In the interpretation of a provision of an Act or statutory rule, a construction that would promote the purpose or object underlying the Act or statutory rule (whether or not that purpose or object is expressly stated in the Act or statutory rule or, in the case of a statutory rule, in the Act under which the rule was made) shall be preferred to a construction that would not promote that purpose or object."
28 When one looks at s 9 it is clear that the trigger for the application of subsection (b) is the fact that the "contract makes no express provision with respect to the matter". The relevant matter is "the amount of the progress payment". In the present case, clearly the contract makes express provision with respect to the amount of a progress payment to which a person is entitled. This then throws one back to the meaning of the words in 9 (a), namely, "the amount calculated in accordance with the terms of the contract".
29 Under clause 42.2 the obligation on the principal to pay is conditioned upon there being the issue of a payment certificate by the superintendent as it is that certificate that determines the amount to which the obligation attaches. Clause 42.3 then sets out how it is that the superintendent is to determine the amount in particular by reference to the value of work carried out. It is true that it is the superintendent who makes the determination referred to in 42.3 but there is nothing on the face of s 9 (a) which removes the role the superintendent has in making that calculation.
30 The word 'calculate', in its definition in the Shorter Oxford Dictionary and the Macquarie Dictionary, has primary meanings which comprehend both the making of a mathematical calculation and the making of an estimate. Thus on the plain meaning of the word 'calculated' in s 9 (a) the word includes the making of an estimate which under the contract is to be done by the superintendent. The words "in accordance with the terms of the contract" should also be noted. Those words are used elsewhere in the Act in particular in s 8(2)(a) in respect of the concept of reference date. The actual words used there are "determined by or in accordance with the terms of the contract". This dual expression indicates that a date determined "by" the contract is one fixed self-referentially by its terms in contrast to a date determined "in accordance with" the contract which can be ascertained by some external mechanism performed pursuant to the contract. This wider meaning of the latter expression supports the view that a calculation "in accordance with" the terms of the contract for the purposes of s 9(a) is not merely a reference as was held by McDougall J in Abacus [at 38] to "the contractual mechanism for determination of that which is to be calculated".
Freedom of the parties to contract as to how progress payments are to be paid under a contract
31 In adopting their contract regime parties are, of course, free to adopt any particular mechanism for determination of progress payments. The range and variety of such mechanisms is of course quite substantial. To quote an example referred to in oral argument, the parties would be quite free to make provision for progress payments which make a progress payment equal to a certain proportion of funds expended in the previous month by the builder. The mechanism could vary from the production of invoices and cheques in support of the claim to the production of such documents to an architect for him to check and certify the amount payable. The parties might also in a contract, such as in the present case, provide for a valuation of work done to date and have a third party, namely the superintendent, determine that value.
32 All of these approaches are quite open to parties and are governed by the different principles of law that a court will apply depending upon the particular agreement adopted.
33 The results, in law, which flow from the parties' agreement are many and varied. In dealing with progress payments, a contract may provide detailed, fixed and objective criteria as to how the value of such amounts are to be determined. This may be as a result of a detailed schedule of rates, bills of quantities or specifications. In such circumstances if the certifier wrongly issues an interim certificate, or issues an incorrect certificate, and there is no arbitrator under the contract who is able to deal with the matter, the Court will set aside the certificate. However, if what has been entrusted to the certifier is a discretionary decision, where no fixed or readily available standard criteria exists, a different result will flow. In such circumstances the courts and indeed an arbitrator, if an arbitrator has power, cannot interfere with the discretionary judgment as the parties have agreed, by contract, to such a result. See generally the discussion in WMC Resources Limited v Leighton Contractors Pty Limited [1999] WASCA 10, paragraphs 15-26. See also Atlantic Civil Pty Limited v Water Administration Ministerial Corporation (1992) 39 NSWLR 468.
34 The parties are thus free to choose a form of contract with widely differing legal results. This is a point I will return to later. There is nothing in the simple words of s 9 (a) which differentiates between the many and varied results that might be achieved as a result of the parties' contract. The section simply directs one to the contract result.
