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Civmec Electrical & Instrumental Pty Ltd v Southern Cross Electrical Engineering Limited QSC 300
SUPREME COURT OF QUEENSLAND
Civmec Electrical & Instrumental Pty Ltd v Southern Cross Electrical Engineering Limited & Ors  QSC 300
CIVMEC ELECTRICAL & INSTRUMENTAL PTY LTD
ABN 20 153 261 511
SOUTHERN CROSS ELECTRICAL ENGINEERING LIMITED
BS7233 of 2019
13 December 2019
13 September 2019
CONTRACTS – BUILDING, ENGINEERING AND RELATED CONTRACTS – REMUNERATION – STATUTORY REGULATION OF ENTITLEMENT TO AND RECOVERY OF PROGRESS PAYMENTS – ADJUDICATION OF PAYMENT CLAIMS – where the applicant challenges the adjudicator’s decision for jurisdictional error – where the adjudicator did not have regard to submissions made by the applicant in the adjudication response which he decided were outside the reasons given in the payment schedule – whether it was within the adjudicator’s jurisdiction to decide whether the submissions were properly made
CONTRACTS – BUILDING, ENGINEERING AND RELATED CONTRACTS – REMUNERATION – STATUTORY REGULATION OF ENTITLEMENT TO AND RECOVERY OF PROGRESS PAYMENTS – ADJUDICATION OF PAYMENT CLAIMS – where the applicant challenges the adjudicator’s decision for jurisdictional error – whether the adjudicator should have considered the pre-adjudication correspondence between the parties to give context to the reasons in the payment schedule for withholding payment
Building Industry Fairness (Security of Payment) Act 2017 (Qld), s 76, s 82, s 85, s 86, s 88, s 101
Bezzina Developers Pty Ltd v Deemah Stone (Qld) Pty Ltd  2 Qd R 495;  QCA 213, considered
Clarence Street Pty Ltd v Isis Projects Pty Ltd (2005) 64 NSWLR 448;  NSWCA 391, cited
Coordinated Construction Co Pty Ltd v Climatech (Canberra) Pty Ltd (2005) 21 BCL 364;  NSWCA 229, considered
Craig v South Australia (1995) 184 CLR 163;  HCA 58, considered
Façade Treatment Engineering Pty Ltd (in liq) v Brookfield Multiplex Constructions Pty Ltd (2016) 337 ALR 452;  VSCA 247, cited
John Holland Pty Ltd v Roads & Traffic Authority of New South Wales (2007) 23 BCL 205;  NSWCA 19, considered
Kirk v Industrial Court (NSW) (2010) 239 CLR 531;  HCA 1, considered
Multiplex Constructions Pty Ltd v Luikens  NSWSC 1140, considered
Northbuild Construction Pty Ltd v Central Interior Linings Pty Ltd  1 Qd R 525;  QCA 22, considered
Pittwater Council v Keystone Projects Group Pty Ltd  NSWSC 1791, considered
State Water Corporation v Civil Team Engineering Pty Ltd  NSWSC 1879, considered
Thiess Pty Ltd v Warren Brothers Earthmoving Pty Ltd  QSC 373, considered
Trysams Pty Ltd v Club Constructions (NSW) Pty Ltd  NSWSC 941, cited
N Andreatidis QC and F J Chen for the applicant
M H Hindman QC and M J Steele for the first respondent
MinterEllison for the applicant
Pinsent Masons for the first respondent
- The second respondent made an adjudication decision on 26 June 2019 in relation to an adjudication application made by the first respondent under chapter 3 of the Building Industry Fairness (Security of Payment) Act 2017 (Qld) (the Act). The applicant had the contract for the design and construction of the Amrun bauxite processing facility. The applicant as the contractor and the first respondent as the subcontractor are the parties to a subcontract entitled Electrical and Instrumentation Works & Services Subcontract dated 17 February 2017 relating to the facility.
- The applicant seeks a declaration that the adjudication decision is void or liable to be set aside for jurisdictional error and an associated injunction. In the alternative, the applicant seeks the exercise of the court’s power under s 101(4) of the Act to identify and find the parts of the adjudication decision affected by jurisdictional error and to allow the parts not affected by error to remain binding on the parties. The second and third respondents are not active participants in the proceeding. I will therefore refer to the first respondent as the respondent. I will refer to the parties by their roles in this proceeding, even when making reference to them in respect of the adjudication process. It is also common ground that, as the Act incorporates the provisions from the repealed Building and Construction Industry Payments Act 2004 (Qld) (BCIPA), the authorities relevant to BCIPA remain authoritative and apply to the equivalent provisions of the Act.
- The nub of the applicant’s complaint is the adjudicator expressly declined to consider significant and material submissions made by the applicant in its adjudication response dated 24 April 2019, as the adjudicator found the adjudication response went “well beyond” the reasons given in the payment schedule. The applicant asserts the adjudicator failed to have any regard to the previous dealings between the parties, an examination of which reveals that the matters excluded from consideration by the adjudicator were captured in the shorthand expressions used by the applicant in the payment schedule, when it is read and understood in context. The respondent submits the application should be refused because the adjudicator properly found that he should not take into account reasons for withholding payment that were not included in the payment schedule and the adjudicator did not fail to take into account any of the applicant’s properly made submissions. In the alternative, the respondent argues that, if any error were committed by the adjudicator in determining which of the applicant’s submissions were not properly made, that was not jurisdictional error and is not reviewable.
The adjudication process
- On 11 January 2019 the respondent delivered progress claim number 25 for the period ending December 2018 for the amount of $29,564,204 (exclusive of GST) (the progress claim). The payment claim was supported by a document that had previously been submitted by the respondent to the applicant entitled “Claim for Outstanding Matters as of 13 September 2018” (the September claim report). The applicant delivered its payment schedule in response to the progress claim on 24 January 2019 in which the applicant certified the amount due and owing to the respondent as $125,765 (exclusive of GST).
