NEW SOUTH WALES SUPREME COURT

CITATION: Transgrid v Walter Construction Group [2004] NSWSC 21

CURRENT JURISDICTION:

FILE NUMBER(S): 30109/03

HEARING DATE{S): 18 December 2003

JUDGMENT DATE: 06/02/2004

PARTIES:

TransGrid (a State owned Corporation)

Walter Construction Group Ltd and

Tim Sullivan

JUDGMENT OF: McDougall J

LOWER COURT JURISDICTION: Not Applicable

LOWER COURT FILE NUMBER(S): Not Applicable

LOWER COURT JUDICIAL OFFICER: Not Applicable

COUNSEL:

F C Corsaro SC (Plaintiff)

G Inatey SC/B McManus (Defendants)

SOLICITORS:

Doyles Construction Lawyers (Plaintiff)

Corrs Chambers Westgarth (Defendant 1)

Colin Biggers & Paisley (Defendant 2)

CATCHWORDS:

ADMINISTRATIVE LAW - construction contracts - determination of adjudicator under Building and Construction Industry Security of Payment Act 1999 - whether jurisdiction to review - whether jurisdictional error of law - whether Superintendent's certification binding on adjudicator - whether denial of natural justice

ACTS CITED:

Building and Construction Industry Security of Payment Act 1999

DECISION:

See paragraph [71] of judgment.

JUDGMENT:

IN THE SUPREME COURT

OF NEW SOUTH WALES

COMMON LAW DIVISION

ADMINISTRATIVE LAW LIST

McDOUGALL J

6 February 2004

30109/03 TRANSGRID (A STATE OWNED CORPORATION) v

WALTER CONSTRUCTION GROUP LTD & ANOR

JUDGMENT

HIS HONOUR:

Introduction

1 In these proceedings the plaintiff (“TransGrid”) seeks, in substance, judicial review of a determination (“the Determination”) made by the second defendant (“Mr Sullivan”) pursuant to s 22 of the Building and Construction Industry Security of Payment Act 1999 (“the Act”). The Determination was made on an adjudication application submitted by the first defendant (“Walter”) in respect of a payment claim under a contract made between TransGrid and Walter on about 5 April 2002 (“the contract”).

2 The payment claim was in an amount of $12,991,145.00 (excluding GST). The plaintiff’s payment schedule in response allowed an amount of $925,439.05 (excluding GST). Mr Sullivan determined that Walter was entitled to $5,010,433 (including GST).

The issues

3 The following issues were argued between TransGrid and Walter:

(1) Is the determination of an adjudicator under the Act in principle amendable to judicial review?

(2) Did Mr Sullivan fall into “jurisdictional error”?

(3) Specifically, was Mr Sullivan obliged to apply the determination of the Superintendent made pursuant to the relevant provisions of the contract, or was he entitled to re-examine the matter for himself and form his own view of Walter’s entitlement?

(4) Did Mr Sullivan deny TransGrid natural justice?

(5) If judicial review is in principle available and if grounds for review are made out, is it possible in principle to sever the affected parts of the Determination and quash only those parts?

(6) If the answer to the preceding question is “yes”, can those parts of the Determination (if any) be severed and quashed in the present case?

The contract

4 The contract documents are voluminous. The clauses of the general conditions of contract that are of particular relevance to this application are clauses 40 and 42. I set out the relevant parts of those clauses:

“ 40. VARIATIONS

40.1 Variations to the Work

The Superintendent may direct the Contractor to do any one or more of the following:

(a) increase, decrease or omit any part of the work under the Contract;

(b) change the character or quality of any material or work or of anything described in the Contract;

(c) change the levels, lines, positions or dimensions of a design or of anything described in the Contract, the Design Documents or any part of the work under the Contract;

(d) execute additional work;

(e) demolish or remove material or work no longer required by the Principal;

(f) vary the Contractor’s design obligations under the Contract.

The Contractor shall not vary the work under the Contract or claim payment except as directed in writing by the Superintendent or approved in writing by the Superintendent pursuant to Clause 40.

The Contractor is bound only to execute a variation which is within the general scope of the Contract.

Unless otherwise agreed with the Contractor, the Superintendent shall not direct variation after Practical Completion unless the variation is in respect of rectification work referred to in Clause 37 or is for minor works.

…

40.3 Pricing the Variation to the Work

Unless the Superintendent and the Contractor agree upon a price for the variation, the variation directed or approved by the Superintendent pursuant to Clause 40.1 shall be valued under Clause 40.5.

