SUPREME COURT OF QUEENSLAND
CITATION: Watpac Construction (Qld) Pty Ltd v KLM Group Ltd & Ors [2013] QSC 236
PARTIES: WATPAC CONSTRUCTION (QLD) PTY LTD
ABN 71 010 462 816
(applicant)
v
KLM GROUP LTD
ABN 66 089 479 66
(first respondent)
and
ALAN STAPLETON
(second respondent)
and
RICS DISPUTE RESOLUTION SERVICES
ABN 18 089 873 067
(third respondent)
FILE NO/S: BS 1079 of 2013
DIVISION: Trial Division
PROCEEDING: Originating Application
ORIGINATING
COURT: Supreme Court of Queensland
DELIVERED ON: 6 September 2013
DELIVERED AT: Brisbane
HEARING DATE: 17, 18 and 19 April 2013
Further written submissions provided on 24 April 2013 and 6 May 2013
JUDGE: Philip McMurdo J
ORDER: The originating application is dismissed
CATCHWORDS: CONTRACTS – BUILDING, ENGINEERING AND RELATED CONTRACTS – REMUNERATION – STATUTORY REGULATION OF ENTITLEMENT TO AND RECOVERY OF PROGRESS PAYMENTS – ADJUDICATION OF PAYMENT CLAIMS – where respondent and applicant entered into a contract for certain construction works – where respondent made payment claim pursuant the Building and Construction Industry Payments Act 2004 (Qld) – where the payment claim was referred to adjudication – where adjudicator ordered applicant to pay respondent – where applicant seeks judicial review of adjudicator’s decision on a number of grounds – where applicant contends adjudicator’s decision is affected by jurisdictional errors by misinterpreting the contract – whether a misinterpretation of the contract amounts to a jurisdictional error
Building and Construction Industry Payments Act 2004 (Qld), s 13
Akerhielm v De Mare [1959] AC 789, applied
BM Alliance Coal Operations Pty Ltd v BGC Contracting Pty Ltd [2012] QSC 346 , applied
Chase Oyster Bar v Hamo Industries Pty Ltd (2010) 78 NSWLR 393; [2010] NSWSC 190, cited
Clyde Bergemann Senior Thermal Pty Ltd v Varley Power Services Pty Ltd [2011] NSWSC 1039, applied
Coordinated Construction Co Pty Ltd v J M Hargreaves (NSW) Pty Ltd (2005) 63 NSWLR 385; [2005] NSWCA 228, applied
Craig v South Australia (1995) 184 CLR 163; [1995] HCA 163, cited
Hervey Bay (JV) Pty Ltd v Civil Mining and Construction Pty Ltd [2008] QSC 58 , discussed
Holmwood Holdings v Halkat Electrical Contractors [2005] NSWSC 1129, cited
Kirk v Industrial Court of New South Wales (2010) 239 CLR 531; [2010] HCA 1, cited
Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563, applied
Lahey Constructions Pty Ltd v Trident Civil Contracting Pty Ltd [2013] NSWSC 176, cited
Multiplex Constructions Pty Ltd v Luikens [2003] NSWSC 1140, cited
Peninsular Balmain v Abigroup Contractors Pty Ltd [2002] NSWCA 211, discussed
Thiess Pty Ltd v Warren Bros Earthmoving Pty Ltd and Anor [2012] QCA 276 , cited
COUNSEL: P Dunning SC, with M Smith, for the applicant
D Savage SC, with D O’Brien, for the first respondent
No appearance for the second respondent
No appearance for the third respondent
SOLICITORS: HWL Ebsworth for the applicant
McInnes Wilson for the first respondent
No appearance for the second respondent
No appearance for the third respondent
[1] This is a challenge to an adjudication decision made under the Building and Construction Industry Payments Act 2004 (Qld) (“the Payments Act”). The adjudicator, who is the second respondent, ordered the applicant (“Watpac”) to pay to the first respondent (“KLM”) an amount of $2,841,182.16. KLM was a subcontractor of Watpac for certain works at the Translational Research Institute at Woolloongabba.
[2] Watpac challenges that decision upon many grounds. It contends that the adjudicator made several errors which were jurisdictional errors. Alternatively, it says that the adjudicator failed to provide procedural fairness by reaching conclusions on certain issues, which were not according to the submissions of either side, and which Watpac could not have anticipated. Alternatively again, it argues that each of these conclusions demonstrates that the adjudicator did not make a bona fide attempt to reach a decision according to the Payments Act. And beyond those questions, Watpac alleges that the decision was procured by KLM’s payment claim being a fraudulent one, in its suggested misrepresentation of certain costs of KLM in the quantification of its claim. Watpac seeks a declaration that the decision is void and an order for repayment of the adjudicated amount. Each of the suggested grounds for this relief is contested by KLM.
The claim for variations and the Schedule of Rates
[3] KLM made a payment claim in an amount of $7,047,815.17 plus GST. This was calculated by adding to the completed contract works, amounts for variations and “EOT [extensions of time] and Delay Costs” and then deducting payments then made and an amount for agreed backcharges. The amount claimed as the total for variation works completed by KLM was $7,579,782.05.
[4] In its payment schedule, Watpac disputed some of the variations and set out various reasons for doing so. It categorised the disputed items according to the relevant reason. One category was described by the shorthand description “VPR – Price Already Agreed”. Watpac contended that the parties had already agreed on certain prices for each of these variations and that in its Payment Claim, KLM was attempting to recover a different price.
[5] In its Adjudication Application, KLM said that for the variations within this category it was entitled to quantify these claims for variations, as it had done in its Payment Claim, upon the basis that they were reasonable amounts for the work. This involved a particular issue of whether the rates and prices in the Schedule of Rates, which was one of the documents which together constituted the subcontract, had to be employed in the valuation of variations. The adjudicator held that for variations in this category and which had been directed by Watpac after 21 December 2011 (which he found was the Date for Practical Completion), the variations could be priced according to what was reasonable and did not have to be priced according to the Schedule of Rates.
[6] The parties agreed in terms of the General Terms and Conditions of Contract in the form of AS2545-1993, but with a number of modifications. Clause 40.1 of the General Conditions provided that Watpac’s representative might direct that there be variations to the subcontract works. As amended, it provided that the price of a variation was to be agreed or determined prior to KLM carrying it out, but that any variation was to be promptly carried out, although the price had not been agreed or determined.
