McConnell Dowell Constructors (Aust) Pty Ltd v Heavy Plant Leasing Pty Ltd
[2013] QSC 269
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- Notable Unreported Decision
- McConnell Dowell Constructors (Aust) Pty Ltd v Heavy Plant Leasing Pty Ltd[2013] QSC 269
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McConnell Dowell Constructors (Aust) Pty Ltd v Heavy Plant Leasing Pty Ltd[2013] QSC 269
McConnell Dowell Constructors (Aust) Pty Ltd v Heavy Plant Leasing Pty Ltd[2013] QSC 269
SUPREME COURT OF QUEENSLAND
CITATION: | McConnell Dowell Constructors (Aust) Pty Ltd v Heavy Plant Leasing Pty Ltd [2013] QSC 269 |
PARTIES: | McCONNELL DOWELL CONSTRUCTORS (AUST) PTY LTD |
FILE NO: | 5262 of 2013 |
DIVISION: | Trial Division |
PROCEEDING: | Application |
ORIGINATING COURT: | Supreme Court of Queensland |
DELIVERED ON: | 8 October 2013 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 20 August 2013 |
JUDGE: | Applegarth J |
ORDER: | The adjudication decision 1161637_320 made by the third respondent and corrected on 8 June 2013 and 13 June 2013 is declared void. I shall hear the parties as to the form of orders and costs. |
CATCHWORDS: | Contracts – Building, Engineering and related contracts – remuneration – statutory regulation of entitlement to and recovery of progress payments – payment claims – where the applicant contracted with a head contractor to undertake works on a coal seam gas project – where the first respondent was a sub-contractor engaged by the applicant to provide works – where administrators, receivers and managers were appointed to the first respondent – where the applicant exercised a right to determine the employment of the first respondent – where the first respondent then made a claim for payment from the applicant – whether there was a reference date under a “construction contract” after determination of the first respondent’s employment under the contract – whether adjudication decision was made without jurisdiction because no “reference date under a construction contract” was available to support the payment claim Building and Construction Industry Payment Act 2004 (Qld), s 12, s 17, s 99 Capricorn Quarries Pty Ltd v Inline Communication Construction Pty Ltd [2013] 2 Qd R 1; [2012] QSC 388, cited Gantley Pty Ltd v Phoenix International Group Pty Ltd [2010] VSC 106, cited John Holland Pty Ltd v Coastal Dredging & Construction Pty Ltd [2012] 2 Qd R 435, cited McNab NQ Pty Ltd v Walkrete Pty Ltd & Ors [2013] QSC 128, cited Northbuild Construction Pty Ltd v Central Interior Linings Pty Ltd [2012] 1 Qd R 525, cited Re Stewardson Stubbs & Collett Pty Ltd & Bankstown Municipal Council [1965] NSWR 1671, cited Spankie v James Trowse Constructions Pty Ltd [2010] QCA 355, cited Thiess Contractors Pty Ltd v Grogan, unreported New South Wales Court of Appeal, CA No 526 of 1996, 24 July 1996, cited Walton Constructions (Qld) Pty Ltd v Corrosion Control Technology Pty Ltd [2012] 2 Qd R 90, considered |
COUNSEL: | R A Holt QC with G I Thomson for the applicant P Dunning QC with D D Keane for the respondent |
SOLICITORS: | Norton Rose Fulbright Australia for the applicant Ashurst for the respondent |
- The applicant (“McConnell”) contracted with a head contractor to undertake work on a coal seam gas processing facility near Roma. It engaged the first respondent (“HPL”) as a sub-contractor to perform earthworks, civil works and the construction of dams. Disputes arose over payments claimed by HPL. Administrators, and receivers and managers were appointed to HPL.
- When this occurred McConnell exercised an express contractual right under cl 26.3 of the Sub-Contract to “determine” the employment of HPL, to expel it from the site and to take over all of the plant, equipment and materials provided by HPL. The Sub-Contract Works are being undertaken by others and have yet to be completed.
- Clause 26.5 of the contract provides that in the event of a determination HPL shall pay to McConnell the amount of any loss, damages, costs and expenses caused to McConnell by reason of such determination. It also provides that “[u]ntil after completion of the Sub-Contract Works, [McConnell] shall not be bound to make a further payment to [HPL]”. When the works are completed the expense incurred in completing the works is ascertained by McConnell. Clause 26.5 contains detailed provision for determining either a debt payable to McConnell by HPL or an amount payable by McConnell to HPL.
- The “employment” of HPL was determined on 18 March 2013. On or about 28 March 2013 HPL purported to serve a payment claim under the Building and Construction Industry Payment Act 2004 (Qld). The matter proceeded to an adjudication, and the third respondent gave a decision dated 6 June 2013 in HPL’s favour for just over $10 million.
