[2014] WASC 39

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA IN CHAMBERS

CITATION : ZURICH BAY HOLDINGS PTY LTD -v- BROOKFIELD MULTIPLEX ENGINEERING AND INFRASTRUCTURE PTY LTD [2014] WASC 39

CORAM : LE MIERE J

HEARD : 14 MAY 2013

DELIVERED : 12 FEBRUARY 2014

FILE NO/S : CIV 1091 of 2013

MATTER : An Adjudication Determination pursuant to the Construction Contracts Act 2004 (WA)

BETWEEN : ZURICH BAY HOLDINGS PTY LTD Plaintiff

AND

BROOKFIELD MULTIPLEX ENGINEERING AND

INFRASTRUCTURE PTY LTD

Defendant

FILE NO/S : CIV 1041 of 2013

MATTER : An application for a Writ of Certiorari against Graham Ivan Anstee-Brook, an adjudicator appointed under the Construction Contracts Act 2004 (WA)

EX PARTE

BROOKFIELD MULTIPLEX ENGINEERING &

INFRASTRUCTURE PTY LTD

Plaintiff

Catchwords:

Administrative law - Construction Contracts Act 2004 (WA) - Application for adjudication - Writ of certiorari - Jurisdictional error

Administrative law - Application for leave to enforce adjudicator's determination as a judgment

Legislation:

Building and Construction Industry Security of Payment Act 1999 (NSW), s 22(2)

Construction Contracts Act 2004 (WA), s 3, s 4(2), s 4(3), s 26, s 31(2)(b), s 32(1), s 36, s 43

Result:

Application for writ of certiorari dismissed

Application for leave to enforce the determination granted

Category: B

Representation:

CIV 1091 of 2013

Counsel:

Plaintiff : Ms P E Cahill

Defendant : Mr D H Solomon & Mr D Marsh

Solicitors:

Plaintiff : Jackson McDonald

Defendant : Solomon Brothers

CIV 1041 of 2013

Counsel:

Plaintiff : Mr D H Solomon & Mr D J Marsh

Solicitors:

Plaintiff : Solomon Brothers

Case(s) referred to in judgment(s):

Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd [2010] NSWCA 190

Clyde Bergemann Senior Thermal Pty Ltd v Varley Power Services Pty Ltd [2011] NSWSC 1039

Minister for Immigration and Ethnic Affairs v Wu Shan Liang (1996) 185 CLR 259

Perrinepod Pty Ltd v Georgiou Building Pty Ltd [2011] WASCA 217

Re Graham Anstee-Brook; Ex Parte Karara Mining Ltd [2012] WASC 129

Thiess Pty Ltd v MCC Mining (Western Australia) Pty Ltd [2011] WASC 80

LE MIERE J

1 LE MIERE J : The Roy Hill Iron Project involves the development of a mine, rail and port facility in the Pilbara. The project includes an accommodation village to accommodate all construction and operations personnel throughout the life of the project. Brookfield Multiplex Engineering & Infrastructure Pty Ltd (Brookfield) is the contractor for the design, supply and installation of the accommodation village. Brookfield entered into a contract (the Contract) with Zurich Bay Holdings Pty Ltd (Zurich) for Zurich to carry out the earthworks, drainage and roadwork requirements for the accommodation village, including a reverse osmosis water treatment plant.

2 Zurich submitted a progress claim. In response Brookfield issued a Payment Schedule which assessed Zurich's claims at nil. A schedule attached to the Payment Schedule showed that Brookfield had assessed Zurich's claim at $305,050 but had exercised its rights under cl 42.8 of the Contract to set-off or deduct amounts due from Zurich to Brookfield. The amount which Brookfield claims to be entitled to set-off arose from a dispute between Brookfield and Zurich about the supply of construction water which resulted in Brookfield taking the work out of the hands of Zurich and appointing another contractor to carry out the work. I will refer to that dispute later.