[7] The parties agreed to substitute a new cl 40.2, by which KLM, upon receipt of a “Variation Price Request” (VPR) from Watpac, was to provide a proposed price for the work. It further provided that KLM should not be entitled to claim for the variation any amount over and above the price so provided and that if the work was directed to be performed without a prior agreement about that price, KLM was to keep all relevant records as would be necessary for Watpac to assess the value of the variation according to cl 40.5. The variations within this category were said to be ones for which Watpac had issued a VPR.
[8] The parties substituted a new cl 40.5 which relevantly provided:
“40.5 Valuation
Where the Subcontract provides that a valuation shall be made under Clause 40.5, the Builder shall pay or allow the Subcontractor or the Subcontractor shall pay or allow the Builder as the case may require, an amount ascertained by the Builder as follows:
(a) If the Subcontract 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 a Priced Bill of Quantities or Schedule of Rates shall be used to the extent that it is reasonable to use them;
(c) To the extent that neither Clause 40.5(a) or 40.5(b) apply, reasonable rates or prices shall be used in any valuation made by the Builder.
… ”
[9] In the payment schedule, Watpac said that for all variations within this category, KLM could not claim more than the price which it had quoted under cl 40.2. In the adjudication application, KLM said that the prices which it had proposed under cl 40.2 were based upon the rates and prices within the Schedule of Rates which it said were “guidelines” only, and that its quotations were “indicative prices only and not final”. KLM further submitted, within the adjudication application, that it was not reasonable to apply rates and prices from the Schedule of Rates to value variations which had been directed after 21 December 2011. As for cl 40.5, KLM there submitted that the subcontract did not prescribe any rates, for the purposes of cl 40.5(a) and that it was not reasonable to use the Schedule of Rates for the variations after 21 December 2011, with the consequence that the work was to be valued by reference to “reasonable rates or prices” under cl 40.5(c).
[10] In its adjudication response, Watpac pointed to cl 5.4 within the Schedule of Rates, which provided that the Schedule would be used “for tender assessment and to evaluate variation[s] additions or deletions”. Watpac submitted that cl 40.5(a) applied, so that the variations had to be priced according to the Schedule of Rates. Alternatively, it submitted that those rates were reasonable rates so that again, the Schedule was to be employed: cl 40.5(b). Each of those submissions was set out or summarised in the adjudicator’s Reasons.
[11] The adjudicator resolved this controversy as follows. First he found that “the parties agreed to use the Schedule of Rates to value variations”, adding that “clause 5.4 of the Schedule of Rates could not make the matter any clearer”. But he continued:
“84. However, I find that the claimant is entitled to a reasonable value for this group of disputed variations and therefore further assessment of the price. This is because:
(i) I accept that the rates and prices in the Schedule of Rates were no longer reasonable after the contract date for Practical Completion (that is, 21 December 2011)
(ii) Section 13(a) of the [Payments] Act requires that the ‘ amount of a progress payment to which a person is entitled in relation to a construction contract is - the amount calculated under the contract ’;
(iii) Pursuant to this requirement, I find:
(a) The Schedule of Rates are not ‘prescribed’ ‘specific rates’ for the purposes of clause 40.5(a);
(b) The Schedule of Rates is a ‘Schedule of Rates’ for the purposes of clause 40.5(b). However, due to the effluxion of time, it was no longer reasonable to use the Schedule of Rates to value variation work after 21 December 2011; and
(c) Because neither clauses 40.5(a) nor 40.5(b) apply, then ‘reasonable rates or prices shall be used’ pursuant to clause 40.5(2).
…
86. In summary, I find that the claimant is entitled to make a claim under the [Payments] Act to reprice agreed variation prices using ‘reasonable rates and prices’ pursuant to clause 40.5(c) and 13(a) of the Act for the Category 1 disputed variations mutually described as ‘VPR Already Agreed’. I otherwise assess and value this group of disputed variations in accordance with clause 40.5(c) below.”
[12] Watpac submits that this reasoning was erroneous, because having found that the parties had agreed to employ the Schedule of Rates in the valuation of variations, the adjudicator should have concluded that it was cl 40.5(a) and not cl 40.5(c), which applied. But Watpac goes further, arguing that this was an error as to the adjudicator’s jurisdiction. It argues that the adjudicator did not have power to “ignore” the terms of the contract, for which it cites Lahey Constructions Pty Ltd v Trident Civil Contracting Pty Ltd . But that submission does not accurately describe what this adjudicator did: he may have misinterpreted the terms of the contract but he did consider them and, according to his interpretation, applied them.
[13] Watpac then made an alternative submission, based upon a statement by the adjudicator in paragraph 83(ii) of his Reasons. To put that part of the Reasons in context, it is necessary to refer to the submission of KLM which the adjudicator there addressed. As part of its submission that the Schedule of Rates contained only “guidelines rates”, KLM had submitted that the rates in the Schedule “were based on an initial set of rates used to price the lump sum for the subcontract submitted at the date of tender … which [Watpac] then ‘cherry picked’” and to which KLM had never agreed.
[14] Dealing with that submission, the adjudicator wrote in paragraph 83(ii) that:
“[KLM] has not substantiated its allegations that [Watpac] ‘cherry picked’ prices and rates for the Schedule of Rates. However, even if I did accept these allegations, I would find that such conduct is nothing more than ‘normal commercial negotiations’ and ‘reasonable’.”
He added at paragraph 83(iii):
“Even if such conduct was unreasonable, as [KLM] suggests, I have no jurisdiction under the [Payments] Act to consider such conduct for the purposes of sections 13 or 14.”
[15] Watpac now argues that:
“[H]aving found (in paragraph 83(ii) of the Decision) that the circumstances in which the Schedule of Rates was agreed were ‘reasonable’, clause 40.5(b) of the contract required the adjudicator to apply the agreed Schedule of Rates to value the relevant variations.”
In my view, that does not follow. At paragraph 83(ii), the adjudicator found that Watpac’s conduct in negotiating the Schedule of Rates was reasonable. But this was not a finding that it was reasonable to use the Schedule of Rates to value the variations which had been directed after 21 December 2011. Within paragraph 84 of his Reasons (set out above), there was a clear finding that the rates and prices in the Schedule of Rates were no longer reasonable after 21 December 2011.