- On 8 March 2019 the respondent made the adjudication application under the Act in respect of the payment claim. The adjudication application was made up of 82 individual claims that were divided into seven broad categories given designations from Group A to Group G and comprised 10 volumes of material, including submissions, statutory declarations, expert reports and other supporting documents. It is relevant to note the description of the categories:
Group A – Original Subcontract Lump Sum, Unit Rate Schedule
Group B – Variations
Group C – Extension of Time and Prolongation
Group D – Acceleration
Group E – Disruption
Group F – Outstanding commercial matters submitted after 24 September 2018
Group G – Contractor payment certificate adjustment
- The applicant submitted its adjudication response on 24 April 2019 within the agreed extended time. It comprised 10 volumes of material, including submissions, statutory declarations, expert reports and other supporting documents. By the adjudication response the applicant increased its assessment of the payment claim to $758,654.23 and further conceded other items to the value of $250,000.
- On 28 June 2019 the parties were notified the adjudicator had reached the decision and provided the tax invoice for the adjudicator’s fees upon payment of which the decision would be released. The respondent paid the fees and on 1 July 2019 the adjudication decision was delivered to the parties. It awards a total amount of $8,706,589.42 (exclusive of GST) to the respondent.
- On 5 July 2019 the respondent gave an undertaking to the applicant not to enforce the adjudication decision until the determination of the applicant’s application to set aside the adjudication decision, subject to the applicant’s compliance with seven stated conditions.
- In order to illustrate how the payment schedule had anticipated the reasons in the adjudication response, Mr Andreatidis of Queen’s Counsel who appeared with Ms Chen of Counsel for the applicant prepared a schedule (exhibit 2) in relation to the relevant claims that set out what the issue was, how it was addressed in the adjudication application and then identified where the issue was addressed in the adjudication response, but not considered in the adjudication decision. It is claims from Groups C, D and F that are in issue on this application. The applicant’s counsel also prepared an annexure to their submissions that showed in table form in relation to each of the claims, the paragraphs of the adjudicator’s decision that disposed of the claim, the relevant part of the adjudication response, the extract from the payment schedule relating to that claim and the pre-adjudication correspondence that the applicant submits provides the context for the reasons in the payment schedule relating to that claim. Ms Hindman of Queen’s Counsel who appeared with Mr Steele of Counsel for the respondent included the respondent’s version of that annexure with their submissions. It incorporated the applicant’s table with the respondent’s submissions highlighted in blue to show why the respondent submits pre-adjudication correspondence did not provide the context alleged by the applicant and the respondent’s commentary on the payment schedule in the light of the applicant’s submissions.
- The issues identified by the parties to be determined are:
- (a)did the adjudicator err in characterising reasons for withholding payment found in the adjudication response as not being included in the payment schedule?
- (b)if such an error were made, did that amount to jurisdictional error?
- (c)if so, does that warrant setting aside the adjudication decision in its entirety?
- (d)in the alternative, if there were jurisdictional error in respect of specific groups of claims, should the court exercise the discretion under s 101(4) of the Act to the extent the adjudication decision is affected by jurisdictional error?
What is jurisdictional error?
- The classic exposition of what can amount to jurisdictional error in the Australian context is set out in the judgment of the High Court in Craig v South Australia (1995) 184 CLR 163, 176-178, as further explained in the judgment of the plurality in Kirk v Industrial Court (NSW) (2010) 239 CLR 531 at -. Even though there is no statutory right of appeal from, and the Judicial Review Act 1992 (Qld) does not apply to, an adjudicator’s decision, in accordance with Kirk it may be declared void, if it were affected by jurisdictional error, on the basis an adjudicator’s decision under the Act is an administrative decision over which this Court retains a supervisory jurisdiction: Northbuild Construction Pty Ltd v Central Interior Linings Pty Ltd  1 Qd R 525 at ,  and .
- Whether jurisdictional error has been made by an adjudicator has to be considered in the context of the scheme under the Act that results in an adjudicator’s decision. Apart from the authority of Northbuild for the approach the court should take in exercising its supervisory jurisdiction in respect of an adjudicator’s decision, White JA (with whom McMurdo P at  and Chesterman JA at  agreed on this aspect) summarised the operation of BCIPA at -. That summary remains apposite to chapter 3 of the Act.
- In considering the extent of this supervisory jurisdiction in Northbuild, White JA (with whom McMurdo P agreed) noted at  that an adjudicator’s purported decision would be void, if it did not meet the statutory conditions essential for a valid decision or where the necessary level of procedural fairness had not been accorded to a party. Relevant to identifying the statutory conditions, White JA observed at :
“The ‘only’ matters which an adjudicator may consider in reaching a decision are the provisions of [BCIPA], the terms of the construction contract, the payment claim and response and all submissions properly made so that if the adjudicator departed from that list and considered, for example, what he regarded as a ‘fair thing’ he would have made a decision without authority and, if he truly disregarded a claimant’s submissions, his decision would not be one envisaged by [BCIPA].”
- In Northbuild, the contractor was unsuccessful before the primary judge and on appeal in showing jurisdictional error. This can be shown by reference to one aspect of the adjudicator’s decision as to the value of the work undertaken by the subcontractor which was challenged by the contractor on the basis the adjudicator failed to consider or make a bona fide attempt to consider the issues raised by the contractor in its payment schedule and its submissions and/or supporting evidence contained in its adjudication response. The subcontractor relied on the evidence of one its employees (who worked on the project of providing carpentry and plastering works to the contractor which was constructing 119 residential units) as to the percentage of the work that was completed under the subcontract when it terminated. The contractor’s QA/Administration Manager ascribed a value to each of six categories of work for each unit undertaken by the subcontractor. He then assessed a percentage completed of each item for each of the units and converted that to an amount based on the value he had ascribed to the item. There were many hundreds of individual amounts that were added and the total compared to the contract sum for the contractor to determine the percentage of work completed. The adjudicator stated he was not satisfied as to the accuracy of this method promoted by the contractor which involved subjective assessments for assessing the value of the work. The primary judge rejected the contractor’s criticism of the adjudicator’s reason for rejecting the contractor’s method of valuation and that was upheld in the Court of Appeal, with White JA observing at :
“It is clear that the adjudicator considered Northbuild’s submissions about the value of the work but did not accept them. He was entitled not to do so. It was not a rejection on a whim; he gave a proper reason for doing so.”
- On the basis of these authorities of Craig, Kirk and Northbuild, the respondent’s submissions emphasised appropriately the distinction between an error made by an adjudicator in the course of making a decision that is within jurisdiction which does not amount to jurisdictional error and a decision by an adjudicator as a result of not performing the function required by the Act which may amount to jurisdictional error.