3 Zurich says that Brookfield's rejection of its progress payment claim gave rise to a payment dispute under the Constructions Contracts Act 2004 (WA) (the Act) and applied for the adjudication of the payment dispute by an adjudicator under s 26 of the Act. Mr Graham Anstee-Brook (the Adjudicator) was appointed adjudicator. Brookfield served its response to the application on the Adjudicator and Zurich. On 21 December 2012 the Adjudicator determined, pursuant to s 31(2)(b) of the Act that Brookfield pay to Zurich $522,209.25 and interest (the Determination).

4 Brookfield applies to this court to quash the Determination. Zurich has applied to the court for leave to enforce the Determination under s 43 of the Act. I will consider Brookfield's application to quash the Determination before considering Zurich's application to enforce the Determination. Before turning to Brookfield's application it is convenient to outline the dispute between Brookfield and Zurich about construction water which resulted in Brookfield setting off against Zurich's claims amounts which Brookfield says Zurich owes it.

The construction water dispute

5 Paragraph 4.25.1 of pt B (Scope of Work) of the Contract provides:

Construction water shall be made available on site from a standpipe for the subcontractor's use at a maximum flow rate of 50,000 litres per hour, location to be advised. However, the subcontractor has made provision to collect water from the bore holes located not further than 7.5 km from the site.

Brookfield did not make construction water available to Zurich at the site but temporarily made water available about 4 km from the site. This gave rise to a dispute between Brookfield and Zurich. At the heart of that dispute is the parties differing interpretations of the effect of cl 4.25.1. Zurich argues that cl 4.25.1 requires Brookfield to provide water onsite, that is at the accommodation village where Zurich was to perform its work and not at any distance from the accommodation village. Brookfield argues that on its proper construction cl 4.25.1 provides for the possibility that the standpipe might be located as far as 7.5 km from site.

6 Zurich, in effect, informed Brookfield that it was demobilising its workforce due to construction water not being available at site. Brookfield issued a notice (Show Cause Notice) to Zurich directing Zurich to show cause for, among other things, its suspension of the works and refusal to comply with Brookfield's request to collect water from the standby pipe. Zurich responded. Brookfield rejected the response. On 24 October 2012 Brookfield issued a notice (Take Out Notice) which stated that Zurich had failed to show cause why Brookfield should not exercise a right under cl 44.4 of the Contract and that in accordance with its rights under cl 44.4(a) of the Contract Brookfield took out of the hands of Zurich the whole of the work under the Contract remaining to be completed. Brookfield subsequently claimed to set-off against Zurich's progress claim the amounts it incurred by engaging an alternative contractor.

Grounds of review

7 Brookfield relies on five grounds namely:

1. In finding the Contract was a 'construction contract' under the Act, [the Adjudicator] failed to take into account [Brookfield's] scope of work and its response to the application dated 5 December 2012 (Response) at Attachment 1, at paragraphs 2.7 to 2.11: at paragraph 11.19 of the Determination, he erroneously stated [Brookfield's] response to rest entirely on Part B of the Contract (Ground 1).

2. In finding that the direction to collect water made by [Brookfield] was unlawful and thus impugned the notice to show cause issued by [Brookfield] under the Contract, at paragraph 22.11 of the Determination, [the Adjudicator] failed to have regard to:

2.1. clauses 4.1(b), 4.1B(b), 4.2(a) and (c), 8.1, 12.1, 34.2, 40.2B and 42.8 of the Contract;

2.2. the fact that Zurich Bay Holdings Pty Ltd had no right to suspend the works in the circumstances, but did so without lawful authority; and

2.3. generally, sections 5 and 7 of Attachment 1 and paragraph 5.24 of Attachment 2 of the Response (Ground 2).

3. As a consequence of his failure to have regards to material matters referred to at paragraph 5.1.2 above, [the Adjudicator] failed to have regard to [Brookfield's] claim for set-off under clause 42.8 of the Contract (Ground 3).

4. With respect to the claim for stand-down and variations, [the Adjudicator] failed to have regard to clauses 3.1, 4.1, 12.1 and 12.2 of the Contract as referred to him at paragraph 5.3.1.3 of the Response (Ground 4).

5. Alternatively to [grounds 1 - 4], if the Adjudicator did consider the material matters referred to in [grounds 1 - 4] he failed to provide adequate reasons in the Determination in that the Determination fails to refer to any of those matters (Ground 5).

