Plaintiff: BUILT ENVIRONS PTY LTD

Counsel: MR R FENWICK ELLIOT

Solicitor: FENWICK ELLIOT GRACE

Defendant: TALI ENGINEERING PTY LTD

Counsel: MR N MORCOMBE QC AND MR N FLOREANI

Solicitor: MEISTER MERTIRIS LAWYERS

Defendant: NOMINATOR PTY LTD

Defendant: MATTHEW ALLAN

Hearing Date/s: 09/04/2013 to 10/04/2013, 12/04/2013

File No/s: SCCIV-13-354

SUPREME COURT OF SOUTH AUSTRALIA

(Civil: Application for Judicial Review)

BUILT ENVIRONS PTY LTD v TALI ENGINEERING PTY LTD & ORS

[2013] SASC 84

Judgment of The Honourable Justice Blue

3 June 2013

CONTRACTS - BUILDING, ENGINEERING AND RELATED CONTRACTS - REMUNERATION - STATUTORY REGULATION OF ENTITLEMENT TO AND RECOVERY OF PROGRESS PAYMENTS - ADJUDICATION OF PAYMENT CLAIMS ADMINISTRATIVE LAW - JUDICIAL REVIEW - GROUNDS OF REVIEW - JURISDICTIONAL MATTERS

ADMINISTRATIVE LAW - JUDICIAL REVIEW - GROUNDS OF REVIEW - PROCEDURAL FAIRNESS - HEARING - NATURE OF HEARING - OPPORTUNITY TO PRESENT CASE

ADMINISTRATIVE LAW - JUDICIAL REVIEW - GROUNDS OF REVIEW - PROCEDURAL FAIRNESS - BIAS

Tali Engineering Pty Ltd lodged with Built Environs Pty Ltd a payment claim under the Building and Construction Industry Security of Payment Act 2009 (SA). Built Environs issued a responding payment schedule assessing the amount due at nil by setting off liquidated damages for delayed substantial completion.

Tali Engineering applied to an authorised nominating authority, Nominator Pty Ltd, to appoint an adjudicator to adjudicate the claim. Nominator appointed Mr Allan. Mr Allan determined that Tali Engineering was entitled to payment of $579,420.90 (plus GST).

Built Environs seeks an order setting aside Mr Allan’s determination as a nullity on six grounds:

1. Mr Allan had no jurisdiction because the payment contravened section 13(2);

2. Mr Allan entertained claims in respect of which he had no jurisdiction;

3. Mr Allan denied Built Environs natural justice;

4. there was a reasonable apprehension of bias of Nominator and Mr Allan;

5. Mr Allan made vitiating errors of law;

6. Mr Allan did not attempt in good faith to determine the issues.

Held:

1. (a) Mr Allan’s jurisdiction was dependent upon objective compliance of the payment claim with section 13(2) (at [64]-[79]).

(b) The payment claim was sufficiently comprehensible notwithstanding arithmetical errors and redundancies (at [81]-[83]).

(c) The Act does not require a payment claim to be calculated on an incremental, as opposed to a cumulative, basis (at [89]-[108]).

(d) The payment claim complied with section 13(2) (at [109]).

2. (a) Mr Allan did not grant to Tali Engineering unliquidated damages (at [114]).

(b) Mr Allan did not grant to Tali Engineering an extension of time (at [118]).

(c) Tali Engineering was entitled to rely on answers to Built Environs’ liquidated damages set-off notwithstanding the answers had not been identified or articulated in its payment claim (at [123]-[125]).

(d) Mr Allan did not entertain claims that Tali Engineering was not entitled to make (at [126]).

3. (a) Mr Allan denied natural justice to Built Environs by determining the claim by application of the prevention principle without Built Environs having had a proper opportunity to adduce evidence or make submissions on the issues (at [155]-[183]).

(b) This denial vitiated Mr Allan’s adjudication (at [184]).

4. (a) There was a reasonable apprehension of bias on the part of Nominator because its general manager, in his capacity as chief executive officer of another entity, had been advising Tali Engineering in connection with its dispute with Built Environs (at [192]- [203]).

(b) There was no reasonable apprehension of bias on the part of Mr Allan per se (at [205]-[207]).

5. Built Environs is entitled to a declaration that Mr Allan’s determination is a nullity and an order setting it aside (at [218]).

Building and Construction Industry Security of Payment Act 2009 (SA) ss 3, 4, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 29, 32, 33; Building Work Contractors Act 1995 (SA) s 30; Building and Construction Industry Security of Payment Regulations 2011 (SA) r 6; Legal Practitioners Act 1981 (SA); Building and Construction Industry (Security of Payment) Act 2009 (ACT); Building and Construction Industry Payments Act 2004 (Qld); Building and Construction Industry Security of Payment Act 1999 (NSW); Building and Construction Industry Security of Payment Act 2002 (Vic); Building and Construction Industry Security of Payment Act 2009 (Tas); Construction Contracts (Security of Payments) Act 2004 (NT); Construction Contracts Act 2002 (NZ); Construction Contracts Act 2004 (WA), referred to.

Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd [2010] NSWCA 190; (2010) 78 NSWLR 393; Clarence Street Pty Ltd v Isis Projects Pty Ltd [2005] NSWCA 391; (2005) 64 NSWLR 448; Isis Projects v Clarence Street [2004] NSWSC 714; Leighton Contractors Pty Ltd v Campbelltown Catholic Club Limited [2003] NSWSC 1103, applied.

Brodyn Pty Ltd v Davenport [2004] NSWCA 394; (2004) 61 NSWLR 421; Coordinated Construction Co Pty Ltd v Climatech (Canberra) Pty Ltd [2005] NSWCA 229; (2005) 21 BCL 364; Coordinated Construction Co Pty Ltd v JM Hargreaves (NSW) Pty Ltd [2005] NSWCA 228; (2005) 63 NSWLR 385; Gantley Pty Ltd v Phoenix International Group Pty Ltd [2010] VSC 106; Jemzone Pty Ltd v Trytan Pty Ltd [2002] NSWSC 395; (2002) 42 ACSR 42; Musico v Davenport [2003] NSWSC 977; Neumann Contractors Pty Ltd v Peet Beachon Syndicate Limited [2009] QSC 376; [2011] 1 Qd R 17; Protectavale Pty Ltd v K2K Pty Ltd [2008] FCA 1248, discussed. Brodyn Pty Ltd v Davenport [2003] NSWSC 1019; Discain Project Services Limited v Opecprime Development Limited [2000] BLR 402; Ebner v Official Trustee in Bankruptcy [2000] HCA 63; (2000) 205 CLR 337; Grocon Constructors Pty Ltd v Planit Cocciardi Joint Venture (No 2) [2009] VSC 426; (2009) 26 VR 172; Hawkins Construction (Australia) Pty Ltd v Mac’s Industrial Pipework Pty Ltd [2002] NSWCA 136; Hervey Bay (JV) Pty Ltd v Civil Mining and Construction Pty Ltd [2008] QSC 58; (2010) 26 BCL 130; Holme v Guppy (1838) 150 ER 1195; 3 M&W 387; John Holland Pty Ltd v Cardno MBK (NSW) Pty Ltd [2004] NSWSC 258; Lamprell v Billericay Union (1849) 154 ER 850; 3 Exch 283; Multiplex Constructions Pty Ltd v Luikens [2003] NSWSC 1140; Parkview Constructions Pty Ltd v Sydney Civil Excavations Pty Ltd [2009] NSWSC 61; Peak Construction (Liverpool) Ltd v McKinney Foundation Ltd (1970) 1 BLR 114; Peninsula Balmain Pty Ltd v Abigroup Contractors Pty Ltd [2002] NSWCA 211; (2002) 18 BCL 322; Quasar Constructions v Demtech Pty Ltd [2004] NSWSC 116; (2004) 20 BCL 276; Re Sanders Constructions Pty Ltd v Eric Newham (Wallerawang) Pty Ltd [1969] Qd R 29; Reiby Street v Winterton [2005] NSWSC 545; (2006) 22 BCL 426; Roberts v The Bury Improvement Commissioners (1870) LR 5 CP 310; Russell v Da Bandeira 143 ER 59; (1862) 13 CB (NS) 149; SMK Cabinets v Hili Modern Electrics Pty Ltd Ltd [1984] VR 391; Turner Corporation (in provisional liquidation) v Co-ordinated Industries Pty Ltd (1997) 13 BCL 378; Turner Corporation Ltd (Receiver and Manager Appointed) v Austotel Pty Ltd (1997) 13 BCL 378; Westwood v Secretary of State for India (1863) 7 LT (NS) 736, considered.

BUILT ENVIRONS PTY LTD v TALI ENGINEERING PTY LTD & ORS

[2013] SASC 84

Civil

1 BLUE J. The plaintiff, Built Environs Pty Ltd (“Built Environs”), entered into a subcontract with the first defendant, Tali Engineering Pty Ltd (“Tali”).

2 Tali applied to the second defendant, Nominator Pty Ltd (“Nominator”), to appoint an adjudicator to adjudicate a progress payment claim rejected by Built Environs. Nominator appointed the third defendant, Mr Allan, to adjudicate the claim under the Building and Construction Industry Security of Payment Act 2009 (SA) (“the Act”). Mr Allan determined that $579,420.90 was due by Built Environs to Tali by way of progress payment.

3 Built Environs brings judicial review proceedings against Tali, Nominator and Mr Allan seeking a declaration that Mr Allan’s determination is a nullity and an order setting it aside.

4 Built Environs relies on six grounds for judicial review.

1. Tali’s payment claim did not comply with section 13(2) of the Act and this deprived Mr Allan of jurisdiction to undertake an adjudication.

2. Mr Allan exceeded his jurisdiction by:

(a) entertaining a claim for unliquidated damages;

(b) assuming the jurisdiction of the Subcontract Superintendent to grant an extension of time to Tali to achieve substantial completion;

3. There was a denial of natural justice because Mr Allan did not invite further submissions or evidence from the parties.

4. There was a denial of natural justice due to a reasonable apprehension of bias of Nominator and/or Mr Allan.

5. Mr Allan made errors of law invalidating his determination.

6. Mr Allan did not act in good faith because he did not attempt in good faith to consider the submissions put by the parties or call for further submissions and identify, understand and determine the issues in accordance with the Act and the contract.

Background facts

The parties and personnel

5 Built Environs is a building contactor. It is the head contractor for the construction of the Woolworths Walkerville Shopping Centre.

6 Tali is a structural steel manufacturer and erector. It is the structural steel subcontractor for the Woolworths Walkerville Shopping Centre. In February 2013 it engaged Edward Sain & Associates (“ESA”) to advise and assist it concerning contractual issues with Built Environs on the Woolworths Walkerville project.

7 Nominator is an authorised nominating authority under section 29 of the Act. Its sole director and shareholder is Mr Busolin (a former project manager at Built Environs between 2002 and 2004). Nominator’s manager is Mr Sain. Its registered office is the address of accountants Rugari & Associates. Mr Rugari was Nominator’s acting manager for a specific purpose explained below.

8 Mr Sain is also the chief executive officer of ESA. ESA is a construction contract consultant, project manager and engineer. It undertakes, inter alia, consultancy, programming, estimation and cost reviews for contractors. It offers services in connection with payment claims under the Act, including preparation of payment claims, payment schedules, applications and submissions for adjudication and provision of support and assistance throughout the adjudication process. ESA’s website has a link to Nominator’s website. ESA conducts adjudication training courses on behalf of Nominator. ESA trained, on behalf of Nominator, both Mr Allan and Mr Rugari as adjudicators.

9 Mr Allan has the qualifications required under section 18 of the Act to act as an adjudicator. He was employed as project manager and engineering division manager by Built Environs between 1991 and 2005. Nominator and Mr Allan did not take an active role in the action, but rather agreed to abide the event.

The Woolworths Walkerville project

10 Built Environs entered into a contract with the owner or developer for the construction of a shopping centre on the corner of Walkerville Terrace and Victoria Terrace, Walkerville (“the Main Contract”). The shopping centre comprises a Woolworths Supermarket, a mall and specialty retail stores, and canopy roof.

11 In early June 2012, Tali tendered to Built Environs to supply and erect the structural steelwork for the shopping centre.

12 On 12 June 2012, Built Environs issued a construction program (“the Construction Program”). It provided for a construction start on 5 June 2012 and finish on 21 March 2013. It provided for the finish of Separable Portion 1 (supermarket shell, etc) by 25 January 2013, Separable Portion 2 (specialty retail shells, etc) by 7 February 2013, Woolworths fit out by 20 March 2013 and Separable Portion 3 by 21 March 2013.

13 On 12 June 2012, Built Environs sent by email to Tali the Construction Program together with a proposed subcontract. Tali confirmed that it could meet the program. In July 2012, Tali prepared shop drawings.

The Subcontract

14 On 14 September 2012, Built Environs and Tali executed a formal instrument of agreement for Tali to supply and erect the structural steelwork (“the Subcontract”). The Subcontract provided for a Subcontract Sum of $1,235,000. It appointed a Subcontract Superintendent, Mr Reinboth, and a Subcontract Superintendent’s Representative, Ms Dover, with delegated authority to undertake subcontract administration superintendent functions.

15 The Subcontract required substantial and practical completion for:

1. Separable Portion 1 by 13 October 2012 and 25 January 2013 respectively;

2. Separable Portion 2 by 29 November 2012 and 7 February 2013 respectively; and

3. Separable Portion 3 by 29 January 2013 and 21 March 2013 respectively.

16 The Subcontract defined the three Separable Portions as follows:

1. Separable Portion 1: structural steel erection complete to the Woolworths retail shell inclusive of all purlins, secondary steel, back of house mezzanine and plant platforms;

2. Separable Portion 2: structural steel erection complete to the mall and speciality retail stores, inclusive of all purlins, secondary steel and plant platforms;

3. Separable Portion 3: structural steel erection complete to Walkerville Terrace canopy structure.

17 Substantial completion was defined essentially to mean completion of the Subcontract works except for minor defects not preventing their being reasonably capable of use for their stated purpose which Tali had reasonable grounds for not promptly rectifying and the rectification of which would not prejudice their convenient use. Tali was required to give to the Subcontract Superintendent written notice at least 14 days before anticipated substantial completion and of actual substantial completion. The Subcontract Superintendent was entitled to issue a certificate of substantial completion without a request being made or even though substantial completion had not been achieved.

18 The Subcontract contained as an annexure the Construction Program. The Subcontract required compliance by Tali with the Construction Program and with any co-ordination program issued by the Subcontract Superintendent.

19 The Subcontract provided for progress claims on a monthly basis for work done to the 25th day of each month except (relevantly) December which was 14 December. Such claims were to be made progressively based on the ratio of value of completed work to the Subcontract Sum ($1,235,000). Amounts previously certified/paid were to be subtracted. Monies due by Tali to Built Environs (by way of set-off or otherwise) were also to be deducted. Progress claims were to be submitted in the form of Appendix 7, which required work to be broken down into items, showing for each item the work completed to date (by value and percentage) and deduction of amounts previously paid. Variations were to be shown in a separate table with similar details.

20 The Subcontract provided for liquidated damages of $10,000 for every day after the date for substantial completion for each Separable Portion. The Subcontract Superintendent was to certify liquidated damages and they were recoverable as a debt. The Subcontract Superintendent was entitled to issue with a progress certificate a provisional assessment of the amount then provisionally due by way of liquidated damages. Built Environs was entitled to deduct that amount from the amount otherwise certified in the progress certificate as due to Tali.

