, 19 and 25 - were not valid because they were not made until after the contract was terminated.

[10] Mr Spain identified two independent bases for sustaining the EOT claims.[3] The first was that they were submitted before termination; and so the Superintendent was required to respond to them.

[11] In his Adjudication, Mr Spain wrote[4] that EOTs 18 and 19 were made before termination. But they were not.[5]

[12] Earthpro had not suggested that the claims were made before termination. Its case was that cl 35.5 of the General Conditions empowered the Superintendent to grant an EOT where the claim was made post-termination. Nor did the Council contribute to Mr Spain's mistake in supposing that the claims preceded termination. The parties did not learn of the error until they read of it in Mr Spain's Decision. So they had no opportunity to make submissions on the point. On this basis, the Council contends that the parties were denied procedural fairness, rendering the Decision void.

[13] That lost opportunity, however, was of no practical significance because Mr Spain's second basis for sustaining the claims assumed that they were made after termination.

[14] In Peninsula Balmain Pty Ltd v Abi Group Contractors Pty Ltd[6], the New South Wales Court of Appeal held that a Superintendent's power to extend time under cl 35.5 is not lost by termination of the contract, "even if the claim for exercise of the power to extend...had not been made until after termination".[7]

[15] Mr Spain said that he was satisfied that the principles of Peninsula Balmain apply. But he added a qualification. He thought that the cl 35.5 power to extend time could be exercised post-termination only where "the issue" had been "notified" to the Superintendent pre-termination.

[16] Consistently with that view, in explaining why claims 18 and 19 succeeded, he found that the Superintendent was aware of the material circumstances before termination.[8]

[17] Before Mr Spain, Earthpro relied on Peninsula Balmain to show that post-termination EOT claims could be valid. The Council argued that Peninsula Balmain did not decide that. Neither side sought to persuade Mr Spain that a post-termination claim could succeed only where the Superintendent knew of the pertinent facts before termination. And Peninsula Balmain does not support such a restriction. Mr Spain's mistaken impression that the power was fettered in that way was his invention; and he did not give the parties an opportunity to be heard about his idea. On the Council's case, that omission denied the disputants procedural fairness.

[18] Assuming that Mr Spain did deny the parties procedural fairness, still the omission has no practical significance. Had he heard them on his restrictive interpretation of Peninsula Balmain, he would have adhered to his opinion or else retreated from it. Either way, there could not have been a different outcome. Had he abandoned the qualification he favoured, he would have adjudicated the claims on their merits; and he would inevitably have found them proved. Had he instead adhered to the qualification, the result would be the same: for he concluded that the Superintendent knew the pertinent circumstances before termination; and there is no complaint about that finding.

[19] Accordingly, any deficiency in procedural fairness inherent in denying the chance to argue against Mr Spain's restrictive interpretation could not have affected the adjudication on the EOT claims.

[20] No practical injustice resulted from Mr Spain's omissions to invite submissions on his factual and legal mistakes. So there should not be a declaration that the Decision is void because of those omissions.[9]

[21] EOT 10 is a claim for a 59 day extension of the date for practical completion for "progress impacts by the Superintendent's instructions regarding removal of sloppy alluvium".[10]

[22] Earthpro based EOT 10 on a contention that a Superintendent's instruction had effected a "change in the character of the works and/or additional work" by requiring it "to continue with excavation, removal and stockpiling of alluvium in circumstances where it was not reasonable to do so".[11]

[23] As "background", Earthpro, in its Adjudication Application, argued that it had been open to the Superintendent to award an extension to allow the alluvium to dry out before it was removed, submitting:

"The Superintendent insisted that Earthpro continue to perform the work despite the excessive saturation of the alluvium material, resulting from unseasonal heavy rainfall on site combined with (the Council's) failure to re-direct the stormwater drain along the northern area of Cell 3".[12]

[24] Insisting that the oversaturation of the alluvium was caused by the flow of stormwater, not groundwater, Earthpro's Adjudication Application continued:

The effect of [the Council's] failure to redirect the stormwater in accordance with s 1.4 of the specification, which was said to require the Council to redirect the stormwater drain along the northern area of Cell 3, was that "all stormwater from the northern part of Cell 3 flowed into Earthpro's works area in Cell 10 and Cell 9 during rainfall periods...".[13]

[25] Earthpro also relied on an expert report ("the Landloch Report") to demonstrate that the alluvium had become saturated because, for reasons beyond its control, Earthpro could not construct clean water drains.