- The applicant placed emphasis on statements found within various authorities that it relied on to assert that the adjudicator’s failure to consider submissions duly made may be sufficient to void an adjudication decision. By itself, such a proposition is too general, as there must be something more about the context of the adjudicator’s failure to consider duly made submissions for such failure to amount to jurisdictional error. By way of an example, the applicant relies on Thiess Pty Ltd v Warren Brothers Earthmoving Pty Ltd  QSC 373 at , where it is apparent in context that the statement that “Jurisdictional error also occurs when a decision maker … ignores relevant material” does not purport to set down a principle of general application that any failure by an adjudicator to consider relevant material amounts to jurisdictional error. In that case, the subcontractor had lodged a payment claim for three items. Item 1 for scraper loads was for about $101,000. After the payment schedule was received in which the contractor disputed the number of scraper loads, the subcontractor conceded an error and amended the amount claimed for item 1 to $40,619. In its adjudication application, the payment claim remained for the original amount, but the accompanying material included the recalculation of item 1. The adjudication response referred expressly to the recalculation of the scraper loads by the subcontractor. The adjudicator included the full amount originally claimed for item 1 in the adjudication decision. On the basis the adjudication in respect of item 1 did not contain any reference to any of the submissions made by the contractor in its adjudication response or any of the concessions made by the subcontractor as to the reduced claim for item 1, and the adjudicator rejected the contractor’s submission on item 1 as “generally unreliable and non-responsive to the real issues in dispute”, Ann Lyons J at  found that the adjudicator could not have considered the contractor’s submissions and the subcontractor’s recalculation of item 1. It was in those circumstances that Ann Lyons J at  concluded that amounted to a failure of the adjudicator to attempt genuinely to exercise his power in accordance with the Act which amounted to jurisdictional error.
- The applicant also placed emphasis on the statement made by Hammerschlag J in Trysams Pty Ltd v Club Constructions (NSW) Pty Ltd  NSWSC 941 at :
“It is accordingly necessary to consider the nature, gravity and effect of the errors, if any, made by the adjudicator, and to assess, in the context of the purpose and operation of this particular statute, whether the adjudicator breached a basic and essential requirement of the Act by not considering submissions duly made or by failing to make a bona fide attempt to exercise his powers under the Act, or whether the plaintiff was denied natural justice to a degree sufficient to void the adjudication.”
That was a general statement made after Hammerschlag J had summarised the principles gleaned from the decisions on the equivalent New South Wales Act. There was an issue in that case of whether the adjudicator had considered a report that accompanied the adjudication response. The issue was dealt with at  on the basis of a substantial failure to afford natural justice rather than jurisdictional error. The passage quoted at  did not consider the difference between an adjudicator’s decision made in error that a submission was not properly made (which would be a decision within jurisdiction) and an adjudicator’s failure to consider a submission that the adjudicator found was properly made (which may amount to a jurisdictional error, because the adjudicator has not performed the function required by s 88(2)(d) of the Act).
- There are a number of decisions that confirm the determination of the question whether a submission made in an adjudication response is properly made is a matter for the adjudicator. Coordinated Construction Co Pty Ltd v Climatech (Canberra) Pty Ltd  NSWCA 229 was an unsuccessful appeal from the primary judge’s decision that the adjudicator’s determination was valid. The issue agitated on appeal was that Climatech’s payment claim was for delay caused by the head contractor and was not on its face for the supply of goods and services which was the basis on which the primary judge had found the allowance of the extension of time claims by the adjudicator was proper. Hodgson JA stated at :
“However, I accept that what is referred to an adjudicator for determination is a claimant’s payment claim, and what an adjudicator is to determine is the amount of the progress payment to be paid on the basis of that claim and on the basis of other considerations in s.22(2) of the Act. Accordingly, the task of the adjudicator is to make a determination within the parameters of the payment claim, although that is not to say that, if an adjudicator were to make an error which can later be seen as taking the determination outside those parameters, it necessarily invalidates the determination.”
Hodgson JA then stated at :
“In my opinion, failure adequately to set out in a payment claim the basis of the claim could be a ground on which an adjudicator could exclude a relevant amount from the determination. Further, even if in such a case a claimant adequately set out the basis of the claim in submissions put to the adjudicator, the adjudicator could take the view that, because the respondent was unable adequately to respond to this subsequent material (because of the provisions of s.20(2B) and s.22(2)(c) of the Act), he or she is not appropriately satisfied of the claimant’s entitlement. Generally however, in my opinion, it is for the adjudicator to determine if the basis of the claim is adequately set out in the payment claim, and if not, whether on this ground a relevant amount claim should be excluded from the amount of the progress payment determined under s.22(1).”
- In John Holland Pty Ltd v Roads & Traffic Authority of New South Wales  NSWCA 19, the Roads & Traffic Authority (RTA) was successful at first instance in obtaining a declaration that the adjudicator’s determination in favour of the contractor’s claim for a progress payment that included an amount claimed because of explosive detonators previously placed in the area being excavated was void. The contractor’s appeal was then successful. The primary judge had treated the RTA’s submissions on the question of the adjudicator’s jurisdiction as properly made and found that the adjudicator was obliged to consider them and the determination was void as a result of the adjudicator’s failure to consider the submissions. On appeal, Hodgson JA (with whom Beazley JA agreed) stated at - in respect of s 22(2) of the New South Wales Act which is equivalent to s 88(2) of the Act:
“ In my opinion, there may be a sense in which s 22(2) is breached if there is any relevant provision of the Act or provision of the contract which is not considered by the adjudicator, or indeed if there is any one of what may be numerous submissions duly made to the adjudicator which is not considered. However, in my opinion a mere failure through error to consider such a provision of the Act or of the contract, or such a submission, is not a matter which the legislature intended would invalidate the decision.
 The relevant requirement of s 22(2) is that the adjudicator consider the provisions of the Act, the provisions of the contract and submissions duly made. If an adjudicator does consider the provisions of the Act and the contract which he or she believes to be relevant, and considers those of the submissions that he or she believes to have been duly made, I do not think an accidental or erroneous omission to consider a particular provision of the Act or a particular provision of the contract, or a particular submission, could either wholly invalidate a determination, or invalidate it as regards any part affected by the omission.”
