The Minister for Commerce (formerly Public Works & Services) v. Contrax... [2005] NSWCA 142 | Case summary

The Minister for Commerce (formerly Public Works & Services) v. Contrax... [2005] NSWCA 142 | Case summary | Zoe

[14]

STATUTORY PROVISIONS 9 The object of the Act is dealt with in s.3, as follows: 3 Object of Act (1) The object of this Act is to ensure that any person who undertakes to carry out construction work (or who undertakes to supply related goods and services) under a construction contract is entitled to receive, and is able to recover, progress payments in relation to the carrying out of that work and the supplying of those goods and services. (2) The means by which this Act ensures that a person is entitled to receive a progress payment is by granting a statutory entitlement to such a payment regardless of whether the relevant construction contract makes provision for progress payments. (3) The means by which this Act ensures that a person is able to recover a progress payment is by establishing a procedure that involves: (a) the making of a payment claim by the person claiming payment, and (b) the provision of a payment schedule by the person by whom the payment is payable, and (c) the referral of any disputed claim to an adjudicator for determination, and (d) the payment of the progress payment so determined. (4) It is intended that this Act does not limit: (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 any such other entitlement. 10 Sections 4 and 5 contain definitions. It is common ground that the contract in this case was a construction contract as defined in s.4, and that the relevant work was construction work as defined in s.5. The only significant definition for this case is that of "progress payment" in s.4, which is as follows: progress payment means a payment to which a person is entitled under section 8, and includes (without affecting any such entitlement): (a) the final payment for construction work carried out (or for related goods and services supplied) under a construction contract, or (b) a single or one-off payment for carrying out construction work (or for supplying related goods and services) under a construction contract, or (c) a payment that is based on an event or date (known in the building and construction industry as a "milestone payment"). 11 Part 2 of the Act deals with rights to progress payments, and ss.8, 9, 10(1) and 11(1) in that Part are as follows: 8 Rights to progress payments (1) On and from each reference date under a construction contract, a person: (a) who has undertaken to carry out construction work under the contract, or (b) who has undertaken to supply related goods and services under the contract, is entitled to a progress payment. (2) In this section, reference date , in relation to a construction contract, means: (a) a date determined by or in accordance with the terms of the contract as the date on which a claim for a progress payment may be made in relation to work carried out or undertaken to be carried out (or related goods and services supplied or undertaken to be supplied) under the contract, or (b) if the contract makes no express provision with respect to the matter - the last day of the named month in which the construction work was first carried out (or the related goods and services were first supplied) under the contract and the last day of each subsequent named month.

[17]

11 Due date for payment (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. … 12 Part 3 deals with the procedure for recovering progress payments. It is common ground in this case that Contrax did serve a payment claim as contemplated by s.13 of the Act, and that the Minister did serve a payment schedule as contemplated by s.14. Division 2 of that Part (ss.17-26) deals with adjudication of disputes. It is common ground that Contrax in this case made an adjudication application in accordance with s.17, that the adjudicator was appointed as contemplated by s.19, and that the Minister lodged an adjudication response in accordance with s.20. Section 20(2B) has the following provision: 20 Adjudication responses … (2B) The respondent cannot include in the adjudication response any reasons for withholding payment unless those reasons have already been included in the payment schedule provided to the claimant. … 13 Section 22 is in the following terms: 22 Adjudicator's determination (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. (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. (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). (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. (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. 14 The other section relevant to these proceedings is s.34, 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.

[34]

DECISION OF PRIMARY JUDGE 27 Before the primary judge, the Minister submitted that the adjudication determination was vitiated by three errors: (1) error of law in the construction of s.34 of the Act; (2) error by basing the determination on a matter raised for the first time by Contrax in its adjudication application, contrary to John Holland ; (3) denial of natural justice, in not considering the Minister's response to this point. 28 On the first issue, the primary judge held that certain provisions of cl.42 were void pursuant to s.34, namely the sentence in cl.42.1 "In aggregate, payment claims shall not exceed the Contract Price" in the second unnumbered and unlettered subparagraph; and in cl.42.2 the third unnumbered and unlettered subparagraph, reading "In valuing work, regard shall not be had to the value of variations which value has not been included in the Contract Price". 29 In relation to the Minister's reliance on John Holland, the primary judge expressed the view that this case was authority for the proposition that where a claimant did not provide sufficient details in its payment claim to enable a respondent to verify or reject the claim, these missing details could not be included in the adjudication application. The reliance by Contrax on s.34, raised for the first time in its adjudication application, did not mean that its adjudication application raised details or materials that were outside its payment claim: it merely amounted to submissions to answer an argument raised by the Minister in his payment schedule. Accordingly, the primary judge rejected this contention of the Minister. 30 As regards the third issue, the primary judge said that he considered the adjudicator was wrong in saying that the Minister was precluded by s.20(2B) from putting submissions in answer to Contrax's reliance on s.34; but said this did not matter, because the adjudicator did consider the substance of the Minister's submission anyway, and because the conclusion reached by the adjudicator was correct, as the primary judge had found in relation to the first issue. Accordingly, the primary judge dismissed the summons and ordered the Minister to pay Contrax's costs.

[35]

GROUNDS OF APPEAL 31 The Minister relied on the following grounds in its Amended Notice of Appeal: 1. His Honour erred in his construction and application of section 34 of the Building and Construction Industry Security of Payment Act (NSW) 1999 (the "Act"). 2. His Honour erred in concluding that the parts of clauses 42.1 and 42.2 of the contract, which his Honour found offended section 34 of the Act, were otherwise than terms of the contract by which the parties agreed that the amount of any progress payment was to be calculated within the meaning of section 9(a) of the Act [paragraph 47 of the judgment]. 3. His Honour, in circumstances where sections 8(2)(a) and 9(a) of the Act applied to the contract, erred in concluding that the relevant portions of clauses 42.1 and 42.2 of the contract were void by application of section 34 of the Act thereby giving to the First Respondent rights under the Act greater than those which the Act intended. 4. His Honour erred in holding that the relevant portions of clause 42 of the contract were provisions under which the operation of the Act was excluded modified or restricted [paragraph 43 of the judgment]. 5. His Honour erred in holding that the relevant portions of clause 42 of the contract were void by reason of section 34 of the Act in that he failed to have regard to the true operation of the Act in circumstances where the contract was one to which sections 8(2)(a) and 9(a) of the Act applied. 6. His Honour erred in determining that, consequent upon the right to a progress payment pursuant to section 8 of the Act, the amount of that progress payment is to be determined otherwise than in accordance with section 9(a) of the Act [paragraphs 38-40 of the judgment]. 7. His Honour erred in determining, in respect of additional cost claims of the First Respondent for delay and disruption and variations that were expressly agreed to be a matter of contractual entitlement rather than common law damages or quantum meruit, that such additional cost claims concerned certain kinds of construction work for which the First Respondent had a right to a progress payment under the Act [paragraphs 41-43 of the judgment]. 8. His Honour erred in determining, in respect of additional cost claims of the First Respondent for delay and disruption and variations that were expressly agreed to be a matter of contractual entitlement rather than common law damages or quantum meruit, that certain parts of the terms of the contract that set out the entitlement of the First Respondent to make and receive payment for such additional cost claims excluded, modified or restricted the operation of the Act [paragraphs 41-43 of the judgment]. 9. His Honour erred in determining that certain parts of clause 42 of the contract between the Appellant and the First Respondent were void by reason of the application of section 34 of the Act [paragraphs 38-48 of the judgment]. 10. His Honour erred in determining in respect of additional cost claims of the First Respondent for delay and disruption and variations that were expressly agreed to be a matter of contractual entitlement rather than common law damages or quantum meruit, that: a. certain parts of the terms of the contract that set out the entitlement of the First Respondent to make and receive payment for such additional cost claims were void by application of section 34 of the Act; and b. thereby materially changed the intent of the contract in respect of claims for additional costs. 11. His Honour erred in failing to declare void the determination upon the basis that the amount of the Payment Claim was not an amount claimed for construction work as defined under the Act. 12. His Honour erred in holding that the Third Respondent (the adjudicator) had power or jurisdiction under the Act to declare parts of the contract void. 13. His Honour erred in determining that the First Respondent was entitled to raise new issues and arguments by its payment claim, adjudication application and submissions to the adjudicator under the Act [paragraphs 56-61 of the judgment]. 14. His Honour erred in determining that the purported determination of the Third Respondent was not void. 32 I will deal briefly with the matters raised by ground 13, which relates to the Minister's John Holland point. I will then consider the issues relating to the remaining grounds, which were the matters principally relied on in the appeal.

[36]

WHAT CAN THE ADJUDICATOR CONSIDER? 33 The only challenge to the primary judge's decision on the second and third issues identified above was to the effect that the primary judge erred in holding that Contrax was entitled to rely on s.34, when that matter had not been raised in its payment claim. This contention relied on John Holland, and also on a suggested anomaly arising from the prohibition in s.20(2B) on a respondent relying on reasons not included in its payment schedule. 34 In my opinion, this suggested anomaly loses force when one considers the true effect of s.22(2). It is true that paragraph (d) of s.22(2) limits the submissions of the respondent that can be considered under that paragraph to submissions duly made by the respondent in support of the payment schedule; and in my opinion, that does have the effect of excluding, from consideration under that paragraph, reasons included in the adjudication response that were not included in the payment schedule. 35 However, paragraphs (a) and (b) of s.22(2) require the adjudicator to consider the provisions of the Act and the provisions of the construction contract; and in my opinion, that entitles and indeed requires the adjudicator to take into account any considerations (other than considerations arising from facts and circumstances of the particular case not otherwise before him or her) that he or she thinks relevant to the construction of the Act, the construction of the contract, and the validity of terms of the contract having regard to provisions of the Act. Thus, in my opinion, if an adjudicator comes to know of submissions of a respondent that he or she thinks to be relevant to these questions (not being submissions based on facts and circumstances of the particular case not otherwise before him or her), he or she can take them into account under paragraphs (a) and (b), even if they cannot be considered under paragraph (d). 36 Similarly, in my opinion, an adjudicator could take into account a contention of an applicant that a term of the contract is void by reason of s.34, when considering matters under paragraphs (a) and (b), even if that contention could not be taken into account under paragraph (c). 37 However, I agree with the primary judge that the circumstance that s.34 was not mentioned in the payment claim, and was mentioned for the first time in the adjudication application, does not have the consequence that it cannot be considered under paragraph (c) of s.22(2). I agree with the primary judge that this is not an addition to the payment claim or a departure from it that could be affected by the considerations given weight to in John Holland.

[37]

EFFECT OF SECTION 34 Submissions 38 Mr. Inatey SC for the Minister submitted that the parts of cl.42 found to be void by the primary judge did not exclude, modify or restrict the operation of the Act. Contrary to what was said by the primary judge at [43] of the judgment, the Act does not give an entitlement to be paid from a reference date for construction work carried out prior to that reference date: rather, it gives a right to make a progress claim, and the amount of the progress payment is to be determined in accordance with s.9; that is, if the contract makes express provision as to how it is to be calculated, the amount calculated in accordance with the terms of the contract. 39 Mr. Inatey submitted that the definition of progress payment in s.4, and in particular in paragraph (c) of the definition, shows that, contrary to what the primary judge said, the payment may not be related to construction work done to a particular date but could, for example, be a specified sum to be paid at a specified date or on the happening of a specified event. If that is what the contract provides in relation to the calculation of progress payments, then s.8(a) and s.9(a) require that effect be given to it. This is consistent with ss.10 and 11, which also give effect to provisions of the contract, where the contract makes relevant provision. 40 Mr. Inatey submitted that s.34 relevantly applied only if "the operation of the Act" is excluded, modified or restricted. Where the contract makes provision for the calculation of progress payments, the Act says that this is to have effect; so that effect is in accordance with the Act and not contrary to it. 41 Mr. Inatey referred to Jemzone v. Tritan [2002] NSWSC 395 at [37] and [38], and to Quasar Constructions v. Demtech Pty. Limited [2004] NSWSC 116 at [21] and [27], to support his contention that the content of a contractor's entitlement to progress payments was determined by the contract, where the contract makes provision. He submitted that it was in accordance with Abacus v. Davenport [2003] NSWSC 1027 at [38] that s.9 required the application of the contractual mechanism for determination of progress payments; and he referred also to Transgrid v. Walter Construction Group [2004] NSWSC 21 at [59], and Transgrid v. Siemens Limited [2004] NSWCA 395 at [35]. 42 Mr. Inatey submitted that the adjudicator failed to comply with an essential pre-requisite for the making of a determination, because the determination was not produced in accordance with the requirements of ss.8 and 9; and he referred to Brodyn Pty. Limited v Davenport [2004] NSWCA 394 at [51]-[56]. 43 Mr. Corsaro SC for Contrax submitted that s.8 of the Act establishes an entitlement to progress payments as and from each reference date, and makes no distinction as to the type of construction work in respect of which there is such an entitlement; in particular, no distinction between construction work included in the original contract and construction work pursuant to a variation or Superintendent's direction. The provisions of cl.42 referred to by the primary judge limited the effect of the Act, because they deprived the contractor of a right to make a progress claim for such work and to obtain an interim determination in relation to such work. 44 Mr. Corsaro submitted that, in any event, even if the adjudicator and the primary judge were in error as to the effect of s.34, this would not make the determination void: cf. Siemens at [31]-[35].