[16] In that first submission, Watpac has identified one step in the reasoning of the adjudicator which, at least very arguably, was erroneous, namely his conclusion that the Schedule of Rates was not a prescription of specific rates or prices for the purposes of cl 40.5(a). But that was not a jurisdictional error.
[17] In Kirk v Industrial Court of New South Wales , the majority said that it was not possible “to attempt to mark the metes and bounds of jurisdictional error”. Their Honours there referred to examples of jurisdictional error which were described in the majority decision in Craig v South Australia .
[18] Those examples have been applied in challenges such as this in the adjudicator’s decision. In one such case, Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd , McDougall J described those examples as follows:
“(1) The mistaken denial or assertion of jurisdiction, or (in a case where jurisdiction does exist), misapprehension or disregard of the nature of or limits on functions and powers;
(2) Entertaining a matter or making a decision of a kind that lies, wholly or partly, outside the limits on functions and powers, as identified from the relevant statutory context;
(3) Proceeding in the absence of a jurisdictional fact; disregarding something that the relevant statute requires to be considered as a condition of jurisdiction, or considering something required to be ignored; and misconstruction of the statute leading to misconception of functions. (Of this last example, it was said in Craig (at 178) that ‘the line between jurisdictional error and mere error in the exercise of jurisdiction may be particularly difficult to discern.’)”
[19] Watpac’s written submissions were as follows:
“15. Thus, in the context of exercising his statutory jurisdiction an adjudicator can make an assessment of what is payable under a contract.
16. However, if an adjudicator awards amounts for reasons other than any conferred by the contract, the adjudicator makes a jurisdictional error …”
[20] In my view, paragraph 16 of those written submissions, which I understood to be pressed in the oral argument, is too wide to be accepted.
[21] The effect of Watpac’s argument is that because KLM was entitled to a payment only according to its contract with Watpac, the adjudicator’s power was limited to a decision which applied the contract according to its correct interpretation. So if the adjudicator incorrectly identified the terms of the contract or their effect, he would exceed his jurisdiction. Because the adjudicator’s powers are limited to the contract upon its correct interpretation, an error in interpreting the contract would involve a misapprehension of the limits of that jurisdiction.
[22] In Coordinated Construction Co Pty Ltd v J M Hargreaves (NSW) Pty Ltd , Hodgson JA said (of the equivalent statute in New South Wales):
“The task of the adjudicator is to determine the amount of the progress payment to be paid by the respondent to the claimant; and in my opinion that requires determination, on the material available to the adjudicator and to the best of the adjudicator’s ability, of the amount that is properly payable. … The adjudicator’s duty is to come to a view as to what is properly payable, on what the adjudicator considers to be the true construction of the contract and the Act and the true merits of the claim.”
(emphases added)
[23] Similarly, in Clyde Bergemann Senior Thermal Pty Ltd v Varley Power Services Pty Ltd , McDougall J said:
“In determining the amount of a progress payment, adjudicators are required to consider, among other things, the provisions of the construction contract under which the claimed entitlement arises. …
[T]hey are required to do so so they can work out ‘the amount calculated in accordance with the terms of’ that contract. In other words, their task requires them to identify the contractual provisions that are relevant to quantification of the amount of a progress payment, to decide (where there is a contest) the proper construction of those provisions and to apply them to the facts of the particular dispute. As Palmer J said in Multiplex at [58]:
‘… If determination of a disputed progress claim depends upon resolution of a question as to what are the relevant terms of a contract, it must necessarily be implicit in the jurisdiction conferred on the adjudicator by the Act that he or she have jurisdiction to decide that question.’”
[24] These New South Wales cases were applied by Applegarth J in BM Alliance Coal Operations Pty Ltd v BGC Contracting Pty Ltd in stating, correctly in my respectful view, that:
“An adjudicator who misconstrues or misapplies a relevant contractual provision and, as a result, does not correctly decide the amount of the progress payment, if any, to be paid to the claimant does not, for that reason alone, make a jurisdictional error.”
[25] Accordingly, this first argument which impugns the adjudicator’s decision, not to apply the Schedule of Rates to variations which were directed after 21 December 2011, cannot be accepted.
[26] There are further complaints by Watpac, in relation to the use of rates for materials and labour different from those in the Schedule of Rates, which are made under the heading of a suggested lack of a bona fide attempt by the adjudicator to discharge his statutory function. In Coordinated Construction Co Pty Ltd v v J M Hargreaves (NSW) Pty Ltd , Hodgson JA said that it is the duty of an adjudicator to come to a view as to what is properly payable, on what the adjudicator considers to be the true construction of the contract and the Act and the true merits of the claim. This requires the adjudicator to proceed conscientiously in an attempt to determine the amount, if any, which should be paid by the respondent to the claimant.
[27] Watpac submits that the fact this adjudicator failed to conscientiously apply himself to the task is demonstrated in two ways.
[28] Firstly, Watpac says that it appears from the adjudicator’s decision to apply different rates in relation to those variations which had been directed from 21 December 2011, “even though neither party put any such scenario to him”. But that submission overlooks the fact that KLM did put such an argument to the adjudicator. KLM’s submission appeared at paragraph 5.8 of its adjudication application submissions, as the adjudicator recorded at paragraph 81(ii) of his Reasons.
[29] Secondly, it is said that the adjudicator acted arbitrarily in accepting the rates for materials and labour which had been claimed by KLM. It is said that in doing so, the adjudicator reversed the onus of proof. The argument is that having rejected Watpac’s case as to what rates were reasonable, the adjudicator simply accepted KLM’s case without conscientiously considering its merit.
[30] The relevant part of the adjudicator’s Reasons commences at paragraph 99, where he noted that Watpac argued for the application of the Schedule of Rates without making any alternative case for what rates and prices would be reasonable for the purposes of cl 40.5(c). But the adjudicator did not overlook that part of Watpac’s case which was to the effect that the Schedule of Rates was no less than a reasonable set of rates. In paragraph 82(vi), the adjudicator set out the particulars of that argument for Watpac. And in paragraph 101, the adjudicator referred to the evidence of a Mr Cassidy for Watpac, to the effect that prices in the industry had remained level and consistent over the past two years so that the Schedule of Rates remained a reasonable basis for pricing variations, even after the date for practical completion, ie 21 December 2011.