- Basten JA who was the other member of the court in John Holland v RTA agreed that the appeal should be allowed, and expressed the decision at - in terms that the power to resolve whether a submission fell or did not fell within the scope of the payment schedule, for some other reason was not “duly made”, or was inconsistent with the scheme of the legislation, was conferred on the adjudicator and it was not a matter to be determined objectively by the court.
- One of the issues in State Water Corporation v Civil Team Engineering Pty Ltd  NSWSC 1879 was whether the adjudicator had taken into account a number of submissions advanced in the adjudication response which were not included in State Water’s payment schedule. Sackar J at - relied on the approach in Climatech by analogy in relation to the fact that it was for the adjudicator to determine whether a claimant’s submissions were within the parameters of the payment claim.
- The relationship between the payment schedule and the adjudication response was considered by Hallen J in Pittwater Council v Keystone Projects Pty Ltd  NSWSC 1791 who, after referring to s 20(2B) of the NSW Act (which is the equivalent provision to s 82(4) of the Act) stated at :
“In this way, the scheme of the Act envisages that a respondent should not be able to reject a payment claim, serve a payment schedule which does not disclose the reasons for withholding payment, and then disclose, for the first time, in its adjudication response, that the reasons for the rejection were founded upon a certain construction of the Contract, or upon other matters that the claimant had no prior opportunity of checking or disputing. In this regard, it is to be remembered s 14(3) requires that if the respondent to a payment claim has ‘any reason’ for ‘withholding payment’, it ‘must indicate’ that reason in the payment schedule. In this way, also, the payment claim and the payment schedule should be intelligible to the adjudicator.
- In Pittwater at , Hallen J applied the approach of Hodgson JA in Climatech to conclude that it was for the adjudicator to determine whether submissions were “duly made”.
- In Pittwater, the Council had entered into a building contract with Keystone. Keystone claimed for four items of work (items 18 to 21) that were identified as variations under the contract. Item 18 was for structural steel and items 19 to 21 were for delays relating to window anodising, restaurant alterations and structural steel. The Council accepted it did not refer to item 18 in its payment schedule and that it stated nothing in the payment schedule about delay damages or that the rate claimed by Keystone was not an agreed rate. In the adjudication response, the Council dealt specifically with item 18 and asserted in relation to items 19 to 21 that Keystone’s entitlement under the contract to delay damages was nil, they were not approved variations and Keystone had not pointed to any provision in the contract for the agreed rate used to calculate delay damages. The adjudicator dealt with items 18 to 21 on the basis that they were not dealt with in the payment schedule and therefore determined the adjudicated amount as the amount claimed by Keystone for these items. The Council alleged that the adjudication decision was not made in good faith. To the extent the Council alleged that the adjudicator merely accepted Keystone’s claim, because he concluded that he was precluded from relying on the Council’s response submissions due to s 20(2B) of the NSW Act, Hallen J concluded at  that the adjudicator did engage actively with the dispute and determined what construction work had been carried out and valued that work. The Council’s application was dismissed.
How previous dealings between the parties may affect the interpretation of the payment schedule
- In Multiplex Constructions Pty Ltd v Luikens  NSWSC 1140, the issue under the equivalent New South Wales legislation in relation to one item was whether the adjudicator had erred in holding the payment schedule had not sufficiently indicated Multiplex’s reasons for withholding payment of the full amount claimed which Multiplex sought to advance in its adjudication response. Palmer J found at  that the adjudicator had erred in so holding, as the description in the payment schedule of “back charges/contra charges” and the reference by initials to another subcontractor with the brief description of the work which had been in the respondent subcontractor’s contract, but had been given by Multiplex to the other subcontractor, was sufficient to indicate that the deduction was made to reflect the value of the work given to the other subcontractor. Palmer J observed at -:
“76 A payment claim and a payment schedule are, in many cases, given and received by parties who are experienced in the building industry and are familiar with the particular building contract, the history of construction of the project and the broad issues which have produced the dispute as to the claimant’s payment claim; a payment claim and a payment schedule must be produced quickly; much that is contained therein in an abbreviated form which would be meaningless to the uninformed reader will be understood readily by the parties themselves. A payment claim and a payment schedule should not, therefore, be required to be as precise and as particularised as a pleading in the Supreme Court. Nevertheless, precision and particularity must be required to a degree reasonably sufficient to apprise the parties of the real issues in the dispute.
77 A respondent to a payment claim cannot always content itself with cryptic or vague statements in its payment schedule as to its reasons for withholding payment on the assumption that the claimant will know what issue is sought to be raised. Sometimes the issue is so straightforward or has been so expansively agitated in prior correspondence that the briefest reference in the payment schedule will suffice to identify it clearly. More often than not, however, parties to a building dispute see the issues only from their own viewpoint: they may not be equally in possession of all of the facts and they may not equally appreciate the significance of what facts are known to them. This will be so especially where, for instance, the contract is for the construction of a dwelling house and the parties are the owner and a small builder. In such cases, the parties are liable to misunderstand the issues between them unless those issues emerge with sufficient clarity from the payment schedule read in conjunction with the payment claim.
78 Section 14(3) of the Act, in requiring a respondent to ‘indicate’ its reasons for withholding payment, does not require that a payment schedule give full particulars of those reasons. The use of the word ‘indicate’ rather than ‘state’, ‘specify’ or ‘set out’, conveys an impression that some want of precision and particularity is permissible as long as the essence of ‘the reason’ for withholding payment is made known sufficiently to enable the claimant to make a decision whether or not to pursue the claim and to understand the nature of the case it will have to meet in an adjudication.”
- Those observations were endorsed in Clarence Street Pty Ltd v Isis Projects Pty Ltd (2005) 64 NSWLR 448 at - and Façade Treatment Engineering Pty Ltd (in liq) v Brookfield Multiplex Constructions Pty Ltd (2016) 337 ALR 452 at . Mason P (with whom the other members of the court agreed) in Clarence Street at , although agreeing with the observations of Palmer J, noted that a payment claim is no more than a claim and, unlike a payment schedule, it is not its function to identify the scope of a dispute. That is because “it is a matter for the respondent to the payment claim to state the extent and reasons for failing to pay the sum withheld”.