[26] Earthpro's Adjudication Application acknowledged that it had previously claimed additional costs for a contractual variation which it maintained had resulted from the Superintendent's instructions to stockpile the alluvium. That claim was rejected by another adjudicator, Mr Uher.

[27] Before Mr Spain, Earthpro accepted that claim EOT 10 concerned the same removal of alluvium that had founded the variation claim that Mr Uher had rejected. Earthpro, however, argued that Mr Spain was not obliged to act on Mr Uher's factual findings because:

• The latest claim was not for a contractual variation but instead for an extension of the time for practical completion; and
• Additional evidence was adduced and new arguments advanced in relation to the ramifications of the Superintendent's direction.

[28] The Council, however, contends that:

• Mr Uher determined, adversely to Earthpro, issues fundamental to EOT 10;
• Earthpro was thereby precluded from maintaining that claim before Mr Spain.

[29] By cl 40.1 of the General Conditions, the Superintendent may direct "the Contractor" to "(b) change the character or quality of any material or work;...(d) execute additional work".[14]

[30] Mr Uher, therefore, had to decide whether the direction to stockpile saturated alluvium material in Cell 12 changed "the character...of...work" from that allowed for in the tender or else caused "additional work". Earthpro sought to persuade Mr Uher of that in reliance on these contentions:

• The project experienced abnormally excessive rainfall;
• Earthpro's work areas were flooded as a result of the Council's failure to redirect the stormwater drain along the northern area of Cell 3;
• Cell 12 was not large enough to accommodate a stockpile of the alluvium material, which caused Earthpro to stockpile it initially in Cells 9 and 10;[15]
• The excavated alluvium was so saturated that it could not be stockpiled by single handling as the tender had contemplated with the consequence that Earthpro was required to dry out the material first before placing it in the stockpile.

[31] As to excessive rainfall, Mr Uher decided that:

"The tender information provided a sufficient warning...that heavy rain would significantly soften the ground. The Claimant's ESCP[16] indicates that the claimant was aware of this risk, however, it does not seem to me that the claimant has effectively incorporated it into the adopted work method."[17]

[32] The Council had not redirected the stormwater drain along the northern area of Cell 3. Mr Uher, however, was persuaded that:

• Engineering reports indicated that "the run-off from the northern part of Cell 3 was minimal and was within an allowance made in the Claimant's ESCP"[18];
• The main cause of the additional run-off that entered the work area was Earthpro's failure to implement its own Clean Water Drains strategy.[19]

[33] In other words, Mr Uher rejected Earthpro's assertion that the work areas were flooded because the Council had not redirected the stormwater drain.

[34] Clause 35.5 lists the causes that could sustain an extension of the time for practical completion. They include "(iv) Variations directed under Clause 40". But questions that arise under Clause 40.1(b) and (d) are not necessarily the same as those which fall to be considered when an extension is sought under cl 35.5 or delay costs are claimed under cl 36. There are other potential grounds for an EOT, including "(a) Events...beyond the reasonable control of the contractor, including...inclement weather;" "(b)(i) Delays caused by - the Principal, the Superintendent...;(iii) Latent conditions; (vi) Changes in the law; (viii) Delays by municipal, public or statutory authorities not caused by the contractor...; and (x) Any breach of contract by the Principal...".