[31] The evidence for KLM on this point was in a statutory declaration by a Mr Shield, whose evidence was summarised at paragraph 100 of the Reasons. Mr Shield used a program called “Conest IntelliBid”, which was said to contain up to date pricing data that was relevant in this context. The adjudicator described the methodology of Mr Shield in using this program against the benchmark or baseline of the prices and rates in the Schedule of Rates. He noted that Mr Shield was of the opinion that the “repriced variations are reasonable with respect to market prices”. In respect of the materials component, Mr Shield adopted what the adjudicator described as a “5% increase [in materials costs] across the board”. And he noted that Mr Shield had “increased the labour component by 33% so that the labour rate on site equates to the actual costs of labour on site”. Finally, he noted Mr Shield’s breakdown of costs in a document described as “AS16”, which set out the calculation of KLM’s claim.
[32] In paragraph 102 and 103, the adjudicator reasoned as follows:
“102. In my review of numerous original and revised variation pricings, I note:
(i) [KLM] has not provided any documentation showing actual costs for new rates and prices;
(ii) [KLM] has not provided any workings or records generated by Conest;
(iii) [Watpac] has not provided any documentation showing alternative costs to [KLM]’s revised material prices;
(iv) However, [KLM] consistently applies the new rates and prices. These rates and prices are set out in “AS16”. [KLM] does not apply increased rates and prices for all items making up its revised variation price for the disputed variations.
(v) Furthermore, where some items are deleted from the works, [KLM] deducts the new rates and prices for those items in the revised Variation Quotation (see for example VQ169).
103. I find that [KLM] is entitled to its claim for the material cost component of its claim for Category 1 disputed variations using the new rates and prices. This is because I find the 5% increase on material costs and 33% increase on labour component to be reasonable per se.
Furthermore, [Watpac] did not persuade me that these increases were not reasonable for the purposes of clause 40.5(c). I also note that Mr Cassidy’s comments were in respect to the building industry generally, whereas [KLM] references its rates to the electrical contracting industry (through NECA rates).”
[33] Watpac’s argument singles out subparagraphs (i) and (ii) of paragraph 102, suggesting that the adjudicator had accepted KLM’s argument for the valuation of these variations without any evidentiary basis. But with the benefit of paragraph 100 of the adjudicator’s Reasons, the evidentiary basis for the findings of the adjudicator can be seen.
[34] Watpac also seeks to make something of paragraph 105, in which the adjudicator wrote:
“105. In its payment schedule, [Watpac] objects to the use of rates that are not in the Schedule of Rates. However, [Watpac] does not provide any alternative rates that it could argue as reasonable for the purposes of clause 40.5(c).”
It suggests that this demonstrated that the adjudicator had reversed the onus of proof. But again in context, it is clear that the adjudicator has not acted without an evidentiary basis.
[35] Ultimately, there is no basis for the argument that the adjudicator failed to make a bona fide attempt to discharge his statutory function. His Reasons strongly indicate that he did so. Watpac’s argument does not rely on anything beyond those Reasons.
[36] A further criticism of the adjudicator’s treatment of these variations is, it is argued, that he denied Watpac natural justice. It is said that he decided these questions without reference to Watpac’s evidence and upon a basis for which neither party had contended. The latter point is (again) the incorrect claim by Watpac that KLM had not argued for a distinct treatment for variations which were directed after 21 December 2011. And the argument that the adjudicator had not decided these matters by reference to Watpac’s material is one which I have already rejected.
The extension of time claim
[37] The adjudicator decided that KLM was entitled to “delay costs” which he assessed at $1,156,877.38. KLM had claimed $3,120,113.32. Watpac had submitted to the adjudicator that, consistently with the contract, nothing could be allowed upon this basis.
[38] The parties substituted a new cl 35.5 for that which was within the general conditions of AS2545-1993. The agreed cl 35.5 was mostly similar to that for which it was substituted, but with one important difference to which I will return. It provided that if it became evident to KLM that anything might delay the work under the subcontract, then KLM should within two business days notify Watpac in writing of the details of the possible delay. The adjudicator referred to this as a Notice of Delay or “NOD”. Clause 35.5 further provided that if KLM was delayed in reaching practical completion by certain types of events or circumstances and required an extension of the time for practical completion, it was to give Watpac a written claim for an extension of time for practical completion (within ten business days after the cessation of the delay) setting out the relevant facts. The adjudicator referred to this as an “EOT claim”.
[39] Clause 35.5 then provided that if KLM failed to give Watpac a Notice of Delay and a claim for extension under this clause, KLM would not be entitled to any extension of time with respect to that delay. It further provided that if KLM was entitled to an extension of time for practical completion, Watpac was to grant a reasonable extension of time, having regard to whether KLM had taken all reasonable steps to preclude the occurrence of the cause and minimise the consequences of the delay.
[40] Clause 23 provided for Westpac to act through a Representative and that in respect of (amongst other things) an extension of time upon notification from the subcontractor under cl 35.5, the Builder’s Representative should act as “the assessor, valuer or certifier”.
[41] The last paragraph of cl 35.5 provided that:
“A delay by the Builder or the failure of the Builder’s Representative to grant a reasonable extension of time … shall not cause the Date for Practical Completion to be set at large but nothing in this paragraph shall prejudice any right of the Subcontractor to damages.”
[42] The penultimate paragraph within cl 35.5 provided another means by which the time for practical completion might be extended. It was as follows:
“Notwithstanding that the Subcontractor is not entitled to an extension of time the Builder may at any time and from time to time before the issue of the Final Certificate by notice in writing to the Subcontractor extend the time for Practical Completion for any reason. The Builder may exercise this power in its absolute discretion and is not obliged to do so for the benefit of the Subcontractor.”
[43] The adjudicator accepted Watpac’s arguments that KLM had not issued “NOD/EOT claims” within cl 35.5. He wrote:
“166. … [N]one of the NOD/EOT claims are contractually valid. The requests for EOTs in the Variation Quotations do not ask for an extension of time for Practical Completion. I find that none of the claims for EOT in the Variation Quotations are contractually valid.”