21 The Subcontract also provided for liquidated damages of $10,000 for the first five days and $5,000 for each day thereafter by which substantial completion under the Main Contract was delayed for each of Separable Portions 1, 2 and 3 due to Tali not achieving substantial completion. The Subcontract Superintendent was entitled to issue with a progress certificate a provisional assessment of the amount reasonably asserted to be Built Environs’ potential liquidated damages exposure under the Main Contract due to Tali not achieving substantial completion by the due date for each separable portion. Built Environs was entitled to deduct that amount from the amount otherwise certified in the progress certificate as due to Tali.

22 The Subcontract provided for the grant of extensions of time by the Subcontract Superintendent. Tali was entitled to an extension of time if:

1. Tali was delayed in reaching practical completion by a qualifying cause of delay;

2. Tali had given to the Subcontract Superintendent a written claim for an extension of time giving details of the facts within three days of when Tali should reasonably have become aware of that causation occurring; and

3. Tali satisfied the Subcontract Superintendent that the activities affected and critical to Tali’s activities on the Construction Program were apparent from an assessment of the critical path of the current revision of the Construction Program when the delay first arose and of certain other matters.

23 The Subcontract Superintendent was entitled to direct an extension of time although Tali had not claimed or was not entitled to an extension. The Subcontractor Superintendent had no obligation to grant, or consider whether to grant, an extension if Tali was not entitled to an extension.

24 The Subcontract gave to the Subcontract Superintendent various powers and responsibilities. Clause 20 required Built Environs to ensure that the Subcontract Superintendent fulfilled all aspects of the role and functions reasonably and in good faith.

25 Clause 42 addressed dispute resolution. It provided mechanisms for notices of dispute, a conference between the parties and ultimately determination by arbitration.

26 Set out in the Appendix to these reasons are extracts from the Subcontract containing clauses 20, 34 and 37 addressing the Subcontract Superintendent’s role, substantial completion, extensions of time, liquidated damages and progress claims.

Progress of the works

27 On 24 July and 23 August 2012, Tali submitted to Built Environs Progress Claims 1 and 2 which cumulatively claimed $31,500, being 90% of drafting with a contract value of $35,000. The Subcontract Superintendent certified the value of $31,500. Built Environs paid Tali accordingly.

28 On 29 September 2012, Built Environs issued to Tali a Notice of Delay. The Notice asserted that Built Environs had not received an erection procedure requested since 11 September, that welding and setting out had commenced five days late and that delivery and erection of structural steel had been due to commence on 26 September but had not yet commenced.

29 Tali did not achieve substantial completion of Separable Portion 1 on 13 October 2012.

30 On 24 October 2012, Tali submitted to Built Environs Progress Claim 4 claiming value of works completed to date of $398,500. The Subcontract Superintendent certified the value of work completed to date at $396,500 (reducing the drafting component from $35,000 to $33,000), deducted the previous certification of $31,500 and certified a payment of $365,000 (less 10% retention). Built Environs paid Tali accordingly.

31 On 10 November 2012, Built Environs issued to Tali a further Notice of Delay. The Notice asserted that structural steel erection for Separable Portion 1 had been programmed to take 20 working days and had already taken 38 working days and was not complete. It asserted that the site had been ready for commencement of structural steel erection for Separable Portion 2 on dates ranging from 19 September to 2 November 2012, but erection was yet to commence.

32 Tali did not achieve substantial completion of Separable Portion 2 by 29 November 2012.

33 On 22 November 2012, Tali submitted to Built Environs Progress Claim 5, claiming value of works completed to date of $995,000. On 18 December 2012, the Subcontract Superintendent issued a payment schedule certifying the value of the works at $396,500 (being the same amount previously certified for Claim 4). The payment schedule showed a set-off of liquidated damages for delay in achieving substantial completion of $640,000 under the Subcontract and $190,000 under the Main Contract. These amounts set-off exceeded the amount of Progress Claim 5 less amounts previously certified. It is evident from the payment schedule and the dates for substantial completion shown in the Subcontract that Built Environs was accepting that substantial completion had been achieved for Separable Portion 1 on 24 November 2012, being 42 days after it was due on 13 October 2012. No evidence was adduced before the Adjudicator or in this Court of any dispute by Tali with the set off.

34 On 12 December 2012, Built Environs sent to Tali a further Notice of Delay. It asserted that structural steel for Separable Portion 1 had not been finished until 24 November 2012, with a number of miscellaneous items not yet completed. It asserted that various areas for the erection of structural steel in Separable Portion 2 had commenced a month after the site had been available for erection. It said that Built Environs did not believe that the erection would be complete until 21 December. No response by Tali to the three delay notices from Built Environs was provided to the Adjudicator although responses were tendered in evidence before me.

35 On 17 December 2012, Tali submitted to Built Environs Progress Claim 6. Tali claimed value of work completed to date of $1,111,500. It also claimed for Variation 2 ($2,373.75) and Variation 3 ($1,005.70). Tali claimed that it had ($738,000), 90% of purlins/girts ($72,000) and 89% of transport and erection ($266,500).

36 On 16 January 2013, the Subcontract Superintendent issued a payment schedule in respect of Progress Claim 6. It certified the value of work completed to date at $396,500 (the same as for Claims 4 and 5 certifications). This was due to a setoff of liquidated damages under the Subcontract of $640,000 and under the Main Contract of $190,000. It also rejected the claims for the two variations because they were out of time and, in any event, were not variations.

37 Shortly before 25 January 2013, an agreement was reached that Built Environs would pay $300,000 to Tali. On 25 January 2013, Tali rendered to Built Environs Progress Claims 7 and 8 totalling $300,000. On 29 and 30 January 2013, Built Environs paid those amounts (less retentions). I infer that payment schedules were issued by the Subcontract Superintendent certifying total value of work completed to date at $696,500, being a $300,000 increase from the amount previously certified at $396,500.

Progress claim 9

38 On 25 January 2013, Tali submitted to Built Environs Progress Claim 9. It claimed that it had now completed work to the value of $1,201,500. Tali claimed that it had completed 100 per cent of drafting ($35,000), 100 per cent of materials, fabrication, etc ($820,000), 100 per cent of purlins/girts ($80,000) and 90 per cent of transport and erection ($266,500 out of $300,000).

39 Tali claimed that there had been 10 variations in respect of which it had partially or wholly completed the work. It claimed that the value of work undertaken to date in respect of those variations was $37,336.30 out of a total of $42,404.30.

40 Tali claimed the total value of work completed to date was $1,238,836.30. Tali deducted amounts previously certified of $656,850. Tali claimed a net amount of $581,986.30.

41 On 12 February 2013, Mr Sain sent an email to Mr Rugari. He said that he and Mr Rodella at ESA had been doing work for Tali, Tali may seek adjudication under the Act and he did not want an actual or perceived conflict of interest if Tali submitted an adjudication application to Nominator to appoint an adjudicator. Mr Sain asked Mr Rugari to deal with the matter on behalf of Nominator to the exclusion of Mr Rodella and himself to ensure no real or perceived conflict of interest. On 14 February 2013, Mr Rugari sent a reply email to Mr Sain agreeing.

42 On 15 February 2013, Mr Reinboth (the Subcontract Superintendent) sent by email to Tali a payment schedule in response to Progress Claim 9 (“the Payment Schedule”). The Payment Schedule rejected the claim for variation 2 ($2,260.94) and variation 3 ($958.10) because they were out of time and in any event were not variations. The Payment Schedule set-off liquidated damages of $420,000 for Separable Portion 1, $500,000 for Separable Portion 2 and head contract liquidated damages of $90,000 for Separable Portion 1.

43 It is evident from the Payment Schedule and the dates for substantial completion shown in the Subcontract that Built Environs was accepting that substantial completion had been achieved for Separable Portion 1 on 24 November 2012, being 42 days after it was due on 13 October 2012, and for Separable Portion 2 on 18 January 2013, being 50 days after it was due on 29 November 2012.

Adjudication application

44 On 22 February 2013, Tali served on Nominator and Built Environs an adjudication application in respect of Progress Claim 9 (“the Adjudication Application”). Tali thereby applied to Nominator to appoint an adjudicator under the Act. Tali attached a submission dated 21 February 2013 together with the Subcontract, the Construction Program, three co-ordination programs, three delay notices, two drawings marked up by Tali to show items of Subcontract work which it claimed were part of Separable Portions 1 and 2 and a bundle of photographs.

45 On 25 February 2013, Mr Rugari on behalf of Nominator nominated Mr Allan as the adjudicator. On 26 February 2013, Mr Allan served on Nominator, Tali and Built Environs notice of acceptance of appointment as adjudicator.

46 On 1 March 2013, Built Environs served on Mr Allan its adjudication response (“the Adjudication Response”).

47 On 15 March 2013, Mr Allan served on Tali and Built Environs his adjudication determination (“the Adjudication Determination” or “the Determination”). He determined that Built Environs was not entitled to liquidated damages and that Tali was not entitled to variation 2 ($2,260.94) but was entitled to variation 3 ($958.10). He therefore determined that the value of the progress payment to which Tali was entitled was $579,420.90.

48 The parties have now invoked the provisions of clause 42 of the Subcontract dealing with dispute resolution. It is likely that their ultimate rights and liabilities will be determined by arbitration.

The statutory regime

49 The Act came into force on 10 December 2011. The Act is in large part identical to the Building and Construction Industry Security of Payment Act 1999 (NSW) (“the NSW Act”). Victoria, Queensland, Tasmania and the Australian Capital Territory have also enacted legislation based on the NSW Act but with greater variations from the model. New Zealand, Western Australia and the Northern Territory have also legislated for progress payments as part of legislation covering a broader field.

50 Essentially, the Act:

1. gives to a construction contractor (including a subcontractor, sub-subcontractor, etc) a statutory entitlement to progress payments where there is no contractual right;

2. gives to a construction contractor a statutory entitlement to progress payments in essentially the same terms as and in parallel to a contractual right to a progress payment;

3. creates a statutory procedure for payment claims and responsive payment schedules in respect of progress claims (whether purely statutory or statutory/contractual);

4. provides for the adjudication of disputes in relation to payment claims by qualified adjudicators appointed by authorised nominating authorities;

5. enables recovery in a court of competent jurisdiction by way of debt of the unpaid portion of a payment claim in response to which no payment schedule is served within time or which has been acknowledged by a payment schedule or pursuant to an adjudication;

6. precludes parties contracting to modify rights and obligations created by the Act;

7. does not otherwise take away or affect parties’ contractual rights under a construction contract.

Rights to progress payments

51 Part 2 of the Act is entitled “Rights to progress payments”. The material provisions of Part 2 are as follows.

8—Rights to progress payments

On and from each reference date under a construction contract, a person—

(a) who has undertaken to carry out construction work under the contract; or

(b) who has undertaken to supply related goods and services under the contract,

is entitled to a progress payment.

9—Amount of progress payment

The amount of a progress payment to which a person is entitled in respect of a construction contract is to be—

(a) the amount calculated in accordance with the terms of the contract; or

(b) if the contract makes no express provision with respect to the matter—the amount calculated on the basis of the value of construction work carried out or undertaken to be carried out by the person (or of related goods and services supplied or undertaken to be supplied by the person) under the contract.

10—Valuation of construction work and related goods and services

(1) Construction work carried out under a construction contract is to be valued—

(a) in accordance with the terms of the contract; or

(b) if the contract makes no express provision with respect to the matter, having regard to—

(i) the contract price for the work; and

(ii) any other rates or prices set out in the contract; and

(iii) any variation agreed to by the parties to the contract by which the contract price, or any other rate or price set out in the contract, is to be adjusted by a specific amount; and

(iv) if any of the work is defective, the estimated cost of rectifying the defect.

...

11—Due date for payment

(1) A progress payment under a construction contract becomes due and payable—

(a) on the date on which the payment becomes due and payable in accordance with the terms of the contract; or

(b) if the contract makes no express provision with respect to the matter—on the date occurring 15 business days after a payment claim is made under Part 3 in relation to the payment.

...

Payment claims and payment schedules

52 Part 3 of the Act is entitled “Procedure for recovering progress payments”. Division 1 is entitled “Payment claims and payment schedules”. The material provisions of Division 1 are as follows:

13—Payment claims

(1) A person referred to in section 8 who is or who claims to be entitled to a progress payment (the claimant) may serve a payment claim on the person who, under the contract concerned, is or may be liable to make the payment.

(2) A payment claim—

(a) must identify the construction work (or related goods and services) to which the progress payment relates; and

(b) must indicate the amount of the progress payment that the claimant claims to be due (the claimed amount); and

...

14—Payment schedules

(1) A person on whom a payment claim is served (the respondent) may reply to the claim by providing a payment schedule to the claimant.

(2) A payment schedule—

(a) must identify the payment claim to which it relates; and

(b) must indicate the amount of the payment (if any) that the respondent proposes to make (the scheduled amount).

(3) If the scheduled amount is less than the claimed amount, the schedule must indicate why the scheduled amount is less and (if it is less because the respondent is withholding payment for any reason) the respondent's reasons for withholding payment.

(4) If—

(a) a claimant serves a payment claim on a respondent; and

(b) the respondent does not provide a payment schedule to the claimant—

(i) within the time required by the relevant construction contract; or

(ii) within 15 business days after the payment claim is served, whichever time expires earlier, the respondent becomes liable to pay the claimed amount to the claimant on the due date for the progress payment to which the payment claim relates.

Adjudication of disputes

53 Division 2 of Part 3 of the Act is entitled “Adjudication of disputes”. The material provisions of Division 2 are as follows:

17—Adjudication applications

(1) A claimant may apply for adjudication of a payment claim (an adjudication application) if—

(a) the respondent provides a payment schedule under Division 1 but—

(i) the scheduled amount indicated in the payment schedule is less than the claimed amount indicated in the payment claim; or

(ii) the respondent fails to pay the whole or a part of the scheduled amount to the claimant by the due date for payment of the amount; or

(b) the respondent fails to provide a payment schedule to the claimant under Division 1 and fails to pay the whole or a part of the claimed amount by the due date for payment of the amount.

(2) An adjudication application to which subsection (1)(b) applies cannot be made unless—

(a) the claimant has notified the respondent, within the period of 20 business days immediately following the due date for payment, of the claimant's intention to apply for adjudication of the payment claim; and

(b) the respondent has been given an opportunity to provide a payment schedule to the claimant within 5 business days after receiving the claimant's notice.

(3) An adjudication application—

(a) must be in writing; and

(b) must be made to an authorised nominating authority chosen by the claimant; and

(c) in the case of an application under subsection (1)(a)(i)—must be made within 15 business days after the claimant receives the payment schedule; and

(d) in the case of an application under subsection (1)(a)(ii)—must be made within 20 business days after the due date for payment; and

(e) in the case of an application under subsection (1)(b)—must be made within 15 business days after the end of the 5 day period referred to in subsection (2)(b); and

(f) must identify the payment claim and the payment schedule (if any) to which it relates; and

(g) must be accompanied by such application fee (if any) as may be determined by the authorised nominating authority; and

(h) may contain such submissions relevant to the application that the claimant chooses to include.

...

(5) A copy of an adjudication application must be served on the respondent concerned.

(6) It is the duty of an authorised nominating authority to which an adjudication application is made to refer the application to an adjudicator (being a person who is eligible to be an adjudicator as referred to in section 18) as soon as practicable.

...