[35] To support its claim for a 59 day extension for "progress impacts due to Superintendent's instruction regarding removal of sloppy alluvium"[20], Earthpro's Adjudication Application propounded a case that the instruction had effected a "change in character of the works and/or additional work" - which is how it had advanced its case for a cl 40 variation before Mr Uher.

[36] More importantly, Earthpro supported its EOT claim in reliance on factual foundations that were, in substance, the same as[21], or at least included, those advanced before Mr Uher as essential to its claim to a valued variation.

[37] Despite the reference in its Adjudication Application to a change in the character of the work and additional work said to have resulted from the Superintendent's direction, an EOT might have been granted under cl 35.5, and delay costs awarded under cl 36, without showing that the direction had resulted in a change of the character of, or additional, work. However, Earthpro's EOT case was founded on assertions that:

• The alluvium had become saturated because:
  • (i) The Council had failed to redirect the stormwater drain; [22] and
  • (ii) Earthpro was unable to construct Clean Water Drains in accordance with its Erosion and Sediment Control Plan;
• Earthpro experienced difficulties as a consequence of unusually heavy rainfall between January and April 2013.

[44] The Council contends that Mr Spain awarded Earthpro delay costs of more than $150,000 for a 22 day period in respect of which Earthpro had not sought monetary compensation.

[45] Earthpro:

• accepts that it did not ask Mr Spain to award delay costs for the 22 day period;
• contends that he did not make such a determination.

[46] The question whether Mr Spain awarded compensation for the 22 days falls to be resolved by a consideration of his reasons.

[47] The days in issue are the 22 working days between 8 February and 5 March 2013 when the site was closed as a result of a suspension of works directed by the Superintendent.

[48] A different adjudicator, Mr Tonkin, had determined that the Superintendent's suspension was not justified and, on that basis, awarded Earthpro monetary compensation for costs related to the suspension.

[49] Before Mr Spain, Earthpro sought a 22 day EOT on the footing that it had been delayed to that extent by the Superintendent's suspension order. Applying Mr Tonkin's view that the suspension was "without foundation", Mr Spain granted the extension, acknowledging in his Decision that Mr Tonkin had already determined Earthpro's entitlement to costs.

[50] Mr Spain's reasons are directed to the EOT. Nothing in his analysis suggests that he had in mind awarding Earthpro monetary compensation twice for the suspension. Nevertheless, the Council argues that he did allow delay costs for those 22 days.

[51] Mr Spain's reasons include a table summarising the EOT claims. The table reveals that he allowed 259 days for all the EOTs. 170 of the days appear in a "Compensable working days" column. The other 89 were included in an adjacent column headed "Excusable working days".

[52] The 22 day suspension is mentioned in the "Compensable working days" column.

[53] Mr Spain found that the 89 wet weather days extended the date for practical completion to 17 September 2013. The 170 compensable days further extended practical completion until 9 April 2014.

[54] Earthpro's payment claim was for work performed to 28 February 2014. So the claim could not be allowed for any period after that reference date.

[55] Between 18 September 2013 and 28 February 2014, there were, Mr Spain found, 137 compensable days. He therefore allowed "delay" costs associated with 137 compensable days.

[60] The Council asserts that Mr Spain did not deal with the dispute rationally, instead approaching his assessment of compensation for delay in a way that was so perverse, arbitrary or capricious as to constitute jurisdictional error. In particular, it is said that he did not properly address the Council's arguments regarding valuation. The contention relates to cl 36 of the General Conditions.

[61] Clause 36, headed "Delay or disruption costs", provides:

"Where the contractor has been granted an extension of time under Clause 35.5 for any delay...the Principal shall pay...

(b)...the direct costs which the contractor can demonstrate to the Superintendent by written evidence that it has suffered as a consequence of that delay."

[62] Mr Spain interpreted cl 36 as permitting a claim to be founded on an aggregation of various delays, with the evidence directed globally to Earthpro's "direct costs" assessed for the entire period of the several delays, which is how Earthpro had advanced its claim.

