Supreme Court

_{New South Wales}

Case Title: Leighton v Arogen

Medium Neutral Citation: [2012] NSWSC 1323

Hearing Date(s): 08/10/2012, 09/10/2012

Decision Date: 01 November 2012

Jurisdiction: Equity Division - Technology and Construction List

_{Before: McDougall J}

Decision: Determination declared void and quashed.

First defendant to pay plaintiff's costs.

Catchwords: [ADMINISTRATIVE LAW] - Building and Construction Industry Security of Payment Act 1999 (NSW) - application to restrain enforcement of, and to quash, a determination of an adjudicator - whether adjudicator materially denied parties natural justice by permitting the defendant to advance its claim in a way the plaintiff was not able to answer - whether adjudicator acted outside jurisdiction - whether adjudicator's determination void - whether adjudicator erred in his approach to the application of s 20(2B) and 22(2)(c) of the Building and Construction Industry Security of Payment Act 1999 (NSW).

Legislation Cited: Building and Construction Industry Security of Payment Act 1999 (NSW)

Cases Cited: Brodyn Pty Ltd v Davenport (2004) 61 NSWLR 421

Downer Construction (Aust) Pty Ltd v Energy Australia (2007) 69 NSWLR 72

John Holland Pty Ltd v Cardno MBK (NSW) Pty Ltd [2004] NSWSC 258

Minister for Commerce v Contrax Plumbing & Ors [2004] NSWSC 823

Pacific General Securities Ltd v Soliman & Sons Pty Ltd (2006) 196 FLR 388

Parkview Constructions Pty Ltd & Anor v Sydney Civil Excavations Pty Ltd [2009] NSWSC 61

Texts Cited:

Category: Principal judgment

Parties: Leighton Contractors Pty Limited (ACN 000 893 667) (Plaintiff)

Arogen Pty Limited (ACN 110 542 419) (First Defendant)

Philip Davenport (Second Defendant) Adjudicate Today Pty Limited (ACN 109 605 021) (Third Defendant)

Representation

- Counsel: Counsel:

M G Rudge (SC) / F G Kalyk (Plaintiff)

N A Nicholls / FFF Salama (Defendants)

- Solicitors: Solicitors:

Gadens Lawyers (Plaintiff)

Mitry Lawyers (Defendants)

File number(s): 2012/269835

_{Publication Restriction:}

JU D G M E N T

1 HIS HONOUR: This is yet another application to restrain enforcement of, and to quash, a determination of an adjudicator made under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act). In broad terms, the plaintiff (Leighton) claims that the second defendant (the Adjudicator) acted outside the jurisdiction given to him by the Act; and denied it natural justice in some respects.

Factual background

2 Leighton contracted with Ausgrid to carry out significant upgrading works to the electricity supply system in the southern suburbs of Sydney. The project (as I shall call it) was known as the "Beaconsfield to Kogarah Cable Project". Part of the work required the installation of about 22km of underground electricity supply cables, linking Ausgrid's bulk supply point at Beaconsfield to substations in Marrickville, Canterbury, Rockdale and Kogarah.

3 On 8 March 2011, Leighton made a contract (the works contract) with the first defendant (Arogen). Under that works contract, Arogen agreed to supply horizontal directional drilling (HDD) services for the project.

4 On 6 January 2012, Leighton and Arogen made a further agreement (the variation agreement) whereby they varied the works contract in some respects. One effect of the variation agreement was to convert the works contract from a schedule of rates contract to a lump sum contract. The variation agreement was preceded by correspondence, in the course of which (Arogen contends and the Adjudicator accepted) it was agreed that certain standby or delay costs incurred after 25 November 2006 were not included in the lump sum, and that further standby or delay costs would constitute an agreed variation for the purposes of the works contract. It is convenient to refer to this as "the letter of offer term".

5 On 12 July 2012, Arogen submitted to Leighton a payment claim for the month of June 2012. The amount claimed, allowing for payments on account, retention and interest, was in excess of $6.2 million exclusive of GST. The greater part of that (almost $5.5 million exclusive of GST) related to "variations/additional works".

6 On 24 Jul 2012, Leighton provided a payment schedule. The payment schedule assessed the amount payable as a negative sum (i.e., an amount owing by Arogen to Leighton) of about $239,000.00. The payment schedule responded specifically to each item of the payment claim, and gave reasons why, where it was the case, Leighton's assessment of an item differed from Arogen's.

7 There was some controversy as to whether the payment schedule included (as it said it did), in respect of the variations where Leighton's assessment of the value of the variation differed from Arogen's, a "calculation" as an attachment. Unfortunately, because of a comment made by Arogen in its adjudication application which apparently was accepted as correct by the adjudicator, that question assumed some significance. The parties put on further evidence, in the course of the hearing, to deal with it.