A purposive construction having regard to the objects of the Act
35 There have been many references in recent cases on this Act to the purpose of the Act, in particular its objective in seeking to give quick interim decisions on progress payments pending a final determination of the parties' rights. The parties, before me, spent some time on the various reading speeches and it is useful to note some matters from those speeches. In the second reading speech in the Assembly on 8 September 1999 the Minister for Public Works and Services described the main thrust in these terms:
"The main thrust of this bill is to reform payment behaviour in the construction industry. The bill creates fair and balanced payment standards for construction contracts. The standards include use of progress payments, quick adjudication of disputes over progress payment amounts and provision of security for disputed payments while a dispute is being resolved. The bill will speed up payments by removing incentives to delay. Reforms include the power for an unpaid contractor or subcontractor to suspend work and a ban on pay-when-paid and pay-if paid clauses."
36 After referring to a number of particular types of contracts that were excluded the Minister went on to describe in general terms what the bill covered. At page 104 he said:
"The bill covers civil engineering as well as architectural work, mechanical and electrical work in buildings, maintenance, landscaping and decorating. It affects all parties who contract for that work including owners, contractors, subcontractors and consultants, and applies to both commercial and residential work. The party who will be most affected by the legislation is the party who, for the party's improper financial benefit, delays making legitimate progress payments. This bill gives claimants a quicker and cheaper means of enforcing payment or ensuring that when in dispute, the debtor does not retain use of the disputed money but securely sets it aside until the dispute is resolved."
37 It is clear from the Minister's comments that the bill will apply to the broad spectrum of building contracts and cover projects which are large and in which the parties are free to adopt complex contractual arrangements.
38 The Minister then went on to give a general overview and said the following:
"The bill is divided into four parts and two schedules. Part 1 deals with the broad objectives of the bill, its commencement and definitions. The legislation will not apply to construction contracts formed before the date of its commencement. Part 2 introduces a statutory right to receive progress payments for construction work. It also provides default provisions dealing with matters such as intervals at which progress claims are made, time for payment following a progress claim and how to value work for progress payments. The default provisions operate if the construction contract is silent on these matters but do not override any such relevant provisions in the contract."
39 Of interest is the Minister's observation that the default provisions would not override the contractual provisions, inter alia, of valuation of work.
40 When dealing with the detail of the bill, at page 105, the Minister talked of the procedure in terms which also emphasise its interim nature. He said at page 105:
"The claimant can seek payment of that debt by way of proceedings in the Fair Trading Tribunal - for residential building work - the Local Court, the District Court or the Supreme Court, as appropriate.
The respondent cannot raise defences of defective work or cross-claims in order to delay judgment in these proceedings, therefore ensuring a prompt decision by the court. If the claimant obtains judgment for the amount of the payment claim or any part thereof, the respondent must pay the judgment debt. This does not prevent either party from arguing in other legal proceedings or by any dispute resolution process detailed in their contract that the final amount payable is more or less. If the claimant disagrees with the amount proposed for payment in a payment schedule, the claimant does not have to proceed to arbitration or through any other lengthy dispute resolution process specified in the construction contract to resolve such a dispute."
41 In describing the payment schedule application the Minister likened it to a superintendent's progress certificate in these terms:
"The payment schedule is akin to the superintendent's or architect's progress certificate which is typically provided for in construction contracts. In adjudication under the bill, the respondent is unable to raise defences, set-offs or cross-claims which have not been identified in the payment schedule. This means that the respondent must treat payment schedules with the utmost care. The bill prevents parties from contracting out of the effects of either providing or not providing a payment schedule or the adjudication which can follow a dispute over a payment claim."
42 In his concluding remarks the Minister once again referred to the interim nature of the determination and the nature of an appeal. At page 107 he said:
"Adjudication therefore provides the claimant with important benefits: a prompt interim decision on a disputed payment, and the amount in the decision must be either paid to the claimant, or secured and set aside. Failure to comply with either of those matters allows the claimant not only to sue for the adjudicated amount, but also to suspend work.
Therefore, if the dispute is not resolved to the satisfaction of both parties by the adjudication process, it will result in an independently determined amount being securely set aside until final resolution is achieved. The bill does not specifically provide for an appeal from the adjudicator's decision. The adjudicator's decision is only an interim decision until the final amount due in respect of the payment claim is finally decided in legal proceedings or in a binding dispute resolution process. This is the appeal.
Inserting by statute yet a further adjudication appeal process between the adjudicator's interim decision and the final decision would be unnecessarily burdensome and costly for parties to construction contracts. It can also be a source of abuse by a desperate respondent seeking to delay payment."