[63] The Council, however, contends that cl 36 allows only those "direct costs" that are proved to be attributable to a particular period: aggregation of discrete delays without proof of the particular costs involved in each period is said to be impermissible.

[64] On the Council's case, Mr Spain's view of the effect of the clause is so egregiously in error that his interpretation must been regarded as so perverse as to constitute jurisdictional error.[24] The Council accepts that mere error in construing a contractual stipulation would not suffice to constitute jurisdictional error. But the idea that "any delay..." in Clause 36 permits a global claim, without proof separately directed to the particular direct costs attributable to the discrete delay periods is said to be so irrational as to exceed jurisdictional limits.

[65] No case was cited which decides that Mr Spain's interpretation of cl 36 is erroneous, let alone egregiously so. And it is not self-evident that it is mistaken. But if it is wrong[25], still his view of the operation of the clause cannot fairly be characterised as so very peculiar as to bespeak a failure to apply a rational mind to the resolution of the question.[26]

[66] Other complaints were made about Mr Spain's reasoning, including that the evidence did not sustain his assessment of a plant and equipment claim and that his criticisms of expert evidence adduced in the Council's case were misguided. It is not necessary to discuss them or such other complaints as were made about the merits. Even if sustained, the complaints would at most reveal non-jurisdictional error.

[67] It is not shown that Mr Spain did not perform the tasks required of him by the Act in construing cl 36.

[68] The next question is whether s.100(4) of the Act applies to this proceeding.

[69] By s.100(4):

"If, in any proceedings...in relation to any matter arising under a construction contract, the court finds that only part of an adjudicator's decision...is affected by jurisdictional error, the court may -

(a) Identify the part affected by the error; and

(b) Allow the part of the decision not affected by the error to remain binding..."

[70] Section 100(4) was introduced by the Building and Construction Industry Payments Amendment Act 2014. It was proclaimed to take effect on 15 December 2014, which is after this application was filed.

[71] By s.116 of the Act, which applies where, as here, a payment claim was served before the section commenced[27], the transitional version of the Act[28] "applies to any outstanding matters under this Act relating to the payment claim, including for example" - and then follow examples none of which includes an application such as the present.

[72] The Council contends that this application is neither a matter "under the Act" nor one "relating to payment claim": not "under the Act" on the footing that it concerns "the validity of a particular adjudication decision"[29]; and does not relate to a payment claim because the outcome cannot affect Earthpro's payment claim.

[73] The evident purpose of s.100(4) is not difficult to discern. It had been judicially determined that "jurisdictional error which affects one part of a decision will render the whole of [the decision] void".[30] That rule produced inconvenient consequences. More than one judge urged that the Act be amended to permit so much of an adjudicator's decision as was not affected by jurisdictional error to stand.[31]

[74] Recognition of that object does not assist in deciding whether s.100(4) applies to a proceeding that starts before the amending Act became operative last December. There is, however, a distinct textual indication that it does.

[75] By s.116(5)(e), the "transitional version of the Act" that is to apply to "any outstanding matters under this Act relating to the payment claim" expressly includes "the amendment of s.100".

[76] That "amendment..." did no more than insert s.100(4).

[77] The inclusion of s.100(4) as part of the "transitional version of the Act" that applies to "any outstanding matters..." evinces a legislative intent that s.100(4) should apply to applications such as the present.

[80] Allowing the 59 day EOT involved jurisdictional error.

[81] The other challenges fail.

[82] I will hear submissions concerning the form of order and costs.

[3] The reasoning is express in relation to EOTs 18 and 19 and, presumably, implicit in connection with EOT 25.

[4] Exhibit MGM-17 to the Affidavit of M G Muir filed 29 September 2014, [327], [343].

[5] He did not say that EOT 25 was made before termination. If, as seems likely, he proceeded upon the erroneous basis that it was, no different issue arises from those considered in connection with EOTs 18 and 19.