- McConnell submits that the decision is void for want of jurisdiction because:
(a)HPL’s employment under the contract was determined on 18 March 2013; and
(b)on a proper construction of the contract there was no “reference date” under the Act.
HPL accepts that a “reference date” is essential to jurisdiction, but submits that a reference date arose on 25 March 2013 (rather than 18 March 2013, as found by the adjudicator under a contentious interpretation of the contract).
The issue
- The essential issue is whether or not a reference date arose after the 18 March 2013 determination to which a payment claim under the Act could relate. If HPL is correct in contending that 25 March 2013 was a reference date, then cl 26.5 will be ineffective by virtue of s 99 of the Act to defer its statutory entitlement to be paid a progress payment. If McConnell is correct and there was no statutory entitlement to a progress payment after the determination then no existing entitlement under the Act was deferred by cl 26.5 and s 99 of the Act does not arise for consideration.
- Subsidiary issues include:
- whether the determination terminated the contract or brought “the principal obligations of the contract to an end”[1];
- if the contract was terminated, whether it made express provision for a reference date after termination; and
- if the contract was not terminated, whether it ceased to be a “construction contract” within the meaning of the Act because after the determination HPL no longer undertook to carry out construction work or to supply related goods and services to McConnell.
These issues turn on the proper construction of the contract in the context of the Act.
The contract
- The contract between McConnell and HPL made detailed provision for payment, including in cl 10.1 of Schedule B for HPL to submit a payment claim once per calendar month not earlier than the 25th day of each month. Interim payments were to be made. Clause 10.6 of Schedule B provided that within 30 days of the issue of a certificate of substantial completion, HPL was to submit a statement, setting out exhaustively all outstanding claims it had. There was a defects liability period and cl 10.7 provided that within 30 days after completion of the whole of the Sub-Contract Works (which included all obligations up to the “Defects Liability End Date”), HPL was to submit a Final Statement setting out exhaustively all outstanding claims it had.
- Clause 10.10 of the same schedule defined a “payment claim” for the purposes of the Act as a payment claim pursuant to cl 10.1, cl 10.6 or a Final Statement pursuant to cl 10.7. The date prescribed in cl 10.1, cl 10.6 and cl 10.7 as the time for payment claims or the time for the Final Statement was stated to be the “reference date” for the purpose of the Act.
- Clause 10 did not provide expressly for a reference date after the determination of employment pursuant to cl 26.
- Clause 26 gave McConnell the right to determine HPL’s employment under the Sub-Contract in a variety of circumstances. One such circumstance was if HPL appointed an administrator. Another was the appointment of a receiver and manager. In such an event, and without prejudice to its other rights, including the right to treat the contract as repudiated, McConnell might by written notice:
“determine forthwith the Sub-Contractor’s employment under this Sub-Contract and may expel the Sub-Contractor from the Sub-Contract Works and may take over all the plant, equipment and materials provided by or on behalf of the Sub-Contractor excluding third party arrangements (whether on or off the Site of the Sub-Contract Works) or are being used in connection therewith and may use the same to complete, or have completed the Sub-Contract Works.”
- Clause 26.5 contains a formula which takes into account the actual cost of having the Sub-Contract Works completed. Such accounting is to be carried out after “completion of the Sub-Contract Works”. It envisages that the works will be completed by others. Clause 26.5 requires calculation of the difference between:
- the total amount which would have been payable “on due completion” under the Sub-Contract (that is, broadly speaking, the contract sum); and
- the sum of the amounts already paid to HPL, the actual cost to complete the Sub-Contract Works following the expulsion of HPL from the site, and any other “loss, damages, costs and expense” arising from the determination.
- Clause 26.5 provides:
“26.5In the event of a determination pursuant to Clause 26.2, 26.3 or 26.4, the Sub-Contractor shall pay to MacDow the amount of any and all loss, damages, costs and expense caused to MacDow by reason of such determination. Until after completion of the Sub-Contract Works, MacDow shall not be bound to make further payment to the Sub-Contractor but upon such completion and within a reasonable time thereafter, MacDow shall ascertain the amount of expense incurred in completing the Sub-Contract Works and the amount of loss, damages, costs and expense caused to MacDow by reason of the determination (including the Sub-Contractor’s conduct prior to determination) and if such amounts when added to the monies paid to the Sub-Contractor before the date of determination exceed the total amount which would have been payable on due completion in accordance with this Sub-Contract (the ‘total amount’), the difference shall be a debt payable to MacDow by the Sub-Contractor, and if the said amounts when added to the said monies do not exceed the said total amount then the money payable to the Sub-Contractor shall be the lesser of:
a)the difference between
(i)the said amounts when added to the said monies; and
(ii)the said total amount; or
b)the aggregate of:
(i)the value of any work actually and properly executed and not paid for at the date of such determination, such value to be calculated as though it was a valuation under clause 26.7(a);
(ii)the value of any unfixed goods and materials which were taken over by MacDow on determination and used by MacDow and a fair payment for hire of such of the Sub-Contractor’s plant as were used by MacDow, in completing, or having completed, the Sub-Contract Works.”