8 Grounds 2 and 3 are interrelated and counsel for Brookfield dealt with them together. Ground 5 was put in the alternative. Before considering those grounds it is convenient to outline relevant parts of the Adjudicator's reasons for the Determination.

Reasons for determination

9 The critical parts of the Adjudicator's reasons are his findings first that the Contract is a construction contract for the purposes of the Act, and secondly that the direction to continue work (Direction) was unlawful and Zurich's failure to comply with it did not entitle Brookfield to take the works out of the hands of Zurich.

10 In its Response Brookfield argued that the Contract is not a construction contract because it is not a contract to carry out construction work and is therefore not a construction contract as defined in s 3 of the Act. In defining construction work s 4(2) of the Act sets out activities which will amount to construction work, and also lists activities which are specifically excluded from the definition of construction work in s 4(3). These excluded activities, colloquially referred to as the mining exclusions or exceptions include:

(c) constructing any plant for the purposes of extracting or processing oil, natural gas or any derivative of natural gas, or any mineral bearing or other substance.

11 The Adjudicator referred to the definition of 'construction work' and the mining exception, and referred to the decision of this court in Re Graham Anstee-Brook; Ex Parte Karara Mining Ltd [2012] WASC 129 ( Karara Mining ) and a decision of the State Administrative Tribunal in relation to the meaning and application of the mining exception. The Adjudicator then went on to consider the work that Zurich was engaged to perform under the Contract and referred to Part B of the Contract which 'provides a detailed Scope of Work that was to be performed by [Zurich]'. The Adjudicator said that Brookfield had succinctly articulated the issue that he must determine: 'whether the earthworks being conducted by [Zurich] can be severed from the works to which they relate as they were in Re Anstee-Brook . The Adjudicator outlined Brookfield's argument that the mining exception applies and then Zurich's argument that it does not. The Adjudicator then said:

[Brookfield] understandably in its Response at paragraph 2 does no more than refer to Part B. I have carefully considered Part B and there is no reference to the Scope being applicable to the water treatment plant and reticulation system but to the country Part B states …

The Adjudicator then concluded that he was not persuaded that Zurich's Scope of Work is 'so closely connected to a water treatment plant which is for the purpose of extracting or processing any mineral bearing or other substance and the Mining Exception does not apply'.

12 After considering Zurich's claims contained in its progress claim and finding that Zurich was entitled to those payments, the Adjudicator observed that Brookfield's refusal to make payment to Zurich was based on the Direction. The Adjudicator referred to the Show Cause Notice pursuant to cl 44.2 of the Contract and said that the main thrust of the Direction was based on a dispute between the parties as to who was to provide water for construction purposes:

[Zurich] claimed that water was to be provided on the Site and as that had not been done [Zurich] was unable to meet its contractual obligations and was entitled to an extension of time. [Brookfield] argues that it did provide water but that water was some distance from the site and it was [Zurich's] obligation to carry water from the supply point to the Site.

If [Zurich's] view of the Contract is correct then [Brookfield's] direction was unlawful and accordingly the Notice to Show Cause and Take Out Notice were also unlawful.

In considering the parties arguments concerning the interpretation and effect of cl 4.25.1 the Adjudicator said that Brookfield 'supports its argument only by an interpretation of cl 4.25.1 of Part B'.

13 The Adjudicator preferred Zurich's argument that Brookfield was obliged to provide water on site, but if necessary collection of bore water from bore holes located up to 7.5 km from the site was contemplated and the collection of water from the supply some distance from the site would only take place if water on site was insufficient to provide Zurich's needs. The Adjudicator concluded:

[Brookfield] failed to meet its contractual obligation to provide water and the Direction to vary the Contract was an attempt by [Brookfield] to rectify its own breach and accordingly the Notice to Show Cause and Take Out Notice were unlawful and [Brookfield] has no grounds for its claims for increased costs by reason of engaging an alternative contractor. For these reasons [Brookfield] has no entitlement to a set-off.

Jurisdictional error

14 It was common ground that, since the decision of the Court of Appeal in Perrinepod Pty Ltd v Georgiou Building Pty Ltd [2011] WASCA 217 the determinations of adjudicators made under the Act are amenable to judicial review for jurisdictional error. However, the parties differed as to what constitutes jurisdictional error and whether the errors alleged in this case are jurisdictional.

15 Section 32(1) of the Act provides that for the purposes of making a determination an adjudicator must act informally and if possible make the determination on the basis of the application and its attachments and the response and its attachments. The form and contents of a determination are prescribed by s 36 of the Act. Section 36(d) provides that an adjudicator's decision must give reasons for the determination. In addressing the content of the adjudicator's obligation to give reasons for the determination, counsel for Brookfield referred to Clyde Bergemann Senior Thermal Pty Ltd v Varley Power Services Pty Ltd [2011] NSWSC 1039 which concerned an application for judicial review of a determination made by an adjudicator under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the NSW Act). McDougall J said at [67] that the adjudicator's reasons 'should be sufficient to show that the adjudicator has engaged actively with the dispute tendered for his or her decision, and dealt with it in a way that is reasoned, and not perverse, arbitrary or capricious'. The NSW Act is different from the Act. In particular, s 22(2) of the NSW Act requires that in determining an adjudication application an adjudicator is to consider various specified matters. Nevertheless, the reasons which an adjudicator is required by s 36(d) of the Act to give, should be sufficient to show that the adjudicator has engaged actively with the dispute tendered for his decision, and dealt with in a way that is reasoned, and not perverse, arbitrary or capricious.

16 The requirement that the adjudicator must, if possible, make the determination on the basis of the application and its attachments and the response and its attachments imposes on the adjudicator an obligation to consider the application and the response. The adjudicator's reason:

should show that the adjudicator has turned his or her mind to the dispute entrusted to his or her determination, and has addressed the issues raised by the parties in support of or opposition to the payment claim. There is no requirement that they be lengthy, elaborate or detailed. On the contrary, it may be thought, the scheme of the Act tells strongly against any such requirement: in particular, the extremely compressed time … and the obvious statutory intent that valid payment claims should be paid as quickly as possible : Bergemann at [66].

A further consideration is the volume of material placed before the adjudicator. In this case it was extensive.

Ground 1

17 Brookfield says that in finding that the Contract was a construction contract under the Act, the adjudicator failed to take into account Brookfield's Scope of Work and its response. Brookfield emphasises the adjudicator's statement at [11.19] of his reasons that '[Brookfield] understandably in its Response at paragraph 2 does no more than refer to Part B'. That statement must be seen in the context of the Response and the Adjudicator's reasons. In pt 2 of its Response Brookfield argues that the Contract is not a construction contract for the purposes of the Act. In s 11 of his reasons the Adjudicator addresses the issue of whether the Contract is a construction contract for the purposes of the Act. The Adjudicator expressly refers to pt 2 of the Response.

18 I am not satisfied that the Adjudicator failed to take into account Brookfield's scope of work and its response. The Adjudicator's reasons must be read as a whole. They must be considered fairly. It is erroneous to adopt a narrow approach, combing through the words of the Adjudicator with a fine appellate tooth-comb against the prospect that a verbal slip will be found warranting the inference of an error of law. The court must be careful to avoid turning an examination of the reasons of the Adjudicator into a reconsideration of the merits of the decision: Minister for Immigration and Ethnic Affairs v Wu Shan Liang (1996) 185 CLR 259, 291 (Kirby J).

19 The Adjudicator considered whether the Contract is a construction contract in s 11 of his reasons. In doing so the Adjudicator referred to submissions and references in the Response. The Adjudicator quoted the Response in articulating the issue to be determined: see [11.13] of the reasons. At [11.14] of his reasons the Adjudicator outlined Brookfield's argument. At [11.18] the Adjudicator expressly referred to the scope of work to be performed by Brookfield.

20 Furthermore, if the Adjudicator made any error in his consideration of Brookfield's scope of work and its Response, such error is not a jurisdictional error. If the Adjudicator made any error then it was an error in the course of the decision-making process itself, not an essential preliminary to the decision-making process: see Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd [2010] NSWCA 190 [42] - [46] (Spigelman CJ); Clyde Bergemann v Varley Powe r [42] (McDougall J).

Ground 2 and 3

21 Ground 2 is that in finding that the direction to collect water made by Brookfield was unlawful and thus impugned the notice to show cause issued by Brookfield under the Contract the adjudicator failed to have regard to certain clauses of the Contract, to the fact that Zurich had no right to suspend the works in the circumstances, but did so without lawful authority and to sections 5 and 7 of attachment 1 and [5.24] of attachment 2 of the Response. Ground 3 is that as a consequence of his failure to have regard to those matters, the adjudicator failed to have regard to Brookfield's claim for set-off under cl 42.8 of the Contract.

22 The Adjudicator considered Brookfield's claim for set-off under the Contract at s 22 of his reasons. The Adjudicator considered the Show Cause Notice issued by Brookfield pursuant to cl 44.2 of the Contract in respect of Zurich's failure to comply with the Direction. The adjudicator then considered the lawfulness of the Direction and in doing so considered the proper construction and effect of [4.25.1] of pt B of the Contract. Any error the Adjudicator made in the course of doing so is an error within jurisdiction. The Adjudicator found that the Direction was an attempt by Brookfield to rectify its own breach and that accordingly the Notice to Show Cause and the Take Out Notice were unlawful. The adjudicator then considered Brookfield's claim to set-off under cl 42.8 of the Contract. The Adjudicator considered Brookfield's set-off claim and the basis for it. Any error by the Adjudicator in relation to the construction of the Contract or in the Adjudicator's reasoning process is an error within jurisdiction.

Ground 4

23 Ground 4 is that with respect to the claim for stand down and variations the Adjudicator failed to have regard to cl 3.1, 4.1, 12.1 and 12.2 of the Contract as referred to at [5.31.3] of the Response.

24 Paragraph 5.31.3 of the Response says that the claims for stand down and for variations are barred under cl 3.1, 4.1, 12.1 and 12.2 and insofar as they may not be, the size of [Brookfield's] set-off claims is such that they are not payable in any event. The Response together with its attachments is a lengthy document. Clause 5.31.3 of the Response did no more than assert that the claims for stand down and for variations are barred under the specified clauses of the contract. Having regard to the issues raised by the application and the Response, it cannot be inferred from the fact that the Adjudicator does not expressly refer to cl 3.1, 4.1, 12.1 and 12.2 of the Contract in his reasons that he did not consider them. In any event, any error made by the Adjudicator was an error in the course of the decision-making process itself and is not a jurisdictional error.

Ground 5

25 Ground 5 is that the Adjudicator failed to provide adequate reasons in the Determination. Section 36(d) of the Act requires an adjudicator to give reasons for the determination. In Bergemann v Varley Power McDougall J observed in relation to the obligation for an adjudicator under the New South Wales Act to give reasons that the obligation:

… in substance, an obligation to state the basis of the determination that the adjudicator has made: compare Housing Commission of NSW v Tatmar Pastoral Co Pty Ltd (1983) 3 NSWLR 378 at 386 (Mahoney JA). The reasons should show that the adjudicator has turned his or her mind to the dispute entrusted to his or her determination, and has addressed the issues raised by the parties in support of or opposition to the payment claim. There is no requirement that they be lengthy, elaborate or detailed. On the contrary, it may be thought, the scheme of the Act tells strongly against any such requirement: in particular, the extremely compressed time (ten business days following acceptance of the nomination, unless the parties agree to extend time - see s 21(3)) and the obvious statutory intent that valid payment claims should be paid as quickly as possible. Indeed, s 21(3) recognises this, because it sets an outer time limit; the primary obligation on adjudicators 'is to determine an adjudication application as expeditiously as possible'.

To put the matter compendiously, the reasons should be sufficient to show that the adjudicator has engaged actively with the dispute tendered for his or her decision, and dealt with it in a way that is reasoned, and not perverse, arbitrary or capricious [66] – [67].

Those observations are relevant to the obligation of an adjudicator to give reasons pursuant to s 36(d) of the Act.

26 The reasons of the Adjudicator taken as a whole, and read fairly, disclose that the Adjudicator did not ignore the submissions and material put forward by Brookfield. The Adjudicator rejected the thrust of Brookfield's submissions. The Adjudicator turned his mind to the issues raised by the dispute and sought to deal with them. His reasons for making the determination are adequately explained. Whether the adjudicator made errors in the course of his reasoning is not to the point. He carried out, in a rational way and with sufficient explanation, the adjudication which was entrusted to him and gave logical reasons for his conclusion.

Application for writ of certiorari dismissed

27 Brookfield has not made out any of the grounds of its application to quash the Determination. Its application must be dismissed.

Enforcement

28 In Thiess Pty Ltd v MCC Mining (Western Australia) Pty Ltd [2011] WASC 80 Corboy J made the following observations about the grant of leave to enforce a determination under the Act:

(a) With a limited exception, the determination is final on the question of the liability of a party to immediately pay the amount that is the subject of the payment dispute. Section 39 CC Act requires a party to pay an amount determined by the adjudicator. A party will seek leave under s 43 where the party liable under the determination has failed to discharge the statutory obligation imposed by s 39. Consequently, the scheme of the CC Act strongly reinforces the proposition derived from Cockatoo Dockyard that prima facie, a party who has the benefit of a determination is entitled to enforce it. That is particularly so under the CC Act, given its policy of maintaining cash flow to the parties during the performance of a construction contract.

(b) Nevertheless, the Act requires the court to oversee the entry of judgment by imposing the requirement for leave. The grant of leave gives the plaintiff access to the court's processes for enforcing its orders. Further, judgment may have significant effects on the commercial interests of the defendant within the construction industry and in many instances, the reason advanced by the defendant as to why leave should not be granted will be directed to the validity of the determination.

(c) Consequently, there must be a sufficient reason for declining to grant leave under s 43 having regard to the scheme and policy of the CC Act. What will be a sufficient reason will, of course, depend on a consideration of all of the relevant circumstances.

29 Brookfield advanced three related grounds for the court not to grant Zurich leave to enforce the Determination. The first ground is that the determination of the Adjudicator is significantly flawed, the ultimate decision-maker who is not bound by the Determination because of s 45 of the Act will not uphold the Determination and in those circumstances it would be unjust to grant leave to enforce the Determination unless and until the underlying dispute is finalised because the entire amount the subject of the Determination is in dispute. Secondly, Brookfield says that the existence of an arguable case that a determination is invalid and liable to be declared to be so, or to be set aside in the exercise of prerogative relief is a reason, but not the only possible reason, for refusing the grant of leave to enforce a determination. Thirdly, Brookfield says that its submissions in relation to its application for a writ of certiorari to quash the Determination reveal an arguable case that the Determination is liable to be set aside in the exercise of prerogative relief. The errors are matters of real substance and there is a real prospect that the Adjudicator may have reached the opposite view to the one that he reached but for the errors. Brookfield says that taking into account the flaws in the Determination and the fact that Brookfield has an arguable case for it to be set aside in the exercise of prerogative relief, it would be unjust to grant leave to permit the determination to be enforced.

30 The matters advanced by Brookfield are not sufficient reason for declining to grant leave under s 43 of the Act having regard to the scheme and policy of the Act. A determination is final on the question of the liability of a party to immediately pay the amount that is the subject of the payment dispute. I have found that the Determination is not affected by jurisdictional error. What remains is Brookfield's claim that the Determination is wrong on the merits, is affected by legal error or otherwise contains flaws that do not amount to jurisdictional error. Furthermore, Brookfield says that, having regard to those matters, it is likely that when a court or arbitrator decides the substantive dispute between the parties it will be determined in favour of Brookfield. Having regard to the scheme and policy of the Act, those are insufficient reasons for not granting Zurich leave to enforce the Determination.

Leave to enforce should be granted

31 Zurich should be granted leave to enforce the Determination in the same manner as a judgment or order of this court.