[2014] WASAT 136
JURISDICTION : STATE ADMINISTRATIVE TRIBUNAL
ACT : CONSTRUCTION CONTRACTS ACT 2004 (WA)
CITATION : ALLIANCE CONTRACTING PTY LTD and TENIX SDR PTY LTD [2014] WASAT 136
MEMBER : MR D AITKEN (MEMBER)
HEARD : 12 MARCH, 5 JUNE AND 1 AUGUST 2014
DELIVERED : 13 OCTOBER 2014
FILE NO/S : CC 1570 of 2013
BETWEEN : ALLIANCE CONTRACTING PTY LTD
Applicant
AND
TENIX SDR PTY LTD
Respondent
Catchwords:
Construction Contracts Act 2004 (WA) - Application for review of decision by adjudicator to dismiss - Whether s 4(3)(c) applies - Whether earthworks and associated works forming part of construction of a wastewater treatment plant are works constructing the plant - Whether wastewater treatment plant constructed for purpose of extracting or processing mineral bearing or other substance - Whether claim by principal for liquidated damages from contractor for failure to complete practical completion by due date is a payment claim - Whether dispute regarding principal having recourse to security provided by contractor is a payment dispute - Meaning of the words 'whether any party to the payment dispute is liable to make a payment, or to return any security' in s 31(2)(b)
Legislation:
Construction Contracts Act 2004 (WA), s 3, s 4(2), s 4(3), s 4(3)(c), s 6, s 25, s 25(a), s 25(b), s 26, s 31, s 31(2), s 33, s 46(1)
State Administrative Tribunal Act 2004 (WA), s 27
Result:
Decision of adjudicator affirmed
Summary of Tribunal's decision:
The applicant applied under s 46(1) of the Construction Contracts Act 2004 (WA) to review a decision of an adjudicator to dismiss an adjudication application without a determination of the merits. The adjudicator dismissed the adjudication application under s 31(2)(b)(ii) of the Act on the basis that it did not contain a payment claim and no payment dispute had arisen for the purposes of the Act and, as a consequence, the adjudication application had not been made in accordance with s 26 of the Act.
The parties had entered into a subcontract for the applicant to carry out earthworks and associated works for the respondent which was carrying out the upgrade of a wastewater treatment plant. The respondent made a claim for liquidated damages from the applicant for failing to achieve practical completion by the due date and had recourse to bank guarantees provided to it by the applicant as security for the applicant's performance of the subcontract. The applicant disputed the claim for liquidated damages and the recourse to the bank guarantees, and applied for adjudication.
The adjudication application stated that the liquidated damages claim was a payment claim, and a payment dispute arose when the applicant disputed that. However, instead of seeking a determination of that claim, the applicant sought a determination that the respondent must pay to it the value of the bank guarantees or 'return' that security to it. The applicant contended that the adjudicator had the power to make that determination under s 31(2)(b) of the Construction Contracts Act 2004 (WA) because when an application is made for the adjudication of a payment dispute, the adjudicator is empowered to determine 'whether any party to the payment dispute is liable to make a payment, or to return any security'. The respondent disputed that contention.
It was not in contention that the subcontract works were construction work, but it was in contention as to whether they were excluded from the operation of the Construction Contracts Act 2004 (WA) by s (4)(3)(c) of the Act.
In deciding to affirm the decision of the adjudicator to dismiss the adjudication application, the Tribunal decided that:
. The exclusion in s 4(3)(c) of the Construction Contracts Act 2004 (WA) did not apply because, although the subcontract works were work 'constructing' the wastewater treatment plant, the plant was not for the purpose of 'extracting or processing any mineral bearing or other substance' within the meaning of those terms in s 4(3)(c) of the Act.
. The claim for liquidated damages by the respondent was a payment claim, and a payment dispute had arisen for the purposes of the Construction Contracts Act 2004 (WA) when the applicant disputed that claim. It was open to the applicant, as the party against whom the claim was made, to apply for the adjudication of that dispute to seek a determination that it was not liable to pay that claim. However, the applicant had not sought that determination and, therefore, the adjudication application was not for the adjudication of that dispute.
. The words 'whether any party to the payment dispute is liable to make a payment, or to return any security' in s 31(2)(b) of the Construction Contracts Act 2004 (WA) must be construed in the context of the other provisions of the Act, and only allow the adjudicator to determine whether a party is liable to make a payment or to return a security which falls within the definition of 'payment dispute' in s 6 of the Act, and the determination sought by the applicant was not such a payment or return of security.