19—Appointment of adjudicator

(1) If an authorised nominating authority refers an adjudication application to an adjudicator, the adjudicator may accept the adjudication application by causing notice of acceptance to be served on the claimant and the respondent.

(2) On accepting an adjudication application, the adjudicator is taken to have been appointed to determine the application.

20—Adjudication responses

(1) Subject to subsection (3), the respondent may lodge with the adjudicator a response to the claimant's adjudication application (the adjudication response) at any time within—

(a) 5 business days after receiving a copy of the application; or

(b) 2 business days after receiving notice of an adjudicator's acceptance of the application, whichever time expires later.

(2) The adjudication response—

(a) must be in writing; and

(b) must identify the adjudication application to which it relates; and

(3) The respondent may lodge an adjudication response only if the respondent has provided a payment schedule to the claimant within the time specified in section 14(4) or 17(2)(b).

(4) The respondent cannot include in the adjudication response reasons for withholding payment unless those reasons have already been included in the payment schedule provided to the claimant.

(5) A copy of the adjudication response must be served on the claimant.

21—Adjudication procedures

(1) An adjudicator is not to determine an adjudication application until after the end of the period within which the respondent may lodge an adjudication response.

(2) An adjudicator is not to consider an adjudication response unless it was made before the end of the period within which the respondent may lodge the response.

(3) Subject to subsections (1) and (2), an adjudicator is to determine an adjudication application as expeditiously as possible and, in any case—

(a) within 10 business days after—

(i) the date on which an adjudication response is lodged with the adjudicator; or

(ii) if an adjudication response is not lodged with the adjudicator on or before the last date on which the response may be lodged with the adjudicator under section 20(1)—that date; or

(iii) if the respondent is not entitled under section 20 to lodge an adjudication response—the date on which the respondent receives a copy of the adjudication application; or (b) within any further time that the claimant and the respondent may agree.

(4) For the purposes of proceedings conducted to determine an adjudication application, an adjudicator—

(a) may request further written submissions from either party and must give the other party an opportunity to comment on those submissions; and

(b) may set deadlines for further submissions and comments by the parties; and

(d) may carry out an inspection of any matter to which the claim relates.

(5) If any such conference is called, it is to be conducted informally and the parties are not entitled to legal representation.

(6) The adjudicator's power to determine an application is not affected by the failure of either or both of the parties to make a submission or comment within time or to comply with the adjudicator's call for a conference of the parties.

22—Adjudicator's determination

(1) An adjudicator is to determine—

(a) the amount of the progress payment (if any) to be paid by the respondent to the claimant (the adjudicated amount); and

(b) the date on which any such amount became or becomes payable; and

(2) In determining an adjudication application, the adjudicator is to consider the following matters only:

(a) the provisions of this Act;

(b) the provisions of the construction contract from which the application arose;

(c) 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;

(d) the payment schedule (if any) to which the application relates, together with all submissions (including relevant documentation) that have been duly made by the respondent in support of the schedule;

(e) the results of any inspection carried out by the adjudicator of any matter to which the claim relates.

(3) The adjudicator's determination must—

(a) be in writing; and

(b) include the reasons for the determination (unless the claimant and respondent have both requested the adjudicator not to include those reasons in the determination).

...

The nature of progress payments

54 The object of the Act is to ensure that a contractor who undertakes to carry out construction work under a construction contract is entitled to receive and is able to recover progress payments.

55 It is common, but not universal, for construction contracts to provide for progress payments. It is common for such contracts to provide a mechanism for the contractor to lodge progress claims and for the principal or superintendent to certify the amount payable by way of progress payments. The Act proceeds on this assumption because it provides that the amount, valuation and due date for payment of a progress claim are to be governed by the contract where the contract addresses such matters.

56 At common law, a progress payment is regarded simply as a payment by the principal to the contractor on account of the final contract price. A progress payment does not determine the ultimate rights of the parties, nor does it represent the final determination of the amount payable for work completed to date. The parties are at liberty to make contentions concerning the final contract price independently of progress claims and progress payments. The Act treats progress payments under the Act in the same way, ie they are merely payments on account of the final contract price.

57 The paradigm type of dispute concerning progress claims is a dispute about the value of the work performed to date by the contractor out of the total work to be performed under the contract. This can involve a dispute about the quantum and/or value of goods and services acquired/supplied by the contractor. It can involve a dispute about the percentage completed to date in respect of defined components of the works. It can involve a dispute about a variation. These types of disputes are the province of quantity surveyors, architects, building surveyors, project managers, building supervisors and suchlike.

58 The value of building work completed to date may also be affected by defective work. The assessment whether work is defective in the sense that it affects the value of the work completed to date is the province of architects, engineers, building surveyors, project managers, building supervisors and suchlike.

59 The structure of the Act assumes that disputes concerning payment claims to be adjudicated under the Act will predominantly be of the above nature. This is reflected in the relatively short timing for payment schedules in response to payment claims under section 14, adjudication responses in response to adjudication applications under section 20 and adjudication determinations under section 21. It is reflected in the adjudicator being confined to having regard only to the contract, the payment claim and submissions in support of it, the payment schedule and submissions in support of it and the results of any inspection carried out by the adjudicator under section 22(2). It is reflected in section 18(1)(b) requiring regulations to prescribe qualifications, expertise and experience for a person to be an adjudicator. The Building and Construction Industry Security of Payment Regulations 2011 (SA) (“the Regulations”) prescribe eligibility criteria encompassing architects, engineers, building surveyors, project managers, quantity surveyors and building supervisors.

60 The above is not to say that diverse other issues of law or fact might not be thrown up by a progress claim and its response and may not be determined by the adjudicator. However, the paradigm types of disputes over progress claims contemplated by the Act provide some guidance to construing the requirements of the Act.

Ground 1: Jurisdiction by reference to valid payment claim

61 Built Environs’ first ground for review is that an adjudicator’s jurisdiction under the Act is conditional upon the claimant having served a valid payment claim under section 13 of the Act and that Progress Claim 9 was not a valid payment claim under section 13 of the Act.

Condition of jurisdiction

62 Section 17(1)(a) of the Act provides:

(1) A claimant may apply for adjudication of a payment claim (an adjudication application) if—

(a) the respondent provides a payment schedule under Division 1 but—

(i) the scheduled amount indicated in the payment schedule is less than the claimed amount indicated in the payment claim; or

(ii) the respondent fails to pay the whole or a part of the scheduled amount to the claimant by the due date for payment of the amount. …

Section 13(1) and (2) of the Act provides:

(2) A payment claim—

(a) must identify the construction work (or related goods and services) to which the progress payment relates; and

(b) must indicate the amount of the progress payment that the claimant claims to be due (the claimed amount); and

63 It is common ground that it is a precondition to the jurisdiction of an adjudicator that a payment claim complying with section 13(2) has been served by the applicant upon the respondent. However, Tali claims, and Built Environs denies, that the adjudicator is given jurisdiction to determine that question and the adjudicator’s determination that a claim is a complying claim under section 13 of the Act is (absent the usual vitiating factors) final and conclusive.

64 I reject Tali’s contention. For the reasons set out below, the adjudicator only has jurisdiction if the payment claim objectively complies with section 13. It is not sufficient merely that the adjudicator forms an opinion that the payment claim complies with section 13.

65 Section 21 specifies adjudication procedures and section 22 specifies what the adjudicator is to determine and how the adjudicator is to make that determination. Section 22(1) is confined to empowering the adjudicator to determine the amount of the progress payment, the date on which it is payable and the rate of interest payable thereon. There is nothing in sections 21 or 22, or the Act more generally, which confers jurisdiction on the adjudicator to conclusively determine whether or not there has been a valid adjudication application under section 17 or a valid payment claim under section 13. Questions whether there has been a valid adjudication application or a valid payment claim are likely to give rise to legal issues involving the construction of those sections of the Act and/or the relevant construction contract. The adjudicator is not required to have any legal expertise and there is no reason to consider that the legislature intended to confer jurisdiction on the adjudicator to conclusively determine such issues.

66 Tali concedes that the adjudicator does not have jurisdiction to determine whether the requirements of section 17 have been met. Tali contends that the making of a valid adjudication application marks the beginning of the appointment process for the adjudicator, whereas section 13 predates and may not involve any such appointment and should be treated differently. However, section 17(1) itself makes it a precondition of an application for adjudication that there be a “payment claim” and that phrase refers back to section 13. In addition, there is no reason of principle or policy why the adjudicator should not have jurisdiction to determine whether the requirements of section 17 have been met but should have jurisdiction to determine whether the requirements of section 13 have been met. Compliance with each of sections 13 and 17 are essential preliminaries to the adjudicator’s decision-making process and neither section 13 nor section 17 is addressed to the adjudicator.

67 The approach of the New South Wales Court of Appeal to the availability of judicial review in relation to determinations under the NSW Act and to the question of what constitutes jurisdictional facts and who determines them has changed over time.

68 In 2003, in Musico v Davenport, McDougall J at first instance held that judicial review was available in respect of adjudicators’ adjudications under the NSW Act. He held that judicial review was available in respect of jurisdictional error, which included consideration whether the adjudicator had power to make the determination.

69 In 2004, in Brodyn Pty Ltd v Davenport, the Court of Appeal took a more limited view. Hodgson JA (Mason P and Giles JA agreeing) said:

However, it is plain in my opinion that for a document purporting to be an adjudicator's determination to have the strong legal effect provided by the Act, it must satisfy whatever are the conditions laid down by the Act as essential for there to be such a determination. If it does not, the purported determination will not in truth be an adjudicator's determination within the meaning of the Act: it will be void and not merely voidable. A court of competent jurisdiction could in those circumstances grant relief by way of declaration or injunction, without the need to quash the determination by means of an order the nature of certiorari.

What then are the conditions laid down for the existence of an adjudicator's determination? The basic and essential requirements appear to include the following:

1. The existence of a construction contract between the claimant and the respondent, to which the Act applies (s 7 and s 8).

2. The service by the claimant on the respondent of a payment claim (s 13).

3. The making of an adjudication application by the claimant to an authorised nominating authority (s 17).

4. The reference of the application to an eligible adjudicator, who accepts the application (s 18 and s 19).

5. The determination by the adjudicator of this application (s 19(2) and s 21(5)), by determining the amount of the progress payment, the date on which it becomes or became due and the rate of interest payable (s 22(1)) and the issue of a determination in writing (s 22(3)(a)).

The relevant sections contain more detailed requirements: for example, s 13(2) as to the content of payment claims; s 17 as to the time when an adjudication application can be made and as to its contents; s 21 as to the time when an adjudication application may be determined; and s 22 as to the matters to be considered by the adjudicator and the provision of reasons. A question arises whether any non-compliance with any of these requirements has the effect that a purported determination is void, that is, is not in truth an adjudicator's determination. ...

In my opinion, the reasons given above for excluding judicial review on the basis of nonjurisdictional error of law justify the conclusion that the legislature did not intend that exact compliance with all the more detailed requirements was essential to the existence of a determination. What was intended to be essential was compliance with the basic requirements (and those set out above may not be exhaustive), a bona fide attempt by the adjudicator to exercise the relevant power relating to the subject matter of the legislation and reasonably capable of reference to this power, and no substantial denial of the measure of natural justice that the Act requires to be given. If the basic requirements are not complied with, or if a purported determination is not such a bona fide attempt, or if there is a substantial denial of this measure of natural justice, then in my opinion a purported determination will be void and not merely voidable, because there will then not, in my opinion, be satisfaction of requirements that the legislature has indicated as essential to the existence of a determination. If a question is raised before an adjudicator as to whether more detailed requirements have been exactly complied with, a failure to address that question could indicate that there was not a bona fide attempt to exercise the power; but if the question is addressed, then the determination will not be made void simply because of an erroneous decision that they were complied with or as to the consequences of non-compliance.

(emphasis added, citations omitted)

70 In 2005, in Coordinated Construction Co Pty Ltd v Climatech (Canberra) Pty Ltd, the contractor argued that the subcontractor had included in its payment claim a claim for damages (delay costs) which were not for construction work within the meaning of section 13(2). The Court of Appeal unanimously rejected that contention because costs under the terms of the contract were not simple unliquidated damages and were payments “for construction work”. The question whether an error by the adjudicator in this respect would have comprised jurisdictional error did not therefore arise. Basten JA alone addressed that question. He said:

The next question is whether the existence of a valid payment claim, which complies with s 13(2) is an essential precondition to a valid determination. A related question is whether, even if there is a valid claim, a determination which appears to go beyond the parameters of the claim is itself a valid determination: see [24] and [26] above.

For reasons explained in Hargreaves at [72]-[77], it is not possible to construe s.13(2) as doing otherwise than imposing mandatory requirements with respect to the making of payment claims. However, it does not follow that the Court should set aside a determination in circumstances where, in its view, the claim does not satisfy those requirements, or the determination goes beyond the parameters of the claim, properly understood. Intervention on that basis will only be justified if the legislature has imposed an objective requirement, rather than one which the adjudicator has power to determine. It is well established that the mere fact that a requirement is objectively expressed, rather than by reference to the satisfaction of the officer or tribunal concerned, is not decisive of the construction issue. Indeed, in relation to inferior courts, it has been said that there is a strong presumption against any jurisdictional qualification being interpreted as contingent upon the actual existence of a state of facts, as opposed to the decision-maker’s opinion in that regard. A factor favouring that approach is “the inconvenience that may arise from classifying a factual reference in a statutory formulation as a jurisdictional fact.

In the present case, three factors militate in favour of treating elements identified in s 13(2) as properly dependent upon the satisfaction or opinion of the adjudicator. First, what is or may be a sufficient identification of matters for the purposes of a claim falls within the special experience which a qualified adjudicator is intended to bring to the task and is one which may well require evaluative judgment. Secondly, the requirement relates to a procedural step in the claim process, rather than some external criterion. Thirdly, the overall purpose of the Act, as reflected in its objects and procedures, is to provide a speedy and effective means of ensuring that progress payments are made during the course of the administration of a construction contract, without undue formality or resort to the law.

In my view the omission of reference to s 13(2) in the list of mandatory requirements identified in Brodyn, should be understood as giving effect to these principles.

(citations omitted)

71 In 2005, in Coordinated Construction Co Pty Ltd v JM Hargreaves (NSW) Pty Ltd, Basten JA said:

The next step in the reasoning in Brodyn Pty Ltd was to say, (at 441 [55]), that all that was intended by the legislature was compliance with certain identified “basic requirements”, which may not have been exhaustively stated in that case … Each of these three elements could require further consideration.

First, although the statement of “basic requirements” is said not necessarily to be exhaustive, one of the factors which appears to have been excluded is compliance by the claimant with s 13(2) of the Act. According to that provision, a payment claim “must” do certain things. The basis for reading “must” as “must but need not” is not explained. It does not appear to accord with the approach adopted, albeit in relation to very different legislation, in SAAP. On the other hand, Brodyn Pty Ltd may be read as saying that satisfaction of this condition depends on the opinion of the adjudicator.

...

These considerations suggest that there may be room for debate ... whether Brodyn Pty Ltd “set the requirements for validity too low, particularly in relation to the application of s 22 of the Act”.