[6] (2002) 18 BCLR 322, [2002] NSWCA 211.

[7] Para 80, per Hodgson JA, Mason P and Stein JA concurring; see also Hervey Bay (JV) Pty Ltd v Civil Mining and Construction Pty Ltd [2008] QSC 58, [38].

[9] John Holland Pty Ltd v TAC Pacific Pty Ltd [2009] QSC 205; [2010] 1 Qd R 302, 315, [40]; Hansen Yunken Pty Ltd v Ericson trading as Flea's Concreting [2011] QSC 327, [122]; and Caltex Refineries (Qld) Pty Ltd v Allstate Access (Australia) Pty Ltd [2014] QSC 223, [38].

[10] Exhibit MGM-9, above n 4, [359].

[11] Exhibit MGM-9, above n 4, [360].

[12] Exhibit MGM-9, above n 4, [360]. On Earthpro's case, the average rainfall in the period January-April is 609mm "but Earthpro recorded 1413.50mm" during that period.

[14] Absent agreement between Superintendent and contractor upon price, such a variation is to be valued in accordance with a mechanism prescribed in cl 40.5.

[15] The designated stockpile in Cell 12 was where Earthpro was to carry out the fill work under the contract.

[16] Erosion and Sediment Control Plan.

[19] Ibid, [67]: "I have formed the view that the flooding of the Claimant's work areas was caused by the Claimant's failure to implement the CWD [Clean Water Drain] strategy of its own ESCP. The Claimant has not satisfied me that the main cause of the flooding was the run-off from the northern part of Cell 3".

[21] Mr Sullivan QC acknowledged that similar factual contentions were raised in both claims.

[22] As Earthpro advanced its variation claim, Mr Uher had to determine whether the Council's decision not to redirect the stormwater drain along the northern area of Cell 3 caused flooding in Cell 9. In its Adjudication Application, Earthpro also relied on flooding in Cell 10: see para 364. No significance was attached to this.

[23] Caltex Refineries (Qld) Pty Ltd v Allstate Access (Australia) Pty Ltd [2014] QSC 223, [55]; AE & E Australia Pty Ltd v Stowe Australia Pty Ltd [2010] QSC 135, [11]; cf Ku-Ring-Gai Council v ICHOR Constructions Pty Ltd [2014] NSWSC 1534, [32]-[33].

[24] It is an open question whether a conclusion that Mr Spain's interpretation was perverse, capricious or irrational would establish jurisdictional error: McNab Developments (Qld) Pty Ltd v MAK Construction Services Pty Ltd [2014] QCA 232, [37]-[39], [76], [98]. I am content to assume that it would.

[25] It is unnecessary to decide whether Mr Spain's view is correct, and I refrain from doing so. It suffices to observe that it is fairly arguable that where there are discrete periods of delay, "that delay" in cl 36.6 may include, in effect, "those delays" and admit of global assessment.

[26] Nor if it matters, is his interpretation so unreasonable that no reasonable person could have arrived at it.

[27] Building and Construction Industry Payments Act 2004, s.116(1).

[29] Applicant's Supplementary Submissions dated 9 February 2015, 4, [10].

[30] BM Alliance Coal Operations Pty Ltd v BGC Contracting Pty Ltd & Ors [2012] QSC 346, [58].

[31] See discussion in James Trowse Constructions Pty Ltd v ASAP Plasterers Pty Ltd [2011] QSC 345, [57-[59]; Thiess Pty Ltd v Warren Brothers Earthmoving Pty Ltd [2012] QSC 373, [61]-[62].

[32] The definition of "outstanding matter..." includes a matter "that is yet to be started or is incomplete". That looks to conform to the interpretation of s.116 that seems preferable to me, even though none of the examples of "outstanding matters under this Act relating to the payment claim" includes a proceeding challenging an adjudication for jurisdictional error.