But the adjudicator continued:
“167. Nevertheless, I find that the claimant is entitled to EOT for Practical Completion. This is because:
(i) I accept the claimant’s legal analysis of Hervey Bay (JB) and Peninsular Balmain in respect to the penultimate paragraph of amended clause 35.5, which I find gives me the jurisdiction to extend the time for Practical Completion ‘for any reason’ despite the claimant not otherwise being entitled to an EOT …”
[44] One of the cases there cited was Peninsular Balmain Pty Ltd v Abigroup Contractors Pty Ltd . The contract in that case was in the standard conditions of AS2124, within which its cl 35 conferred a discretionary power in the Superintendent to grant an extension of time beyond the contractor’s entitlement to an extension which was in terms broadly similar to cl 35.5 of the present contract. Under that clause, the discretionary power was in these terms (set out at [9] of the judgment):
“Notwithstanding that the Contractor is not entitled to an extension of time the Superintendent may at any time and from time to time before the issue of the Final Certificate by notice in writing to the Contractor extend the time for Practical Completion for any reason.”
[45] The other case to which the adjudicator referred was my judgment in Hervey Bay (JV) Pty Ltd v Civil Mining and Construction Pty Ltd , where I distinguished Peninsular Balmain because the relevant discretionary power was in different terms. The relevant provision in Hervey Bay (JV) was cl 35.5A which I set out at paragraph [16] of my judgment.
[46] In Peninsular Balmain , the New South Wales Court of Appeal upheld a decision of a referee who had held that the Superintendent was obliged to act honestly and impartially in exercising the discretionary power under cl 35 of that contract, and that any Superintendent so acting must have granted the extensions which the referee found to be justified.
[47] In Hervey Bay (JV) , I held that the relevant clause in that case was different from that in Peninsular Balmain , because it placed no obligation upon the Superintendent in respect of the exercise of that discretionary power. Clause 35.5A of the contract in Hervey Bay (JV) conferred the discretion upon the Superintendent “in the Superintendent’s absolute discretion and without being under any obligation to [exercise the power]”. The adjudicator in that case had seen fit to grant an extension which, he concluded, the Superintendent had been bound to grant if acting fairly and honestly. I held that the adjudicator was in error, in equating the discretionary power in that case to that conferred by the contract in Peninsular Balmain . I set aside the adjudicator’s award upon the basis of that error of law.
(That was an adjudication which predated the exclusion of the decisions of adjudicators under the Payments Act from review under the Judicial Review Act 1991 (Qld).)
[48] The terms of the relevant power in cl 35.5 of the present contract appear to be indistinguishable from those in Hervey Bay (JV) . If I was correct in that case, it would seem to follow that the adjudicator erred in this case, by equating this provision to that in Peninsular Balmain . It should be noted that this is what the adjudicator was urged to do by the submissions made to him by KLM.
[49] Watpac’s argument simply refers to the adjudicator’s conclusion that “none of the claims for EOT in the Variation Quotations are contractually valid”, from which it submits that for this and another reason, the adjudicator did not have jurisdiction. Watpac’s argument does not address that part of the adjudicator’s reasoning which was based on Peninsular Balmain and what the adjudicator said was his jurisdiction to extend the time for practical completion “despite the claimant not otherwise being entitled to an EOT”. The real question is whether there was a jurisdictional error in proceeding upon the premise that this was a case to be decided according to Peninsular Balmain . At paragraph 167 of his Reasons, the adjudicator did refer to his “jurisdiction”. But the effect of this conclusion was that KLM was to be given an extension of time because, according to cl 35.5, KLM had an existing contractual entitlement to it. The adjudicator held that upon the reasoning in Peninsular Balmain , the Builder’s Representative here, if acting fairly and honestly, must have granted an extension of time to the extent which the adjudicator thought appropriate. In allowing that extension within his decision, the adjudicator was effectively declaring what was KLM’s contractual entitlement. He was not purporting to act under some perceived jurisdiction to vary the effect of the contract. His error (if any) was in the interpretation of this contract so as to conclude that by the terms of cl 35.5, KLM had that (pre-adjudication) contractual entitlement. The authorities to which I referred at [21]-[24] are again relevant. This was not a jurisdictional error.
[50] The other suggested jurisdictional error in this part of the adjudicator’s Reasons is in relation to what were called concurrent delays. Clause 35.5 provided an entitlement to an extension where delay was the result of causes of specified kinds. Clause 35.5 further provided that if there was more than one event which caused a concurrent delay, and one of the events was not of a kind which was described in the clause, then KLM would have no entitlement to an extension of time for that delay.
[51] At paragraph 168(iii), the adjudicator wrote that he accepted “that there were concurrent delays for the purposes of clause 35”. At paragraph 169(vi), he accepted Watpac’s submission which described “almost 90 days … as concurrent delays”. He then reasoned that he should reduce “the EOT because of concurrent delays”. Ultimately, he allowed an amount calculated by reference to 150 days, KLM’s claim having been for 345 days. He did so upon the basis that this was an assessment which the Builder’s Representative should have made, consistently with Peninsular Balmain .
[52] It therefore appears that his error (if any) was again in his interpretation of this provision as providing an entitlement equivalent to that in Peninsular Balmain . Again, that was not a jurisdictional error.
[53] Watpac argues that here again, he did not make a bona fide attempt to discharge his statutory function, in concluding as he did in relation to this delay costs claim. It says that neither party suggested the approach which the adjudicator followed.
Again, Watpac’s submissions overlook what was put to the adjudicator, because KLM did advocate that approach, citing Peninsular Balmain . And the adjudicator accurately noted that Watpac, in its submissions to him, “did not address [KLM]’s reliance on Hervey Bay (JV) and Peninsular Balmain in respect to clause 35.5 as amended”.
[54] It is also asserted for Watpac that there was no evidence from which the adjudicator could have found relevant delays of the order of 150 days. From this it is alleged that the adjudicator did not make a bona fide attempt to discharge his statutory function. But KLM did provide evidence in support of this part of its claim. It is right to say that this evidence does not appear to have proved a delay of specifically 150 calendar days. But that is not to say that there was no evidence for such a finding. More importantly, if there was an insufficient evidentiary basis for the adjudicator’s finding of a delay of 150 calendar days, that far from proves that he was not making a bona fide attempt to discharge his statutory function. His reasoning strongly indicates otherwise. Watpac’s submission does not descend to the detail of the evidence which was provided by KLM in order to make out this serious assertion.
[55] Watpac also alleges that there was a denial of natural justice in the adjudicator’s reasoning in this part of his decision. It is said that he “essentially disregarded the material relied upon by Watpac in relation to the global claim”. This argument must also be rejected. It does appear that he considered Watpac’s case. But he accepted that KLM was entitled to some extension of time and delay costs, because of an interpretation of cl 35.5 which, when argued by KLM to the adjudicator, was left unanswered by Watpac.