- These observations on the sufficiency of descriptions in the payment claim and payment schedule (but particularly the payment schedule) must be qualified to the extent that they also need to be intelligible to the adjudicator, as the payment claim provides the subject matter for the adjudication application to the extent the claims are disputed and the payment schedule sets the framework for the issues to be determined by the adjudicator. See Pittwater at . In Bezzina Developers Pty Ltd v Deemah Stone (Qld) Pty Ltd  2 Qd R 495 at  Fraser JA (with whom McMurdo P and Keane JA agreed) observed in respect of a proposed construction of s 27(2) of BCIPA (equivalent to s 87(2) of the Act):
“The result of the contrary construction of s. 27, that it obliges an adjudicator to take into account a fact of which the adjudicator remains unaware because the parties, who both know the fact, have failed to tell the adjudicator of it, is appropriately characterised as absurd.”
- Although this observation was made in respect of the operation of another provision of BCIPA, it provides the rationale for why any shorthand descriptions in the payment claim and payment schedule must also be intelligible to the adjudicator, in addition to the parties.
The decision not to consider material characterised as new reasons
- In  of the adjudication decision, the adjudicator sets out the matters to which he had regard in making the decision and which mirror the matters listed in s 88(2) of the Act. In general terms, the adjudicator dealt with the new reasons he identified as advanced by the applicant in the adjudication response in  to  of the adjudication decision:
“51. The [applicant] has made extensive submissions in its adjudication response.
- The [applicant’s] submissions go well beyond the reasons given in the payment schedule for withholding payment.
- I have not exercised my discretionary right under section 82(5) of the Act to require the [applicant] to resubmit the adjudication response.
- To the extent that the [applicant] has included new reasons for withholding payment contrary to section 82(4) of the act, these have not been considered.
- To remove doubt, where the [applicant] has identified contractual provisions which, in its opinion, the adjudicator is required to consider, as per paragraph 56 below, I confirm that I have considered the construction contract.”
Group C claims – extension of time and prolongation
- Claim 9 in Group C for “extended preliminaries – personnel management and admin” was for $1,613,306 (exclusive of GST). The claim was based on a claim first notified to the applicant in the September claim report and described as relating to the additional time on site extended between the planned Date for Mechanical Completion of 1 June 2018 and the then forecasted target Date for Mechanical Completion of 31 October 2018 (without prejudice to the respondent’s Extension of Time (EOT) entitlement).
- The applicant in the payment schedule relied on the same six reasons for rejecting each of the Group C claims:
“Non-compliance with Subcontract timeframes.
No specific entitlement for this type of claim under a provision of the Subcontract.
Subcontractor has not accounted for its own delays.
Subcontractor has not considered Subclause 9.8
Subcontractor has failed to demonstrate compliance with the Subcontract procedure
- the Subcontractor failed to meet the requisite time limits as a precondition to any entitlement”
- It seems that the sixth reason provides the detail for the fifth reason. The respondent grouped the first, fifth and sixth reasons as the “time bar” arguments in section 11.2 of the adjudication application. Sections 11.5 to 11.13 of the adjudication application then dealt generally with the respondent’s response in the payment schedule to the applicant’s time bar arguments for Groups C to F claims, noting that they were only concerned with entitlements and no reasons were advanced in the payment schedule on quantum. The respondent asserted in section 11.11 that the applicant made “broad sweeping allegations of non compliance” with the subcontract procedure or time frame, but the payment schedule did not contain any detail. Section 12 of the adjudication application dealt specifically with claims 9 to 14 in Group C for EOT and prolongation. The respondent in section 12.23 set out its reasons for asserting there were no grounds for the applicant’s time bar argument, as the respondent had regularly and routinely kept the applicant informed of the likely events through a variety of means, including weekly construction reports, field delay forms, program updates and correspondence. The respondent then dealt in section 12.31 with the reasons, including references to clauses in the subcontract, for why the respondent submitted that entitlement was not barred simply because a claim was not submitted in time.
- Section 38 of the adjudication response sets out as one of the common reasons for the applicant’s rejection of Groups C, D and E claims that the respondent was time barred in respect of most of its time related claims. In section 38.2.2, the applicant relies on the letter referenced in the payment schedule dated 29 October 2018 with the reference E105-CIV-SCE-117. (Although described as a letter referenced in the payment schedule, it was not in the payment schedule in relation to the Group C claims, but in the payment schedule in respect of the Group E claims.) Section 39 of the adjudication response dealt with the applicant’s submission that it did not waive compliance with the subcontract. Section 40 of the adjudication response set out the reasons the applicant asserted that the respondent caused its own delay and inefficiencies. Section 42 of the adjudication response dealt with the respondent’s claim to an EOT entitlement and section 42.3 dealt specifically with the applicant’s allegation that the respondent did not notify its claims in accordance with the subcontract.
- The adjudicator dealt with the Group C claims and the six reasons for withholding payment at  to  of the adjudication decision. The adjudicator rejected five of the six reasons on the basis that, in his opinion, they were not valid reasons for withholding payment. The one reason that was not rejected on that basis was “no specific entitlement for this type of claim under a provision of the Subcontract” in respect of which the adjudicator noted at  that “this is a matter of contract interpretation, which the [respondent] has made to support its claims”.
- It is urged on behalf of the applicant that the entry in the payment schedule of “Non-compliance with Subcontract timeframes” was a shorthand reference to the time bar. That was specifically rejected by the adjudicator in  by stating that that reason was “very general and non-specific” and the applicant did not specify which particular subcontract clause provided timeframes upon which it relied to reject the claims. The adjudicator noted at  that the applicant’s reasons for withholding payment were limited to those identified in its payment schedule that were addressed specifically at  to  which, in effect, means that the adjudicator considered the applicant’s submissions in support of the reason for withholding payment that there was “no specific entitlement for this type of claim under the subcontract”.