(citations omitted)

72 In 2010, in Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd, the Court of Appeal reconsidered Brodyn and decided that it should not be followed in certain respects. The immediate question in that case was whether compliance with section 17(2)(a) was an essential condition for the jurisdiction of an adjudicator and whether that question was to be determined objectively by the court or according to the opinion in good faith of the adjudicator. The Court of Appeal unanimously held that it was an essential condition and was to be determined objectively by the court. Spigelman CJ said:

The issue to be determined is whether the adjudicator had jurisdiction to determine an “application” which had been made without compliance with the mandatory (in a negative sense) terminology of s 17(2). The issue is not, contrary to some of the submissions made, whether the adjudicator had jurisdiction to determine that s 17(2)(a) had been complied with. That section is not addressed to the adjudicator and is not a matter which he is directed to “determine” within s 22(1) of the Security of Payment Act.

It may be that it is a matter which he must “consider” as one of the “provisions of the Act” within s 22(2)(a). However, that section confers no power to determine the issue.

...

With respect to the first aspect, it is particularly relevant that the element occurs at the application stage of the decision-making process. It does not involve consideration of matters which can arise during the course of the decision-making process itself. A traditional formulation of the relevant distinction is whether the relevant element is “a fact to be adjudicated upon in the course of the inquiry” as distinct from an “essential preliminary” to the decision-making process.

...

There are a number of cases in which the absence of an element required to be present in the application which initiates a decision-making process has been held to be jurisdictional.

(citations omitted)

73 Basten JA expressly agreed with paragraphs of the reasons for judgment of Spigelman CJ which include paragraphs [36], [43] and [45] quoted above. He added:

The power to determine compliance with the essential requirements of an adjudication application could lie with the authorised nominating authority (to whom the application is made), the adjudicator (to whom the application is referred) or the Court exercising its supervisory jurisdiction.

...

The second possibility is that power to determine the validity of an adjudication application lies with the adjudicator. In a practical sense, there is much to recommend the view that the adjudicator is able to determine whether the application complies with provisions such as s 17(2)(a), as the adjudicator sought to do in the present case.

However, there are factors which support a contrary view. First, s 22(1), identifying that which the adjudicator is to determine, makes no reference to the validity of the adjudication application. Secondly, s 22(2) limits the matters which the adjudicator is entitled to consider to the Act, the provisions of the construction contract, the payment claim, the payment schedule, submissions in support of either and the results of any inspection. In a provision which renders the consideration of any other material impermissible, the absence of any reference to the circumstances in which the adjudication application was made is highly significant. Thirdly, the descriptions of the matters to which payment claims and payment schedules must relate and hence (at least implicitly) the matters to which the submissions in support can properly refer, do not expressly identify any aspect of the circumstances in which the adjudication application was made.

For these reasons, the proper construction of the Security of Payment Act is that it does not permit the adjudicator to determine the validity of the adjudication application. The challenge in the present case must therefore be determined on the basis of facts found by the Court.

74 McDougall J said:

... I conclude that, in circumstances to which s 17(1)(b) of the Security of Payment Act applies, the requirement set out in s 17(2)(a) is a condition of the right to make an adjudication application, and satisfaction of that condition is an element of the jurisdiction of the adjudicator — the power of the adjudicator to determine the application in accordance with s 22(1). Put shortly, the giving of notice in time is a jurisdictional fact.

This approach is supported by the reasoning of Basten JA in Coordinated Construction Co Pty Ltd v Climatech (Canberra) Pty Ltd, dealing with s 13(2) of the Security of Payment Act. His Honour pointed out (at [44]) that “it is not possible to construe s 13(2) as doing otherwise than imposing mandatory requirements with respect to the making of payment claims”. However, his Honour (at [45]) said there were three reasons for treating satisfaction of s 13(2) “as properly dependent upon the satisfaction or opinion of the adjudicator”. Those reasons were:

(1) Evaluation of the issues might require the special experience or qualifications of adjudicators, and might involve a process of evaluation;

(2) Section 13(2) set out a procedural step in the claim process, rather than an external criterion of validity; and

(3) The construction was consistent with the overall objects of the Security of Payment Act, in relation to the speedy and effective resolution of disputes in relation to payment claims.

The factors that suggested to Basten JA that satisfaction of s 13(2) should depend on the opinion of the adjudicator do not apply to s 17(2)(a), for the reasons that I have given (at [220] above).

...

It could be said, of the Security of Payment Act, that it is a legislative scheme for quick resolution of the question of entitlement to a progress payment and the determination, in the absence of agreement, as to what should be paid. It could also be said that it is “a condition of the gift” of the right to make an adjudication application pursuant to s 17(1)(b), that the right be exercised in the manner specified by s 17(2)(a).

(citations omitted)

75 The reasoning of Spigelman JA (with which Basten JA expressly agreed) and of Basten JA himself in relation to section 17(2)(a) applies equally to section 13(2) of the Act. Like section 17(2)(a), section 13(2) is expressed in mandatory terms. Moreover, section 17(1) itself permits a claimant to apply for adjudication only of a “payment claim”. This must mean a claim which complies with section 13(2). The term “payment claim” is defined by section 4 to mean “a claim referred to in section 13”.

76 Further, section 14(4) provides that, if a claimant serves a payment claim on a respondent but the respondent does not provide a payment schedule within the requisite time, the respondent becomes liable to pay the claimed amount to the claimant. Section 15(2)(a)(i) entitles the claimant to recover the claimed amount from the respondent as a debt due in a court of competent jurisdiction. In those circumstances, it is clear that there is only a valid and recoverable debt if the payment claim complies with section 13(2).

77 The dicta expressed by Basten JA in the two Coordinated Construction Co Pty Ltd cases referred to at [70]-[71] above were in the context of the fundamental approach to jurisdiction laid down in Brodyn. Indeed, Basten JA himself raised doubts in Coordinated Construction Co Pty Ltd v JM Hargreaves (NSW) Pty Ltd as to the decision in Brodyn and suggested that it may require further consideration. Those dicta are superseded by the fundamental change in the approach adopted in Chase Oyster Bar. Although McDougall J in Chase Oyster Bar referred to those dicta, he did not express a view as to whether compliance with section 13(2), objectively assessed, should now be regarded as an essential condition of the adjudicator’s jurisdiction. In any case, the reasons for judgment of Spigelman CJ and Basten JA are inconsistent with the adjudicator’s jurisdiction turning on the adjudicator’s own opinion as to compliance with section 13.

78 The three factors which had been identified by Basten JA in the two Coordinated Construction Co Pty Ltd cases as militating in favour of treating the elements of section 13(2) as being dependent on the opinion of the adjudicator were the subject of a quite different approach by the Court of Appeal in Chase Oyster Bar. As to the second factor, namely the requirement relates to a procedural step in the claim process, paragraphs [45]-[48] of the reasons for judgment of Spigelman CJ (with which Basten JA expressly agreed) demonstrate that the question of compliance with essential procedural requirements does involve an essential prerequisite, to be objectively assessed, for the jurisdiction of the adjudicator. As to the third factor, the reasons for judgment of both Spigelman CJ and Basten JA in Chase Oyster Bar demonstrate that the purpose of the Act in providing speedy and effective means of ensuring the making of progress payments is not impinged by a requirement that the Act’s own prerequisites for making an adjudication determination, objectively assessed, must be met. As to the first factor, the question whether a payment claim identifies the construction work to which it relates is apt to raise legal issues which an adjudicator with practical expertise and experience is not necessarily equipped to decide.

79 I conclude that it is a question for this Court to determine whether Progress Claim 9 identified the construction work to which it related and the opinion of Mr Allan on that question does not determine his jurisdiction to make a valid adjudication.

Identification of construction work

80 Built Environs contends that Progress Claim 9 did not identify the construction work to which the progress payment related for two discrete reasons.

1. It contained arithmetical errors, inconsistencies and confusion such that it did not enable a reasonable contractor in the position of Built Environs to ascertain with sufficient certainty the basis of the claim so as to be able to provide a meaningful payment schedule.

2. It did not identify the construction work performed since the previous progress claim (ie since 14 December 2012).

Errors and inconsistencies

81 It is common ground that, in order to comply with section 13(2)(a), a payment claim must allow a reasonable principal to ascertain with sufficient certainty the basis of the claim so as to be able to provide a meaningful payment schedule. Both parties accepted that the relevant test was identified in Protectavale Pty Ltd v K2K Pty Ltd by Finkelstein J as follows:

It is necessary to decide whether the invoice meets the requirements of s 14. The test is an objective one; that is, it must be clear from the terms of the document that it contains the required information. But the terms must be read in context. Payment claims are usually given and received by parties experienced in the building industry who are familiar with the particular construction contract, the history of the project and any issues which may have arisen between them regarding payment. Those matters are part of the context.

The manner in which compliance with s 14 is tested is not overly demanding. …

Nonetheless a payment claim must be sufficiently detailed to enable the principal to understand the basis of the claim. If a reasonable principal is unable to ascertain with sufficient certainty the work to which the claim relates, he will not be able to provide a meaningful payment schedule. That is to say, a payment claim must put the principal in a position where he is able to decide whether to accept or reject the claim and, if the principal opts for the latter, to respond appropriately in a payment schedule.

(citations omitted)

82 There are minor arithmetical errors in Progress Claim 9. Not only are they relatively small, but they are readily identifiable upon a cursory analysis of the progress claim read as a whole. It is also apparent that the figures contained in the supporting schedule under the heading “Amount Invoiced” are irrelevant to the amount claimed in the progress claim and should be disregarded.

83 It is apparent from Built Environs’ responsive Payment Schedule that Built Environs correctly identified each of the errors and irrelevancies in the progress claim and addressed it on the assumption that each error was corrected and the irrelevancies ignored. Moreover, its responses to Progress Claims 1, 2, 4, 5 and 6 demonstrate that it understood the methodology of Tali’s progress claims.

84 I reject Built Environs’ contention under this heading.

Identification of current construction work

85 Built Environs contends that section 13(2)(a) on its proper construction requires that the progress claim must relate exclusively to construction work undertaken since the previous progress claim and accordingly must identify that work. Because Progress Claim 9 does not attempt to identify what work was undertaken since 14 December 2012, Built Environs contends that it fails to identify “the construction work to which it relates” in compliance with section 13(2)(a).

86 The Subcontract requires progress claims to be calculated, not by reference to the value of the work undertaken since the previous progress claim, but rather by reference to the total value of completed work since commencement assessed against the total contract price. It requires there to be a deduction for amounts previously certified and paid.

87 Clause 37.1 of the Subcontract relevantly provides:

The Subcontractor shall claim payment progressively in accordance with Item 31.

…

Each progress claim shall be given in writing to the Subcontract Superintendent and shall include details of the value of WUS done and may include details of other moneys then due to the Subcontractor pursuant to provisions of the Subcontract.

…

All payment claims or progress claims delivered by the Subcontractor shall be typewritten and include:

(d) the Subcontractor’s valuation of work executed being a value based on work complete assessed against the subcontract sum;

(e) the amount and particulars of any adjustments to the subcontract sum in accordance with and subject to the terms of the Subcontract;

(f) any deduction by way of set-off or otherwise having regard to the Subcontractor’s knowledge of any monies due or claimed to be due from the Subcontractor to the Main Contractor;

(g) the total amount previously certified pursuant to this clause;

(h) the total amount previously paid or in terms of the Subcontract deemed to have been paid to the Subcontractor;

(i) the amount then claimed by the Subcontractor ...

For the avoidance of doubt, no payment at all is due and payable unless the progress claim is submitted in the approved format, accompanied by the monthly documentation required under this Subcontract and submitted to the Subcontract Superintendent with copy to the Contracts Administrator.

88 Appendix 7 requires the claim to be in the following format:

SUMMARY

ITEM	Description	Approved Contract Value	%	Work completed to Date	Less Previous Paid	Claim This Month
1			0%
2			0%
3			0%
etc			0%

Sub-Total	0%
Less Retention	0%
Sub-Total	0%
Plus GST 10%	0%
Total This Claim including GST	0%

89 The construction of section 13(2)(a) of the Act advanced by Built Environs is that, notwithstanding that a construction contract may require progress claims to be calculated on a cumulative basis, a payment claim under the Act must be calculated on an incremental basis of the value of work undertaken since the previous progress claim. I reject that contention.

90 Sections 9(a) and 10(a) of the Act expressly provide that the amount of a progress payment to which a person is entitled under the Act is the amount calculated in accordance with the terms of the contract and the construction work is to be valued in accordance with the terms of the contract. Built Environs’ construction would require the amount to be calculated and the valuation to be undertaken contrary to the terms of the contract.

91 Section 13(2)(a) does not identify the construction work to which the progress payment relates, and in particular does not say that it is to be the construction work undertaken since the previous progress claim. In those cases governed by sections 9(a) and 10(1)(a), it leaves the question of what work is to be the subject of the progress payment to the contract where the contract addresses those matters.

92 The Act proceeds on the assumption that the term “progress payment” has a pre-existing understanding in the building industry. This had already been reflected by section 30(1)(a) of the Building Work Contractors Act 1995 (SA) which referred (before enactment of the Act) to a “genuine progress payment in respect of work already performed”. Parliament can be expected to have known that it was common for progress payments to be calculated on a cumulative basis.

93 Calculating the amount of a progress payment on a cumulative basis is inherently fair and reasonable in the interests of both parties. If a mistake has been made in favour of one party in the calculation of previous progress payments, there is no reason why that mistake should be perpetuated in future progress claims. This is especially so as progress payments are “on account” of the final contract price for the work.

94 By sections 3(4) and 32, the Act does not limit any other entitlement that a claimant may have under a construction contract. Great complexities might be introduced if a claimant had a contractual entitlement to one amount by way of a progress payment (calculated cumulatively) and a statutory entitlement to a quite different amount under the Act (calculated incrementally).

95 Built Environs contends that there are four decisions at first instance in other jurisdictions to the effect that a payment claim under the equivalent of section 13(2)(a) must identify construction work undertaken since the previous payment claim. Caution needs to be exercised in interpreting passages from reasons for judgment which may be affected by the terms of the contract in that case (which are not necessarily disclosed in the reasons), the manner in which that case was argued and the issues framed (not necessarily disclosed in the reasons) and other matters specific to that case.

96 In Jemzone Pty Ltd v Tritan Pty Ltd, a statutory demand under s 459E of the Corporations Act 2001 (Cth) was served by a builder on a developer relying upon a debt the subject of a payment claim in respect of which a payment schedule had not been served. Austin J held that the claim was not a “progress claim” within the meaning of the NSW Act because it was a claim for final payment. Austin J therefore did not need to decide whether the claim otherwise complied with section 13. However, he made the following observation:

Section 13(2)(a) requires the payment claim to identify the construction work to which the progress payment relates. In my opinion, this requires the claimant to identify the identify in general terms the work that is the subject of the construction contract as a whole. The document in question refers to "motel construction for Jemzone Pty Ltd". That falls well short of satisfying the requirement of s.13(2)(a). The letter sets out a table which calculates the amount due, but the table does not identify any particular construction work other than variations. It merely begins by specifying a balance owing as at 9 February 2001, and then makes adjustments for variations and payments and other matters. At no stage is there any statement purporting to identify the work carried out since the making of the last payment claim.

97 It is not apparent from the reasons for judgment what were the precise contractual terms governing the calculation of progress payments. Earlier, Austin J had said:

... In my opinion the words "progress payment" when used in s 8 and other parts of the Act should therefore be given the meaning that they have under the construction contract. That accords with the structure of the Act itself, which generally leaves it to the construction contract to define the rights of the parties but makes "default provisions" to fill in the contractual gaps: see second reading speech, at p 1013).