…

40.5 Valuation

Where the Contract provides that a valuation shall be made under Clause 40.5, the Principal shall pay or allow the Contractor or the Contractor shall pay or allow the Principal as the case may require, an amount ascertained by the Superintendent, as follows -

(a) If the Contract prescribes specific rates or prices to be applied in determining the value, those rates or prices shall be used.

(b) If Clause 40.5(a) does not apply, the rates or prices in the Schedule of Rates shall be used to the extent that it is reasonable to use them.

…

Unless otherwise provided in the Contract, the Contractor shall make a General Request for Valuation to the Superintendent on form 40.5.1 contained in Annexure A within 28 days of the commencement of the events or circumstances entitling the Contractor to a valuation and the Principal shall only be required to pay or allow the Contractor such amounts as arise out of a General Request for Valuation made in accordance with this Clause.

…

42 CERTIFICATES AND PAYMENTS

42.1 Payment Claims

On the first day of each month and upon issue of a Certificate of Practical Completion and within the time prescribed by Clause 42.7, the Contractor shall be entitled to deliver to the Superintendent claims for payment supported by evidence of the amount due to the Contractor and such information as the Superintendent may reasonably require. Claims for payment shall include all amounts then due to the Contractor under the Contract or for breach thereof.

The contractor shall not be entitled to claim payment for:

(a) variations which have not been approved in writing by the Superintendent;

(b) any extra costs which have not been valued under Clause 40.5 or otherwise agreed to in writing by the Superintendent;

(d) work performed off Site (including design and factory fabrication) unless specifically provided for in the Contract.

42.2 Progress Payment Certificates and Time for Payment

Within 10 business days after receipt of a claim for payment the Superintendent shall issue to the Principal and to the Contractor a payment certificate stating the payment which, in the opinion of the Superintendent, is to be made by the Principal to the Contractor.

If the Contractor fails to make a claim for payment, the Superintendent may nevertheless issue a payment certificate.

The Principal shall pay to the Contractor the amount certified by the Superintendent within 42 days after receipt of the claim for payment.

Payment of moneys shall not be evidence of the value of work or an admission of liability or that work has been executed satisfactorily but shall be a payment on account only.

42.3 The Calculation of Payment

The amount certified by the Superintendent as due to the Contractor at the time of a claim for payment shall be the value of the work carried out by the Contractor in performance of the Contract to that time together with any moneys due to the Contractor under any other provision of the Contract or for breach of Contract less -

(a) amounts which the Principal is entitled to deduct under Clauses 42.4 and 42.11;

(b) amounts already paid or certified under the Contract.

Where work is defective or omitted, the estimated costs of rectifying the defect or omission may be deducted from moneys otherwise due to the Contractor or otherwise taken into account.

If the Contract provides that the Contractor must complete a specified task, submit a specified document or fulfil some other requirement before it is entitled to make a claim for payment then notwithstanding this Clause 42, the Contractor shall not be entitled to make a claim for payment and the Principal shall not be obliged to make payment until the Contractor has complied with that provision of the Contract.

…

42.6 Effect of Certificates

The issue of a payment certificate or a Certificate of Practical Completion shall not constitute approval of any work or other matter nor shall it prejudice any of the rights or powers of the Principal or the Superintendent.

The Superintendent may, by any certificate, correct any error which has been discovered in any previous certificate, or may modify any previous certificate other than the Certificate of Practical Completion or the Final Payment Certificate, which has been issued.

…

46. DISPUTES

46.1 Submission to the Superintendent

If a dispute between the Contractor and the Principal arises out of or in connection with the Contract including a dispute concerning rectification or frustration of the Contract -

(a) Each party shall furnish in writing to the Superintendent details of that party’s claim or, where the other party is the claimant, the reasons for rejecting the other party’s claim, and shall request the Superintendent to make a decision under Clause 46;

(b) Within 28 days after receipt from each party of the information referred to in Clause 46.1(a), the Superintendent shall give each party a written decision on the dispute.

Notwithstanding the existence of a dispute, each party shall continue to perform the Contract. In particular, the Contractor shall continue with the work and the Principal shall continue to comply with Clause 42.2.