. The dispute which the applicant had applied to be adjudicated was the dispute which had arisen from the respondent having recourse to the bank guarantees, and that is not a payment dispute for the purposes of the Construction Contracts Act 2004 (WA) and therefore it was not a dispute for which an application for adjudication could be made under s 26 of the Act and must be dismissed under s 31(2)(b)(ii) of the Act.
Category : B
Representation:
Counsel:
Applicant : Mr G Nairn
Respondent : Mr M Solomon with Ms K Whitehead
(12 March 2014), Ms K Botsis
(5 June 2014), and Mr C Ryder
(1 August 2014)
Solicitors:
Applicant : Lavan Legal
Respondent : Corrs Chambers Westgarth
Case(s) referred to in decision(s):
Conneq Infrastructure Services (Australia) Pty Ltd and Sino Iron Pty Ltd [2012] WASAT 13
Nene Housing Society v National Westminster Bank [1980] 16 BLR
Re Graham Anstee-Brook; Ex parte Karara Mining Ltd [2012] WASC 129
REASONS FOR DECISION OF THE TRIBUNAL :
Introduction
1 Alliance Contracting Pty Ltd (Alliance) and Tenix SDR Pty Ltd (Tenix) entered into a subcontract dated 20 November 2012 (subcontract) for the carrying out of earthworks and associated works (subcontract works), by Alliance for Tenix, in respect of works being carried out by Tenix for the upgrade of the Karratha Wastewater Treatment Plant (wastewater treatment plant).
2 Pursuant to the subcontract, Alliance provided two bank guarantees (bank guarantees) each worth $274,208.23, totalling $548,416.46, as security for its performance of the subcontract.
3 On 2 September 2013 Tenix had recourse to the full amount of the bank guarantees and sent two letters to Alliance. One letter certifies that Alliance had achieved practical completion on 17 August 2013. The other letter (Tenix letter) states that Alliance failed to achieve practical completion by the date for practical completion and must pay liquidated damages of $885,000 (liquidated damages). The letter goes on to say that Tenix is currently determining the final subcontract price, but it is apparent that there are insufficient monies available from any amount which Tenix would have to pay Alliance to discharge Alliance's liability for liquidated damages. The letter then states that consequently Tenix has had recourse to Alliance's security to recover in part the liquidated damages which Alliance must pay to Tenix.
4 On 2 September 2013 Alliance sent a letter to Tenix (Alliance letter) which states that it has been advised by its bank that Tenix has called on the bank guarantees and that the bank has paid the monies pursuant to the guarantees. The letter goes on to state that Tenix has no current entitlement to call upon the bank guarantees and that those actions by Tenix are a serious breach of contract and Alliance will respond further upon taking legal advice.
5 On 13 September 2013 Alliance gave a notice of dispute to Tenix (notice of dispute) which referred to the letters sent by Tenix and stated, relevantly, that Tenix had no legal right to levy liquidated damages against Alliance, nor to have recourse to the bank guarantees. The notice also states that Tenix's claim for liquidated damages is not in accordance with the subcontract and that Alliance wholly disputes Tenix's claims or purported claims in the Tenix letter.
6 On 26 September 2013 Alliance made an application for adjudication (adjudication application) under the Construction Contracts Act 2004 (WA) (CC Act) seeking payment of the amount of $548,416.46, being the equivalent of the value of the bank guarantees, plus interest.
7 On 7 November 2013 the adjudicator, Mr Graham Morrow, dismissed the adjudication application under s 31(2)(a)(ii) of the CC Act on the basis that:
• the adjudication application did not contain a payment claim made by Alliance;
• such a payment claim is a necessary precondition to a payment dispute under s 6 of the CC Act;
• Alliance relied on a payment claim which had not been made in accordance with the CC Act; and
• as a consequence, the adjudication application was dismissed without making a determination of its merits in accordance with s 31(2)(a)(ii) of the CC Act as it had not been prepared and served in accordance with s 26 of the CC Act.
8 Alliance has applied under s 46(1) of the CC Act for the review of that decision and is seeking an order that the decision be set aside and that the adjudicator be directed to determine the adjudication application on its merits under s 31(2)(b) of the CC Act.
Role of the Tribunal on a review
9 Under s 27 of the State Administrative Tribunal Act 2004 (WA) the review of the adjudicator's decision is by way of a hearing de novo and the purpose of the review is to produce the correct and preferable decision at the time of the review.