98 If Austin J had been construing section 13 as requiring calculation of a progress payment on an incremental basis when the contract provided for a cumulative basis, he can be expected to have explained why that was so and how it was consistent with the construction of the Act which he identified in the passage quoted at [97] above. In the circumstances, I do not interpret the last sentence quoted at [96] above as holding that section 13 requires the payment claim to relate exclusively to work undertaken since the previous payment claim notwithstanding that the contract provides otherwise.

99 In Protectavale Pty Ltd v K2K Pty Ltd, Finkelstein J identified the general requirements of the equivalent of section 13 of the Act in the Building and Construction Industry Security of Payment Act 2002 (Vic) (“the Victorian Act”) as quoted at [81] above. In that case, the payment claim simply showed the entire contract sum plus variation claims and a prolongation claim and then deducted retentions and payments received. No payment schedule was served and hence there was no response by the principals to demonstrate their understanding of the claim. It is not apparent from the reasons for judgment what were the contractual terms governing the calculation of progress payments. The claim was lodged after practical completion. On its face, it was ambiguous whether it was an interim claim or a final claim. Under the contract, there were different formal and substantive requirements for, and consequences of, interim claims as opposed to final claims. Finkelstein J held that the claim was not a valid claim under section 14 of the Victorian Act (the equivalent of section 13 of the Act) because the principal could not ascertain whether it was a progress claim for work completed up to a certain point or alternatively a final claim following earlier completion of, and payment for, the construction work specified under the contract.

100 In the course of his reasons, Finkelstein J said:

… what is noticeably absent from the invoice is any identification of the work previously completed and paid for and the work ... to which the invoice relates.

Built Environs contends that, by that sentence that Finkelstein J held that, to comply with section 14 of the Victorian Act, the payment claim was required to identify work undertaken since the previous progress claim. However, Finkelstein J did not say that. If he had intended to say that, he can be expected to have analysed the competing constructions of the Act and given reasons for his construction. Rather, his statement is explained by the ambiguity in the claim as between its being an interim claim or a final claim.

101 In Neumann Contractors Pty Ltd v Peet Beachton Syndicate Limited, a payment claim merely showed the value of work completed to date as $5,320,019.94 against an adjusted contract sum of $5,462,887. There was then deducted $5,239,710.58 previously claimed. This gave a difference of $80,309.36. There was then added $467,775.37 described as “previously claimed & unpaid”. There was no indication what work was the subject of the amount of $467,775.37 or how it was calculated. No payment schedule was served in response to the claim. The claimant sued for a debt under the Building and Construction Industry Payments Act 2004 (Qld) (“the Queensland Act”).

102 White J held that the claim did not comply with section 17 of the Queensland Act (the equivalent of section 13 of the Act). She quoted from the passage from Finkelstein J’s judgment in Protectavale set out at [100] above and said:

A similar observation might be made of this payment claim ... Peet would have had to go to considerable effort to reconstruct the previous 11 claims so as to prepare a responsive payment schedule.

This decision is not authority that a cumulative approach to the calculation of the amount of the progress claim under section 13 cannot be taken where the contract so provides.

103 In Gantley Pty Ltd v Phoenix International Group Pty Ltd, Phoenix served on Gantley a payment claim containing four components. The fourth component was a claim for $388,214 being $4,950,000 said to be the value of work completed to date less $4,561,786. There was no identification of how the sum of $4,950,000 had been calculated. Phoenix was given no understanding why that sum was said to be the value of work completed to date.

104 Vickery J held that the payment claim was invalid for this reason. He said:

In my opinion, the Gantley Payment Claim did not identify the work to which the claim for $388,214 was said to relate for the purposes of s.14(3)(a). This claim did not satisfy the statutory requirement to identify the construction work to which the particular payment claim related. There is no breakdown or explanation of the work apart from a calculation which is referable to the "contract value" and "payments to date" and the other items claimed. It was thus impossible to determine the basis of the claim for $388,214, and any reasonable party in the position of Gantley could not determine the composition of the claim. The claim lacked the necessary content to identify the work to which the progress payment related, indeed, in this respect, it lacked content completely.

To satisfy s.14, it was incumbent upon Phoenix to either identify the particular construction work the subject of the claim (if that was the position) or to state that the claim did not relate to construction work but was simply a contractual entitlement akin to a milestone payment. The omitted information was critical. Without it, Gantley could not value the work (if any) to which the claim related, make its own assessment of the amount payable and provide a payment schedule which, if the matter were to be disputed, would enable the dispute to be properly resolved by an adjudicator. In my view the Gantley payment claim did not meet the requirement in s.14(3)(a).

Vickery J did not hold that the progress claim had to relate to construction work undertaken since the previous progress claim. Rather, he held that the method of valuation of the work needed to be explained and understandable to the recipient of the claim.

105 The four cases cited by Built Environs are not authorities against the construction of section 13(2)(a) which I have adopted at [89]-[94] above. There are authorities against Built Environs’ contention. These authorities proceed on the basis that, where the contract provides for a cumulative approach to calculation of the amount of a progress payment, a payment claim complies with section 13(2)(a) when it is calculated in that manner.

106 In Leighton Contractors Pty Ltd v Campbelltown Catholic Club Limited, the progress claim showed the value of the whole of the work completed to date and subtracted amounts previously certified. The principal contended that the payment claim did not comply with section 13 of the NSW Act because it did not identify what construction work was the subject of the specific progress payment. It relied upon the passage from Austin J’s judgment in Jemzone Pty Ltd v Trytan Pty Ltd set out at [96] above. Einstein J rejected that contention. He accepted the contractor’s submission as follows:

The contractual scheme contemplates a claim for, and an assessment of, inter alia, “the value of WUC done” and a credit for the amount previously certified.

Accordingly, it is necessary to assess the value of the relevant work done and to give an appropriate credit for the purposes of both the Contract and the Act.

Einstein J said that, if and to the extent this approach was different to that of Austin J in Jemzone Pty Ltd v Trytan Pty Ltd, he disagreed with the view expressed as obiter by Austin J.

107 In Isis Projects v Clarence Street, a progress claim listed each item of work, the value of work completed to date, the percentage completed and subtracted amounts previously claimed. The progress claims were prepared in accordance with industry practice. McDougall J held that the progress claim complied with section 13(2)(a) of the NSW Act. He said:

In principle, I think, the requirement in s 13(2)(a) that a payment claim must identify the construction work to which the progress payment relates is capable of being satisfied where:

(1) The payment claim gives an item reference which, in the absence of evidence to the contrary, is to be taken as referring to the contractual or other identification of the work;

(2) That reference is supplemented by a single line item description of the work;

(3) Particulars are given of the amount previously completed and claimed and the amount now said to be complete;

(4) There is a summary that pulls all the details together and states the amount claimed.

(emphasis added)

108 In Clarence Street Pty Ltd v Isis Projects Pty Ltd, the Court of Appeal dismissed Clarence Street’s appeal against McDougall J’s decision. Mason P (Giles JA and Santow JA agreeing) expressly endorsed what McDougall J said in the passage quoted at [107] above.

Conclusion

109 Built Environs fails on its first ground for review.

Ground 2: Scope of jurisdiction of adjudicator

110 Built Environs’ second ground for review is that Mr Allan exceeded his jurisdiction by:

(a) entertaining a claim for unliquidated damages;

(b) assuming the jurisdiction of the Subcontract Superintendent to grant an extension of time to Tali to achieve substantial completion;

Unliquidated damages

111 Built Environs contends that, in its Adjudication Application, Tali claimed unliquidated damages for breaches of the Subcontract by Built Environs which caused Tali not to be able to achieve substantial completion by the due dates.

112 Built Environs contends that, by his Adjudication Determination, Mr Allan effectively determined that Tali was entitled to damages for breach of contract by Built Environs because the Subcontract Superintendent did not grant a discretionary extension of time under clause 34.5 of the Subcontract.

113 Tali denies that it was claiming or that Mr Allan determined that it was entitled to unliquidated damages. It renounces any reliance upon any determination by Mr Allan that it was entitled to unliquidated damages. Tali accepts that it was not entitled to seek damages in its payment claim under section 13 and that Mr Allan had no jursidicton under sections 17 or 22 of the Act to determine an entitlement to damages or take them into account in determining the adjudicated amount under section 22(1)(a) of the Act.

114 Tali’s Adjudication Application’s submissions was vague and confusing as to the bases on which it contended that Built Environs could not offset liquidated damages against the amount to which Tali was otherwise entitled by way of progress payment. Its accompanying submission is capable of being read as asserting an entitlement to damages in breach of contract which in turn offset Built Environs’ liquidated damages claim. However, in his Determination, Mr Allan did not make findings capable of giving rise to an entitlement in Tali to recover damages for breach of contract, nor did he express a conclusion that Tali was entitled to damages equal to or exceeding the liquidated damages claimed by Tali. In these circumstances, Mr Allan did not exceed his jurisdiction.

Grant of extension of time

115 Built Environs contends that, by its Adjudication Application, Tali was claiming an extension of time, notwithstanding that it had not made any application to the Subcontract Superintendent for an extension of time. Built Environs contends that, by his Determination, Mr Allan purported to exercise the jurisdiction of the Subcontract Superintendent to grant a discretionary extension of time.

116 Tali contends that, properly construed, Mr Allan’s Determination did not amount to a purported grant of an extension of time. Rather, Mr Allan’s Determination can be supported on the basis of, and was made in an application of, a principle of the common law that a principal is precluded in certain circumstances from relying on a liquidated damages clause in a contract (the prevention principle referred to at [149]-[153] below). Tali does not contend that Mr Allan had jurisdiction to grant an extension of time. Tali renounces any reliance upon any determination by Mr Allan purporting to grant an extension of time.

117 I address under the heading Ground 3 below the meaning and relevance of the prevention principle and whether Mr Allan relied on the prevention principle in reaching his determination. It is not necessary to consider those questions at this point.

118 Due to its vagueness, Tali’s Adjudication Application might be construed as claiming an extension of time. While it is somewhat ambiguous, I do not construe Mr Allan’s Determination as purporting to assume the jurisdiction of the Subcontract Superintendent to grant an extension of time.

Timing of claim by Tali

119 Built Environs contends that, if Tali wished to invoke the prevention principle in answer to the liquidated damages to which Built Environs was otherwise entitled, it was necessary that Tali make that claim in its original payment claim. It was too late to make it in its Adjudication Application by way of response to Built Environs’ Payment Schedule.

120 Built Environs contends that a claimant is constrained by the ambit of its payment claim under section 13 and cannot introduce a new claim at the adjudication application stage which has not been made in its payment claim. Built Environs does not contend that a claimant cannot, at the adjudication application stage, make new submissions in support of a claim which has already been identified in its payment claim under section 13.

121 Tali contends that, by raising the prevention principle in its Adjudication Application, it was not making any new claim. It was purely responsive to Built Environs’ liquidated damages claim which was contained in its Payment Schedule.

122 The structure of the Act provides for four stages in the joinder of issue on an adjudication. The first stage requires the claimant to identify in its payment claim the amount of the progress payment claimed to be due and to identify the construction work to which it relates. The second stage requires the respondent in its payment schedule to identify the amount which it claims is due and identify the reasons why it is less than the amount claimed. This results in a fundamental joinder of issues. The structure of sections 13, 14, 17 and 20 are such that a claimant cannot at a subsequent stage introduce a new claim outside the scope of its original payment claim. Similarly, section 20(4) precludes the respondent from introducing at a subsequent stage new grounds for withholding payment outside the scope of those set out in its original payment schedule. The third stage involves the claimant making its adjudication application in respect of the payment claim which it made at the first stage. The fourth stage involves the respondent serving its adjudication response.

123 There will be many situations in which a respondent raises a defence in its payment schedule at the second stage, to which the claimant claims that it has an answer. Provided that the answer is raised as a response to the respondent’s second stage defence, as a shield and not a sword, there is nothing in the Act to preclude reliance by the claimant on such an answer. Similarly, there is nothing in the Act to preclude the respondent raising a matter in its adjudication response at the fourth stage by way of rejoinder to such an answer by the claimant in its third stage adjudication application.

124 If and to the extent that Tali raised the prevention principle in its Adjudication Application (which I address under the heading Ground 3 below), it did so purely by way of response to Built Environs’ liquidated damages set-off raised in its Payment Schedule. There is nothing in the Act which precludes Tali raising the prevention principle in that way at that stage.

125 Built Environs points to the fact that, in its responses to Progress Claims 5 and 6, it had relied upon liquidated damages by way of set-off. Built Environs contends that Tali was obliged to anticipate in Progress Claim 9 that liquidated damages would be raised by Built Environs by way of setoff and to identify its reasons why no such set-off was available. I reject this contention. The entitlement of a claimant to rely upon a matter by way of answer to a payment schedule cannot depend on the extent to which the claimant anticipated, or ought to have anticipated, that the point would be taken by the respondent in the payment schedule.

Conclusion

126 Built Environs fails on its second ground for review.

Ground 3: Natural justice

127 Built Environs’ third ground for review is that, insofar as Mr Allan determined that the prevention principle negated Built Environs’ entitlement to liquidated damages, there was a denial of natural justice. In the circumstances, Mr Allan was required to invite further submissions and/or evidence from the parties, and in particular from Built Environs, before reaching a conclusion to that effect.

128 It is common ground that an adjudicator is obliged to afford natural justice to the parties and a failure to do so will result in the adjudication determination being a nullity.

Sequence of claims and determination

129 Tali’s contention needs to be understood against the background of the communications between the parties before and after the payment claim up to claims and submissions of the parties from the payment claim to the Adjudication Response on the topics of substantial completion, extensions of time and liquidated damages.

Pre-payment claim communications

130 On 18 December 2012 and 16 January 2013, the Subcontract Superintendent issued payment schedules in response to Progress Claims 5 and 6. In each payment schedule, liquidated damages totalling $830,000 were set off against the amount to which Tali was otherwise entitled. On the evidence before the Adjudicator, Tali did not take issue with the set-off at that point.

131 By its Notices of Delay dated 29 September, 10 November and 12 December 2012, Built Environs asserted that Tali was in breach of contract and had failed to achieve timely substantial completion. On the evidence before the Adjudicator, Tali did not take issue with those contentions at that point.

132 On the evidence before the Adjudicator, Tali did not seek, or suggest an entitlement to, an extension of time before its Adjudication Application. Nor did Tali articulate any reliance upon the prevention principle before its Adjudication.

Payment schedule

133 In its Payment Schedule, Built Environs offset against Tali’s claim $420,000 liquidated damages for late substantial completion of Separable Portion 1, $500,000 for late substantial completion of Separable Portion 2 and $90,000 liquidated damages under the Main Contract for late substantial completion of Separable Portion 1. While the Payment Schedule did not identify the relevant dates, the Subcontract itself identified the date for substantial completion of Separable Portion 1 as 13 October 2012 and a delay of 42 days implies that it was achieved on 24 November 2012. Similarly, the Subcontract itself identified the date for substantial completion of Separable Portion 2 as 29 November 2012 and a delay of 50 days implies that it was achieved on 18 January 2013.

Adjudication application

134 In its Adjudication Application, Tali replied to the claimed set-off of liquidated damages. Tali made a number of factual assertions, many of which were vague generalisations. For example, it contended that the Subcontract Superintendent had failed to:

1. Provide any extensions of time in consideration of the major changes to the initial Contract Construction Programme ... or as a result of the changes in the sequencing of events as directed by Built Environs. Pty Ltd

2. Provide contractually required information on the Construction Programme(s) ...

3. Provide contractually required information on the co-ordination programme(s).

and:

… many works that impacted on the performance of the WUS were delayed, and continue to be delayed, as a result of matters beyond the control of Tali Engineering Pty. Ltd. and or were re-sequenced to suite [sic] or benefit Built Environs. Pty Ltd. ...