46.1 Arbitration

If either part [sic] is dissatisfied with the decision of the Superintendent or the Superintendent fails to make a decision within 28 days or the party required by Clause 46.1(a) to furnish to the Superintendent reasons for rejecting the other party’s claim fails to provide the reasons within 28 days after a request by the other party to do so, the dispute may be referred to arbitration. Unless the parties agree upon an arbitrator, either party may request the person specified in the Annexure A to nominate a single arbitrator. If a person is not specified in the Annexure A, the person to nominate an arbitrator shall be the chairperson of the Chapter of the Institute of Arbitrators Australia in the State or Territory referred to in Clause 1. The request shall indicate that the nominee shall not be an employee of the Principal or the Contractor, a person who has been connected with the work under the contract nor a person in respect of whom there has been a failure to agree by the Principal and the Contractor. Further the request shall indicate that the nominee shall be expert in matters pertinent to the dispute.

The rate of any interest awarded by the arbitrator shall be limited to a rate not exceeding the rate at which interest is prescribed for the purposes of Section 95 of the New South Wales Supreme Court Act, 1970.

Unless the parties otherwise agree in writing -

(a) they may be represented by duly qualified legal practitioners or other representatives in proceedings before the arbitrator;

(b) the arbitrator in conducting proceedings will be bound by the rules of evidence;

(c) the arbitrator shall not have power to order the parties to take steps to achieve a settlement of the dispute, without proceeding to arbitration; and

(d) the arbitrator shall award costs of the arbitration (including of the arbitrator) to be taxed or settled as between party and party”.

The Determination

5 As might be expected having regard to its amount, Walter’s payment claim was lengthy. It included a claim for work done under the contract and claims for a number of variations. The detailed breakdown of the claim, in tabular form, occupies 16 pages of the Determination.

6 Having set out the claim and its details (in a manner that showed, among other things, which of the various items TransGrid proposed to pay and in what amounts), Mr Sullivan turned to the parties’ submissions.

7 It is clear that a major component of the claim was for delay costs. Mr Sullivan analysed the competing methodologies propounded by the parties and concluded (paragraph 60) that where there was a difference between the analysis propounded by Walter and the analysis propounded by TransGrid, he preferred the analysis propounded by Walter.

8 However, a fundamental issue between the parties was whether Mr Sullivan was bound by the decisions of the Superintendent. TransGrid submitted that he was, and that the only remedy available to Walter was to submit the dispute to the dispute resolution procedures set out in the contract. Mr Sullivan concluded (paragraph 66) that the certificate was not binding on him so as to have the effect, for which TransGrid contended, that he could not determine an amount other than that certified by the Superintendent.

9 Alternatively, TransGrid argued before Mr Sullivan that the same result obtained through the application of the terms of clause 42.1, to the extent that, TransGrid said, there was no entitlement to be paid for work if it had not been approved in writing, or had not been valued or agreed by the Superintendent. Mr Sullivan rejected that argument (paragraph 67).

10 TransGrid submitted, in the further alternative, that if its preceding arguments were rejected, then it should be concluded that the contract did not provide for valuation of the claim so that ss 9(b) and 10(1)(b) of the Act applied. It followed, TransGrid said, that Walter had no entitlement to be paid for disputed variations (which, as I understand it, made up the bulk, if not the entirety, of the amount in dispute between TransGrid and Walter). Again, Mr Sullivan rejected that argument (paragraph 68).

11 Mr Corsaro SC, who appeared for TransGrid, identified paragraphs 66, 67 and 68 of the Determination as those that TransGrid sought by these proceedings to challenge.

First issue: is judicial review in principle available?

12 Mr Inatey SC, who appeared with Mr McManus of counsel for Walter, “formally” submitted that the decision of Mr Sullivan was not amenable to judicial review.

13 I considered this question in Musico v Davenport [2003] NSW SC 977. I concluded that judicial review was in principle available. The issue was raised again in Abacus Funds Management Ltd v Davenport [2003] NSW SC 1027, where I affirmed what I had said in Musico. (I note that, in an interlocutory decision in the same case – [2003] NSW SC 935 – Gzell J had expressed the same opinion.) Subsequently, Einstein J in Brodyn Pty Ltd v Davenport [2003] NSW SC 1019, and Palmer J in Multiplex Constructions Pty Ltd v Luikens & Anor [2003] NSW SC 1140, have expressed the same view.