43 As is apparent the bill was amended following a review of its operation. On the second reading speech in respect of the amendment bill in the Assembly on 12 November 2002 the Minister referred to some of the problems that had arisen:
'The Act was designated to ensure prompt payment and, for that purpose, the Act set up a unique form of adjudication of disputes over the amount due for payment. Parliament intended that a progress payment, on account, should be made promptly and that any disputes over the amount finally due should be decided separately. The final determination could be by a court or by an agreed alternative dispute resolution procedure. But meanwhile the claimant's entitlement, if in dispute, would be decided on an interim basis by an adjudicator, and that interim entitlement would be paid. However, some claimants have had difficulty enforcing payment of the debt due under the Act. To enforce payment, the claimant has had to obtain a judgment of a court. At present this involves taking out a summons in the appropriate court. The respondent has 28 days to lodge a defence or cross-claim. Then there is a hearing before a magistrate or a judge, who has to decide whether to enter summary judgment for the statutory debt or set the matter down for full hearing.
By raising in court defences such as that the work does not have the value claimed or that the claimant has breached the contract by doing defective work, some respondents have been able to delay making a progress payment for a long time. Those respondents have forced claimants to incur considerable legal costs. They have effectively defeated the intention of the Act. To overcome the problem, the bill clarifies that in court proceedings by a claimant to enforce payment of the debt due under the Act, a respondent will not be able to bring any cross-claim against the claimant and will not be able to raise any defences in relation to matters arising under the construction contract. A respondent who wants to raise these matters must do so in a payment schedule in response to a payment claim under the Act, or in separate proceedings."
44 The amendments provided for a different procedure rather than commencing proceedings and allow the filing of an adjudicators certificate. The Minister commented on the procedure in these terms:-
"Under the new procedure there will no longer be need for a summons and a hearing before a magistrate or judge. Claimants will be able to obtain judgment for the adjudicated amount without the need to engage a solicitor. A claimant will be able to obtain judgment on the day that the claimant files the adjudication certificate with the court. These measures not only will expedite recovery of progress payments but will considerably reduce the cost of doing so. If a respondent applies to the court to have the judgment set aside after an adjudication, the respondent will have to pay into court as security the unpaid portion of the adjudicated amount. This will defeat the practice of using legal proceedings to simply delay payment.
There will be some instances where a court may set aside the judgment. The respondent may be able to demonstrate to the court that the requirements of the Act have not been complied with; for example, that there has not been a valid adjudication. But in proceedings to set aside the judgment the respondent will not be entitled to bring a cross-claim or to raise any defence in relation to matters arising under the construction contract or to challenge the determination by the adjudicator. Adjudication is an expedited procedure. The adjudicator has only 10 business days in which to make a decision. There will be instances when the progress payment determined by the adjudicator will be more or less than the entitlement finally determined to be due under the contract. However, it is better that progress payments be made promptly on an interim basis, assessed by an independent party, rather than they be delayed indefinitely until all issues are finally determined."
45 This emphasis on the speed and interlocutory nature of adjudications under the Act has, as I have mentioned earlier, been subject to a deal of judicial exposition; in Brodyn Pty Limited t/as Time Cost and Quality (CAN 001 998 830) v Phillip Davenport & Ors [2003] NSWSC 1019 at [14], for example, it was stated by Einstein J that:
"What the legislature has provided for is no more or no less than an interim quick solution to progress payment disputes which solution critically does not determine the parties rights inter se."
46 See also: Emag Constructions Pty Ltd v Highrise Concrete Contractors (Aust) Pty Ltd [2003] NSWSC 903 at [35], per Einstein J; Luchitti t/as Palluc Enterprises v Tolco Pty Ltd [2003] NSWSC 1070 at [40], per Bergin J.
47 Naturally one should not finely construe the terms of the reading speeches but one can see from the speeches that the bill is designed to apply to a wide variety of construction contracts. It is not limited to small subcontractors and obviously has to encompass the large engineering contracts where the parties are in an equal bargaining situation and have the ability and resources available which allows them to choose the contractual arrangements which they wish to govern their relationships. The prompt payment in respect of payment certificates is clearly an important matter which the Act addresses. The evil of non-payment is addressed by the Act in relation to both the contractual path that a party may follow and also the path when there is no contractual entitlement to the progress claim. The strengthened provisions in s 25 particularly subsection (4) equally apply to an entitlement to a progress claim under a contractual regime.