- The adjudicator noted at  that the applicant supported its position on the respondent’s claimed EOT entitlement with the expert report of Mr Clark which responded to the respondent’s expert report of Mr Griffith. The adjudicator observed at  that the applicant’s expert report of Mr Durning provided commentary on the respondent’s prolongation costs and the respondent’s expert report of Mr Worthington. The adjudicator then set out his decision in respect of the claim to the EOT entitlement at  to . The adjudicator expressly noted at  that he had “carefully considered the parties’ respective positions in respect of entitlement to an extension of time to the Date for Mechanical Completion and the Date for Practical Completion”. The adjudicator concluded at  that, based on the respondent’s adjudication application submissions (at section 12.1 to section 12.77), he was satisfied “the [respondent] is reasonably entitled to an extension of the Date for Mechanical Completion and the Date for Practical Completion as claimed”. The applicant argues that  is consistent only with the adjudicator making the decision by reference to the respondent’s submissions. It is apparent that  must be read with . The adjudicator conveyed in  that he had considered both parties’ submissions, but then conveyed in  that he was satisfied by the respondent’s submissions and not that he only considered the respondent’s submissions. The adjudicator made an express finding at  of being satisfied that the respondent “has regularly and routinely kept the [applicant] informed of the delay events by various means, as identified in its submissions” which referred to section 12.22 to section 12.29 of the adjudication application.
- The adjudicator dealt specifically with claim 9 in Group C at  to  of the decision. The respondent had identified in the September claim report that claim 9 in Group C was made in accordance with clause 9.4 of the subcontract. The adjudicator recorded at  that he “decided that the [respondent] is entitled to the extension of time claimed and that the delays are Delay Compensation Events for which the [respondent] is entitled to compensation pursuant to GCS clause 57.4(b)(i)”. The adjudicator noted (at ) that he was satisfied that the respondent had also identified at paragraph 65 of the September claim report that its claim was made pursuant to clause 57 of the subcontract (which dealt with EOTs). The adjudicator then referred at  to Mr Worthington’s disagreement with the methodology adopted by the respondent and noted at  his own agreement that the respondent’s methodology for the calculation of costs was flawed and did not “represent ‘reasonable additional On-Site Overheads actually incurred’ pursuant to the requirements of GCS clause 57.4(b)(i)”. The adjudicator then found (at ) in favour of the respondent on claim 9 for the amount of $1,036,886.25 plus GST, based on adjusting Mr Worthington’s calculation (at ).
- Putting to one side the applicant’s reliance on pre-adjudication correspondence to give context to the reasons in the payment schedule, it is apparent from the above analysis of the adjudicator’s decision in respect of the Group C claims, in general, and claim 9 in Group C, in particular, that the adjudicator acted within the jurisdiction that is conferred on him under s 88 of the Act to decide that five out of the six reasons given in the payment schedule for withholding payment in respect of the Group C claims were not valid reasons for withholding payment. To the extent the adjudicator held the applicant to the one reason identified in the payment schedule which the adjudicator determined was a valid reasons and did not consider the adjudication response to the extent that it included reason for withholding payment that were not identified in the payment schedule or were determined by the adjudicator not to be valid reasons for withholding payment, the adjudicator made a decision, as to which part of the adjudication response could be characterised as a properly made submission. Again, putting to one side the applicant’s reliance on pre-adjudication correspondence, consistent with John Holland v RTA, it was within the adjudicator’s jurisdiction to make those decisions as to what was a properly made submission. Even if the adjudicator made an error (which it is not apparent that he did) in concluding that parts of the adjudication response should be rejected on the basis of not being a properly made submission, that would be an error within jurisdiction and not reviewable.
- The question then arises whether the existence of the pre-adjudication correspondence affects the characterisation of the decisions made by the adjudicator as being within jurisdiction. There are four letters that the applicant relies upon as pre-adjudication correspondence that it asserts provided the context of the dealings between the parties and would have enabled the respondent to understand more fully the six reasons in the payment schedule for withholding payment in respect of the Group C claims. The letters have the respective references E105-CIV-SCE-124, E105-CIV-SCE-125, E105-CIV-SCE-117, and E105-CIV-SCE-131.
- Letters #124 and #125 were both dated 23 October 2018 and neither is referred to in the payment schedule. Letter #124 is the applicant’s response to the respondent’s delay notice D0305 notifying of a delay regarding density transmitters. The applicant’s response was that the density transmitter was already supplied, installed and terminated. The letter makes the assertion that the respondent had not adhered to the subcontract requirements which require strict compliance with the requirements of clause 57 as a precondition to any entitlement, including demonstration of a delay. Letter #125 responds to the respondent’s delay notice D0282 notifying a delay regarding light poles and is otherwise materially in the same terms as letter #124.
- Letter #117 dated 29 October 2018 was the applicant’s response to the respondent’s September claim report. The letter stated:
“The Subcontractor’s strict compliance with the Subcontract is a precondition to entitlement for the Subcontractor to claim an adjustment to the Subcontractor price, and dates for completion.
The Contractor considers that the Subcontractor has not complied with the Subcontract requirements and as a result no entitlement has accrued under the Subcontract for an adjustment to the Subcontract Price or dates for completion.”
The letter listed in appendix A each of the delay notices and a comment about whether or not there was noncompliance with relevant subclauses of clause 57.2 and 57.3 of the subcontract. (Clause 57.2 deals with the requirements for a written notice of delay and clause 57.3 deals with the procedure for making an EOT claim.) Appendix A included a specific response by the applicant to paragraph 67 of the September claim report (in which the applicant expressed that the amount of the claim was valued in accordance with clause 9.4 of the subcontract which was within clause 9 that dealt with variations to the works), but the applicant only relied on letter #117 in the payment schedule expressly for claims in Groups E and F.
- Letter #131 dated 26 November 2018 was the applicant’s response to the respondent’s claim for acceleration costs. It therefore relates to Group D claims and not Group C claims. It was referred to in the payment schedule for Group D claims.
- One issue raised by these four letters is whether they did provide context to enhance the respondent’s understanding of the reasons set out in the payment schedule for withholding payment in respect of the Group C claims. An issue in relation to letters #117 and #131 is whether the reference to them in the payment schedule outside the Group C claims required the adjudicator to refer to them for the purpose of dealing with the Group C claims.
- The adjudication application was extensive in respect of the value and number of claims and was based on the grouping of the claims into seven discrete and logical categories in the payment claim that had its genesis in the September claim report. The payment schedule was required by s 76 of the Act to be responsive to the payment claim and the payment schedule spreadsheet dealt with the same grouping of the claims and provided the reasons for withholding payment in respect of each of the items. In order to perform the function of reaching an adjudication decision as quickly as possible and within the period of time (with extensions) provided for in s 85 and s 86 of the Act, the adjudicator was entitled, in the circumstances of this adjudication application, to rely on the applicant’s specific grouping of its reasons for withholding payment by reference to the respondent’s grouping of the claims.