14 In substance, Mr Inatey submitted that the approach that I had taken in Musico was wrong because it assumed that an adjudicator had a jurisdiction to determine disputes. However, that does not express correctly the basis upon which, in Musico, I concluded that judicial review was in principle available. It may be correct, in a broad sense, to say that an adjudicator cannot finally determine the rights and obligations, under a “construction contract”, of the parties to that contract. However, the adjudicator can (and, subject to any order of this Court, will) determine the entitlement to a disputed progress payment, and the amount of that progress payment. The binding nature of that determination follows, among other things, from the enforcement provisions set out in ss 24 and 25 of the Act. That the overall entitlements of the parties under the contract may therefore be considered, and settled authoritatively, by a court of competent jurisdiction (see s 32 of the Act) does not, in my view, affect this analysis.

15 Mr Inatey submitted further that the role of the adjudicator was “akin to, or analogous to” that of an expert undertaking a determination by which the parties have agreed contractually to be bound. I recognised this in Musico: see para [51]. The analogy may be useful in assessing whether an alleged error was jurisdictional (and subject to review), or within jurisdiction (and not subject to review). It does not show, or support the proposition, that judicial review is not in principle available.

16 I therefore adhere to the view that I expressed on this issue in Musico and that I repeated in Abacus.

17 In Musico, I said (at paras [42] to [60]) that judicial review would be available for what I called jurisdictional grounds (including jurisdictional error of law) and denial of natural justice, but not for non jurisdictional error of law. Further, as to natural justice, I noted (at paras [57] and [60]) that the requirements of natural justice must accommodate both the provisions of the legislative scheme and, more generally, the evident legislative intention underlying the Act. In the present case, neither TransGrid nor Walter suggested that any different approach should be taken (as to Walter, of course, subject to its primary position that the determinations of adjudicators were not at all amenable to judicial review).

Second and third issues: is there jurisdictional error of law

18 TransGrid’s submissions on this point rested on three bases. I shall consider them in turn.

The proper construction of ss 9(a) and 10(1)(a)

19 TransGrid submitted that, on the proper construction of the Act, where there was a contractual mechanism for the determination of an entitlement to a progress claim, an adjudicator under the Act was obliged to follow that mechanism.

20 That submission is, in terms and as far as it goes, correct. Section 8 of the Act establishes (if the construction contract does not) the entitlement to progress payments. Section 9 says that the amount of a progress payment is “the amount calculated in accordance with the terms of the contract” (paragraph (a)) or, if the contract makes no express provision, “the amount calculated on the basis of the value of construction work carried out … under the contract” (paragraph (b)). (I omit, as irrelevant, the reference to related goods and services.)

21 Section 10(1) then states, picking up s 9(b), how construction work carried out under a construction contract is to be valued. The primary method of valuation is “in accordance with the terms of the contract” (paragraph (a)). Where the contract makes no express provision, then paragraph (b) sets out the matters to which regard can be had.

22 TransGrid then submitted that Mr Sullivan had “failed to apply the terms of the contract in determining the value of the payment”. That submission in terms was not elaborated, although as I understand the way that TransGrid put its case, it was picked up later, by reference to complaints that Mr Sullivan had:

(1) Firstly, valued and given Walter entitlement to variation claims that were said to have been excluded by clause 42.1; and

(2) Secondly, failed to value the variation claims in the manner prescribed by clause 40.

23 It is convenient to consider those submissions now, although logically they only arise if TransGrid’s primary position (as to the primacy of the Superintendent’s determination) is correct, and they would seem to be put in the alternative to that submission.

24 As to the first matter: TransGrid relied on clause 42.1. It said that Walter was not entitled to payment for “variations which have not been approved in writing by the Superintendent”, or to “any extra costs which have not been valued under clause 40.5 or otherwise agreed to in writing by the Superintendent”.

25 It will be noted from Clause 40.1 that Walter is not entitled, among other things, to claim payment for variations unless these variations have been directed or approved, in each case in writing, by the Superintendent. Clause 42.1(a) disentitles Walter to payment for variations which have not been approved in writing by the Superintendent. In terms, it makes no reference to variations that have been directed in writing. That, presumably, is deliberate: if a variation has been directed in writing by the Superintendent, then to require, in addition, the Superintendent’s written approval for the same variation would seem to be redundant. Approval should be inferred from the fact of direction.

26 Alternatively, it may be that the drafter of the General Conditions slipped in seeking to transpose the effect of clause 40 into clause 42. Prima facie, there would be something inconsistent in prohibiting a claim for payment except for work directed or approved in writing by the Superintendent (clause 40.1), but prohibiting payment where there has been no approval in writing (clause 42.1), if it were intended thereby to disentitle Walter to payment for a variation directed in writing, but not additionally approved in writing, by the Superintendent.