Category 2 variations
[56] In relation to this part of KLM’s claim, Watpac submitted to the adjudicator that there was no entitlement to be paid for the suggested variations at least because KLM had not followed the notification requirements of the contract, namely those in cl 40.1 and (if applicable) cl 40.5A. Watpac also relied upon cl 40.3, which entitled its representative to direct KLM to provide a detailed quotation for the work of a variation, supported by measurements or other evidence of cost. The adjudicator appeared to accept that KLM had been obliged to provide a quotation under cl 40.3 and that it had not done so. But he concluded that neither that noncompliance nor KLM’s non-compliance with the notification requirements of cll 40.1 and 40.5A put paid to an entitlement to be paid for the variation, according to the contract.
[57] Watpac submits that this was an error and a jurisdictional error. It asserts that the adjudicator reasoned that he had a jurisdiction to make an award which was “extra contractual”. But that was not the adjudicator’s reasoning. He characterised KLM’s claim as a contractual one and not a claim for a quantum meruit. He accepted Watpac’s submission that KLM could not make a claim in quantum meruit under the Payments Act.
[58] At its highest, this complaint amounts to a suggested error in interpretation of the contract. It was not a jurisdictional error, because it was within the adjudicator’s jurisdiction to interpret the contract in determining what, if any, was KLM’s contractual entitlement.
A further argument about variations
[59] As I have discussed, Watpac disputed some of the variations as claimed by KLM on different grounds and, in its payment schedule, it categorised the disputed items according to the relevant ground. I have discussed one such category, which was that described as “VPR - price already agreed”. Watpac’s challenge to the adjudicator’s decision about that category focused upon the application or otherwise of the Schedule of Rates. Another category of disputed variations was described by Watpac in its payments schedule as “VO - Price Already Agreed”.
[60] According to Part 8 of the payments schedule, the difference, such as it was, between these two categories was as follows. In the former, Watpac had issued a variation price request (“VPR”) under cl 40.2, in response to which KLM had provided a quotation containing the information which was required by Watpac to value the variation under cl 40.5. Watpac had then issued a variation order, thereby accepting the price offered in the quotation. In the latter category, Watpac was said to have issued a variation order (“VO”), ie a direction to vary the work under cl 40.1, which provided that where possible, the price of such variation was to be agreed or determined prior to the variation being carried out. Watpac says that these variations had also been the subject of a variation quotation provided by KLM. It says that the parties had subsequently agreed upon the price as quoted. Again, according to the payments schedule, the variations quotations in this category, as in the former category, were to be quantified according to the Schedule of Rates.
[61] The apparent distinction between these two categories was simply that in the former, KLM’s quotation was in response to a request, but in the latter, it was in response simply to a directive for the performance of the work.
[62] The adjudicator discussed the former category at paragraphs 80-86 of his reasons. He discussed the latter category at paragraphs 87 and 88 as follows:
“87. This group of disputed variations are related to Variation Orders under clause 40.1. The parties essentially make the same arguments for this group as they did for the group above, ‘VPR Already Agreed’, which relate to clause 40.2. [KLM] repeats its assertions that it is no longer reasonable to use the Schedule of Rates to value variations after 21 December 2012 and that it is entitled to reprice these variations using ‘reasonable rates and prices’ to value variations under clause 40.5(c), instead of the Schedule of Rates. [Watpac] maintained its arguments that the Schedule of Rates should continue to apply.
88. For the reasons set out above in respect to ‘VPR Already Agreed’, I find that [KLM] is entitled to make a claim under the Act to reprice agreed variation prices using ‘reasonable rates and prices’ pursuant to clause 40.5(c) and 13(a) of the [Payments] Act for the Category 1 disputed variations mutually described as ‘VO Price Already Agreed’. I otherwise assess and value this group of disputed variations in accordance with clause 40.5(c) below.”
[63] Watpac argues that this treatment of the latter category ignored what it says were different arguments which it had advanced to the adjudicator in relation to it. Accordingly, it argues, there was an absence of a bona fide attempt to discharge the adjudicator’s function and a denial of natural justice.
[64] But in my view, the arguments in relation to these two categories were effectively the same. That was reflected in Watpac’s submissions to the adjudicator where, in paragraphs 18.6 and 18.7, Watpac made a series of submissions which addressed both categories. There was nothing in Watpac’s submissions to the adjudicator to suggest that there could be different outcomes between the two categories. And Watpac’s submissions to this court do not explain how that might have occurred. Therefore, this further complaint provides no basis for impugning the adjudication decision.
Claims of fraud
[65] This proceeding was commenced by an Originating Application. The original grounds did not include any allegation of fraud on the part of KLM in making its claim. The case came before a judge in the Applications List on 11 March 2013. As appears from Watpac’s outline of argument filed on that day, fraud was not part of its case. The matter was then adjourned for hearing over one day in the Civil List.
[66] Watpac raised its fraud case by filing and serving an affidavit of Mr Neil Cochrane (an employee of Watpac) on 28 March 2013. At least by this point, this case was one which should have been the subject of pleadings. Indisputably any fraud case must be precisely formulated and expressed, so that the party against which it is made knows the elements of the case and has sufficient particulars of it.
[67] As I will discuss, Mr Cochrane’s analysis was flawed and the case advanced within his affidavit cannot succeed. However, Watpac ultimately argues a different case of fraud, which it seeks to make out by reference to documents which were produced at the trial. But I am not persuaded that this second fraud case is established either.
[68] In its many variants, Watpac’s fraud case is directed at two components of KLM’s claim for delay costs. KLM claimed a delay of 345 days at a daily rate of $8,333.46. That daily rate included $7,300.17 per day representing relevant overhead costs. There were three categories of overheads as claimed by KLM: onsite overheads, Queensland office overheads and corporate office overheads. The components which were challenged were the second and third categories. At least in its original fraud case, Watpac said that these two components were grossly overstated in KLM’s claim, and fraudulently so.
[69] The adjudicator accepted KLM’s quantification of each of these components. But he did not accept the quantification of the onsite overheads and therefore he reduced the daily rate to $6,214 per day.