- Even though Luikens is authority for giving a contractor some scope for using shorthand references in the payment schedule in circumstances where the issue is either straightforward or has been “expansively agitated” in prior correspondence, as the shorthand reference used in Luikens shows, it must be able to be given meaningful content by the parties in the circumstances. The shorthand reference in Luikens was sufficient to identify a transaction with another subcontractor for the same work that correspondingly explained the contractor’s reason for withholding payment. That is a very different case to the applicant’s payment schedule that responded to the respondent’s payment claim in relation to 82 separate items that were supported by the September claim report comprising some 189 pages. It was apparent from paragraph 65 of the September claim report that the respondent was relying on clause 57 of the subcontract in relation to the Group C claims. It was for the applicant in its payment schedule to indicate how clause 57 or other provisions of the subcontract precluded the Group C claims. Letters #124 and #125 did not do so. Letter #117 appears to have greater relevance to the Group C claims, but the respondent (and therefore the adjudicator) did not need to consider it in respect of these claims, when the applicant only relied on it to respond to claims in Groups E and F in the payment schedule. For the same reason, I cannot conclude that the respondent (and therefore the adjudicator) should have considered letter #131 in relation to the Group C claims, when the applicant wrote the letter for the purpose only of the Group D claims and specified it in the payment schedule in response to the Group D claims and not the Group C claims.
- The applicant submits that the fact that the respondent’s adjudication application dealt with the common issues in relation to the Group C claims, including the time bar, allowed the inference to be drawn that the respondent understood from the context of the dealings between the parties that the applicant was relying on the respondent’s Group C claims being time barred, when it set out in the payment schedule in a shorthand way the six reasons to justify its rejection of each of the Group C claims.
- As is apparent from section 11.1 to section 11.2 of the adjudication application, the respondent was able to distil the applicant’s general reliance on the time bar arguments from the reasons set out in the payment schedule in relation to the Group C claims and that explains why those arguments were addressed in the adjudication application.
- It is also contrary to the respondent’s express reliance in section 11.11 of the adjudication application on the fact that the applicant only offered general and non-specific reasons in the payment schedule for withholding payment in respect of the Group C claims to treat the respondent’s understanding of those reasons as enhanced by the letters which the applicant failed to rely on in its response to the Group C claims set out in the payment schedule.
- Consistent with the procedures provided for in the Act that allow a disputed payment claim to proceed to an adjudication decision, the respondent was entitled to rely on the deficiencies in the payment schedule. The applicant’s assertion that the adjudicator therefore erred in having no regard to previous dealings between the applicant and the respondent is misconceived, when the respondent (and therefore the adjudicator) did not need to consider the letters that are relied on by the applicant as previous dealings, but were not incorporated into the payment schedule for the specific group of claims.
- The applicant’s reliance on the four letters identified as pre-adjudication correspondence in relation to claim 9 in Group C therefore cannot be used to establish jurisdictional error. The decision of the adjudicator otherwise to reject those parts of the adjudication response that the adjudicator determined went beyond the reason given in the payment schedule for withholding payment that the adjudicator determined was a valid reasons was within jurisdiction. It is not necessary to determine whether the adjudicator was in error in characterising reasons for withholding payment in the adjudication response as not being including in the payment schedule as, even if such an error were made, it did not amount to jurisdictional error.
- The submissions at the hearing in respect of the Group C claims were developed by reference to claim 9 in Group C. The applicant relied on the same arguments in relation to the other claims in the Group C. There is no basis to reach a different outcome on this application in relation to those other claims, than for claim 9 in Group C.
Group D claims - acceleration
- Group D comprised acceleration claims. To illustrate the applicant’s complaints, submissions focused on claim 15 in Group D which was an acceleration claim for additional management personnel. The applicant’s response in the payment schedule for this claim (which was exactly the same response for all Group D claims) was as follows:
“Non-compliance with Subcontract timeframes.
No entitlement (See E105-CIV-SCE-131)
Subcontractor has not accounted for its own delays and inefficiencies.
Subcontractor has failed to demonstrate compliance with the Subcontract procedure
Subcontractor failed to meet the requisite time limits as a precondition to any entitlement”
- The applicant had assessed all claims in Group D at an amount of nil in its payment schedule. The total amount for the Group D claims made by the respondent in its claim was $5,528,842 plus GST that was revised down to $4,643,116.74 plus GST in the adjudication application based on the respondent’s expert report of Mr Worthington.
- The adjudicator dealt with the generic reasons for the applicant’s refusal of the Group D claims at  to  of the adjudication decision. The adjudicator found at  that “Non-compliance with Subcontract timeframes” was very general and non-specific and was not a valid reason for withholding payment. The same conclusions were applied at  to the reason “Subcontractor has not accounted for its own delays and inefficiencies”. The adjudicator noted at  that in asserting “Subcontractor failed to meet the requisite time limits as a precondition to any entitlement” the applicant had not detailed which provision in the Subcontract upon which it relied to reject the claims and it was therefore not a valid reason for withholding payment. As for the same reasons relied on for the Group C claims, the adjudicator treated the fifth reason in the payment schedule as the detail for the fourth reason. At , the adjudicator observed that, in respect of the reason “No entitlement (See E105-CIV-SCE-131)”, the applicant had provided its response to the respondent’s acceleration claim in which it rejected the claim entirely. It is apparent therefore that the adjudicator had regard to the contents of letter #131 to the extent that it dealt with the applicant’s position on why the respondent had no entitlement to make the acceleration claim.
- The adjudicator then analysed the Group D claims by reference to entitlement and quantum. The adjudicator noted at  the respondent’s position that:
“… it is entitled to acceleration costs for the respondent’s direction to accelerate the performance of the Works pursuant to GCS clause 48.1, which it says falls under the definition of ‘variation’ under GCS clause 1 and for which it is entitled to an adjustment of the subcontract price pursuant to GCS clause.”