135 Tali then stated as follows:

16. Tali Engineering Pty. Ltd ... have effectively been restrained by Built Environs Pty. Ltd. in achieving Subtantial Completion for each of the separable portions in that items critically required by [Tali] to perform the WUS were not in place preventing [Tali] from completing each separable portion of the Subcontract.

17. A specific, non exhaustive, list of items that prevented [Tali] from completing the WUS are

1. For separable portion 1

i. ...

ii. Precast concrete not in place along Grid G between 3 and 1 not allowing the steel work to be erected

iii. ...

2. For Separable Portion 2

i. Footings and access for the erection of canopies, other than those located on Walkerville Terrace which form separable portion 3, due to footings not having been poured therefore not allowing steelwork to be erected.

ii. ...

iii. ...

iv. ...

v. ...

136 Tali contended that completion of each separable portion was impossible to achieve due to the acts and/or omissions of Built Environs, the withholding of monies constituted punitive damages and unjust enrichment, Built Environs had not mitigated its damages and Built Environs’ conduct was unconscionable.

137 Tali said that a detailed summary of program changes, anomalies and resequencing was available if required by the Adjudicator and that site inspection and records could verify the claims concerning items preventing substantial completion referred to at [135] above.

138 The Adjudication Application is confusing as to the legal doctrines by reason of which Tali contended that Built Environs was not entitled to set-off liquidated damages. Doctrines which may have been invoked, in greater or lesser degrees of clarity, included unconscionable conduct, unjust enrichment, punitive damages, estoppel, and an entitlement to a contractual extension of time. Tali’s submissions were not inconsistent with its invoking the prevention principle, but they did not expressly do so, nor did they identify the issues and its contentions which it would necessarily air if it was invoking the prevention principle.

Adjudication response

139 In its Adjudication Response, Built Environs, inter alia, took issue with the factual assertions contained in the Adjudication Application. Built Environs explicitly accepted that Tali had achieved substantial completion of Separable Portion 1 on 24 November and Separable Portion 2 on 18 January 2013. This was consistent with its Payment Schedule: see [42]-[43] above. It said that it was in the process of issuing substantial completion certificates to that effect.

140 Built Environs asserted that photographs 2a-2d, which Tali had attached to its Adjudication Application as demonstrating the absence of concrete footings as being a requisite to structural steelwork forming part of Separable Portion 2 (as Tali claimed in paragraph 17.2(i) of its Application) related exclusively to Separable Portion 3. Built Environs asserted that all of the matters identified by Tali in its Adjudication Application as hindering progress related to non-critical scope areas not required for substantial completion and that no liquidated damages had been applied for non-completion of those items.

141 Built Environs asserted that Tali had not sought extensions of time under clause 34.3 within the specified time limits or at all and was precluded from making any claim.

142 Built Environs contended that, as a matter of law, Tali was not entitled to make the new claims in its Adjudication Application and that the Adjudicator had no jurisdiction to consider them. Alternatively, Built Environs contended that, if the Adjudicator was minded to consider the additional information, in the interests of providing natural justice, he must call for further submissions in accordance with section 21 of the Act.

Adjudication determination

143 In his Adjudication Determination, Mr Allan acknowledged that the dates for substantial completion of Separable Portions 1 and 2 were 13 October and 29 November 2012 respectively and that Tali had made no claims for extensions of time.

144 Mr Allan reviewed the Construction Program (dated 12 June 2012) and a coordination program (dated 12 September 2012). He noted that the Construction Program required shop drawings commencing on 11 June, fabrication commencing on 30 July and erection commencing on 5 September 2012. These dates were all prior to the date of the Subcontract being 14 September 2012. Mr Allan characterised the dates as “unachievable” and the Construction Program as “an absurdity”.

145 Mr Allan then made a factual finding that structural steel to be erected in the area shown on the plan bounded by grids F to H and 1 to 3 (being the area identified by Tali in paragraph 17.1(ii) of its Adjudication Application quoted at [135] above) (“Area A”) fell within Separable Portion 1. He found that it was part of the critical works required to be completed before substantial completion of Separable Portion 1 could be achieved. He found (based on the photographs provided by Tali) that the precast concrete which was a prerequisite to the erection of that structural steel was not erected until 11 February 2013.

146 Mr Allan made a factual finding that the structural steel in the area shown on the plan bounded by grids B3-B east of grid 12 as depicted in photographs 2a-2d (being the area identified by Tali in paragraph 17.2(i) of its Adjudication Application quoted at [135] above) (“Area B”) fell within Separable Portion 2 rather than Separable Portion 3. He found that it was part of the critical works required to be completed before substantial completion of Separable Portion 2 could be achieved. He found that the footings which were a prerequisite to the erection of that structural steel had not been laid as at 18 February 2013.

147 Mr Allan then returned to the Construction Program. He noted that the original Construction Program provided for back-propping prior to erection of structural steel with the latter to commence on 28 August 2012. However, subsequent programs pushed the back-propping completion date back to 29 September 2012. He concluded that Tali was entitled to an extension of time because this comprised a qualifying cause of delay. He did not quantify the extension of time, but presumably it would comprise 32 days. This was not one of the items which Tali had identified at paragraph 17.1 of its submission quoted at [135] above as having prevented its attaining substantial completion of Separable Portion 1.

148 Mr Allan then reasoned as follows:

39. The claimant is entitled to claim an extension of time for a qualifying cause of delay, including acts of prevention by the respondent.

40. Notwithstanding that the claimant did not make any claims for extension of time, the contract provides a mechanism that allows the Subcontract Superintendent to direct an extension of time under AB34.5. “Notwithstanding that the Subcontractor is not entitled to or has not claimed an EOT, the Subcontract Superintendent may at any time from time to time before issuing the final certificate direct an EOT.”

41. That is, the contract provides for the possibility that the Main Contractor may delay the Subcontractor by acts of prevention and other things, and provides a mechanism by which the Main Contractor can retain its rights to liquidated damages for any future default of the Subcontractor – by the Subcontract Superintendent directing extensions of time for those acts of prevention – despite the Subcontractor making no claim to extensions of time.

42. The Subcontract Superintendent has failed to direct any extensions of time as a result of the respondent preventing the claimant from bringing the works to substantial completion by the date for substantial completion and has therefore failed to keep alive the claimants obligation to complete by a specified date and therefore preserve the respondent’s right to deduct liquidated damages for breach of that obligation.

43. The respondent cannot insist on compliance with the condition that the claimant complete the works by the original date for substantial completion if it is the fault of the respondent that the condition cannot be fulfilled.

44. The Respondent has claimed liquidated damages against the claimant pursuant to AB34.7 for failing to achieve substantial completion by the original date for substantial completion.

45. However, the respondent can only recover liquidated damages from the claimant for delays in achieving substantial completion due to circumstances for which the respondent is not itself liable.

46. I therefore determine that the claimant was prevented from achieving substantial completion of Separable Portions 1 and 2 by the acts and omissions of the respondent, and the respondent is therefore unable to recover liquidated damages from the claimant.

The prevention principle

149 Tali contends that Mr Allan’s determination can be supported by the application of the prevention principle to Built Environs’ liquidated damages claim and that Mr Allan relied on that principle to reach his conclusion that liquidated damages were not recoverable.

150 I make that assumption because otherwise there was no basis, on Tali’s contentions and concessions before me, for Mr Allan to reach the conclusion which he did.

151 To determine whether natural justice was afforded to Built Environs, it is necessary to understand the prevention principle and how Tali contends, before me, that it has application in the present case.

152 The following principles have been laid down by previous authorities.

1. A party generally cannot rely upon non-fulfilment of a condition the performance of which has been prevented by that party’s own breach of contract. This principle applies to preclude an owner recovering liquidated damages for delay in the completion of works by the contractor where that delay has been caused by an act or omission of the owner in breach of the contract (“the prevention principle”). It is not entirely clear what is the juridical basis of the prevention principle. It may be that it is a term generally implied into contracts requiring cooperation between the parties. It may be that it is part of the principle of avoiding circuity of action otherwise due to damages to which the principal would otherwise have been entitled for breach of the contract being recoverable back by the contractor as damages arising from the principal’s own breach of contract. It may be that it is a principle in its own right derived from notions of fairness and justice.

2. Where a building contract contains a provision which gives to the contractor a right to an extension of time for delays caused by the principal’s breach of contract, the prevention principle has no operation.

3. If a contract imposes procedural limitations (such as time limits for seeking an extension of time), the imposition of those procedural limitations does not affect the negation of the prevention principle by the contractual provision entitling the contractor to an extension of time in accordance with Principle Two above.

4. If a contract contains provisions empowering the superintendent to extend the time for practical completion on a discretionary basis and requiring the principal to ensure that the superintendent acts honestly and fairly, the principal will be in breach of contract if the superintendent dishonestly or unfairly fails to extend time in the contractor’s favour notwithstanding that the contractor has no absolute entitlement to an extension of time due to time or other procedural limitations.

153 The parties join issue on whether a breach of contract by the principal of the type referred to in Principle Four in the previous paragraph gives rise only to unliquidated damages (per Built Environs) or to an application of the prevention principle to that breach of contract (per Tali).

Overview

154 The paradigm case of disputes over progress claims involves the valuation of work performed to date, with which the parties are familiar and which do not usually involve complex legal issues. Such disputes are typically inherently static and can be determined on the face of the parties’ application and response. By contrast, the prevention principle raises potentially complex issues of law as well as fact. Such disputes are potentially dynamic and may well call for a conference to allow the parties to put and meet contentions and/or the opportunity for written submissions for the same purpose.

155 Built Environs was not given adequate notice that Tali was relying upon the prevention principle or that Mr Allan might determine the Adjudication Application by applying the prevention principle. As observed above, in its Adjudication Application, Tali may have been invoking various legal doctrines, including unconscionability, unjust enrichment and estoppel. Tali did not explicitly refer to the prevention principle. It did not address the elements of the prevention principle or the issues which would necessarily arise upon its being invoked. To the knowledge of Mr Allan, Tali had not invoked the prevention principle in its communications with Built Environs prior to Progress Claim 9 and it did not do so in that progress claim. In its Adjudication Response, Built Environs did not refer to the prevention principle. It did not address the elements of the prevention principle or the issues which would necessarily arise.

156 I address those issues in detail below. However, at the level of generality, the facts identified in [130]-[138] and [155] above were such that Mr Allan necessarily denied natural justice to Built Environs by upholding Tali’s progress claim on the basis of applying the prevention principle.

Location of works within separable portions

157 In its Adjudication Response, Built Environs took factual issue with the assertion that structural steel to be erected in Area B related to Separable Portion 2 and asserted that it related to Separable Portion 3. The definitions of Separable Portions 1, 2 and 3 in the Subcontract were generic and vague.

158 The Subcontract incorporated via Appendices 2 and 3 various specifications and drawings. These were not provided to Mr Allan. While Tali provided to him a drawing which Tali marked up to show what Tali asserted to comprise the separable portions, the marking up was unilateral on the part of Tali and Built Environs in its Adjudication Response took issue with Tali’s contentions.

159 In these circumstances, to afford natural justice to both parties, it was incumbent on Mr Allan at least to call for further submissions and evidence relevant to whether the works asserted by Tali to form part of Separable Portion 2 in fact formed part of that separable portion and to the conduct of the parties over the life of the Subcontract on the basis that the works formed part of Separable Portion 2 or Separable Portion 3. Alternatively, Mr Allan was required to call a conference of the parties to address this issue.

Completion except for minor defects

160 In paragraph 17 of its submissions accompanying its Adjudication Application, Tali alleged that the items identified (which included precast concrete and footings not being in place in Areas A and B) prevented Tali from completing the WUS (work under subcontract).

161 Tali alleged that these matters prevented substantial completion, but Tali did not identify why completion of the listed items was required to achieve substantial completion.

162 Built Environs contended in its Adjudication Response that the absence of structural steel in the locations identified by Tali (including Areas A and B) related to non-critical scope areas presumably contending they comprised minor defects within the meaning of the definition of substantial completion. Built Environs had acted consistently with this contention by not claiming liquidated damages for Separable Portion 1 after 24 November 2012 or for Separable Portion 2 after 18 January 2013.

163 Mr Allan did not have before him sufficient materials to determine whether the items of work at Areas A and B fell within the definition of substantial completion or not. Before he could make any determination, natural justice required that he afford to both parties the opportunity to provide further submissions and evidence relevant to this issue. Alternatively, he was required to call a conference of the parties to address this issue.

164 Mr Allan did not have before him any communications between the parties prior to the Adjudication Application and Response concerning the items of work at Areas A and B. Issue was not effectively joined between Tali and Built Environs on the face of the Adjudication Application and Response as to whether these works were required in order to achieve substantial completion. If issue had been clearly joined, there was a real prospect that Built Environs or Tali would contend that, regardless of the technical position, the parties had acted on the basis that these works were or were not required to achieve substantial completion and the other party was estopped from contending otherwise.

The Construction Program

165 Mr Allan concluded that the Construction Program was unachievable and an absurdity because it provided for works by Tali prior to execution of the Subcontract.

166 While Tali had made a submission that the Construction Program was “flawed and outdated from outset”, it did not identify why that was so and did not make any suggestion that this was on the ground that it predated the Subcontract by some three months. No communications between the parties relating to that topic were placed before Mr Allan. In those circumstances, Mr Allan was obliged to afford to Built Environs an opportunity to make submissions and adduce evidence before he concluded that the Construction Program was unachievable and an absurdity.

167 Mr Allan assessed the construction programs himself and concluded that a backpropping completion date, which was a prerequisite for Tali to commence steelwork erection for Separable Portion 1, was pushed back by successive programs from 28 August to 29 September 2012. He apparently concluded that this was an operative cause of delay by Tali in achieving substantial completion by at least one month.

168 Tali had not raised back-propping as one of the items which had prevented it from completing the work under the Subcontract in respect of Separable Portion 1. Built Environs had not addressed it. No communications between the parties relating to that topic were placed before Mr Allan. In these circumstances, Mr Allan was obliged to afford to Built Environs an opportunity to make submissions and adduce evidence on this topic before reaching any conclusion.

169 Tali contends that Mr Allan did not rely upon at least the first matter (absurdity) in reaching his ultimate conclusion. On the one hand, Mr Allan does not articulate how either of these two matters impacted on his ultimate conclusion. On the other hand, if they were irrelevant, there was no reason for him to mention them. In addition, he addressed the second matter (back-propping) after he had addressed the question of precast concrete not being in position in Areas A and B before January and February 2013 respectively and, immediately after addressing the back-propping matter, he proceeded to reach his conclusions. In these circumstances, it is not apparent that these matters were irrelevant to Mr Allan’s chain of reasoning.

Obligations of Subcontract Superintendent in respect of discretionary extension of time

170 In its Adjudication Application, Tali did not refer to the source or content of any obligation by the Subcontract Superintendent to consider or grant a discretionary extension of time. In its Adjudication Response, Built Environs merely referred to clause 34.3 of the Subcontract which required Tali to claim an extension of time within the requisite periods and observed that Tali had not done so. Built Environs did not address the question of a discretionary grant of extension of time. This is not surprising given the content of Tali’s Adjudication Application.

171 In his Determination, Mr Allan referred to clause 34.5 of AS4901 which empowered the Subcontract Superintendent to direct an extension of time notwithstanding that Tali was not entitled to and had not claimed one. He concluded that the Subcontract Superintendent had failed to direct an extension of time. In the circumstances, there had been no call or reason for Built Environs to refer to the provisions of clauses 34.5 and 34.5A of Part B of the Subcontract which substantially modified the provisions of clause 34.5 of AS4901.

172 Given that the parties had not addressed the topic of the discretionary grant of an extension of time, in order to afford natural justice, it was incumbent on Mr Allan to call for submissions or evidence from the parties or call a conference for that purpose before deciding that the Subcontract Superintendent breached clause 34.5 in failing to direct an extension of time.

173 Clauses 34.4, 34.5 and 34.5A(a) of the Subcontract provided as follows:

34.4 Assessment

Where more than one event causes concurrent delays and the cause of at least one of those events, but not all of them, is not a qualifying cause of delay, then to the extent that the delays are concurrent, the Subcontractor shall not be entitled to an EOT for substantial completion.

34.5 Extension of time

Within 35 days after receiving the Subcontractor’s claim for an EOT, the Subcontract Superintendent shall give to the Subcontractor and the Main Contractor a written direction evidencing the EOT so assessed. A delay by the Main Contractor, or the failure of the Subcontract Superintendent to assess an EOT within 35 days, shall not extend the date for substantial completion or set time at large, but nothing in this paragraph will prejudice any right of the Subcontractor to damages.

Notwithstanding that the Subcontractor is not entitled to or has not claimed an EOT, the Subcontract Superintendent may at any time and from time to time before issuing the final certificate direct an EOT.

Notwithstanding any other provisions of this clause 34, the Subcontractor shall not be entitled to any EOT unless it shall have taken proper and reasonable steps to:

(a) Preclude the occurrence of any delay; and/or

(b) Avoid or minimize the consequences thereof. ...

34.5A Independent discretion to extend time

(a) If there is a delay to any WUS for which the Subcontractor is not entitled to an EOT, the Subcontract Superintendent may grant an EOT but has not obligation to grant, or to consider whether it should grant, an EOT.

174 On the premise that Mr Allan determined that the prevention principle operated in this case, an issue necessarily arose whether the Subcontract Superintendent could have acted unreasonably or in bad faith within the meaning of clause 20 of the Subcontract given the provisions of clauses 34.5 and 34.5A of the Subcontract. That issue in itself gave rise to several sub-issues, including:

1. whether clause 34.5A, providing that the Subcontract Superintendent had no obligation to consider whether to grant an extension of time to which Tali was not entitled under clause 34.3, meant that the Subcontract Superintendent could not be acting unreasonably or in bad faith within the meaning of clause 20 by failing to grant such an extension of time. In Hervey Bay (JV) Pty Ltd v Civil Mining and Construction Pty Ltd, White J held that a clause which had a similar effect to clause 34.5A(a) could not give rise to any obligation of the Superintendent to extend time if it would be fair to do so;

2. whether the second sentence of the first paragraph of clause 34.5, negating time being set at large, negated the operation of the prevention principle and provided that, at most, Tali could only have an entitlement to claim unliquidated damages;

3. whether Tali had taken proper and reasonable steps to preclude the occurrence or avoid or minimise the consequences of any delay within the meaning of the third paragraph of clause 34.5 and, if not, whether by reason thereof the Subcontract Superintendent could not have been in breach of clause 20;

4. Whether the fact that Built Environs conceded substantial completion in November 2012 and January 2013 respectively of Separable Portions 1 and 2 rendered irrelevant the inability of Tali to erect structural steel in Areas A and B until February 2013;

5. whether the imminent issue by the Subcontract Superintendent of certificates of practical completion in respect of Separable Portions 1 and 2 showing substantial completion dates in November 2012 and January 2013 respectively (as foreshadowed by Built Environs in its Adjudication Response) rendered irrelevant the inability of Tali to erect structural steel in Areas A and B until February 2013;

6. whether Tali caused delay in breach of contract which was a concurrent cause of any delay caused by the absence of precast concrete or footings in Areas A and B and, if so, whether clause 34.4 rendered irrelevant the inability of Tali to erect structural steel in the two locations until February 2013;

7. whether the criticality of the activities affected by Built Environs’ alleged breaches was apparent from an assessment of the critical path of the Construction Program within the meaning of clause 34.3;

8. whether the conduct of the parties between September 2012 and February 2013 gave rise to waiver or estoppel on the question of causation of delays in favour of either party.

175 It should have been apparent to Mr Allan that the parties had not addressed these issues, that Built Environs would have raised some or all of these issues in its Adjudication Response if it had been aware that Tali was relying on the prevention principle and of Tali’s manner of reliance, and that Built Environs did not in fact have proper or adequate notice that Tali was relying on the prevention principle.

Breach of contract by Built Environs

176 It was an essential step in any determination by Mr Allan that the prevention principle applied to conclude that the Subcontract Superintendent unreasonably or in bad faith refused or failed to grant to Tali a discretionary extension of time and that Built Environs was thereby in breach of clause 20 of the Subcontract.

177 In its Adjudication Application, Tali asserted that Built Environs was in breach of the Subcontract because the Subcontract Superintendent failed to provide extensions of time in consideration of major changes to the initial Construction Program and/or as a result of changes in the sequencing of events directed by Built Environs. However, Tali did not assert that either party had invited the Subcontract Superintendent to grant any extension of time, nor did it assert that the Subcontract Superintendent acted in bad faith or unreasonably in not granting an extension of time or any facts upon which such an assertion might have been based. Tali did not contend that an extension of time should have been granted specifically due to the absence of precast concrete or footings in Areas A or B as opposed to “major changes to the [Construction Program]” or “changes in the sequencing of events as directed by Built Environs”.

178 In its Adjudication Response, Built Environs did not address any question whether the Subcontract Superintendent had acted in bad faith or unreasonably in not granting an extension of time by reference to the absence of precast concrete or footings in Areas A or B or more generally.

179 No issue was joined between the parties either before the Adjudication Application or on the submissions before Mr Allan on the question whether the Subcontract Superintendent acted unreasonably or in bad faith in refusing or failing to grant to Tali an discretionary extension of time.

180 This was reflected in the fact that, in his Determination, while Mr Allan concluded that the Subcontract Superintendent failed to direct an extension of time, he did not conclude that in so doing the Subcontract Superintendent acted in bad faith or unreasonably, nor did he conclude that the Subcontract Superintendent’s conduct rendered Built Environs in breach of clause 20 of the Subcontract.

181 In the circumstances, to afford natural justice, Mr Allan was obliged to call for submissions from the parties on these issues or alternatively to call a conference of the parties to address these issues.

Consequence of breach in respect of extension of time

182 Because the parties in the Adjudication Application and the Adjudication Response did not address any question of breach of contract by Built Environs by reason of the Subcontract Superintendent in bad faith or unreasonably failing to grant a discretionary extension of time, they did not address the legal issue whether this would have merely given rise to a claim for unliquidated damages by Tali or would have invoked the application of the prevention principle.

183 Before determining that the prevention principle was invoked in these circumstances, in order to afford natural justice it was incumbent on Mr Allan to call for submissions from the parties on that question.

Conclusion

184 There was a denial of natural justice by Mr Allan which renders the Adjudication Determination void.

Ground 4: Apprehended bias

185 Built Environs’ fourth ground for review is that the Adjudication was void because:

1. there was a reasonable apprehension of bias by Nominator impacting its nomination of Mr Allan as adjudicator; and/or

2. there was a reasonable apprehension of bias by Mr Allan in undertaking the adjudication.

186 It is common ground that a breach of natural justice might potentially amount to reasonable apprehension of bias by the adjudicator and, if so, an adjudication is rendered void.

187 The test for apprehended bias is whether:

a fair-minded lay observer might reasonably apprehend that the [decision-maker] might not bring an impartial mind to the resolution of the question the [decision-maker] is required to decide.

Impartiality of nominating authority

188 The Act does not provide for the claimant to select the adjudicator. This is for the obvious reason that it is important that the adjudicator be and be seen to be independent of the parties.

189 It is a general principle of fairness that a party cannot unilaterally select the decision-maker. When parties agree to independent determination of a dispute, the person selected to determine the dispute usually has to be agreed by both parties or a person independent of both parties agreed by the parties. This applies typically to the selection of an arbitrator or expert, who is to be agreed by the parties or selected by the president of a relevant professional association. Where there is to be a judicial determination of an dispute, usually one party cannot unilaterally select a particular judicial officer to hear and determine the matter.

190 Under sections 17(6) and 19(1) of the Act, the authorised nominating authority selected by the claimant performs the pivotal role of selecting the adjudicator to adjudicate the payment claim. Under section 29, an entity can only be an authorised nominating authority by being authorised as such by the Minister. It is the evident purpose of the Act that the nominating authority must be independent of the parties to ensure both the reality and the appearance of fairness in selection of the adjudicator.

191 In these circumstances, there is a breach of natural justice where there is a reasonable apprehension of bias by the authorised nominating authority selected by the claimant.

Apprehended bias of Nominator

192 Mr Sain is the (normal) manager of Nominator. Mr Sain is also the chief executive officer of ESA and had, since early February 2013, been advising Tali concerning its disputes with Built Environs which became the subject of the Adjudication Application.

193 Nominator’s duty under the Act was to act impartially in selecting an adjudicator to adjudicate the dispute between Tali and Built Environs. Nominator’s manager, Mr Sain, had an interest, as advisor to Tali, in Nominator selecting from the available pool of adjudicators an adjudicator who might tend to be more favourable towards Tali than Built Environs.

194 These circumstances collectively are sufficient (leaving aside, which I address separately below Mr Sain’s stepping aside) to give rise to a reasonable apprehension of bias on the part of Nominator in the selection of the adjudicator to adjudicate the dispute between Tali and Built Environs.

Roles of Mr Sain and Mr Rugari

195 On 12 February 2013, Mr Sain sent an email to Mr Rugari asking him to act on behalf of Nominator in relation to any appointment of Nominator as authorised nominating authority in connection with the dispute between Tali and Built Environs.

196 Mr Rugari gave evidence that he was the one who chose Mr Allan as the adjudicator and he had telephone and written communications with Mr Allan between 22 and 26 February 2013 leading up to Mr Allan’s acceptance of appointment as adjudicator.

197 Mr Sain’s stepping aside and nominating Mr Rugari might be argued to be analogous to the creation of a “Chinese Wall” within a firm of solicitors. However, there are important differences. First and foremost, the role of a nominating authority is that of a decision-maker (ie to select the adjudicator) whereas the role of a firm of solicitors is to represent and advance the interests of their client(s). The issue which arises in relation to solicitors acting where there is an opposition of interest between their (present or former) clients involves conflict of interest principles; whereas the issue which arises in relation to a nominating authority acting involves apprehended bias principles. Those principles raise different considerations.

198 Secondly, in a situation in which solicitors create a “Chinese wall”, the solicitors have a pre-existing relationship with one or both of the parties and owe a duty to act in the interests of each party. By contrast, a nominating authority owes a duty not to act in the interests of either party.

199 Thirdly, solicitors owe enforceable professional duties to the Court and duties which can be enforced by disciplinary proceedings brought under the Legal Practitioners Act 1981 (SA). Nominating authorities do not owe similar duties and are not subject to disciplinary proceedings.

200 The analogy of the creation of a “Chinese Wall” within a firm of solicitors is not apposite to the position of a nominating authority under the Act. The question of apprehended bias is to be resolved having regard to the reasonable apprehension of a fair minded lay observer.

201 Given the utmost importance that the ultimate decision-maker, here the adjudicator, be and be seen to be independent of the parties, it is equally important that the nominating authority itself be and be seen to be independent of the parties. The objective bystander cannot know what internal communications might take place within the nominating authority between personnel aligned with one party and other personnel selecting the adjudicator. The existence of a Chinese wall would not preclude a reasonable apprehension of bias arising due to some personnel within the nominating authority having an alignment with one of the parties.

202 Tali contends that no reasonable apprehension of bias would arise in relation to a nominating authority because it performs a single, one off function of selecting the adjudicator. It is the adjudicator who determines the dispute between the parties. While Tali accepts that there can be a reasonable apprehension of bias in relation to the adjudicator, this does not apply to the nominating authority. I reject that contention. For the reasons given above, a fair-minded lay observer would regard the identity of the person selecting the decision-maker to be as important as the identity of the decision-maker himself or herself.

203 There was a reasonable apprehension of bias on the part of Nominator in selecting the adjudicator which renders the Adjudication Determination void.

Alleged antagonism towards Built Environs

204 Built Environs also adduced evidence that Mr Sain in October 2011 made submissions to the Parliamentary Select Committee on Lonsdale–Based Adelaide Desalination Plant in which he was very critical of Built Environs’ conduct in relation to that project. Given my conclusion that there was a reasonable apprehension of bias on the part of Nominator due to Mr Sain advising Tali in relation to the dispute with Built Environs, it is not necessary to decide whether Mr Sain’s submissions would in themselves have given rise to a reasonable apprehension of bias on the part of Nominator.

Apprehended bias of Mr Allan

205 Built Environs contends that, leaving aside any apprehended bias of Nominator in selecting Mr Allan, there was a reasonable apprehension of bias on the part of Mr Allan. Built Environs relies on the fact that Mr Allan was a former employee of Built Environs between 1991 and 2005.

206 Built Environs became aware on 26 February 2013 that Mr Allan had been selected as the adjudicator. Despite the fact that it must have been aware that Mr Allan was a former employee, it raised no objection to Mr Allan’s appointment and sent its Adjudication Response to him on 1 March 2013. Built Environs did not adduce any evidence suggesting a perception that Mr Allan held any animosity towards his former employer.

207 Built Environs has not established that there was a reasonable apprehension of bias on the part of Mr Allan (divorced from the critical fact that he was selected by Nominator).

Ground 5: Errors of law

208 Built Environs’ fifth ground for review is that Mr Allan made several interrelated errors of law in his Adjudication Determination.

209 It is common ground that an adjudication determination under section 22 of the Act is amenable to judicial review by way of certiorari if the adjudicator makes an error of law which is arbitrary, capricious or irrational. While Built Environs does not concede that certiorari does not lie in the absence of the error being arbitrary, capricious or irrational, it does not put substantive submissions or cite any authorities supporting a lower threshold test.

210 Built Environs also contends that, on the assumption that Mr Allan applied the prevention principle, he made three errors of law in so doing, namely:

1. disregarding the contractual obligation of Tali to comply with the Construction Program because he characterised it as an absurdity due to its requiring steps to be taken by Tali before execution of the Subcontract on 14 September 2012;

2. erroneously having regard to the provisions of clause 34.5 as contained in AS4901 when they had been modified by clause 34.5A contained in Part B of the Subcontract;

3. ignoring the fact that the prevention principle is displaced, as a matter of law, by the existence of a contractual entitlement to an extension of time.

211 Built Environs contends that Mr Allan erred in failing to factor Built Environs’ entitlement to liquidated damages into his assessment, but this is a general complaint relying upon the three specific errors identified in the previous paragraph.

212 It is not necessary to decide whether Mr Allan made the three errors of law alleged by Built Environs or, if so, whether they were arbitrary, capricious or irrational or otherwise are amenable to judicial review by way of certiorari. These issues may arise in the determination by arbitration or litigation of the ultimate rights of the parties under clause 42 of the Subcontract. In those circumstances, it is undesirable that I express any view on the contentions of the parties before me on this issue.

Ground 6: Bona fide attempt to exercise power

213 Built Environs’ sixth ground for review is that Mr Allan’s adjudication did not represent a bona fide attempt to understand and deal with the issues in dispute and accordingly is void.

214 Built Environs relies upon this ground strictly as an alternative to the other grounds for review already addressed. It does not advance any contentions under this sixth ground which are independent of the contentions advanced in respect of other grounds.

215 In those circumstances, and given the conclusions I have reached on the third and fourth grounds, it is not necessary to further consider this sixth ground.

Discretion

216 Tali does not contend that, if Built Environs succeeds on one of its grounds for review, I should not exercise my discretion to grant declaratory and prerogative relief. In any event, I exercise my discretion to grant the relief sought by Built Environs.

Conclusion

217 Built Environs fails on its first and second grounds of review. It succeeds on its third and fourth grounds. It is unnecessary to decide its fifth and sixth grounds.

218 Mr Allan’s determination dated 14 February 2013 is void. Built Environs is entitled to a declaration to that effect. Built Environs is entitled to an order in the nature of certiorari setting aside the determination. I will hear the parties as to the terms of the orders to be made.

Built Environments

Annexure

1. Interpretation and Construction of Subcontract

No Claim means no claim for any monies for or any adjustment to the subcontract sum or for any EOT for Practical Completion or for costs, expense, or loss or damage on any basis whatsoever including, no claim:

(a) pursuant to subcontract;

(b) in tort (including negligence);

(d) pursuant to quasi contract;

(e) for unjust enrichment; or

(f) (without limitation) pursuant to any other principle of law or equity;

…

qualifying cause of delay

(a) any act, default or omission of the Subcontract Superintendent, the Main Contractor or its consultants, agents or other contractors (not being employed by the Subcontractor) not being an act or omission:

(i) expressly permitted or allowed by the Subcontract;

(ii) which is within a timeframe expressly permitted, or allowed by the Subcontractor; or

(iii) to the extent the act or omission is caused or contributed to by a breach of the Subcontract by the Subcontractor or any negligent, or [sic]

(iv) [sic] unlawful, act or omission of the Subcontract or;

(b) state-wide industrial dispute, being a dispute in the building industry which is not restricted to the site or the subcontract works and involved, as parties to the dispute, other subcontractors other than the Subcontractor or any of its secondary subcontractors;

(d) variations directed under clause 36;

(e) inclement weather; and

(f) changes to legislative requirements affecting the WUS.

…

substantial completion is that stage in the carrying out and completion of WUS when:

(a) the Subcontract Works are complete except for minor defects:

(i) which do not prevent the Subcontract Works from being reasonably capable of being used for their stated purpose;

(ii) which the Subcontract Superintendent determines the Subcontractor has reasonable grounds for not promptly rectifying; and

(iii) the rectification of which will not prejudice the convenient use of the Subcontract Works;

(b) those tests which are required by the Subcontractor to be carried out and passed before the Subcontract Works reach substantial completion have been carried out and passed; and

(c) documents and other information required under the Subcontract which, in the Subcontract Superintendent’s opinion, are essential for the use, operation and maintenance of the Subcontract Works have been supplied.

WUS means the work which the Subcontractor is or may be required to carry out and complete under the Subcontract and includes variations, remedial work, construction plant and temporary works,

20 Subcontract Superintendent

The Main Contractor shall ensure that at all times there is a Subcontract Superintendent, and that the Subcontract Superintendent fulfils all aspects of the role and functions reasonably and in good faith.

…

34 Time and progress

34.1 Progress

The Subcontractor shall commence and execute the WUS in a manner and at a rate of progress satisfactory to the Main Contractor, and otherwise in accordance with the requirements of the latest version of the co-ordination program, so as to ensure that the WUS reaches substantial completion by the date for substantial completion, that any milestone dates shown in the construction program (as amended by the latest version of the coordination program) are met and that the Main Contractor is not hindered or prevented by any act or omission of the Subcontractor from achieving practical completion by the date for practical completion.

…

34.2 Notice of delay

A party becoming aware of anything which will probably cause delay to WUS shall promptly give the Subcontract Superintendent and the other party written notice of that cause and the estimated delay. For the purposes of this clause, the issuing of any co-ordination programs or revised construction programs by the Subcontract Superintendent that my [sic] cause delay to the WUS shall be a deemed notice.

34.3 Claim

(a) Subject to clauses 34.3(d) and 36.1A(b), the Subcontractor shall only be entitled to such extension of time for carrying out WUS (including reaching substantial completion) as the Subcontract Superintendent assesses (“EOT”), if:

(i) the Subcontractor is or will be delayed in reaching substantial completion of Separable Portion 1 … by a qualifying cause of delay; or

(ii) for substantial completion of any Separable Portion other than Separable Portion 1 … if the Subcontractor is or will be delayed:

(A.) Subject to clause 34.3(d), by a cause described in paragraphs (b), (c), (d), (e) or (f) of the definition of qualifying cause of delay but only if such cause occurs before the date of substantial completion of Separable Portion 1;

(B.) by a cause described in paragraph (a) of the definition of qualifying cause of delay regardless of whether such cause occurs before or after the date of practical [sic]completion of Separable Portion 1;

(iii) the Subcontractor gives the Subcontract Superintendent, no later than 3 days after the Subcontractor first became aware or the Subcontractor should reasonably have become aware of that causation occurring, a written claim for an EOT for substantial completion, setting out:

(A.) a detailed statement of the facts on which the claim is based;

(B.) a precise identification of the activities affected and critical to the Subcontractor’s activities on the construction program; and

(C.) the date on which the cause of delay first arose;

(iv) the Subcontractor satisfies the Subcontract Superintendent that:

(A.) the matters referred to in clause 34.3(iii)(B) are apparent from an assessment of the critical path of the current revision of the construction program when the delay first arose;

(B.) [sic] has consistently taken all reasonable steps to minimise the delay and to reprogram and expedite the sequence of activities;

(C.) the Subcontractor has taken proper and reasonable steps both to preclude the occurrence of the cause of delay and/or to minimise the consequences of the cause of delay; and

(D.) the cause of the delay is not in anyway connected with an act or omission of the Subcontract [sic]; and

(b) If the Subcontractor fails to give a notice strictly in accordance with clause 34.3(a)(ii), then the Subcontractor shall have No Claim arising out of or connected with or in any way brought about by that delay.

(c) If further delay results from a qualifying cause of delay evidenced in a claim under clause 34.3(a)(ii), the Subcontractor shall claim an EOT for such delay by promptly giving the Subcontract Superintendent a written claim evidencing the facts of that delay.

34.4 Assessment

34.5 Extension of time

Notwithstanding any other provisions of this clause 34, the Subcontractor shall not be entitled to any EOT unless it shall have taken proper and reasonable steps to:

(a) Preclude the occurrence of any delay; and/or

(b) Avoid or minimize the consequences thereof.

Where an EOT claimed by the subcontractor is for the same delay that is the cause of an EOT claim that is made by the Main Contractor under the main contract, then the Subcontractor shall not be entitled to an EOT that exceeds the EOT that is determined by the Superintendent for the main contract delay.

34.5A Independent discretion to extend time

(a) If there is a delay to any WUS for which the Subcontractor is not entitled to an EOT, the Subcontract Superintendent may grant an EOT but has no obligation to grant, or to consider whether it should grant, an EOT.

(b) If the Subcontract Superintendent grants an EOT under clause 34.5A(a):

(i) it shall give the Subcontractor written notice, which expressly refers to clause 34.5(a); and

(ii) the Subcontractor is not entitled to any compensation for the delay.

34.6 Substantial completion

The Subcontractor shall give the Subcontract Superintendent at least 14 days written notice of the date upon which the Subcontractor anticipates that substantial completion will be reached.

When the Subcontractor is of the opinion that substantial completion has been reached the Subcontractor shall in writing request the Subcontract Superintendent to issue a certificate of substantial completion. Within 14 days after receiving the request, the Subcontract Superintendent shall give the Subcontractor and the Main Contractor either a certificate of substantial completion evidencing the date of substantial completion or written reasons for not doing so.

If the Subcontract Superintendent is of the opinion that substantial completion has been reached, the Subcontract Superintendent may issue a certificate of substantial completion even though no request has been made. The Subcontract Superintendent may in its absolute sole discretion issue a certificate of substantial completion notwithstanding the failure by the Subcontractor to comply with all of the requirements for substantial completion. The issue by the Subcontract Superintendent of such a Certificate of Substantial Completion in such circumstances shall not release the Subcontractor from his obligations to comply with all of the requirements contained within the definition of Substantial Completion.

34.6A Practical Completion

Upon issue of the certificate of practical completion, by the Superintendent under the main contract, to the Main Contractor, the Main Contractor shall provide to the Subcontractor a copy of the certificate of practical completion.

34.7 Liquidated Damages

(a) If the Subcontractor fails to achieve substantial completion by the date for substantial completion, the Subcontract Superintendent shall certify, as due and payable to the Main Contractor, liquidated damages in Item 27 for every day after the date for substantial completion, or termination of the Subcontract or the Main Contractor taking WUS out of the hands of the Subcontractor, and the Main Contractor may recover all liquidated damages payable as a debt.

…

(c) If an EOT is directed after the Subcontractor has paid or the Main Contractor has set off liquidated damages, the Main Contractor shall repay to the Subcontractor such of those liquidated damages as represent the days the subject of the EOT.

(d) Should the date for substantial completion pass without the subcontract works achieving substantial completion, the Subcontract Superintendent when issuing any progress certificate may issue with it a provisional assessment in writing of the amount then provisionally due by way of liquidated damages and the Main Contractor may deduct such amount from the amount certified and the amount so deducted shall be taken in partial satisfaction of any indebtedness of the Subcontractor to the Main Contractor for the amount subsequently certified pursuant to this clause 34.7.

…

34.7A Indemnity

If the main contract works do not reach practical completion by their date for practical completion, for which the proximate cause is delay by the Subcontractor in completing WUS, the Subcontractor shall indemnify the Main Contractor against:

a) liquidated damages under the main contract stated in Item 27(b) certified by the Superintendent; and

b) damages, other than liquidated damages, which have become due and payable by the Main Contactor to the Principal.

If the Subcontractor’s delay is not the sole cause of the Main Contractor’s liability for damages, the Subcontractor shall indemnify the Main Contractor only in proportion to the Subcontractor’s delay, which shall be certified by the Subcontract Superintendent, as moneys due to the Main Contractor by the Subcontractor.

If an EOT is directed after the Subcontractor has paid or the Main Contractor has set off liquidated damages, the Main Contractor shall forthwith repay to the Subcontractor such of those liquidated damages as represent the days the subject of the EOT.

The Subcontractor’s indebtedness under this subclause is not included in the liquidated damages applicable to subclause 34.7.

Should the date for substantial completion pass without the subcontract works achieving substantial completion, the Subcontract Superintendent when issuing any progress certificate may issue with it a provisional assessment in writing of the amount the Subcontract Superintendent reasonably considers is equivalent to the Main Contractor’s potential liquidated damages exposure under the main contract due to the WUS not reaching substantial completion by the date for substantial completion (“Liquidated Damages Amount”). The Main Contractor may deduct such amount from the amount certified and the amount so deducted shall be taken in partial satisfaction of any indebtedness of the Subcontractor to the Main Contractor for the amount subsequently certified pursuant to this clause 34.7A.

If the Superintendent certifies liquidated damages as due and payable by the Main Contractor to the Principal under the main contract for which the proximate cause is failure by the Subcontractor to achieve substantial completion by the date for substantial completion the Liquidated Damages Amount may be applied by the Main Contractor against its indebtedness to the Principal. If the Superintendent does not so certify, the Liquidated Damages Amount will be released to the Subcontractor within 30 days of the issue of the certificate of practical completion.

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34.11 No Entitlement

If there is a delay to the WUS for which the Subcontractor is not entitled to an EOT, the Subcontractor:

(a) shall achieve substantial completion by the date for substantial completion;

(b) does not have any remedy against the Main Contractor for the delay, including any entitlement to damage [sic] for breach of the Subcontract; and

(c) is not relieved of any liability to the Main Contractor for any failure to achieve substantial completion by the date for substantial completion by reason of the delay, including any liability to pay liquidated damages.

37 Payment

37.1 Progress claims

The Subcontractor shall claim payment progressively in accordance with Item 31.

An early progress claim shall be deemed to have been made on the date for making that claim.

The Subcontractor’s entitlement to a progress payment shall be calculated having regard to:

(a) the value of work executed being a value based on completed work assessed against the subcontract sum, including any adjustments made pursuant to the Subcontract;

(b) the amount of any adjustment to the subcontract sum (whether upwards or downwards) calculated strictly in accordance with and subject to the terms of the Subcontract;

(c) any deduction by way of set-off or otherwise having regard to any monies due or claimed to be due from the Subcontractor to the Main Contractor.

All payment claims or progress claims delivered by the Subcontractor shall be typewritten and include:

(d) the Subcontractor’s valuation of work executed being a value based on work complete assessed against the subcontract sum;

(e) the amount and particulars of any adjustments to the subcontract sum in accordance with and subject to the terms of the Subcontract;

(f) any deduction by way of set-off or otherwise having regard to the Subcontractor’s knowledge of any monies due or claimed to be due from the Subcontractor to the Main Contractor;

(g) the total amount previously certified pursuant to this clause;

(h) the total amount previously paid or in terms of the Subcontract deemed to have been paid to the Subcontractor;

(i) the amount then claimed by the Subcontractor;

(j) completed copies of the Progress Claim Criteria Checklist as set out in Appendix 8;

(k) a statutory declaration in the form set out in Appendix 10;

(l) any other statements required under applicable state or territory law as set out in Appendix 14 clause 2; and

(m) any other documentation required by the Subcontract or the Subcontract Superintendent.

For the avoidance of doubt the amount of any progress payment to which the Subcontractor is entitled shall not be calculated simply on the basis of the value of construction work carried out or undertaken to be carried out by the Subcontractor. The amount of the progress payment entitlement shall be calculated strictly in accordance with the Subcontract and shall include deductions for claims by the Main Contractor.

All progress claims shall be submitted to the Subcontract Superintendent in the format shown in Appendix 7 or any similar format approved by the Main Contractor. Any progress claim received that is not in the approved format or is not accompanied with the necessary forms shall not be considered for payment.

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37.2 Certificates

The Subcontract Superintendent shall, after receiving such a progress claim, issue to the Subcontractor by the 18th day of the month following the month to which the progress claim applies, a progress certificate in the form of a Recipient Created Tax Invoice (“RCTI”) covering the same month as the month to which the progress claim applies evidencing the approved payment. The RCTI shall identify the progress payment due and any retention monies or other monies withheld pursuant to the Subcontract.

The Subcontractor must not issue Tax Invoices to the Main Contractor in respect of progress claims.

If the Subcontractor does not make a progress claim in accordance with Item 31, the Subcontract Superintendent may at its absolute sole discretion and without any obligation to do so, issue an RCTI for a progress payment, as calculated by the Subcontract Superintendent.

The Main Contractor shall pay the Subcontractor the progress payment amount identified in the RCTI by the 5th day of the month following the month in which the RCTI is issued by the Subcontract Superintendent. For clarity, an RCTI issued by 18th August, in respect of a progress claim made in July for work performed in July, is due to be paid by 5th September.

Neither a progress certificate nor a payment of moneys shall be evidence that the subject WUS has been carried out satisfactorily. Payment other than final payment shall be payment on account only.