27 I think that the better view of the disentitlement imposed by clause 42.1(a) is that it applies unless the work was either directed or approved in writing by the Superintendent. This result may be achieved by one of two alternative processes of construction. Firstly, it could be said to be a necessary consequence of a direction from the Superintendent to carry out a variation, that the Superintendent approved of that variation. Alternatively, for the reasons indicated in para [26], it is legitimate to take the view that the words “directed or” have been omitted before the word “approved”. On either basis, I think, the disentitlement does not operate if the relevant variation has been either directed in writing or approved in writing, in either case by the Superintendent.

28 Walter’s case was that the relevant variations had been directed in writing by the Superintendent. It said that Mr Sullivan had so found. Alternatively, it said, if Mr Sullivan had not so found then the resulting error was an error within jurisdiction.

29 In one specific case to which Walter pointed, it was clear that Mr Sullivan had found that there was a written direction. In paragraphs [368] to [388] of his Determination, Mr Sullivan considered what he called Claim No. PVO 011A. Mr Sullivan found that there was a written direction from the Superintendent to carry out the work comprised in that claim: see paragraphs [378], [379] and [381] of his Determination. Accordingly, in paragraph [388], he concluded that Walter was entitled to be paid, and he valued the amount of the payment.

30 Mr Sullivan may be right in saying that there was a written direction, or he may be wrong. However, if there is an error, it is clearly an error in applying the terms of the contract and, as such, cannot in my view amount to jurisdictional error.

31 Mr Sullivan considered another claim, identified as PVO 026, in paragraphs [407] to [434] of his Determination. In paragraphs [410] and [414], he found that the Superintendent gave a direction, and in paragraph [427] he concluded that what was directed amounted to a variation. Mr Sullivan did not in terms identify the direction as being one given in writing, although, I think, reading what Mr Sullivan says (and relating it back to PVO 011A to which, he said, it was linked), the better view would appear to be that the direction was given in writing.

32 In any event, if Mr Sullivan erred in awarding an amount for this claim because the direction was not in writing, that would be an error within jurisdiction. Mr Sullivan sought to apply the terms of the contract. If he erred in finding an entitlement based on an oral, as opposed to a written, direction, that was an error that arose in attempting to understand and apply the terms of the contract. It was an error in the exercise of the jurisdiction that the Act, read in conjunction with the contract, confers.

33 The case may be contrasted with what happened in Musico, where the adjudicator did not proceed at all under s 9(a), but instead (although there was an appropriate contractual mechanism for calculating the amount of the progress payment there in suit) proceeded under s 9(b). In this case, Mr Sullivan has understood that he was to proceed under s 9(a) and has sought to do so. In other words, he has sought to exercise the jurisdiction given to him by the Act. To adopt what Lord Reid said in Anisminic Ltd v Foreign Compensation Commission [1969] 2 AC 147, 171, having embarked upon the exercise of the jurisdiction remitted to him, he was as much entitled to decide the relevant question wrongly as he was to decide it rightly.

34 In my view, this analysis is supported by the analysis of Einstein J in Brodyn, at para [22]. TransGrid submitted that his Honour’s analysis was inconsistent with my decisions in Abacus (at para [33]) and Musico (at paras [77] and [119]). For the reasons that I have already given, I do not agree.

35 Although the parties did not specifically take me to the other variation claims it is apparent, if one reads Mr Sullivan’s Determination, that he found in each case that there was a direction from the Superintendent and that, in most cases, he stated that the direction was in writing (or that it was given by letter, or some such equivalent phrase). Where Mr Sullivan did not specifically identify the method by which the direction was given, I think, from contextual indications, that it is more likely than not that the relevant direction was given in writing. If it were, then no question arises. But even if it were not, then, as I have said, I do not think that jurisdictional error follows.

36 However, I think that there is a substantial difficulty arising from the way that TransGrid chose to put its submissions on this point. Its written submissions dealt with the principle of the errors alleged. They did not condescend to explain the application of those principles in the particular case, except through a five page schedule annexed to the submissions that was headed:

“DOYLES SCHEDULE 1A ADJUDICATION CHALLENGE”.

37 That schedule identified a number of matters, including the paragraphs of the Determination that were challenged, and the amounts that were in issue. It then set out what was called “VITIATING CONDUCT” which stated, in what appear to be a series of alternative and descending sub headings, in a summary way, what the alleged error was. For example, of particular relevance for present purposes, there were three sub headings:

“Purported to value variations excluded by Clause 42.1(a) and thus which could not be ‘due to the Contractor’ under Clause 42.3.”