[70] KLM’s business is the provision of electrical services throughout Australia. KLM and a related company, Allied Technologies Australia Pty Ltd, are wholly-owned subsidiaries of the same parent company. The business of this group has three distinct divisions: Electrical & Data and Audiovisual, which are conducted by KLM, and the business conducted by Allied Technologies. The three divisions are conducted from premises in each of the Australian States and the ACT (save for Tasmania where there is no Allied Technologies division). The head office of the group is in Melbourne. The three divisions of the business in Queensland are conducted from premises in Newstead in Brisbane.
[71] The Queensland office overheads are costs associated with the Newstead office. The corporate office overheads are costs associated with the head office in Melbourne.
[72] In the Adjudication Application, KLM described the three components of the overheads claim as follows:
“(i) The following items are included in the Delay Costs claim:
(A) On-site overheads, being actual preliminary costs distinguishable from direct costs of construction and include salaries of site supervisory staff, general construction plant and equipment, small tools and consumables, site services and site office expenses;
(B) Off-site overheads in respect of the Applicant’s Newstead Office (the Queensland office), being off-site overheads performed away from the Site for services that were required to be performed as part of the work done under this Subcontract eg administration, payroll, safety officer etc, proportional allowance (25% funded by this job) for office rent, stores, vehicles, etc; and
(C) Off-site overheads in respect of the Applicant’s Melbourne Corporate Office, being time related costs not attributable to a particular Subcontract eg executive and clerical salaries, rent, mortgage.”
The Adjudication Application was supported by, amongst others, a statutory declaration of a Mr Buckley, who was employed by KLM in Melbourne as Executive General Manager. Paragraph 76 of his statutory declaration described the three categories of overheads in identical terms to the passage from the Application which I have set out.
[73] I come then to Mr Cochrane’s affidavit, upon which this fraud case, in its original form, was made. Fundamental to Mr Cochrane’s evidence was his interpretation of the reference to “25% funded by this job” within paragraph [B] of that passage from the application (and its equivalent in Mr Buckley’s statutory declaration). As Mr Cochrane read the claim, KLM had quantified these two categories of overheads by, in each case, calculating the total overheads for the relevant office and then dividing that number by four.
[74] Upon that premise, Mr Cochrane went first to the corporate office overhead charge and to some calculations for that component which appeared in Schedule C to Schedule 3 of the payment claim. On that page there were five lines of notes underneath a heading “Corporate Charge Calculations”. On one line there was the description “YTD June 2012 Corporate charge for Qld KLM Electrical”, against which $70,000 appeared. On another of the lines were the words “Total Corporate Rebate Qld KLM Electrical received”, against which $8,913.88 appeared. As Mr Cochrane identified, the total of those two amounts ($78,913.88) was one half of the amount of $157,827.77, which was claimed as “corporate office overhead charge”. The financial year for KLM commenced on 1 April so that the amount for “YTD June 2012” represented the three months from 1 April 2012. KLM multiplied that amount by two to produce a figure which would be representative of these overheads for the six months commencing 1 January 2012, as appeared from the words, against this component, on that page of the schedule being “Pro Rata for Jan-Mar”. It was a quantification of a six monthly figure so that it could be added to other costs, as set out on the same page as the schedule, which were calculated for a six month period. The total of these costs over six months became $1,314,030.21, which the same page showed as $219,005.03 per month and $7,300.17 per day.
[75] As Mr Cochrane saw it, KLM had grossly overstated the component for the corporate office overhead charge. As he saw it, this was an apportionment of the Melbourne overheads to the Electrical & Data business of KLM in Queensland, so that the amount to be claimed could be no more than 25 per cent of $157,827.77. This came from his understanding of that passage from the Adjudication Application which I have set out.
[76] On an objective view, that was not the meaning which should have been given to that passage. The reference to “25% funded by this job” was made only in respect of “office rent” and then only for the Newstead office. More relevantly, it appears that this was the meaning which KLM intended. In order to establish a fraudulent misrepresentation, it must be proved that the representor had no honest belief in the truth of the representation in the sense in which he intended it to be understood. Mr Jinks gave unchallenged evidence in this court that this subcontract was the only job of the Electrical & Data division of KLM in Queensland at relevant times. Therefore, such of the costs of the Melbourne office which had been apportioned to the Queensland Electrical & Data business of KLM were wholly attributable to this job. The cost of the Newstead office was a different matter. It was appropriate to apportion the rent of the Newstead office because the use of that office was not limited to the Electrical & Data division of KLM.
[77] Mr Cochrane believed that the maximum which could have been genuinely claimed was 25 per cent of $157,827.77. He was incorrect, because of his misunderstanding of that reference to 25 per cent. The allegation by Watpac in relation to this component, at least as it was at the commencement of the trial, could not be accepted.
[78] The same error affected Mr Cochrane’s analysis of the component for the Newstead office. In his affidavit, he said that he understood:
“From Schedule C to Schedule 3 and Mr Buckley’s explanations that the amount of $464,969.97 which is included in KLM’s calculation of its daily delay rate represents 25% of KLM’s QLD Office Overheads for a period of six months.”
On that understanding, he observed, the total Queensland office overheads for a year would be in excess of $3.7 million, which he said would grossly overstate the true figure. He reached that conclusion by offering a series of his own estimates of the likely overheads of the Newstead office, from which he arrived at an amount of $667,148.44 as the “maximum KLM Queensland annual overhead”. He then divided that by two to reach a figure for six months and again by four, upon the premise that only 25 per cent of these costs was attributable to this job.
[79] His analysis did not purport to be a comparison of what KLM had claimed (as Mr Cochrane interpreted the claim) and what was said to be the costs recorded in KLM’s accounts. Rather, it was a comparison of the amount claimed and what he believed was the likely level of actual overheads. For example, in relation to the rent upon the Newstead office, Mr Cochrane acted upon some information which he had received about the rental at which the office had been advertised for lease in 2010, from which he made an estimate of the rental for the relevant period based upon certain assumed increases. For overheads in the nature of costs of vehicles, Mr Cochrane said that he did not know “what or how many vehicles are included” in KLM’s calculation. Of course there had been no disclosure of documents from which Mr Cochrane might have made a comparison with the costs which were recorded in KLM’s accounts. The absence of that material would have placed a significant limitation upon Mr Cochrane’s analysis, had it not already suffered from the fundamental flaw of a misinterpretation of KLM’s claim.
[80] Watpac sought to improve its fraud case by requiring KLM to produce a number of accounting records, which it did, at the trial. By reference to those records, Mr Jinks was able to explain the calculation of most but not all of the Newstead office overheads. The documents included monthly profit and loss summaries for the Queensland Electrical Division over the six months from January to June 2012, in which the total of the “expenses” recorded against this division in Queensland was $414,000. This left a balance of $50,969.97 unexplained. Mr Jinks was unable to explain it. He did not prepare Schedule C to Schedule 3 in the payment claim. But he was able to say that this part of the calculation was performed by Mr Vievers of KLM’s Queensland office. Mr Vievers did not give evidence. But his absence was explained by Mr Jinks, who said that he was walking in the Tasmanian wilderness and could not be contacted.
[81] Mr Jinks was able to say that there was no allowance for rent or part of the rent from the Newstead office in any of the amounts recorded in the accounts as “expenses” for the Electricity Division, because the entire rent for Newstead had been recorded in the accounts as an expense of the Allied Technologies business. Mr Jinks explained that this was not because the Newstead office was not also used by the other businesses, but that it was because “the bulk of our projects … at the time” were through the Allied Technologies business. It is consistent with that evidence that there was an apportionment of 25 per cent of the Newstead rent to the Electrical business.
[82] On Mr Cochrane’s analysis of the likely rent for Newstead, a “very conservative” estimate would have been $106,126.59. If that is approximately correct, then 25 per cent of the rental would explain at least half of this otherwise unexplained amount of $50,969.97.
[83] In cross-examining Mr Jinks, counsel for Watpac explored the nature and extent of the claim for costs in the nature of salaries and wages. In Schedule C to Schedule 3 of the payment claim, there was a column headed “Salary Oncosts” which set out amounts against the names of some 16 employees. Seven of those employees were described as Site Supervisors, for whom their entire salaries were allocated to this job within this Schedule. For the other nine employees, only 25 per cent of their salaries was allocated to this job. They included Mr Buckley, for whom there was a note “additional to corporate overhead”, apparently meaning that this share of his salary had not been included within the Melbourne office calculation. There were then eight employees of the Queensland office, including the Queensland manager, for whom 25 per cent of the salaries was allocated to this job.
[84] Watpac’s counsel explored with Mr Jinks a possible double counting of salary costs, that is to say an inclusion of some salaries (or parts of salaries) within both the “direct [site] overheads” and the Newstead office overheads. The evidence which resulted, when combined with Mr Jinks’s affidavit evidence, put paid to that suggestion of double counting. In particular, the profit and loss accounts for the Queensland Electrical Division for the three months commencing 1 January 2012 show that there were some costs in the nature of salaries of “white collar” employees which were recorded as direct cost of sales, and other salaries which were recorded as overheads. For example, in January 2012, the total “expenses” (overheads) against the Queensland Electrical Division was recorded as $98,000 of which “indirect salaries and wages” of $54,385 formed part.
[85] Mr Jinks provided an explanation for why some employees were within this “Salary On-costs” column, distinctly from the column headed “Queensland Office Overheads”. It was because in the ordinary course, and without reference to this job or this litigation, the cost of particular employees was recorded in the accounts against the Allied Technologies division. This was the case with the Queensland manager. So in the calculation of its claim, KLM has then apportioned 25 per cent of the costs relating to him to the Electrical Division and thereby to this job.
[86] I accept the evidence of Mr Jinks. I see no reason to reject any part of it, and ultimately I do not understand that Watpac submitted that I should.
[87] Watpac also argues that there was a misrepresentation of a different kind, namely that KLM had represented that within the Newstead overheads, there was no “substantial wages content”. I would accept that the schedule did not make it clear that there was such a component within the Newstead overheads component of $464,969.97. But I do not accept that KLM represented that there was no such item within this overheads claim. In any case, the present question is whether KLM has defrauded the adjudicator, by claiming an amount for overheads which was false and which has materially affected the adjudication. Ultimately, Watpac fell far short of proving that the amount claimed for Queensland Office Overheads was false, let alone a fraudulent claim.
[88] On the Corporate Office Overhead charge, Watpac’s ultimate argument is this: the schedule misrepresented that the amount of $157,827.77 was “as per QLD Elect P&L”. Those words did appear beneath both the column for the Queensland Overheads and the column for the Corporate Office Overheads. Therefore, Watpac’s submission would apply to both figures.
[89] In neither case did the figure in the column appear in or derive from the profit and loss statements prepared for the Queensland Electrical Division.
[90] For the Queensland overheads, there is that balance of $50,969.97 as identified by Mr Jinks. It is clear enough that at least some of that amount can be explained as costs which had been recorded against the Allied Technologies business.
[91] For the Corporate Office Overheads, the P&L for the June 2012 quarter showed three amounts against “internal management fee”, totalling $69,934. This explains the note in Schedule C to Schedule 3 that the “YTD June 2012 corporate charge for Qld KLM Electrical” was $70,000. The amount of the “total corporate rebate” was, as I have noted, $8,913.88. But the notes also explained that this was an apportionment of the “total corporate rebates” ($137,053.75) to the Queensland Electrical business. The apportionment was 6.5 per cent, as was again shown in the schedule. Mr Jinks explained that this was the percentage of the overall revenue of KLM for that quarter which was derived from the Qld Electrical Division. Therefore, it is true to say that this figure of 6.5 per cent was not found in or derived from simply the profit and loss statements for the Queensland Electrical Division.
[92] Therefore, it may be said that there are some elements in the calculation of these two overhead components (Queensland and Corporate Office Overheads) which were not within the “Qld Elect P&L”. But that hardly provides a basis for setting aside the adjudicator’s decision, absent any demonstrated falsity in the figures themselves. It is true that the adjudicator may have been more easily persuaded by this evidence because of the notation that the figures were derived from the profit and loss statements. But had KLM been more precise, and referred also to its other accounts from which some elements of the calculation were sourced, the evidence would have been no less persuasive.
[93] In my conclusion, none of the suggestions of fraud is made out.
Conclusion
[94] None of the grounds for challenging this adjudication decision is established. The application must be dismissed. The result is that the respondent, at least for the time being, retains the benefit of an adjudication by which it was awarded nearly $3 million but which, as my judgment should indicate, resulted from some errors in the interpretation of the contract. But that is the consequence of the very limited scope for judicial review of these decisions.