- The reference in cl 26.5(b)(i) to a valuation under cl 26.7(a) is to a different circumstance, namely where the head contract is determined, in which event HPL is to be paid on presentation of a properly completed payment claim based upon, among other things, the value of the Sub-Contract Works completed at the date of determination of the head contract.
The legislation and its interpretation
- The purpose of the Act is to provide a statutory mechanism for the recovery of progress payments for the carrying out of “construction work.” The scheme of the Act has been summarised in a number of leading decisions, and it is unnecessary to repeat what was said in those cases.[2] Jackson J recently stated:
“The essential operative effect of BCIPA is that it confers a statutory right to a provisional progress payment upon a claimant who qualifies for that right, with provisions to speedily value and establish the right without curial proceedings and to vindicate the established right by enforcing it as a court judgment. Commercially, that outcome has an important cash-flow effect.”[3]
- Central to the Act’s operation is s 12 which confers a statutory entitlement to a progress payment from each reference date under a construction contract in certain circumstances. Section 12 provides:
“12Rights to progress payments
From each reference date under a construction contract, a person is entitled to a progress payment if the person has undertaken to carry out construction work, or supply related goods and services, under the contract.”
- “Reference date” is defined in Schedule 2 of the Act:
“reference date, under a construction contract, means –
(a)a date stated in, or worked out under, the contract as the date on which a claim for a progress payment may be made for construction 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 does not provide for the matter —
(i) 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
(ii) the last day of each later named month.”
- “Progress payment” is defined in Schedule 2 of the Act:
“progress payment means a payment to which a person is entitled under section 12, and includes, without affecting any entitlement under the section —
(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’.”
- Payment claims for progress payments are governed by s 17. Section 17 relevantly provides:
“17 Payment claims
(1)A person mentioned in section 12 who is or who claims to be entitled to a progress payment (the claimant) may serve a payment claim on the person who, under the construction contract concerned, is or may be liable to make the payment (the respondent).
...
(4)A payment claim may be served only within the later of —
(a)the period worked out under the construction contract; or
(b) the period of 12 months after the construction work to which the claim relates was last carried out or the related goods and services to which the claim relates were last supplied.
(5)A claimant can not serve more than 1 payment claim in relation to each reference date under the construction contract.
(6) However, subsection (5) does not prevent the claimant from including in a payment claim an amount that has been the subject of a previous claim.”
- As may be seen, critical to the statutory entitlement to make a payment claim is a “reference date under a construction contract.” A “construction contract” is defined to mean “a contract, agreement or other arrangement under which one party undertakes to carry out construction work for, or to supply related goods and services to, another party.”
- The issue has arisen as to whether a “reference date” will arise after a contract has been terminated. Usually a reference date will not arise for the purposes of the Act after termination unless the contract expressly provides for one.[4]
- Walton held that no reference date occurred after the termination of the contract in question for the purposes of the Act, so that the payment claim was invalid. Justice Peter Lyons held that generally terms of a contract do not operate after termination and that after termination there is no longer a contract under which a reference date could occur.[5] His Honour identified significant differences between the Queensland definition of “reference date” and the New South Wales provision. His Honour stated, the Queensland definition “gives greater primacy to the provisions of the contract dealing with the making of a claim for a progress payment than does the language of the New South Wales Act”.[6] The conclusion that a reference date does not arise after termination of the contract was held to be consistent with the “general nature of the payments for which provision is made by the BCIP Act”.[7]
- In McNab, the Chief Justice adopted the reasoning of Justice Peter Lyons in Walton in relation to whether a “reference date” can arise after termination for the purposes of the Act.[8] The Chief Justice held:
“I do not regard the absence, from the instant sub-contract, of an express provision in terms of cl 44.10 of the contract which was before that Judge, as warranting a different conclusion here. That clause equated the rights and liabilities of the parties on termination to the common law situation where a repudiation is accepted. Such a provision does no more than reflect the common law.”[9]
- The use of the expression “under a construction contract” in s 12 of the Act supports the general proposition that a reference date is unlikely to arise for the purposes of the Act once the contract has been terminated unless the contract makes express provision for a reference date to arise after termination.[10]
- Section 99 addresses provisions of a contract that have the effect of excluding, modifying, restricting or otherwise changing the effect of a provision of the Act. It states:
“99 No contracting out
(1)The provisions of this Act have effect despite any provision to the contrary in any contract, agreement or arrangement.