- The adjudicator referred to the respondent’s claim being set out in four identified dated letters between 24 September and 8 November 2018. Reference was then made by the adjudicator (at ) to the respondent’s reliance on the expert report of Mr Griffith on its entitlement to acceleration costs and (at ) to the report of Mr Worthington in respect of the amount of those costs. At , the adjudicator referred to the applicant’s reasons for withholding payment as limited to those identified in the payment schedule addressed at  to . Relevantly, the adjudicator’s reasons at  to  also pertained to the adjudicator’s approach to the Group D claims. The adjudicator noted at  to  that, on the issue of entitlement, the applicant’s expert report of Mr Clark responded to Mr Griffith’s report and, on the acceleration costs, the applicant’s expert report of Mr Durning responded to Mr Worthington’s report. The adjudicator recorded at  that he “carefully considered the parties’ respective positions in respect of entitlement to acceleration costs” and then at  set out the conclusion the respondent was reasonably entitled to acceleration costs, based upon the respondent’s submissions in the adjudication application at section 13.1 to section 13.49.
- On the issue of whether the applicant had directed the respondent to accelerate the performance, the adjudicator set out his conclusion at :
“I am satisfied that the [applicant] directed the [respondent] to accelerate the performance of the works in its letter E105-CIV-SCE-056 dated 1 April 2018 and that this direction was intended to be a variation under GCS clause 9. I am persuaded that this was the case due to the [applicant’s] prior direction to accelerate under GCS clause 48.1(c) dated 29 March 2018 purportedly being to overcome the [respondent’s] delays, to which the [respondent] objected in its letter 200853-CM-LTR-00162, resulting in the [applicant] re-issuing its amended direction on 1 April 2018 and without referencing GCS clause 48.1(c). In my opinion, by reissuing the direction to accelerate the [applicant] demonstrated that it had reconsidered its position and was no longer relying on GCS clause 48.1(c).”
- In respect of the quantum of costs, the adjudicator noted at  that the applicant made no comment in the payment schedule in respect of the costs claimed by the respondent for acceleration costs from which I infer that the adjudicator did not take into account Mr Durning’s commentary on the respondent’s acceleration costs consistent with the adjudicator’s conclusion at  to .
- Claim 15 was for a sum of $135,131.46 plus GST in the adjudication application which accorded with Mr Worthington’s valuation. The adjudicator found in favour of the respondent based on the respondent’s submissions and valued the claim in that amount, finding at  that Mr Worthington’s valuation was reasonable.
- Even though the adjudicator had acknowledged in  that letter #131 provided the applicant’s response to the respondent’s acceleration claim and noted that it rejected the claim entirely, the applicant submits that, in the context of  to  of the decision, the adjudicator did not take into account submissions based on letter #131.
- It cannot be ignored that the adjudicator was cognisant that the applicant relied on letter #131 to advance its submission that the respondent had no entitlement to acceleration costs. That was the only reason set out in the payment schedule that the adjudicator did not reject as a valid reason for withholding payment. That is reinforced by the express statement in  that the adjudicator had considered the parties’ respective positions in respect of entitlement to acceleration costs. The adjudicator then made the decision in respect of entitlement on the basis of a preference for the respondent’s submissions (at ) and expanded the reasons for so doing at .
- It is therefore apparent from  to  of the adjudication decision that the adjudicator engaged with the parties’ submissions on entitlement to acceleration costs. To the extent that the adjudicator had rejected those parts of the adjudication of a response other than those that fell within the second reason “No entitlement (See E105-CIB-SCE-131)” set out in the payment schedule, the adjudicator made a decision within his jurisdiction to determine whether the submissions were properly made. Even if the adjudicator were in error (which it is not readily apparent that he was, but it is not necessary to determine) in concluding that parts of the adjudication response should be rejected in respect of the Group D claims on the basis of not being a properly made submission, that would be an error within jurisdiction and not reviewable.
- In relation to the Group D claims, the applicant relies on letter #131, but also on letters sent by the respondent to the applicant on 2 and 29 March, 26 November and 19 December 2018. Those letters were referred to in the adjudication application and dealt with by the adjudicator by the conclusion reached at  and .
- The applicant generally relies on the same arguments for the Group D claims in relation to the adjudicator’s treatment of parts of the adjudication response as new reasons. To the extent that the applicant relies on identified pre-adjudication correspondence for claims 15, 20, 22 and 25 in Group D, the letters are either not referenced in the payment schedule or do not fairly relate to the reasons stated in the payment schedule for the Group D claims. It is therefore not a jurisdictional error for the adjudicator not to have considered the pre-adjudication correspondence that was not otherwise covered by the issues disposed of by the adjudicator at  and .
Group F claims – outstanding commercial claims submitted after 24 September 2018
- The applicant relies on the fact that the respondent anticipated the applicant’s reasons for refuting the Group F claims in section 11.5 to section 11.16 of the adjudication application in relation to time bar arguments, waiver/estoppel and failures to account for subcontractor’s delay and inefficiencies. For the same reasons advanced in respect of the Group C claims by the applicant that the adjudicator erred in the reasons set out at  to  of the adjudication decision in not taking into account the previous dealings between the parties relevant to understanding the payment schedule, the applicant submits that the adjudicator made a jurisdictional error in treating the submissions in the adjudication response as new reasons and ignoring them.
- It is apparent that the adjudicator considered the applicant’s submissions in respect of the Group F claims to the extent the adjudicator did not find the submissions were new reasons. As for the Group C and Group D claims, the adjudicator’s decision to treat parts of the adjudication response as new reasons not covered by the payment schedule (even if in error) was a decision within jurisdiction and not reviewable.
- Although both parties had addressed submissions on whether the court should exercise the discretion under s 101(4) of the Act, if it were found that part of the adjudication decision were affected by jurisdictional error, it is unnecessary to deal with those submissions, in view of my conclusion that no jurisdictional error was made.
- The applicant has failed in showing that the adjudicator made any jurisdictional error. It follows that the originating application should be dismissed. Subject to hearing submissions from the parties on costs, I am inclined to order costs to follow the event. It is also necessary to ascertain whether any ancillary orders are required, as a result of dismissing the application.
- Published Case Name:
Civmec Electrical & Instrumental Pty Ltd v Southern Cross Electrical Engineering Limited & Ors
- Shortened Case Name:
Civmec Electrical & Instrumental Pty Ltd v Southern Cross Electrical Engineering Limited
 QSC 300
13 Dec 2019
- White Star Case: