Transfield Services (Australia) Pty Limited v Nortask Pty Ltd and Anor [2012] QSC 306

Thompsons as town agents for Baker McKenzie for the applicant

[1] This is an application for a declaration that an adjudicator's decision pursuant to the Building Construction Industry Payments Act 2004 (Qld) is void because the adjudicator breached the rules of procedural fairness in concluding that the first respondent had engaged another firm called Trenching Systems Australia ("TSA") as a nominated subcontractor under the relevant building contract when it was not and neither the applicant, Transfield Services (Australia) Pty Limited ("Transfield"), nor the respondent, Nortask Pty Ltd ("Nortask"), having submitted to the adjudicator that it was.

[2] Nortask accepts that there has been a breach of the rules of procedural fairness but argues that it was not a material denial of procedural fairness as it could not have made any difference to the outcome. There is also an argument whether the adjudicator's decision was deficient in failing to expose his reasoning on an issue as to whether the contract had been varied.

[3] Nortask made a payment claim for $2,224,480.62 against Transfield, $592,881.70 of which Transfield acknowledged as due. It paid that sum. The adjudicator, the second respondent, determined on 9 December 2011 that $2,060,095 was payable by Transfield to Nortask together with the adjudication fees.

[4] The factual issue of significance related to a claim for $1,423,017 for Variation 17a related to rock breaking. Variation Direction No 17a dealt with the payment for excavating rock using a piece of equipment known as a Vermeer Leveller in these terms:

"This Variation Direction clarifies the terms of payment for the excavation of rock as described in subclauses 2.3.11 'Bulk Excavation of Rock' and subclause 3.10.2 'Rock Excavation' in Footings and Trenches, of the Substation Construction Manual 1-1 and in doing so, supersedes the Variation Direction 017 of 12 August 2011.

The principal accepts that the material encountered on 1 August 2011 by ripping with a D10 bulldozer over the switchyard platform, is demonstrated to be rock in accordance with subclause 2.3.11 of the Substation Construction Manual 1-1.

1. Rock Rate using Rock Breakers on Hydraulic Excavators

The item price in the schedule of rates for the excavation of rock is Item 1.1 of Schedule B - Variation Schedule. The rate is $150.00 per cubic metre.

Payment for bulk excavation of rock shall be made for the actual quantity of rock encountered as determined either by Powerlink Queensland, or by measurement on site jointly between Nortask and Transfield Services.

The price for the excavation of rock using the Vermeer Leveller is $40.00 per cubic metre.

The volume of material as discussed during the meeting held at Nortask's Depot on 22 August 2011 is 21,876 cubic metres and includes:

• The material removed under the rock rate in item 1 above prior to 22 August 2011, which is used to prepare the surface layer ready for the Vermeer operation.
• The volume of Bulk Excavation to the Earth Grids Level as shown on design drawing A1-H-139137-102.
• The foundations for the two transformers and 275 kV strain towers as shown on design drawing A0-H-139137-116.

The lump sum price for the above material is $875,000.

The lump sum price includes mobilisation, demobilisation, maintenance, fuel, rock excavation, transport of excavated material to stockpile and/or fill area, travelling of operators and their accommodation.

Accordingly, a credit allowance shall be made to Scheduled Item 2.2 of the contract for the changed methodology, from ripping the rock with a D10 bulldozer, to excavating the rock using the Vermeer Leveller."

[5] The adjudicator accepted evidence that the Vermeer Leveller was incapable of performing the work and interpreted the variation agreement to mean that, where Nortask used rock breakers on hydraulic excavators to remove the rock, rather than the Vermeer Leveller, that Transfield would pay it $150 per cubic metre.[1] That rate was the item price in the schedule of rates in the subcontract as compared to the $40 per cubic metre rate for the excavation of rock using the Vermeer Leveller referred to in the variation with a lump sum of $875,000 for 21,876 cubic metres.

[6] The adjudicator also found that, when the contract between Nortask and TSA was terminated, Nortask and Transfield entered into another agreement for excavation of the remaining material at $150 per cubic metre.[2]

[7] There was a factual dispute on the material before the adjudicator about that issue. Mr Kamali of Nortask had made a statutory declaration saying that he had spoken by telephone to Mr Peters of Transfield on 30 September 2011 after the Vermeer machines left the site and was told by him to continue the rock breaking work at the rate of $150 per cubic metre. Mr Peters' response said that his statement was taken out of context and that Mr Kamali had told him that Nortask was proposing to keep the total cost at $875,000.

[8] As the adjudicator pointed out at paragraph 18 of his reasons there was no provision in the adjudication for the taking of evidence on oath or for cross-examination. He said that, therefore, he accorded no greater weight to Mr Kamali's statutory declaration over the unsworn statement by Mr Peters. He did not say, however, what led him to prefer Mr Kamali's evidence to that of Mr Peters in his conclusion at paragraph 43 of his reasons that the parties had made a different arrangement as a variation in respect of the excavation of the remaining material.

[9] It will be useful to set out the relevant passages of the adjudicator's reasons, including the passage where he wrongly describes the operator of the Vermeer Leveller as Transfield's nominated subcontractor:

"35] The agreement was that for excavation of 21,876 cubic metres by the Vermeer Leveller the lump sum price would be $875,000. The 21,876 cubic metres was not excavated by the Vermeer Leveller. It appears to me that the claimant had good grounds for terminating the subcontract for the Vermeer but the reason why the subcontract was terminated is irrelevant. The fact is that the whole 21,876 cubic metres was not excavated by the Vermeer.

36] The Vermeer Leveller was incapable of performing the work. The agreement was not that the claimant would excavate the 21,876m3 by whatever means was necessary for the lump sum of $875,000. The agreement was that for excavation of rock where the claimant used rock breakers and hydraulic excavators [which is what the claimant used to excavate rock that the Vermeer had not excavated] the respondent would pay $150 per cubic metre.

37] I accept the claimant's argument at [9.33.6] of the adjudication application that there was no agreement that the rate for hydraulic excavators and rock excavators would be capped at $875,000.

38] In the payment schedule the respondent says that the Vermeer excavated only 6,473 cubic metres and the balance of the excavation, comprising 15,403 cubic metres has or will be carried out by use of rock breakers and a D10 bulldozer.

39] In the payment schedule the respondent says that if the respondent's argument that a lump sum of $875,000 was agreed for excavation irrespective of whether it was with the Vermeer, the respondent has three alternative arguments.

40] The respondent's first alternative argument is that the claimant's failure to complete the works using the Vermeer is a breach of contract or negligence or both by the claimant. The respondent says that the claimant is liable for the acts or omissions of its subcontractor and is liable for the failure of the Vermeer to perform the excavation. The respondent says that costed on this basis the amount which would be due to the claimant is $221,283.

41] This is not an instance where the claimant made an offer to the respondent to complete the excavation for a lump sum. It is an instance where the respondent directed the claimant to use a particular subcontractor. Trenching Services Australia was a nominated subcontractor. The claimant had never used a Vermeer machine before nor even seen one in operation. The parties agreed upon a price for excavation using the respondent's nominated subcontractor.

42] There is a lot of case law on nominated subcontracting but neither party refers to it so I won't. It suffices to say that I am not aware of, nor has the respondent demonstrated that there is, any principle of contract law that would make a contractor [the claimant] liable to complete the nominated subcontract work [in this instance, excavation of the remaining 15,403 cubic metres using a Vermeer] when the nominated subcontract is terminated.

43] The agreement between the parties was that the excavation would be carried out by the nominated subcontractor and for that the claimant would be paid $875,000. When the nominated subcontract was terminated the respondent did not nominate another subcontractor but required the claimant to complete the excavation. After termination of the nominated subcontract, the parties made a different arrangement for excavation of the remaining material. That itself was a variation."

[10] Transfield's principal argument is that the adjudicator's mischaracterisation of TSA as its nominated subcontractor, without hearing it on that issue, made it lose the chance of success on its first alternative argument, that Nortask's failure to complete the works using the Vermeer Leveller was a breach of contract or negligence by it. The adjudicator rejected that argument for two reasons, Transfield submitted, because TSA was a nominated subcontractor and because a subcontractor was not liable for incomplete work by a nominated subcontractor.

[11] Nortask's submission was, however, that the breach of the rules of procedural fairness was immaterial because of the conclusion of the adjudicator at paras 35-37 of his reasons that the agreement was that Transfield would pay $150 per cubic metre for the excavation of rock where Nortask used rock breakers and hydraulic excavators, including his conclusion that the variation agreement did not cap the rate of payment at $875,000. In other words, the adjudicator interpreted the variation agreement as permitting Nortask to choose how it went about the work not subject to such a cap on payment. That, it was submitted, was an available interpretation of the agreement not dependent on whether TSA was a nominated subcontractor and, accordingly, there was not a material denial of procedural fairness.

[12] In my view that submission is correct. There could not have been a different result from the adjudicator had he proceeded on the correct basis about TSA's role, even accepting the submission that it will be a rare case where a denial of procedural fairness could make no difference to an outcome.[3]

[13] The same conclusion applies to the potential ground of review related to the adjudicator's failure to give reasons why he preferred Mr Kamali's evidence to Mr Peters'. The absence of reasons, even in truncated proceedings as occur with adjudicators exercising this statutory jurisdiction, can clearly affect the decision-making process.[4] That failure here, however, is also immaterial as the adjudicator's decision to, in effect, prefer Mr Kamali's evidence to Mr Peters' without saying why, can have had no effect on his earlier conclusion that the variation agreement should be construed to permit Nortask to claim what it did for the rock excavated using rock breakers on hydraulic excavators. I say this also bearing in mind the submissions for Nortask relating to the constrained circumstances in which decisions such as these are normally made.[5]

[14] It follows that the application should be dismissed. I shall hear the parties as to costs.

[1] See paras 35-36 of the adjudicator's reasons at AAH-1 to the affidavit of A Hartmann affirmed on 20 December 2011.

[2] See paras 42-43 of the adjudicator's reasons at AAH-1 to the affidavit of A Hartmann affirmed on 20 December 2011.

[3] Compare Shorten v David Hurst Constructions Pty Ltd [2008] NSWSC 546 at [23]- [25] with Trysams Pty Ltd v Club Constructions (NSW) Pty Ltd [2008] NSWSC 399 at [52]- [58] and Rail Corporation of NSW v Nebax Constructions [2012] NSWSC 6 at [54].

[4] See Waterways Authority v Fitzgibbon [2005] HCA 57; 79 ALJR 1816, 1835 at [130]-[131] applied in this context in Bauen Constructions v Westwood Interiors [2010] NSWSC 1359 at [22]- [28].

[5] See Northbuild Construction Pty Ltd v Central Interior Linings Pty Ltd [2011] QCA 22 at [92] and [107] and Trysams Pty Ltd v Club Constructions (NSW) Pty Ltd [2007] NSWSC 941 at [33].