[38]

Decision 45 In Brodyn at [53], I set out what I considered to be at least some of the basic and essential requirements for there to be an adjudicator's determination under the Act, namely: 1. The existence of a construction contract between the claimant and the respondent, to which the Act applies (ss.7 and 8). 2. The service by the claimant on the respondent of a payment claim (s.13). 3. The making of an adjudication application by the claimant to an authorised nominating authority (s.17). 4. The reference of the application to an eligible adjudicator, who accepts the application (ss.18 and 19). 5. The determination by the adjudicator of this application (ss.19(2) and 21(5)), by determining the amount of the progress payment, the date on which it becomes or became due and the rate of interest payable (ss.22(1)) and the issue of a determination in writing (ss.22(3)(a)). 46 At [55] in Brodyn, I suggested that these requirements may not be exhaustive, and also that, in addition to compliance with such requirements, it was essential to the existence of a determination that there have been a bona fide attempt by the adjudicator to exercise the relevant power relating to the subject matter of the legislation and reasonably capable of reference to this power, and no substantial denial of the measure of natural justice that the Act requires to be given. 47 Mr. Inatey did not suggest that there was failure to comply with any of the first four of the five requirements mentioned above, or that there was any relevant denial of natural justice. Rather, he suggested that the fifth requirement, the making of the determination, involved compliance with s.9; that is, that it involved, in a case where the contract made express provision as to the calculation of the amount of progress payments, making a calculation in accordance with the terms of the contract. As I understood it, he also suggested, perhaps more faintly, that to do otherwise would be not to make a bona fide attempt to exercise the relevant power. 48 In my opinion, this argument fails, essentially for the reasons set out in Siemens at pars.[33] and [34]. 49 In my opinion, an error of fact or law, including an error in interpretation of the Act or of the contract, or as to what are the valid and operative terms of the contract, does not prevent a determination from being an adjudicator's determination within the meaning of the Act. Section 22(2) does require the adjudicator to consider the provisions of the Act and the provisions of the contract; but so long as the adjudicator does this, or at least bona fide addresses the requirements of s.22(2) as to what is to be considered, an error on these matters does not render the determination invalid. 50 Accordingly, even if s.34 does not invalidate the relevant parts of cl.42, the adjudicator's determination would not be invalid; and it is not necessary for me to express a final view as to whether s.34 has that effect in this case. 51 However, I am of the view that it is strongly arguable that s.34 does have that effect, on either or both of two grounds. 52 First, consistently with the view expressed in Siemens at [35], the procedure in cl.46 might be regarded as merely a procedure for identifying when and by whom a calculation is to be made. The basis for the expert's decision set out in cl.40.2 could then be regarded as the relevant express provision made by the contract with respect to the calculation of the amount of progress payments under cl.42.2, with which s.9(a) engages. If that view is correct, then the relevant sentences in cl.42 would preclude the payment of progress payments calculated in accordance with the terms of the contract, and thus fall foul of s.34. 53 Second, although "progress payment" is defined in s.4 of the Act to mean "a payment to which a person is entitled under s.8", and although s.4 does not contain a qualification by reference to context, nevertheless in my opinion it is plain that, in some places in the Act, the expression "progress payment" is used in a way that includes a more generalised meaning. For example, s.3(2) cannot mean that the means by which the Act ensures that a person is entitled to receive "a payment to which a person is entitled under s.8" is by granting a statutory entitlement to such a payment, regardless of whether the relevant construction contract makes provision for "payments to which a person is entitled under s.8". Plainly, in s.3(2), progress payment is meant in a more general sense; and the same must be true of its use in s.3(1). Similarly, where s.8(2)(a) refers to the date determined under the contract as the date on which a claim for a progress payment may be made, this provision was not meant to be ineffectual unless the contract provision relates to payments to which a person is entitled under s.8: again, in my opinion, plainly a more general sense of the phrase is intended to be included: cf. Quasar at [21]. And in my opinion, the more general sense is also intended in s.8(1), because otherwise s.8(1) would be circular and vacuous. 54 On that basis, in my opinion a provision of a contract as to the determination of reference dates, or as to the calculation of the amount of progress payments, could be such as to restrict the operation of the Act within the meaning of s.34, even though the Act in s.8(2)(a) and s.9(a) expressly defers to such provisions. For example, if a contract provided for yearly reference dates, or provided that progress payments should be calculated on the basis of 1% of the value of work done, in my opinion such provisions could be so inimical to s.3(1), s.3(2) and s.8(1) as to be avoided by s.34. If, contrary to the first ground, cl.46 is a provision as to calculation, the relevant parts of cl.42 could still be seen as restricting the operation of the Act. In my opinion, it is preferable not to finally determine this question in a case where it is not necessary to do so. 55 As noted in Brodyn at [84]-[88], there may be remedies available to a respondent by way of stay or injunction where a respondent alleges that there was a serious error in an adjudicator's determination, and that money paid over would be irrecoverable.

The Minister for Commerce (formerly Public Works & Services) v. Contrax Plumbing (NSW) Pty. Ltd. & Ors. [2005] NSWCA 142

At a glance

Court

Decision date

Before

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Judgment (40 paragraphs)

Cases Cited (7)

Cited By (41)