“Purported to value variations excluded by Clause 42.1(b) and thus which could not be ‘due to the Contractor’ under Clause 42.3.”

“Failed to value variations in accordance with Clause 40.5.”

38 This third sub heading had its own three sub headings:

“Failed to arrive at a reasonable value using reasonable rates and prices: cf Clause 40.5(c).”

“Accepted claimant’s valuation in absence of alternative from respondent and did not himself calculate the correct value.”

“Failed to consider what costs were included in the contract price and what costs were not included.”

39 Under these headings and sub headings were set out paragraph numbers. As I understand it, one could (for example) take the sub heading relating to clause 42.1(a) and see that it was intended to relate to the approach indicated by Mr Sullivan in paragraph [67] of his Determination. However, in only one case – PVO 011A – was the error cross-referenced to Mr Sullivan’s particular findings.

40 In other words, with the lone exception of PVO 011A, the submissions gave me absolutely no indication as to the particular findings by Mr Sullivan, as opposed to his general statement of approach, that are said to be affected by the alleged error. Exactly the same applies to the other particular errors that are alleged under this rubric.

41 It is completely unhelpful for a plaintiff in the position of TransGrid to approach the Court, alleging jurisdictional error, but not to show how the error of principle that is alleged in fact affects the particular determinations that have been made. I do not think that it is appropriate for the Court to have to do what, by implication, TransGrid says it should do, and seek to find out for itself, by reading the whole of what was (necessarily and certainly not inappropriately) a lengthy Determination, whether the general error is demonstrated in any particular respect.

42 The second error that is alleged under this heading (see para [22] above) is the failure to value variations in accordance with clause 40.5. In this case, at least, the schedule to which I have just referred does indicate the paragraphs to which the criticism applies. However, except through the three general headings that I have set out in para [37] above, it gives no clue as to how the error is said to be demonstrated in those paragraphs.

43 In oral submissions, Mr Corsaro clarified the alleged error in some respects. One complaint that is made is that Mr Sullivan did not himself make a finding of value, but instead simply adopted the figure submitted by Walter. (I should make it quite plain that, in a number of cases, Mr Sullivan did not accept Walter’s claim: it will be seen that he allowed, overall, approximately 40 percent of the total claimed.)

44 It is apparent from reading the Determination that TransGrid, in most if not all cases, took the approach of advancing criticisms of the amount claimed by Walter but not itself propounding any alternative valuation. It is apparent that the approach taken by Mr Sullivan was to consider the validity of the challenges and, if he did not think that the challenges had been substantiated, to allow the amount claimed (of course, where he thought that it was properly to be claimed).

45 I see no reason why Mr Sullivan erred, let alone erred in a jurisdictional sense, in adopting the approach that he did. He had a considerable volume of material before him, that was capable of substantiating, in appropriate detail, the various claims that were made. He was entitled to think that TransGrid would have taken any proper and available objection to the claims that were made. (Indeed, it is difficult to see how he could have had any other understanding.) On that basis, I see no reason why it was not open to Mr Sullivan, applying his own expertise to the material before him, to come to the view that if the various challenges were not made out then, in effect by necessity, what was left was a reasonable, or at least a justifiable, valuation of the work. Nor do I see any reason for concluding, specifically, that in those circumstances it was not open to Mr Sullivan to conclude, in terms of clause 40.5(c), that the rates or prices that Walter used in pricing the variations were reasonable.

Is the Superintendent’s decision binding on the Adjudicator?

46 TransGrid submitted that s 9(a) of the Act had not only the effect referred to in para [19] above, but also meant that the adjudicator was “bound to apply the Superintendent’s Determination”. It acknowledged, and embraced, the proposition that its approach required an adjudicator “to apply” or “rubber stamp” the Superintendent’s Certificate.

47 I considered this argument in Abacus at paras [30] to [40]. I held that an adjudicator was entitled to exercise his or her own judgment, and was not bound by the determination of the Superintendent or someone occupying the position of Superintendent.

48 TransGrid submitted that my decision in Abacus was wrong on this point. I have reconsidered the issue, paying particular attention to the submissions put by TransGrid (which included submissions that were not advanced in Abacus).

49 One of the matters that I referred to in Abacus, as supporting the view to which I came on this point, was that if the submission were correct, then an adjudicator would be bound by a Superintendent’s Certificate issued in bad faith, or as the result of fraudulent collusion.