(2)A provision of any contract, agreement or arrangement (whether in writing or not) is void to the extent to which it —
(a)is contrary to this Act; or
(b)purports to annul, exclude, modify, restrict or otherwise change the effect of a provision of this Act, or would otherwise have the effect of excluding, modifying, restricting or otherwise changing the effect of a provision of this Act; or
(c)may reasonably be construed as an attempt to deter a person from taking action under this Act.”
- If a “reference date” arises under a construction contract and a party has a statutory entitlement to a progress payment under the contract in relation to that reference date, then a contractual provision which would operate to defer what otherwise would have been the party’s statutory entitlement will be ineffective to do so since it would change the effect of a provision of the Act.[11]
Jurisdiction and the adjudicator’s decision
- Cases such as Walton and McNab illustrate that the court may declare an adjudication decision void for jurisdictional error where a purported payment claim lacks a supporting “reference date.” HPL accepts that in the absence of a “reference date” there is no jurisdiction to make a payment claim and a resulting adjudication decision will be void.
- The adjudicator adopted a contentious interpretation of the meaning of “determine” and “determination” in cl 26. Although HPL describes the interpretation adopted by the adjudicator as arguable, it does not seek to uphold that reasoning, which arrived at a reference date of 18 March 2013. HPL contends that 25 March 2013 was the available “reference date” which supported its payment claim. An error of interpretation by the adjudicator in selecting 18 March 2013 as the reference date was said by HPL to be an error made in the exercise of jurisdiction, and not a jurisdictional error. HPL submits that it is sufficient to found the adjudicator’s jurisdiction for there to be an available reference date, even if it was not the one the adjudicator arrived at. McConnell approached the application before me on the same basis. It did not argue that an error by the adjudicator in determining the reference date was a jurisdictional error. In the circumstances, I am prepared to proceed on the basis the parties adopted as to what amounts to a jurisdictional error. As noted, McConnell’s case is that the determination of HPL’s employment under the contract meant there was no available reference date to support the payment claim which was made on or about 28 March 2013, and therefore the adjudicator lacked jurisdiction.
- It is unnecessary to canvass at length the contentious interpretation adopted by the adjudicator. It involved a strained interpretation of the word “determine” in cl 26.3. It was to the effect that the notice which determined HPL’s employment amounted to a determination (in the sense of a decision) that the Sub-Contract Works were complete for the purposes of the contract. This was said to result in the completion of the whole of the Sub-Contract Works to the extent that McConnell required HPL to carry them out. Such an interpretation is not supported by the terms of the contract. The determination may have brought to an end the opportunity for HPL to complete the Sub-Contract Works, but they remained to be completed. Clause 26.5 expressly recognised that the Sub-Contract Works would be completed by others and expense would be incurred by McConnell in completing them. The determination of HPL’s employment did not result in the “completion of the whole of the Sub-Contract Works” so as to trigger the submission of a Final Statement pursuant to cl 10.7 of Schedule B. No reference date arose by virtue of cl 10.10(a)(iii) of Schedule B since HPL was not entitled to submit a Final Statement until after completion of the whole of the Sub-Contract Works. As at the date of the payment claim the Sub-Contract Works had yet to be completed.
- The term “determine” in cl 26.3 and in other sub-clauses of cl 26 was not used in the sense suggested by the adjudicator. In its context, it meant that HPL’s employment under the Sub-Contract was brought to an end. In issuing a written notice to “determine forthwith the Sub-Contractors employment” McConnell was not deeming or determining that the Sub-Contract Works that HPL had promised to perform had been fully completed. They remained to be completed and cl 26 provided for them to be completed by McConnell or to have them completed by another party.
- Interestingly, both parties before the adjudicator accepted that the contract had been lawfully terminated. In this proceeding HPL adopts a different stance and submits that McConnell’s determination did not terminate the contract, and so Walton and McNab are not directly applicable. In the alternative it submits that even if the contract was terminated, it expressly contemplates a further payment claim to be made, since that is how the “valuation” occurs pursuant to cl 26.5(b)(i) in accordance with cl 26.7(a).
Did the determination terminate the Sub-Contract or only bring the principal obligations to an end?
- In general terms, an express contractual right to determine the employment of a contractor may have one of two effects, depending upon the proper construction of the contract. It may bring the contract to an end, with or without the contract making provision for the consequences of termination. The fact that an associated clause provides for the consequences of the determination of the employment does not mean that the power is not one to terminate the contract.[12] In the other class of case, the exercise of the power to determine the employment of the contractor does not bring the contract to an end, but brings into force rights provided for under the contract.[13] Whether a contractual provision is of the one or the other kind depends upon its construction in the context of the contract as a whole. As Mahoney P observed in Thiess Contractors Pty Ltd v Grogan, there is no single criterion which, in every case, will determine whether the clause is one or the other.[14] Sheller JA in the same case cited authorities in which a right to determine the employment of a contractor has been treated as a right to terminate the contract.
- If a determination under cl 26.3 of this contract did not bring the contract to an end, with each party having accrued rights and obligations under the general law and also pursuant to the contract which itself provided for the consequences of the determination of the employment, then the determination operates “to bring the principal obligations of the contract to an end”.[15] HPL’s principal obligations to perform the Sub-Contract Works are at an end because its employment has been determined. In addition, as in this case, it is expelled from the site and McConnell is entitled to take over its plant, equipment and materials and use the same to complete the Sub-Contract Works.
- There are strong grounds to conclude that McConnell’s determination of 18 March 2013 did more than bring HPL’s obligation to undertake construction work on the site to an end, and in fact terminated the contract. The provisions of cl 26.3 which entitled McConnell to complete the Sub-Contract Works and to use HPL’s plant, equipment and materials to do so, and the provisions of cl 26.5 for the assessment of any amount owing and payable after completion of the Sub-Contract Works do not necessarily mean that the contract continues with a different charter of rights and obligations. They can be said to confer certain rights in the event the contract is terminated by a valid “determination.” Clause 26 recognises the events described in cl 26.3 as a “breach” of the contract. Clause 26.3 is consistent with other parts of cl 26 which empower McConnell to determine forthwith HPL’s employment under the contract upon default.
- As against the view that a determination pursuant to cl 26.2, cl 26.3 or cl 26.4 brings the contract to an end, HPL notes that the contract uses the word “determine” rather than “terminate” and refers to HPL’s “employment under this Sub-Contract” being determined. The expression “employment,” which is often used in construction contracts, is used to describe the relationship with the sub-contractor. According to HPL, the notice that determines HPL’s employment serves to end that form of relationship, not necessarily the contract itself. This conclusion is said by HPL to be reinforced by the power to expel HPL and to take over its plant, equipment and materials. The existing relationship is ended, but the contract remains on foot on altered terms and McConnell’s right to take over the plant, equipment and materials and to use them to complete the Sub-Contract Works is said to be consistent with the contract remaining on foot with a different suite of rights. One such right is the entitlement of McConnell to be paid the amount of any loss, damages, costs and expense caused to it by reason of such determination. Another is the right to complete the Sub-Contract Works, and to not make any further payment to HPL until after completion of the Sub-Contract Works.
- In response McConnell relies upon the fact that the insolvency events referred to in cl 26.3 are described as “breaches” in cl 26.4 and cl 26.7. It also relies on the association between cl 26.3 and other sub-clauses that deal with default, which provide for the same consequences of a “determination” and preserve rights and remedies under the general law.
- I favour the view that a determination pursuant to cl 26.2, cl 26.3 or cl 26.4 terminates the contract.
- Clause 26.1 provides for McConnell to issue a notice specifying certain defaults and stating the intention to “determine the Sub-Contract.” If HPL fails to remedy the default then under cl 26.2 McConnell may “determine” HPL’s employment under the Sub-Contract. This suggests that the terms “determine the Sub-Contract” and “determine …. the Sub-Contractor’s employment under this Sub-Contract” are used interchangeably.
- Clause 26.3 preserves the right to treat the contract as having been repudiated. This indicates that, in certain circumstances, an insolvency event may be regarded as a serious breach, capable of amounting to repudiation. It does not suggest that every insolvency event will have those consequences so as to give rise to a right to terminate the contract under the general law. The right to treat the contract as repudiated and terminate it under the general law may co-exist with an express contractual right to terminate the contract.
- Clause 26.5 provides for the same consequences of a “determination” pursuant to cl 26.2, cl 26.3 and cl 26.4. The fact the same consequences follow a determination under cl 26.2 (which is preceded by a notice of intention to determine the Sub-Contract) and each sub-clause preserves rights under the general law, tends to indicate that cl 26.3, like the other sub-clauses, provides for the contract to be determined or terminated upon the giving of a written notice to “determine forthwith the Sub-Contractor’s employment under this Sub-Contract”. Clause 26, particularly cl 26.1 and cl 26.2, appear to treat the determination of the Sub-Contract and the determination of the Sub-Contractor’s employment under it as the same thing. The separate provision for defaults, as defined in cl 26.1, and insolvency events under cl 26.3 may be explained because the latter cannot be simply remedied after receipt of a notice of the kind issued under cl 26.1.
- HPL argues that the preservation of rights and remedies to treat the Sub-Contract as repudiated under the general law is only consistent with the power under cl 26.3 “being conceptually distinct from a right to terminate the Sub-Contract.” I do not agree. It simply recognises that in some circumstances McConnell may have the right to terminate the contract under the general law in addition to the right conferred under cl 26 to terminate it. In those circumstances McConnell might choose which remedy to pursue. It may prefer to pursue one remedy over another, depending upon the perceived advantages conferred by a “determination” under cl 26, and the financial consequences of an assessment in accordance with cl 26.5 as against its general law remedies. In other circumstances, a “breach” of the contract as described in cl 26.3 may not entitle McConnell to treat the breach as a repudiation of the contract.
- The use of the word “determine” rather than “terminate” is of no moment. As cl 26.1 shows, “determine” is used in the same sense as “terminate,” namely to bring something to an end. That thing is the contract. The context of cl 26.3 suggests that a determination under cl 26.3, like a determination under cl 26.2 or cl 26.4, brings the contract to an end. The contract is terminated. Accrued rights including the rights recognised in cl 26.3 and cl 26.5 survive.
- I conclude that a notice to “determine forthwith the Sub-Contractor’s employment under this Sub-Contract” operates to terminate the contract. It brings HPL’s obligation and opportunity to complete the Sub-Contract Works to an end. One additional consequence of a determination is that McConnell accrues a right to use HPL’s plant, equipment and materials.
If the Sub-Contract was terminated, did it make express provision for a reference date after termination?
- The decisions in Walton and McNab establish that a reference date will not arise for the purposes of the Act after termination unless the contract expressly provides for one.
- HPL submits that the reference in cl 26.5(b)(i) to cl 26.7(a) gives rise to a right to make the payment claim referred to in cl 26.7. It argues that cl 26.5 expressly contemplates a further payment claim being made, as that is how the valuation occurs pursuant to cl 26.5(b)(i), namely in accordance with cl 26.7(a) which itself contemplates HPL being paid upon the presentation of a properly completed payment claim.
- As noted, cl 26.7 deals with a different situation in which the head contract has been determined and contemplates a payment being made upon the presentation of a properly completed payment claim. Clause 26.7 has no direct application in the present circumstances since the head contract has not been determined. The fact the contract contemplates a valuation exercise being undertaken after the determination pursuant to cl 26.3 in accordance with the provisions of cl 26.5 does not make any payment made as a result of such an exercise a “progress payment” to which HPL is entitled under s 12 of the Act.
- The possible payment to HPL that might be made after completion of the Sub-Contract Works and upon the carrying out of the accounting exercise provided for in cl 26.5 was not stated in cl 10 of Schedule B to be the subject of a payment claim or to be payable upon a “reference date.” Any such payment would not be a progress payment made in relation to a reference date under a “construction contract.” It would be a payment made long after a “construction contract” within the meaning of the Act had ceased to exist.
- One part of the exercise required by cl 26.5 may require the value of any work that was not paid for at the date of the determination to be calculated as though it was a valuation under cl 26.7(a). But this does not incorporate by reference the provision for a payment claim to be made under cl 26.7. It simply incorporates the calculation methodology provided for in cl 26.7(a). Clause 26.5 does not provide for the making of a payment claim in respect of a progress payment to which HPL is entitled under s 12 of the Act. It does not provide for a reference date after termination.
Was any contract which subsisted a “construction contract” for the purpose of the Act?
- If I had reached the conclusion that the contract was not terminated on 18 March 2013, then this would not mean that a “reference date under a construction contract” was available to support the payment claim made on 28 March 2013.
- McConnell submits that if the contract was not terminated by the determination, then it is no longer a “construction contract” for the purposes of the Act. A “construction contract” is one in which a party undertakes to carry out “construction work” or supply related goods and services, and after the determination there was no such undertaking. The contract does not provide for any payment claims to be made after the determination of HPL’s employment because after the determination it would not be performing work under a construction contract. No monthly reference date under such a contract would arise. No occasion for a payment claim to be made by HPL under cl 10.6 (following Substantial Completion) or by way of a Final Statement by HPL under cl 10.7 (after completion of the whole of the Sub-Contract Works) arises because the works have yet to be completed and will not be completed by HPL. No reference date under the contract is available.
- The contract, which ceases to be a “construction contract,” provides for an accounting exercise to be performed by McConnell which may result in a payment being made to HPL (without provision for it to make any claim) or which may result in HPL owing a debt to McConnell. According to McConnell, if the contract was not terminated then it remains on foot for a very limited purpose, and any payment made pursuant to cl 26.5 is not a payment under a “construction contract” within the meaning of the Act.
- I accept that submission. HPL’s contention that it had the right to make a payment claim after the determination of 18 March 2013 and that 25 March 2013 was a “reference date” under a “construction contract” is met by the fact that the statutory right to a progress payment requires an arrangement under which a party undertakes to carry out construction work or supply related goods and services. The obligation (and the opportunity) for HPL to undertake such construction work or to supply related goods and services no longer existed as at 25 March 2013 because of the determination.