8 I am satisfied, having regard in particular to the evidence of Arogen's project administrator Ms Ellie O'Meley, that an email from Mr Stefan Woelk of Leighton to Arogen of 24 July 2012 attached two versions of the payment schedule. One was a PDF file which contained the text of the payment schedule but not the supporting calculations for the variations in question. The other was an Excel file which included both the text of the payment claim and the supporting calculations.

9 Thus, I am satisfied, contrary to the assertion made by Arogen in its adjudication application and to the conclusion of the adjudicator, that the payment schedule provided to it by Leighton did include those calculations.

10 Arogen made an adjudication application dated 7 August 2012. It was referred to the adjudicator for determination. The only document in evidence that answers the description "adjudication application" is one which in terms is said to be "Application Submissions". However, when one reads that document, it appears to be both application and submissions in support.

11 It does not appear that the adjudication application was supported by any statutory declaration. It is however common ground that it was supported by a vast amount of documentary material, the bulk of which was not in evidence. One of the documents that was provided to the adjudicator, in support of the adjudication application, was a copy (both electronic and printed out) of the PDF file of the payment schedule: that is to say, a copy which did not include the supporting calculations.

12 Ms O'Meley's explanation, which was not challenged in cross-examination, is that when she received the email of 24 July 2012, she opened the PDF file, noted that it appeared to be a payment schedule, noted that the Excel file appeared to be another version of the payment schedule, and did not open the Excel file. Ms O'Meley's affidavit did not explain whether, when she read the file that she did open, she noted that it made reference to "calculations... attached" which were not in fact attached. Nor did it explain why (if she had read the PDF file and had noted that matter) she did not open the other file to see if it contained the missing calculations.

13 The adjudication application addressed each of the items that was the subject of the payment claim. In some respects, according to Leighton, it did so in a way which departed impermissibly from the way the relevant claim had been put in the payment claim.

14 Further, in relation to those variations in respect of which the Excel version of the payment schedule provided calculations (V01, V02 and V03), the adjudication application referred to Leighton's payment schedule (including the reference to attached calculations) and stated:

No such calculations were attached to the Schedule.

We respectfully submit that the Respondent is barred by s 20(2B) of the Act from providing these calculations in an adjudication response.

15 Leighton served an adjudication response dated 15 August 2012. It too dealt, one by one, with each of the items the subject of the payment claim. It was supported by a statutory declaration of Mr Iain Lamb, who is and was a project manager employed by Leighton with responsibility for the project, and by a statutory declaration by Mr Woelk, who is and was a senior contract administrator working on the project. The responsibilities of each included matters relating to the works contract as varied by the variation agreement.

16 The adjudication response took issue with the proposition that the relevant calculations relating to V01, V02 and V03 were not attached to the payment schedule. It said at [86]:

Contrary to the Claimant's submissions, the Respondent did provide as part of the Payment Schedule the calculations in support of its valuation of V01, V02 and V03 (see statutory declaration of Stefan Woelk).

17 Mr Woelk's statutory declaration referred to V01, V02 and V03. He accepted that they were variations but said, among other things, that he did not agree with Arogen's quantification of them. He said that he had undertaken a detailed evaluation of each of the claims, and annexed as "S2" what he said was "a detailed assessment of" each, together with "a summary of all three". The document that was annexed included the "calculations" that formed part of the Excel version of the payment schedule.

18 However, Mr Woelk's statutory declaration did not say in terms (or at all) that in fact those calculations had been attached to a version of the payment schedule that had been served. Nor did he (or anyone else) say that the version of the payment schedule that had been provided to the adjudicator (which was as I have said a printed and an electronic copy of the PDF version) was not the only version provided by Leighton to Arogen.

The determination

19 The adjudicator's determination and supporting reasons were dated 22 August 2012, and made available to the parties the following day, once Arogen had paid the adjudicator's fees.

20 The adjudicator followed a conventional and rational course. He started by identifying the "construction contract" in question (at [1] to [25]). He concluded, among other things, that the construction contract under which the entitlement to be paid arose included the works contract as varied by the variation agreement; and that the variation agreement included, as a term having contractual force, the letter of offer term.

21 Mr Rudge of Senior Counsel, who appeared with Mr Kalyk of Counsel for Leighton, accepted that on the current state of the authorities I would conclude that the adjudicator did not err, in a way that would entitle this Court to interfere by way of declaration or relief in the nature of certiorari, in coming to this conclusion. However, Mr Rudge did make the formal submission that the authorities in question (it is not necessary to detail them) were wrong, insofar as they so concluded.

22 The adjudicator then turned to the payment claim, identifying its elements (and where necessary referring to the adjudication application and adjudication response) at [26] to [35].

23 The adjudicator turned to the question of delay and disruption. He noted that Arogen relied on the letter of offer term to support its entitlement to be paid, by way of variation, for delay and disruption costs; and Leighton's contention that it was cl 28.8 of the works contract that was relevant. The adjudicator concluded that the letter of offer term should be given effect; and, to the extent necessary, in preference to cl 28.8.