48 In Beckhaus v Brewarrina Shire Council [2002] NSWSC 960, I considered the general scheme of the Act. Although my decision on contractual entitlements was overturned on appeal, see Brewarrina Shire Council v Beckhaus Civil Pty Limited [2003] NSWCA 4, no comment was made by the Court on the consideration of the statutory right to progress payments. I concluded my review of that right with this paragraph:
"60 The Act obviously endeavours to cover a multitude of different contractual situations. It gives rights to progress payments when the contract is silent and gives remedies for non-payment. One thing the Act does not do is affect the parties' existing contractual rights. See ss 3(1), 3(4)(a) and 32. The parties cannot contract out of the Act (see s 34) and thus the Act contemplates a dual system. The framework of the Act is to create a statutory system alongside any contractual regime. It does not purport to create a statutory liability by altering the parties' contractual regime. There is only a limited modification in s 12 of some contractual provisions. Unfortunately, the Act uses language, when creating the statutory liabilities, which comes from the contractual scene. This causes confusion and hence the defendant's submission that the words "person who is entitled to a progress payment under a construction contract" in s 13(1) refers to a contractual entitlement."
49 These comments seem to have been approved by Nicholas J in Walter Construction Group Limited v CPL (Surry Hills) Pty Limited [2003] NSWSC 266.
50 Given that there is a parallel system as I have described, it is plain that the parties to a construction contract which has complex procedures for certification, valuation or other mechanisms for determining a progress payment by a superintendent or other certifier will of necessity involve the parties in having to pursue the contractual route. Failure to do so would normally produce default results which would have severe ramifications on the parties' contractual entitlement to payments.
51 In these circumstances where there is a need, because of the contractual entitlement, to engage in a process which involves a determination of the contractual entitlement to a progress payment it seems strange that that whole process could be opened up again under the statutory regime. One has the parties, at not inconsiderable expense, complying with a contractual regime for convincing a third party certifier of their entitlement, but if the construction contended for in Abacus were right they would also then be obliged to spend large amounts of time, effort and resources in debating, or seeking to persuade, the adjudicator of the very matters that they had argued before the superintendent or other certifier.
52 Given that the Act has a very wide reference in relation to the nature of the contracts that it covers, it seems to me that there is warrant for considering that it was not intended for the parties to have to, in case of large contracts, go through the exercise twice. Even with such large contracts and on the construction contended for by the plaintiff in this case there is still an appropriate role for the Act to play. Although the adjudicator will not enter into the debate that was before the certifier the issue of his certificate allows for the prompt inexpensive recovery of progress payments, and the right to suspend work, if that is not already given under the contract and these are the main objects of the Act.
53 Another reason why it would be surprising to have the adjudicator step into the shoes of the superintendent is because it has the effect of replacing a decision made by someone who has extensive experience with the contract and works, namely, the superintendent with that of a stranger to the contract, namely, the adjudicator who may only see the matter on one occasion.
54 Given that the adjudicator must hand down his/her determination within ten business days of accepting the application to adjudicate (s 21(3)(a), save insofar as the claimant and the respondent agree otherwise), the potential for error is manifest. As stated by Einstein J in Brodyn (at [14]):
"What the legislature has effectively achieved is a fast track progress payment adjudication vehicle. That vehicle must necessarily give rise to many adjudication determinations which will simply be incorrect. That is because the adjudicator in some instances cannot possibly, in the time available and in which the determination is to be brought down, give the type of care and attention to the dispute capable of being provided upon a full curial hearing. It is also because of the constraints imposed upon the adjudicator by section 21, and in particular by section 21 (4A) denying the parties any legal representation at any conference which may be called. But primarily it is because the nature and range of issues legitimate to be raised, particularly in the case of large construction contracts, are such that it often could simply never be expected that the adjudicator would produce the correct decision."
55 Given the time constraints dictated by s 21 and the adjudicator's inevitable unfamiliarity with the project relative to the superintendent, of greater concern is the possibility of the adjudicator making a "flatly wrong" decision. Transgrid at [51] per McDougall J.
The statutory path in the dual railroad track system
56 The parties before me referred to the dual system in these colourful terms as a means for concentrating more upon what the adjudicator was expressly authorised to do under the Act. It is s 22 of the Act which provides for the exercise of power by the adjudicator, the section 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.