- HPL submits that the provision for McConnell to “take over” all of its plant, equipment and materials meant that HPL supplied those goods so as to constitute a “construction contract.” McConnell rejects that submission and refers to the relevant provision as a “forfeiture clause.” Leaving aside such an appellation, the point McConnell makes is that it took over the plant, equipment and materials, rather than their being supplied by HPL under an agreement or other arrangement. I agree. This was not a hire agreement or other arrangement to supply goods, even if the value of any unfixed goods and materials that were taken over by McConnell on determination and used by it and a fair payment for hire of its plant may feature in the cl 26.5 calculations. The plant, equipment and materials were taken over, rather than being supplied, and the apparent purpose of their being taken over was to reduce the delay and cost to McConnell of having to source replacement plant, equipment and materials. The provision was not in the nature of a hire agreement, even if the benefit to McConnell of using HPL’s plant was calculated by reference to a fair payment for hire.
- If the contract was not terminated, then after the 18 March 2013 determination it fundamentally changed its content. It ceased to be a “construction contract” for the purpose of the Act. The statutory right to a progress payment under s 12 of the Act applies for each reference date under a “construction contract.” Any future payment under cl 26.5 would not be under a “construction contract.”
- There being no construction contract after 18 March 2013, there was no statutory entitlement to a progress payment on 25 March 2013 (or on any other date prior to the service of the payment claim on or about 28 March 2013). Because there was no progress payment to which HPL was entitled under s 12 of the Act, there was no reference date to which the payment claim of 28 March 2013 could relate.
The s 99 issue
- HPL submits that cl 26.5 of the contract is essential to McConnell’s argument that following the “determination” there would be no further payment to HPL until at least after completion of the Sub-Contract Works. According to HPL, cl 26.5 operates to “modify, restrict or otherwise change” the effect of ss 12 and 17 of the Act and is void to that extent by virtue of s 99 of the Act. It submits that cl 26.5 was an attempt to defer its statutory right to a progress payment.
- In response, McConnell submits that cl 26.5 does not operate to defer what otherwise would have been a statutory right to a progress payment from a reference date ascertained in accordance with the Act. The determination under cl 26 brought the contract to an end, or, by bringing HPL’s employment to an end, had the same effect because the principal obligations under the contract to supply labour and materials came to an end. On one view, the contract has been terminated, with the parties having accrued rights and obligations (including rights under cl 26.5 once the accounting exercise occurs after the works are completed). On another view, the contract subsists but has limited content and does not contemplate HPL undertaking construction work. On either view, there was no longer a “construction contract” on foot for the purposes of the Act. Accordingly, the Act did not apply, there was no “reference date” on 25 March 2013 and, therefore, no entitlement under the Act to the progress payment that was claimed. In these circumstances no issue arises about the deferral of an entitlement under the Act and s 99 does not arise for consideration.
- I agree and am unable to accept HPL’s submissions to the effect that cl 26.5 stopped HPL from making a payment claim on a reference date, and is therefore void to the extent it does so. The determination itself, not cl 26.5, meant there was no reference date under a “construction contract” because either there was no contract or the contract which subsisted was no longer a “construction contract.” Clause 26.5 provides for a possible payment to be made if the assessment exercise favours HPL. McConnell is not bound to make any payment until after completion of the Sub-Contract Works. No reference date was available to support the 28 March 2013 payment claim. No existing statutory entitlement to a progress payment under the Act on a reference date ascertained in accordance with the Act was deferred by cl 26.5.
- The position is unlike John Holland[16] where a contract contained warranties concerning the form and content of progress claims. Such a provision did not affect the statutory “reference date.” In that case the provisions of the contract provided for the working out of the date on which a progress claim might be made. The provisions relating to the form and content of progress claims did not bear upon the date upon which the statutory entitlement to a progress payment accrued. To the extent the appellant’s argument in that case sought to defer what would otherwise have been the respondent’s statutory entitlement to a progress payment from a reference date ascertained in accordance with the Act, the operation of the provision to defer the reference date would have been ineffective by virtue of s 99 of the Act.[17] This case is different. Clause 26.5 does not operate to defer what would otherwise have been HPL’s statutory entitlement to a progress payment from a reference date ascertained in accordance with the Act. After the determination there was no entitlement to be paid a progress payment under the Act.
Other contentions
- HPL also argued that the provision in cl 10.7 for a Final Statement to be made “within 30 days after completion of the whole of the Sub-Contract Works (which for the avoidance of doubt, includes all obligations up to the Defects Liability End Date)” engaged s 16(2)(c) of the Act, which provides that a provision of a construction contract is of no effect if it “makes the liability to pay an amount owing, or the due date for payment of an amount owing, contingent or dependent on the operation of another contract.” McConnell correctly contends that s 16(2)(c) does not apply since no amount becomes owing under cl 10.7 until after the Final Statement is submitted. Clause 10.7 does not affect the liability to pay an “amount owing” or the due date for payment of an “amount owing.” An amount is not owed until there is a Final Statement and a Final Certificate in response to it. The amount owing, as stated in the Final Certificate, is due for payment within 45 days of the receipt of the Final Statement. Clause 10.7 relates to the timing of the delivery of a Final Statement. An amount is not owed until there is such a Final Statement.
- Assuming, however, for the purposes of argument that, contrary to McConnell’s submissions, the liability to make a final payment depends on the operation of the head contract and the expiry of the defects liability period under it, this would still not explain how HPL became entitled on 25 March 2013 to make a payment claim under the Act in respect of works which had still not been completed. Clause 10.7 contemplated the submission of a Final Statement within 30 days after completion of the whole of the Sub-Contract Works and cl 10.10(iv) provided that the time for the Final Statement under cl 10.7 was to be the “reference date.” That reference date had not arrived when the payment claim was made since the Sub-Contract Works have yet to be completed. In any event, for the reasons previously given, by the time the payment claim was made the contract had ceased to be a “construction contract” within the meaning of the Act.
- If HPL is correct, and s 16(2)(c) of the Act means it did not have to wait until the “Defects Liability End Date” calculated by reference to the head contract before submitting a Final Statement setting out exhaustively all outstanding claims by it, the time for submitting such a Final Statement had yet to arrive. This is because such a Final Statement has to await completion of the whole of the Sub-Contract Works. These have yet to be completed. The reference date provided for in the contract for such a payment claim by way of Final Statement had not arrived when the determination of 18 March 2013 was made and when the payment claim was made on 28 March 2013.
Conclusion
- The better view is that the contract was terminated by the determination.
- The contract did not provide for a reference date after its termination.
- If, however, the determination did not terminate the contract, it was effective to terminate the relationship by which HPL undertook to carry out construction work and supply related goods and services. The contract subsisted in a very modified form. HPL’s principal obligations came to an end, it was excluded from the site and its plant, equipment and materials were taken over to be used to complete the Sub-Contract Works. The modified contract was no longer a “construction contract” after 18 March 2013 and no statutory entitlement to make a payment claim existed on 25 March 2013, the reference date for which HPL contends.
- Because there was no reference date which was available to support the payment claim made on or about 28 March 2013, the adjudicator lacked jurisdiction to make the adjudication decision.
- Subject to hearing from the parties as to the form of orders, I propose to make a declaration that the purported adjudication decision 1161637_320 made by the third respondent is void. Subject to hearing from the parties, the appropriate order as to costs would seem to be that the first respondent pay the applicant’s costs of and incidental to the application to be assessed on the standard basis. I will hear the parties in relation to any consequential orders.
Footnotes
[1] Re Stewardson Stubbs & Collett Pty Ltd & Bankstown Municipal Council [1965] NSWR 1671 at 1680 (“Stewardson”).
[2] They include Spankie v James Trowse Constructions Pty Ltd [2010] QCA 355 at [9]-[11]; Northbuild Construction Pty Ltd v Central Interior Linings Pty Ltd [2012] 1 Qd R 525 at 546-550 [52]-[66]; John Holland Pty Ltd v Coastal Dredging & Construction Pty Ltd [2012] 2 Qd R 435 at 441-442 [15]-[19] (“John Holland”).
[3] Capricorn Quarries Pty Ltd v Inline Communication Construction Pty Ltd [2013] 2 Qd R 1 at 9 [41]; [2012] QSC 388 at [41].
[4] Walton Constructions (Qld) Pty Ltd v Corrosion Control Technology Pty Ltd [2012] 2 Qd R 90 (“Walton”); McNab NQ Pty Ltd v Walkrete Pty Ltd & Ors [2013] QSC 128 (“McNab”).
[5] Supra at 98 [42].
[6] Ibid at 98 [43].
[7] Ibid at 98 [42].
[8] Supra at [28].
[9] Ibid at [29].
[10] As to the limited circumstances in which legislation of this kind might permit a progress payment to be served after termination see Gantley Pty Ltd v Phoenix International Group Pty Ltd [2010] VSC 106 at [171]-[175] in respect of earlier Victorian legislation.
[11] John Holland at 443 [21].
[12] Thiess Contractors Pty Ltd v Grogan, unreported New South Wales Court of Appeal, CA No 526 of 1996, 24 July 1996 at 10 per Sheller JA.
[13] Ibid at 6 per Mahoney P.
[14] Ibid.
[15] Stewardson (supra) at 1680.
[16] Supra.
[17] Ibid at 443 [21].