50 In answer to this proposition, TransGrid pointed to clause 23 of the contract which, clearly enough, indicated that the Superintendent was to exercise, in a reasonable manner, the powers conferred on him by the contract. Further, TransGrid relied on the decision of the Full Court of the Supreme Court of Western Australia in WMC Resources v Leighton Contractors Pty Ltd [1999] WASCA 10. That decision confirmed, among other things, that a party performing a discretionary valuation function under a contract was required, in performing that function, to act reasonably and in good faith. Thus, it was said, the example that I gave in Abacus would not arise, because a certificate issued in bad faith or as the result of fraudulent collusion would not be a certificate at all for the purposes of the contract.

51 The argument may be acknowledged. However, it does not answer the proposition that, where a certificate had been issued in good faith and as the result of reasonable endeavours, but was flatly wrong, the adjudicator would be bound.

52 I do not think that the legislature intended that the scheme that it sought to construct should be dependent upon an assumption that a person is bound (either as a matter of express stipulation or implication) to act reasonably and in good faith. Nor do I think that it intended that the process of adjudication for which it provided could be set at nought by an honest but manifestly wrong exercise of a contractual power of certification.

53 Finally, if the legislature intended the decision of the Superintendent (or someone in the Superintendent’s contractual position) to be determinative in any case to which sections 9(a) and 10(1a) applied, there would be no utility whatsoever in putting in place the mechanism for adjudication. That is because, by hypothesis, the claimant would have a contractual right to the amount of the payment and the determination of the adjudicator could do no more than recognize that right. The only benefit from the adjudication process would follow from the ability to register the adjudication certificate in a Court of competent jurisdiction and thereby obtain a judgment. However, on the hypothesis under consideration, the claimant could equally well sue for the payment and recover summary judgment.

54 In short, I adhere to the view that I expressed on this point in Abacus.

55 Further, I think that the position, under the contract, is stronger in the present case than it was in Abacus. Under clause 42.2, TransGrid’s obligation is to pay Walter “the amounts certified by the Superintendent …”. Under clause 42.3, the amount certified by the Superintendent is to “be the value of the work carried out by [Walter] in performance of the Contract to that time together with any moneys due to [Walter] under any other provisions of the Contract or for breach of Contract less [certain specified items]”. The amount that is due is the value of the work. The clause seems to me to create an obligation on the Superintendent, acting reasonably, to calculate the “correct” amount. By clause 23, that obligation is effectively transferred to TransGrid. It would be quite extraordinary, having regard to clause 23, and to the wording of clause 42.3, if TransGrid were able to escape liability for a progress payment because the Superintendent had (even in good faith) made a mistake.

56 Alternatively, TransGrid submitted that my decision in Abacus on this point could be distinguished because, in the present case, clause 23 provides that the Superintendent’s decisions are in effect final unless the appropriate steps are taken to challenge them.

57 For that submission to be made good, it must embrace the proposition that the contract, on its proper construction limits, in a very significant way, the benefit to Walter of the statutory scheme. On this construction, Walter’s only entitlement is to a progress payment in the amount (if any) certified by the Superintendent. The mechanism for adjudication would, therefore, be limited to reinforcing that to which, by hypothesis, Walter was already entitled as a matter of contract: see para [53] above. That consequence follows whether the Superintendent’s decisions are final (because unchallenged) or not. It shows that the supposed basis for distinguishing my decision in Abacus really affords no point of distinction whatever.

Section 10(1)(b)

58 TransGrid submitted, in the alternative, that because the relevant clauses of the contract depended upon the Superintendent’s certification, which had not been given, the contractual mechanism for valuation of the claims was not available. Accordingly, it said, Mr Sullivan was bound to apply s 10(1)(b).

59 For the reasons that I gave in Abacus at para [38], the “amount calculated in accordance with the terms of the contract” is the amount that is obtained by applying the terms of the contract, not the amount that the Superintendent reaches in performing, or purporting to perform, that calculation. Accordingly, I do not accept the premise on which this alternative submission is founded.

Fourth issue: natural justice

60 TransGrid’s submissions on denial of natural justice seem to fall into two broad categories.

61 Firstly, it is said that, because Mr Sullivan accepted Walter’s position in relation to a number of items in dispute, having along the way rejected the criticisms of those positions made by TransGrid, he should have given TransGrid an opportunity to put further submissions as to the value of the work in question.

62 Secondly, it is said, in a number of instances where Mr Sullivan did not have material that TransGrid claimed to rely on, or criticised or was confused by TransGrid’s submissions, he should have given TransGrid an opportunity to supply the material or supplement its submissions.