24 The adjudicator then dealt at [53] to [64] with certain disputes relating to works under the contract. It is not necessary to look at that section of his reasons. He then turned to the remaining issues in dispute, which were the 27 variation claims V01 to V27. He dealt with those in groups. The parties did likewise in submissions. It is convenient to follow that course.

V01, V02, V03, V13, V16 and V21

The payment claim

25 The total claimed for V01, V02 and V03 was a little in excess of $1.57 million. Leighton assessed the total amount payable at $773,828.00. The adjudicator allowed these three variations in the amount of Arogen's claim.

26 The total claimed for V13, V16 and V21 was a little under $2.705 million. Leighton assessed these claims at nil. Again, the adjudicator allowed them in full.

27 In short, this group of six variations, between them, accounted (in dollar terms) for the greater part of the variation claims, which in turn accounted for the greater part of the total payment claim.

28 Each of V01, V02 and V03 was identified in the payment claim as one for: "delay and disruption due to Cooks River Heritage Issues for [a nominated month] Period (stop work issued by Ausgrid 1/12/2011)."

29 V01 related to the month of December 2011; V02 related to the month of January 2012; and V03 related to the month of February 2012.

30 V13, V16 and V19 were described in exactly the same way save that the relevant periods were respectively "March/April" 2012, May 2012 and June 2012. For some reason, each of these three variations includes, in its description, the words:

Cooks River Site D.

Nothing appears to turn on this.

31 The payment schedule dealt with each of these variations. In relation to V01, it said (consistently with Mr Woelk's concession that the first three were properly to be regarded as variations):

LCPL disagree with Arogen's claimed amount. December stand down valued at [amount stated]. Stand down calculation is attached to this spreadsheet.

32 The same substantive response was given to V02 and V03, of course with changes to the relevant month and to the amount at which Leighton varied the valuation.

33 As to V13, the payment schedule stated:

LCPL disagree with Arogen's claimed amount. This is not related to the suspension of works as directed between 1/12/2011 and the 10/2/2012. Arogen were given a direction to recommence work at Cooks River on the 9/2/2012. Pursuant to cl 8.1 and 8.2 [of the works contract] the ground conditions and their impact on production are inclusive of [sic] the lump sum agreed by the parties.

34 The same answer was given to V16 and V21.

The adjudication application

35 The adjudication application put these claims somewhat differently. It said:

In late November 2001, during "pilot" hole drilling we encountered an "Excusable Delay" (within the meaning of Subcontract Work Contract Conditions... cls 1 and 28) in the form of heritage structures, not known at time of tender, and from which our delay and disruption entitlements flow.

36 The adjudication application proceeded to explain that when Arogen drilled into those "unknown heritage structures", water gushed out which "was subsequently identified as water being retained in the structures".

37 The adjudication application made it clear that Arogen relied on the letter of offer term, and noted that Leighton had accepted that V01, V02 and V03 were variations. It was at this point that the adjudication application contained the erroneous statement that Leighton's calculations for each of these variations were not attached to its payment schedule, and the reference to s 20(2)B of the Act.

38 Importantly, the adjudication application then stated:

We agree with the Respondent's position that it directed suspension of the works between 01 December 2011 through 10 February 2012 on account of the unexpected existence of heritage structures.

However, during and after that period we were further and extensively delayed and disrupted due to (ongoing and atypical) inclement whether.

"Inclement Weather", and implicitly the effects thereof, is a "Cause of Excusable Delay" (WCC Clauses 1 and 28) from which our delay and disruption entitlements flow.

The unanticipated adverse "Site Condition (hydrological)" (within the meaning of WCC Clause 1) caused by the "Inclement Weather" was severe and excessive ingresses of water to the works, due to charging of subterranean aquifers and ongoing filing of the heritage structures.

The effect of these ongoing ingress of water was to severely retard the progress of the works, together with the need to undertake additional work, such as reconstitution of drilling fluid and re- conditioning of the bore hold.

In summary, portion of our claim V03 and our Claims V13, V16 and V21 are based on the effects of inclement weather, these effects being severe and excessive water ingress which diluted drilling fluid to the point where its loss of viscosity required additional work to, and delayed progress of the works, while the drilling fluid was continually reconstituted to a required level of consistency to effectively remove cuttings from the bore hole.

39 Thus, Arogen appeared to accept that V01, V02 and part of V03 did relate to Ausgrid's direction to stop work. However, no doubt recognising that this direction had been lifted on 10 February 2012 and that it had been directed to resume work, Arogen suggested that the balance of V03, and the entirety of V13, V16 and V21, were variation claims for delay and disruption "due to (ongoing and atypical) inclement weather which was not foreseeable" and (obviously enough) not caused by it.

40 It is I think open to infer that this change in position (for such I conclude it is) reflected Arogen's appreciation that the claim as articulated in the payment claim could not be supported in part as to V03, and in its entirety as to V13, and V21.

The adjudication response

41 Leighton's adjudication response dealt with these variations. It accepted that V01, V02 and V03 (in part) were variations for which Arogen was entitled to be paid, but stated that the dispute was as to the amount. It stated also that the relevant calculations had been supplied. I have referred to this, and to Mr Woelk's statutory declaration, already.

42 As to so much of V03 as was said to be the result of inclement weather rather than Ausgrid's direction to stop work, and as to V13, V16 and V21, the adjudication response noted the way in which those claims had been put in the payment claim and said, in effect, that it was not open to Arogen to put its claim on what was said to be a new basis. Further, Leighton said, it was not open to the adjudicator to consider the claims on that suggested new basis.

43 The adjudication response said, in substance, that all six variations had been based, in the payment claim, on the "Heritage Issues" and consequent order to stop work, and that there had been no suggestion that any of them was based (in whole or in part) on any Excusable Delay.

44 The adjudication response stated, further, that if the adjudicator were minded to consider these variations on what was said to be the new basis, there were various contractual answers.

The adjudicator's reasons

45 The adjudicator dealt with these disputes at [72] to [111] of his reasons. At [75], the adjudicator referred to the calculations said to have been attached to the spreadsheet forming part of the payment schedule, and stated:

No calculation was attached.

46 The adjudicator gave no clear reason for expressing that view. He did not explain why (as he appears to have done) he preferred the assertion made by Arogen to the assertion made by Leighton. However, I think, it is open to infer that the adjudicator did look at the payment schedule (or the document that Arogen said was the payment schedule) which formed part of the mass of material given to him. On a fair reading, the conclusion is consistent with his having performed some such exercise.

47 Further, at [76] to [78], the adjudicator did refer to the relevant paragraphs of Mr Woelk's statutory declaration. He noted that Mr Woelk referred to annexure S2 as being his "detailed assessment of V01, V02 and V03". However, he stated (at [77]):

The respondent has not satisfied me that the detailed assessments of Mr Woelk were provided with the payment schedule.

48 That was, I think, an inference that could be drawn from Mr Woelk's declaration. Although it identified the relevant calculations, it did not say that they were a copy of the calculations attached to the payment schedule. Nor (at least to the extent that I was taken to it) did it attach a complete copy, either electronic or printed, of the Excel version of the payment schedule which would have included the calculations.

49 The adjudicator then said that s 20(2B) of the Act prevented (or in his word, "barred") Leighton from relying on the calculations. I do not think that this was correct.

50 Section 20(2B) of the Act provides that a respondent to an adjudication application may not, in its adjudication response, rely on "any reasons for withholding payment unless those reasons have already been included in the payment schedule provided to the claimant".

51 In this case, in relation to V01, V02 and V03, the stated "reasons for withholding payment" were that the variations had been valued at an excessive amount. The calculations gave details of those reasons, and set out what Leighton contended was the correct valuation of each variation. At most, those calculations constituted either a part of or an amplification of the reasons for non-payment that had been given in the payment schedule. The relevant reason was that the claims were overvalued in the payment claims. The calculations did no more show why, in Leighton's view, this was so.

52 The adjudicator then said at [80] that Leighton:

.... says that I should prefer [its] calculations for V01, V02 and V03 to that of the claimant. I would be denying the claimant natural justice if I was to do so when [Leighton's] calculation was not included in the payment schedule.

53 It does not appear to have occurred to the adjudicator (or if it did occur to him, it does not appear to have troubled him) that the consequence of his reasoning was that he was denying natural justice to Leighton by preventing it from relying on material that formed part of, or supported, its reason, stated in the payment schedule, for withholding part of the payment claimed for these variations.

54 Nor does the adjudicator appear to have thought it appropriate to consider the propositions put, in the alternative, in the adjudication application:

... if calculations are provided in a response and the adjudicator is of a mind to consider them, we ask that he/she exercise the provisions of s 21(4) of the Act to enable us to fully explain why we do not agree with the Respondent's... "certification".

55 The adjudicator did not explain why he did not adopt this obvious, and to my mind commonsense, approach to the natural justice issue.

56 Be all that as it may, the adjudicator then dealt with those reasons that he thought were available to Leighton. He noted that Leighton had put that V13, V16 and V21 were not "related to the suspension of works directed between 1/12/11 and 10/2/12". He accepted that "[s]trictly speaking that is correct". However, the adjudicator said, that was not the way the costs were claimed. In this, he was referred to the way that the relevant claims had been put in the adjudication application, as being due to, or consequent upon, an Excusable Delay: namely, inclement weather.

57 Having so characterised the claims, the adjudicator turned to Leighton's alternative contractual answers and said that they were barred by s 20(2B) of the Act, because they had not been raised in the payment schedule. It is of course correct that they had not been so raised. That was because the payment claim did not mention Excusable Delay, or inclement weather, in relation to any of the six variations with which I am presently concerned.

58 The adjudicator then turned his mind to other points raised by Leighton, including the proposition that the claims as framed in the adjudication application were different to those put in the payment claim. He did not accept that contention.

59 Further, and in relation to the contractual arguments, the adjudicator appears to have taken the view that the letter of offer term entitled Arogen to be paid the proper cost of the claims without demonstrating the cause of the delay or disruption.

60 The adjudicator dealt with the question of quantum (which on any view had been noted as in dispute), very simply at [111]:

I am satisfied that the claimant is entitled to have the amounts claimed for [the six variations in question] included in the calculation of the progress payment.

61 Apart from [24] of the reasons (on which Mr Nicholls of Counsel, who appeared with Mr Salama of Counsel for Arogen, relied) there is nothing in the adjudicator's reasons to explain why it was that he was satisfied that Arogen was entitled to the amounts claimed. There is no indication in the reasons that the adjudicator had turned his mind to the components of the claim, or to the underlying rates. Had he done so, he would have found that although (as he said at [24]) the letter of offer did have attached to it a "a spreadsheet with rates for supervision, crew and equipment", Arogen's calculations of its entitlements for the variations in question was based not upon those rates, but upon other, higher, rates.

62 The adjudicator did not say why it was that he was satisfied that the rates on which the calculations were based were either contractually or otherwise appropriate. He did not indicate that he had in any way satisfied himself as to the propriety or accuracy of the calculations. And that is in the face of a position, noted by Leighton in both the payment schedule and the adjudication response, that the dispute was not one as to entitlement (for V01, V02 and in part V03) but as to quantum.

The parties' submissions

63 Mr Rudge submitted that:

(1)Arogen had misled the adjudicator by stating that there were no calculations attached to the payment schedule, and by providing him with one only of the two versions of the payment schedule given to it;

(2)that had caused the adjudicator to disregard Leighton's calculations of the amounts of the relevant variations (as supported by Mr Woelk's statutory declaration);

(3)further, Arogen had changed the basis of its claim, in an impermissible way, from the way it was put in the payment claim to the way it was put in the adjudication application;

(4)it was not open to the adjudicator to consider the relevant claims on the basis on which they had been advanced in the adjudication application;

(5)by treating the relevant claims in that way, the adjudicator had denied Leighton natural justice, because he had relied on s 20(2B) to exclude from consideration the responses that it put; and

(6)in any event, the adjudicator had abdicated his obligation to give reasons (see s 22(3)(b) of the Act; the parties had not dispensed the adjudicator from the requirement to give reasons) in the way that he approached the question of quantum.

64 Mr Nicholls submitted that:

(1)Leighton had taken an extremely narrow and technical approach to the way the payment claim was advanced;

(2)it was and always had been clear that the underlying reason for the six variations in question was the impact of an Excusable Delay - inclement weather - on, or its interaction with, the heritage structures;

(3)to the extent that the adjudicator had erred in his application of s 20(2B), that was an error within jurisdiction; and

(4)in relation to quantum, in circumstances where (on the approach taken by the adjudicator) there was no evidence from Leighton as to quantum, it was open to the adjudicator to express his satisfaction in the summary way that he did.

65 In relation to (2), Mr Nicholls relied on correspondence, emanating from his client and addressed to Leighton (or to an "an alliance" of which it formed part), which appeared to suggest that the heritage issues and the inclement wether issues were intimately related. However, I am satisfied that, notwithstanding the dates those letters bear, in many cases they were not delivered on those dates; and in some cases, they were not delivered until after the payment claim had been served.

66 Mr Woelk's unchallenged evidence was that Arogen had a practice (I use this term neutrally) of accumulating letters, bearing various dates, and delivering them en masse at some date which was, in many cases, substantially later than the date some of them bore. Thus, Mr Woelk said, he and Mr Lamb followed a practice of noting on each letter the date it was handed over or received, and initialling that annotation. I am satisfied, in relation to the letters on which Mr Nicholls relied, that they were not delivered on the dates that they bear; and that, on the contrary, they were delivered later (in some cases, significantly so).

67 Thus, even if it is to be accepted that this practice was not one undertaken with any malign intent, nonetheless it does seriously affect both the reliability of those letters as business records and the use that Mr Nicholls sought to make of them.

68 Mr Nicholls sought to rely on other correspondence (including by email) to flesh out what he submitted was the common factual background known to the parties, and which he, submitted, could be taken into account in support of the submission referred to at [64(2)] above.

Decision

69 It is convenient to start with this point. It may be accepted that payment claims and payment schedules are to be understood as the parties to the relevant construction contract would have understood them. Thus, documents which appear to be extremely summary, or to the uninformed but not unintelligent observer brief to the point of incomprehensibility, may be sufficiently meaningful to the parties to enable them to know, respectively, the bases on which a particular payment claim is advanced and the bases on which it is opposed.

70 In this context, it may well be appropriate to take into account, in particular factual circumstances, the background knowledge of the parties as shown (for example) by correspondence passing between them before and at the time the payment claim and payment schedule were exchanged. That material might enable the Court to have a more informed understanding of the way that the parties would have perceived, and understood, the real issues sought to be raised.

71 Thus, for example, if at the time the relevant delays were said to have occurred the parties had exchanged a barrage of correspondence which showed that each understood that the real underlying problem was one of the impact of inclement weather on the underground structures, then the abbreviated references, for each of these variations, to "Cooks River Heritage Issues" might well be understood as some sort of shorthand term that included not only those issues themselves but also the (by hypothesis) intimately related impact on those heritage issues, or structures, of the inclement weather said to have amounted to a cause of Excusable Delay.

72 The correspondence does not go so far. It does not, in my view, show that Leighton should be taken, contrary to the case that it has steadily propounded, to have understood that the variations in question were not to be construed as narrowly as it suggests.

73 On the face of things, a delay said to be based on an order to stop work, which in turn related to the discovery of "heritage items" and the need to investigate them before work proceeds, is fundamentally different to a delay consequent upon an event of Excusable Delay caused by significant inclement weather.

74 In general, underground conditions were at the risk of Arogen as subcontractor. Thus, as Leighton submitted, in general the effect of delay by reason of unexpected underground conditions is to Arogen's account, or at its risk. In the case of V01, V02 and V03, the consequential order to stop work given by the principal, Ausgrid was the contractual basis for Arogen's entitlement. That, no doubt, is why Leighton acknowledged the entitlement and disputed only the question of quantum.

75 On no view did the stopwork order prevent Arogen from working beyond 10 February 2012. In particular, on no view did that stopwork order have anything to do with V13, V16 and V21.

76 I have considered the correspondence on which Mr Nicholls relied in support of his submission that the parties must have understood this part of the payment claim as relating to a cause of Excusable of Delay: namely, inclement weather.

77 In my view, the force of this submission is much undermined by the significant backdating of relevant parts of the correspondence (see at [66] above). But there are other difficulties.

78 The correspondence on which Mr Nicholls relied did not identify any variation to which it applied, nor indeed the time period to which it related. Even allowing for the fact that Leighton and its employees, Mr Lamb and Mr Woelk, knew far more about the project than I do, there was nothing in the correspondence to suggest to them that it was intended to amplify, or provide background relevant to enable an understanding of, the relevant variation claims.

79 It may be noted, further, that the adjudicator did not refer to any of the letters as informing, explaining, or providing a basis for, his view that the claim as articulated in the adjudication application was, in respect of these six variations, the same as the claim that had been articulated in the payment schedule.

80 Section 13(2)(a) of the Act requires that a payment claim "must identify the construction work... to which [it] relates". The payment claim did so, in terms that seemed to me to be clear and unambiguous. If the payment claim had been intended to relate to Excusable Delay caused by inclement weather, it should have stated this. I do not think that the requirement of s 13(2)(a) is satisfied, in this case, by statements in extrinsic correspondence that are not related to the particular claims, the particular items of construction work or the particular time periods.

81 Thus, in my view, Arogen did change the basis of its claim, in a significant way, for the last three variations, and for V03 insofar as it relates to the period 10 to 29 February 2012. It follows that Leighton's submission to that effect, both in its adjudication response and before me, should be (and should have been) accepted.

82 In Parkview Constructions Pty Ltd & Anor v Sydney Civil Excavations Pty Ltd [2009] NSWSC 61, Brereton J said at [22] that it was established "that an applicant may not rely on, and an adjudicator may not consider, material that is included in an adjudication application which is outside the scope or ambit of the claim described in the payment claim". His Honour referred to the decision of Einstein J in John Holland Pty Ltd v Cardno MBK (NSW) Pty Ltd [2004] NSWSC 258 at [22] to [25]. Brereton J also referred to my decision in Minister for Commerce v Contrax Plumbing & Ors [2004] NSWSC 823 at [49], [50], [56] and [57]. I repeat what I said in the last two of those paragraphs, as explaining the reasoning of Einstein J in the earlier case:

56.Section 20(2B) of the Act prevents a respondent from including in its adjudication response any reasons for withholding payment that were not included in the payment schedule provided to the claimant. There is no equivalent limitation, in the case of adjudication applications, in s 17 of the Act; and, as Einstein J held in John Holland at [21], no such limitation could be implied by any process of statutory construction.

57. What Einstein J said in John Holland was that a claimant that did not provide sufficient details in its payment claim to enable the respondent to verify or reject (ie, assess) the claim could not include the missing details in its adjudication application. That was because, since the respondent was barred by s 20(2B) from replying to those details (ie, of responding in its adjudication response in a way that did deal with the merits of the claim) the result "may indeed be to abort any determination": at [23]. His Honour said, alternatively, that an adjudicator did not have power to consider materials supplied by a claimant in its adjudication application which went outside the materials provided in the payment: at [24]. Materials would go outside what had already been provided if they fell outside the ambit or scope of that earlier material.

83 There is no doubt that, in general, the question of whether a submission has been "duly made" is one for the adjudicator to determine. See Giles JA in Downer Construction (Aust) Pty Ltd v Energy Australia (2007) 69 NSWLR 72 at [86] to [88]. (I note that Santow and Tobias JJA agreed with his Honour: and reference may be made as well to the cases cited by his Honour in the paragraphs in question.)

84 Accepting that this is so, nonetheless, the consequence of an invalid application of s 20(2B), with the effect (as here) that the respondent is prevented from advancing reasons because the payment claim that is advanced in the adjudication application is different to the one that was advanced in the payment claim and answered in the payment schedule, is to deny the respondent natural justice.

85 There is, in my view, another way of approaching the same question. Section 22 of the Act deals with the topic of the "adjudicator's determination". By subs (2), the adjudicator is commanded to "consider the following matters only": namely, the matters listed in paras (a) to (e). One of those matters (para (c)) is:

... the payment claim to which the application relates, together with all submissions (including relevant documentation) that have been duly made by the claimant in support of the claim...

86 In this case, in my view, the submissions that were made by Arogen in the adjudication application, in support of the variations in question, could not be regarded as having been "duly made" in support of those aspects of its payment claim. That is because, on its fair and obvious reading, the payment claim referred to a basis of claim that was quite different to that advanced in the submissions. As I have said already, I have no doubt that the way in which this part of the adjudication application is framed reflects a clear appreciation by Arogen of the strength of Leighton's response to the claims, insofar as it relates to V03 from and after 10 February 2012, and V16, V19 and V21.

87 Thus, in my view, the adjudicator failed to comply, to the extent indicated, with the mandatory requirements of s 22(2)(c). He failed to comply because he considered submissions that should not be regarded as "duly made... in support of the claim". For that reason, he did not make his determination (in respect of the relevant variations) in accordance with a condition of, or within the limits of, the jurisdiction given by the Act.

88 Further, and in any event, by approaching the matter in this way, the adjudicator denied natural justice to Leighton, because he permitted Arogen to advance its claim in a way that Leighton was not able to answer (on the adjudicator's application of s 20(2B)).

89 Those errors infect the determination as to V03 (in part) and as to V13, V16 and V21.

90 As to what might be called the "unaffected" part of V03 - that relating to the period up to 10 February 2012, conceded to be a variation for which Arogen was entitled to be paid - and as to V01 and V02, the adjudicator's approach involved the fundamental problem that, because of the incorrect statement made by Arogen in its adjudication application (as to the alleged absence of calculations from the payment schedule) and the adjudicator's acceptance of that proposition, he excluded from consideration Leighton's detailed assessment of the proper amount of the claims, supported as it was by the relevant part of Mr Woelk's statutory declaration. Thus, in part because of the incorrect statement made by Arogen in its adjudication application, the adjudicator denied Leighton natural justice because he did not consider its calculations and Mr Woelk's statutory declaration to the extent that it supported them.

91 There were of course other causes. First, Leighton failed to address the issue squarely and appropriately in Mr Woelk's statutory declaration. It would have been simple for him to say, in addition to what he did, say, that annexure S2 was an exact copy of the calculations that had been attached to the payment schedule. It would have been simple for him to annex a printed version of the complete Excel payment schedule, and to provide an electronic copy. He did neither of those things. Indeed, the way in which Leighton approached this issue facilitated the adjudicator's acceptance of the erroneous submission made by Arogen.

92 Further, the issue was compounded by what in my view was the adjudicator's erroneous approach to the application of s 20(2B) on this point. For the reasons that I have given, the calculations should not have been regarded as independent reasons, separate and distinct from those advanced in the payment schedule, in opposition to this part of the payment claim.

93 In those circumstances, it may be - I express no concluded view - that it would be inappropriate to deal with this particular failure to accord natural justice (i.e., that relating to the quantification dispute for V01, V02 and V03) by granting declaratory relief or relief in the nature of certiorari.

94 There is however another aspect of the quantification issue. It is, simply, that in my view the adjudicator did not give any, let alone any sufficient, reasons for his adoption of Arogen's quantification of its claim. I accept that, in circumstances where (as happened) there was no effective answer to the claim, it would not have required much in the way of reasons to indicate why it was that the adjudicator was satisfied with Arogen's quantification. But there were no such reasons; there was no more than a statement of the fact of satisfaction.

95 In circumstances where on any view the dispute as to quantification was within the defined area of controversy, and where (had the adjudicator considered the material to which he referred at [24]) it would have been clear that Arogen did not calculate its entitlement in accordance with the rates attached to its letter of offer, something more was needed than a mere statement of satisfaction.

96 Brereton J dealt with this question in Parkview at [30] to [40]. In doing so, he referred at [33] to his own decision in Pacific General Securities Ltd v Soliman & Sons Pty Ltd (2006) 196 FLR 388 at [88], [89]. For convenience, I set out those paragraphs of his Honour's reasons:

88 Because the adjudicator is obliged to include in the determination the reasons for it, and the reasons reveal no examination of whether the construction work the subject of the payment claim had been carried out, nor of what was its value, there is a compelling case that the adjudicator simply allowed the claim in full in default of any valid submission against it. As I have endeavoured to explain, that is not an adjudication, within the meaning of the Act, of the payment claim.

89 It follows that one of the basic and essential requirements of validity has not been satisfied, since there has not been an adjudication, within the meaning of the Act, of the payment claim, and accordingly the adjudicator's determination is void.

97 Although Brereton J there used the language of "basic and essential requirement of validity" (see Brodyn Pty Ltd v Davenport (2004) 61 NSWLR 421), what he said is equally applicable where the question of review is considered upon the basis of jurisdictional error. The jurisdiction entrusted to adjudicators requires, as "a basic and essential condition", that unless dispensed by the parties, they give sufficient reasons to explain their conclusions. A failure to do this is a failure to exercise the jurisdiction given in accordance with the conditions on which it is given.

98 Thus, in my view, the adjudicator's reasons in respect of V01, V02 and (in part) V03 are affected by jurisdictional error.

99 Both for the reasons culminating at [89] and for the reasons culminating at 98], the determination of the adjudicator is amenable to the grant of declaratory relief and relief in the nature of certiorari.

Di s c r e t i o n

100 The errors in the adjudicator's reasons relate to variation claims which, as I have noted, were the greater part of the amount claimed and the greater part of the amount determined by the adjudicator to be due.

101 Mr Nicholls did not submit that there were any discretionary reasons why (if I came to the conclusions that I have) I should not grant relief. Nor did he submit that the effect of relief should (or could) be limited only to the affected parts of the determination.

102 The consequence is that Leighton has made good its entitlement to the relief that it claims.

Other challenges

103 Leighton challenged other aspects of the adjudicator's determination. Since the conclusions that I have expressed are sufficient to justify the grant of the relief sought, I do not propose to deal with those challenges. The relevant facts are not in dispute. The relevant submissions have been recorded and fall within a relatively narrow compass. The amounts at issue are not in all cases substantial. As I have said, the six variation claims V01, V02, V03, V13, V16 and V21 accounted for the greater part of the June payment claim overall.

104 I should however mention that one group of variations related to some HDPE bore liners acquired by Arogen for the purposes of the project and stored by it at the yard of a related company at Kurri Kurri. Those variations claimed costs relating to the transportation, storage and delivery of the liners. Leighton challenged the adjudicator's conclusion and reasons on this group of variations.

105 There were separate proceedings commenced in relation to those liners. Leighton has discontinued those proceedings. In the circumstances, there is for this reason also no utility in considering the competing submissions in relation to the relevant variations.

Apparent error in calculation

106 It was common ground that, for reasons that need not be considered, that if all challenged to the determination failed, nonetheless the adjudicator had erred (for reasons that need not be considered, in his quantification of the claim. Mr Nicholls accepted that the adjudicated amount acceded his client's entitlement by the amount of $1,258,091.00.

107 Mr Nicholls accepted that, if all challenges failed and if the question arose of how the monies paid into court by Leighton as the price of interlocutory injunctive relief should be paid out, that amount should be paid to Leighton and the balance only to Arogen. In fact, orders have since been made by consent for the payment out to Leighton of $1,258,091.00.

Conclusion and orders

108 Leighton has made good its claim to relief. I do not reach that conclusion with any degree of satisfaction. The conclusion is not based on any assessment of the merits of the payment claim or the adjudicator's determination; merits are a matter peculiarly within the province of adjudicators. It may very well be that, contrary to Leighton's position, Arogen has a valid and substantial claim.

109 The result of my conclusions is that the flaws in the adjudicator's approach have deprived Arogen of the benefit of the determination, for which it has paid very substantial fees to the adjudicator. Further, by reason of the fundamental flaws in the adjudicator's approach, the policy of the Act has been, in this case, subverted. That has happened because the parties have been deprived of the statutory mechanism for having their competing claims put before and considered by an adjudicator, and made the subject of a determination in accordance with the jurisdiction conferred by the Act.

110 I make the following orders:

(1)Declare that adjudication determination 2012 ADJT491 made by Mr Philip Davenport on 22 August 2012 is void.

(2)Order that the said determination be quashed.

(3)Order the first defendant to pay the plaintiff's costs; otherwise make no order as to costs.

(4)Order that the balance of the money paid into court by the plaintiff on 3 September 2012, together with any interest accrued thereon, be paid out to the plaintiff.

(5)Direct that the exhibits be handed out.

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