63 Each of these criticisms, and the particular criticisms that are so summarised, is without foundation.

64 The first criticism is made in relation to Mr Sullivan’s determination of the amount payable for a variation. I have noted in para [44] above the way in which TransGrid approached those claims. It offered no evidence of its own, but simply criticised the material put forward by Walter.

65 It was open to TransGrid to take whatever approach it wished to the adjudication application propounded by Walter. It chose to take the course of criticising the material relied upon by Walter and, in some cases, the approach taken by Walter. It chose to put forward no evidence of its own as to valuation of the claims. It is not suggested that Mr Sullivan denied it the opportunity to do so. The submission is simply that Mr Sullivan, having rejected the criticisms that TransGrid made of Walter’s claims, was then obliged to give it “a second bite of the cherry”. I do not agree. Mr Sullivan was entitled to think that TransGrid had taken a considered approach to the adjudication application, and that it had put forward whatever material it wished to rely upon in answer to that application. There is no suggestion that, for example, TransGrid put its position on the express basis that, if Mr Sullivan rejected its primary criticisms, it would then seek to put forward further material in reply; or that Mr Sullivan induced it to take the approach that it did. Indeed, having regard to the time limits imposed by the Act for filing an adjudication response, and thereafter for determining the application, it is difficult to see how (without the consent of Walter) Mr Sullivan could have extended a further opportunity to TransGrid to put submissions. There is no doubt that, under s 21(4) of the Act, Mr Sullivan could have called for further material from TransGrid. (This would have given him the obligation to afford Walter an opportunity to comment on that material.) However, unless there were an agreed extension of time, that request (and the provision of material in response to it, and any further comment on that material) must all take place within the 10 business days’ time frame within which, subject to any agreement of the parties, the application is to be determined.

66 The other aspect of the Determination that is criticised in this context relates to the extension of time claims. Again, it appears, Walter put forward expert evidence that was capable of making good its claims to extensions of time, and TransGrid took the course of criticising that evidence but offering no evidence itself. Mr Sullivan accepted Walter’s evidence and determined the extensions of time (and the consequential payment amounts) according to Walter’s material. For the reasons that I have just given, he was entitled to do this, and there was no denial of natural justice to TransGrid.

67 It seems to me to be clear that TransGrid took a considered approach to the conduct of the adjudication. It should not now be allowed, under the guise of protest at an alleged denial of natural justice, to seek to take another approach: cf Coulton v Holcombe (1986) 162 CLR 1, 8-9; University of Wollongong v Metwally (No 2) (1985) 59 ALJR 481, 483. The applicability of those principles to adjudications under the Act (admittedly, but irrelevantly, before the substantial amendments effected in 2002) was confirmed by Nicholas J in Parist Holdings Pty Ltd v WT Partnership [2003] NSW SC 365.

68 TransGrid’s other complaints of denial of natural justice do not seem to me to have any more substance. Mr Sullivan can hardly be blamed if TransGrid omitted to furnish him with material on which it had relied. Again, it is correct to observe that, in principle, Mr Sullivan could have called for the material pursuant to s 21(4) of the Act. However, he was not bound to do so. Nor does it matter why he did not do so, although having regard to the strict time limits imposed by the Act, and the volume of material that was put to Mr Sullivan, his failure (if such it be) to call for the material could be understood.

69 Finally, TransGrid says that where Mr Sullivan rejected its criticisms of Walter’s material, or (because of confusion) could not understand them, he was bound to give TransGrid an opportunity to clarify them. At most, the discretion under s 21(4) would be activated; and there is no basis here (or in relation to the preceding paragraph) for concluding that the exercise of the discretion was so fatally flawed as to render invalid the relevant parts of the Determination.

Remaining issues

70 On the view to which I have come, the remaining issues do not arise for consideration. They were not the subject of full oral argument before me. Particularly where they have been considered by Palmer J in Multiplex, I do not think it desirable that I should add my own, and necessarily obiter, observations.

Conclusions and orders

71 I conclude that none of the challenges advanced by TransGrid to Mr Sullivan’s Determination has been made out. It would follow that the summons should be dismissed with costs. However I shall stand the matter over to a date to be arranged with my associate, but no later than 20 February 2004, to enable the parties to bring in short minutes of order to give effect to these reasons, and to put such submissions as they wish on the question of costs. The orders should deal with any outstanding interlocutory orders.

******

LAST UPDATED: 06/02/2004