Relevant statutory provisions
10 Section 3 of the CC Act includes the following definitions:
construction contract means a contract or other agreement, whether in writing or not, under which a person (the contractor ) has one or more of these obligations –
(a) to carry out construction work;
(b) to supply to the site where construction work is being carried out any goods that are related to construction work by virtue of section 5(1);
(c) to provide, on or off the site where construction work is being carried out, professional services that are related to the construction work by virtue of section 5(2);
obligations , in relation to a contractor, means those of the obligations described in the definition of 'construction contract' that the contractor has under the construction contract[.]
payment claim means a claim made under a construction contract -
(a) by the contractor to the principal for payment of an amount in relation to the performance by the contractor of its obligations under the contract; or
(b) by the principal to the contractor for payment of an amount in relation to the performance or non-performance by the contractor of its obligations under the contract;
pincipal , in relation to a construction contract, means the party to whom the contractor is bound under the contract[.]
11 Section 4(2) of the CC Act defines 'construction work' in a comprehensive manner. It is not necessary to describe the details of that definition because it is not in contention that the subcontract works fall within the scope of the work specified in s 4(2) of the Act, subject only to whether the exclusion in s 4(3)(c) of the Act applies to the subcontract works, which is in contention.
12 Section 4(3) of the CC Act provides that certain work is excluded from the definition of 'construction work' under s 4(2) of the Act. Relevantly, s 4(3)(c) of the Act excludes the work of 'constructing any plant for the purpose of extracting or processing oil, natural gas or any derivative of natural gas, or any mineral bearing or other substance'.
13 Section 6 of the CC Act states:
Payment dispute
For the purposes of this Act, a payment dispute arises if –
(a) by the time when the amount claimed in a payment claim is due to be paid under the contract, the amount has not been paid in full, or the claim has been rejected or wholly or partly disputed;
(b) by the time when any money retained by a party under the contract is due to be paid under the contract, the money has not been paid;
or
(c) by the time when any security held by a party under the contract is due to be returned under the contract, the security has not been returned.
14 Section 25 of the CC Act states:
Who can apply for adjudication
If a payment dispute arises under a construction contract, any party to the contract may apply to have the dispute adjudicated under this Part unless –
(a) an application for adjudication has already been made by a party, whether or not a determination has been made, but subject to section 37(2); or
(b) the dispute is the subject of an order, judgment or other finding by an arbitrator or other person or a court or other body dealing with a matter arising under a construction contract.
15 Section 26 of the CC Act sets out the procedural requirements regarding the preparation and service of an application to have a payment dispute adjudicated. It is not necessary to describe those requirements, because it is not in contention that they have been met, in a procedural sense, in respect of the adjudication application made by Alliance. However, it is in contention whether the adjudication application is in respect of a payment dispute for the purposes of the Act and that may affect the answer to the question of whether the adjudication application has been prepared in accordance with s 26 of the Act.
16 Section 31(2) of the CC Act states:
Adjudicator's functions
…
(2) An appointed adjudicator must, within the prescribed time or any extension of it made under section 32(3)(a) -
(a) dismiss the application without making a determination of its merits if -
(i) the contract concerned is not a construction contract;
(ii) the application has not been prepared and served in accordance with section 26;
(iii) an arbitrator or other person or a court or other body dealing with a matter arising under a construction contract makes an order, judgment or other finding about the dispute that is the subject of the application; or
(iv) satisfied that it is not possible to fairly make a determination because of the complexity of the matter or the prescribed time or any extension of it is not sufficient for any other reason;
(b) otherwise, determine on the balance of probabilities whether any party to the payment dispute is liable to make a payment, or to return any security and, if so, determine -
(i) the amount to be paid or returned and any interest payable on it under section 33; and
(ii) the date on or before which the amount is to be paid, or the security is to be returned, as the case requires.
…
Issue to be determined
17 The issue to be determined is whether the decision of the adjudicator to dismiss the adjudication application should be set aside or affirmed.
18 Since this is a hearing de novo and the purpose is to produce the correct and preferable decision, it is necessary for the Tribunal to consider whether there is any basis on which the adjudicator should have dismissed the adjudication application, not just whether he was correct to dismiss it on the basis on which he did.
19 It is, therefore, necessary to consider whether any of the circumstances specified in s 25(a), s 25(b), s 31(2)(a)(i), s 31(2)(a)(ii), s 31(2)(a)(iii) or s 31(2)(a)(iv) of the CC Act exist.
20 Both parties have stated to the adjudicator and also to the Tribunal that an application for adjudication has not previously been made in respect of the subject matter of the adjudication application, nor has any order, judgment or other finding been made in respect of it by an arbitrator, court or other body. Therefore, I find that neither s 25(a) nor s 25(b) of the CC Act preclude the adjudicator from dealing with the adjudication application and there is no basis for the adjudicator to dismiss it under s 31(2)(a)(iii) of the CC Act.
21 Neither party has contended that it is not possible for the adjudicator to fairly make a determination because of the complexity of the matter or the time limits imposed by the CC Act. The adjudicator decided that the matter is not too complex to be determined by adjudication. Therefore, I find that there is no basis for the adjudicator to dismiss the adjudication application under s 31(2)(a)(iv) of the CC Act.
22 That leaves for determination whether the adjudicator should have dismissed the adjudication application under either s 31(2)(a)(i) or s 31(2)(a)(ii) of the CC Act which requires the following questions to be answered.
Questions to be answered
23 The questions to be answered are:
• Is the subcontract a construction contract? As I have already stated, it is not in contention that if the exclusion in s 4(3)(c) of the CC Act does not apply then the subcontract is a construction contract under the CC Act. This question is therefore confined to whether the exclusion in s 4(3)(c) of the CC Act applies to the subcontract (first question).
• Has the adjudication application been prepared and served in accordance with s 26 of the CC Act? As I have already stated, it is not in contention that the procedural requirements of s 26 of the Act have been met. However, it is in contention whether the adjudication application is in respect of a payment dispute, as defined in the CC Act. If the adjudication application is not in respect of a payment dispute, as defined in the CC Act, then the adjudication application will not have been prepared and served in accordance with s 26 of the Act because the application cannot have been prepared and served within 28 days of a payment dispute arising if no payment dispute has arisen. This question is therefore confined to whether the adjudication is in respect of a payment dispute for the purposes of the CC Act (second question).
Subsidiary issue
24 At the conclusion of the hearing on 12 March 2014 I reserved my decision. However, subsequently, an issue came to my attention which was not raised at the hearing, but which I thought needed to be addressed because it may affect the answer to the second question.
25 The issue is whether a claim by a principal against a contractor for liquidated damages for failing to achieve practical completion by the due date is a payment claim which can give rise to a payment dispute under the CC Act, taking into consideration the definition of 'obligations' in s 3 of the CC Act for the purpose of paragraph (b) of the definition of 'payment claim' in s 3 (subsidiary issue).
26 It arises from the statement at 3-069 of Hudson's Building and Engineering Contracts (12th Ed) (Hudson's) that the obligation in a building contract to 'carry out and complete' works is, in fact, a dual obligation to both carry out and to complete the works. Nene Housing Society v National Westminster Bank [1980] 16 BLR ( Nene ) is cited as authority for that statement.
27 Paragraph (b) of the definition of 'payment claim' in s 3 of the CC Act refers to a claim under a construction contract by the principal against the contractor for a payment in relation to the non-performance by the contractor of its obligations under the contract. On the face of it, that might appear to include all the obligations of the contractor under the contract. However, 'obligations' is defined in s 3 of the CC Act as being, in relation to a contractor, those obligations of the contractor described in the definition of 'construction contract'. The definition of 'construction contract' in s 3 of the CC Act lists four particular obligations by a contractor. The only one of those obligations which is relevant here is in paragraph (a) of the definition, which is 'to carry out construction work'. It is the fact that paragraph (a) only refers to the carrying out of the work and not to the completion of the work that gives rise to the subsidiary issue.
28 A further hearing was held on 5 June 2014 at which I explained the subsidiary issue and required the parties to file supplementary submissions in respect of it. Alliance objected to part of Tenix's supplementary submissions, which Alliance said went beyond what the Tribunal required, and Tenix requested the opportunity to be heard in respect of that objection and a hearing was listed for that purpose. At the hearing on 1 August 2014 I decided to disregard the part of Tenix's supplementary submissions to which Alliance had objected and I again reserved my decision, to be decided on the basis of the evidence presented and submissions made at the hearing on 12 March 2014 (principal submissions) and the supplementary submissions filed by the parties, with the exception of the disregarded part of Tenix's supplementary submissions.
29 I will deal with the subsidiary issue before moving to the consideration of the first and second questions.
30 Both parties contend in the supplementary submissions that the decision in Nene and the statement in Hudson's that the obligation to carry out and complete works is a dual obligation to both carry out and to complete the works are not relevant to the interpretation of the term 'carry out construction work' in paragraph (a) of the definition of 'construction contract' in s 3 of the CC Act because Nene was concerned with an entirely different situation. I accept that contention. Nene dealt with the question of whether the plaintiff (the principal under a building contract) could recover the cost of remedying defective work carried out by the contractor pursuant to a performance bond which had been issued by the defendant (a bank), where the contractor had not completed the works when the contract was terminated because a receiver and manager was appointed of the contractor's business. That question was decided in the affirmative, on the basis that the contractor had not carried out work properly and that was a sufficient failure by the contractor to 'carry out and complete its work'.
31 Alliance contends that the term 'carry out' must be given its natural and ordinary meaning, which is defined in The Concise Macquarie Dictionary (4th Ed) as meaning 'to accomplish or complete'. Therefore, the obligation to carry out construction work covers not only the obligation to perform tasks along the way to achieving an end result, but also the completion of the overall task, and a failure to complete on time must necessarily be a failure of an obligation to carry out construction work. I accept that contention.
32 Tenix agrees that, adopting the plain meaning of the provisions in the CC Act, its claim for liquidated damages from Alliance is a payment claim that is capable of giving rise to a payment dispute for the purposes of the CC Act.
33 Having accepted the contentions of the parties, I have decided that a claim by a principal against a contractor for liquidated damages for failing to achieve practical completion by the due date is a payment claim which can give rise to a payment dispute under the CC Act.
34 I will now deal with the principal submissions of the parties.
The contentions of Alliance
35 The contentions of Alliance may be summarised as follows.
36 Alliance says the subcontract is a construction contract to which the CC Act applies because the subcontract works are construction work, as defined in s 4(2) of the CC Act, and the exclusion set out in s 4(3) of the CC Act does not apply.
37 Alliance says the exclusion set out in s 4(3)(c) of the CC Act does not apply for two reasons:
• Firstly, Alliance says that it is not constructing a plant, only the supporting infrastructure to the plant, and that the subcontract works do not perform any activity themselves, such as extraction or processing. Alliance cites Re Graham Anstee-Brook; Ex parte Karara Mining Ltd [2012] WASC 129 ( Karara ) as authority for this contention.
• Secondly, Alliance says that the wastewater plant does not process or extract any mineral bearing or other substance. Alliance cites Conneq Infrastructure Services (Australia) Pty Ltd and Sino Iron Pty Ltd [2012] WASAT 13 ( Conneq ) as authority for this contention.
38 Alliance says that Tenix made a payment claim, within the meaning of paragraph (b) of the definition of that term in s 3 of the CC Act, because its claim for liquidated damages is a claim for payment of an amount in relation to the non-performance of Alliance's obligations under the subcontract to achieve practical completion by the due date. Alliance then says that the payment claim is the Tenix letter.
39 Alliance says that a payment dispute under s 6(a) of the CC Act arose, either when it sent the Alliance letter or when it gave the notice of dispute to Tenix.
40 Alliance says that the fact that the claim for liquidated damages was partly paid by recourse to the bank guarantees does not matter, and that the fact that Alliance disputed that claim is sufficient to give rise to a payment dispute.
The contentions of Tenix
41 The contentions of Tenix may be summarised as follows.
42 Tenix says the subcontract is not a construction contract to which the CC Act applies because the exclusion set out in s 4(3)(c) of the Act applies, and Tenix rebuts the two reasons which Alliance gives for the exemption not applying with the following arguments:
• Firstly, Tenix says that the expression 'work constructing any plant' used in s 4(3)(c) of the CC Act encompasses work which forms part of the process of constructing a plant, and the subcontract works include a very substantial part of the formation of the plant in this matter. Tenix says that Alliance was required to construct anaerobic ponds, oxidation ponds, storage ponds, sludge drying beds and all interconnecting pipework, and the actual extraction and processing of wastewater occurs in these ponds. Tenix cites Conneq as authority for this contention.
• Secondly, Tenix says that it is 'at least likely' that the treatment of the water will involve the extraction of minerals and, therefore, on the principles articulated in Conneq , the plant in this matter, like a desalination plant, falls within the scope of the exclusion set out in s 4(3)(c) of the CC Act.
43 Tenix says that a claim by a principal under a construction contract for liquidated damages can be the subject of adjudication under the CC Act but, in this matter, that was not the subject of the adjudication application. Tenix says that the adjudication application was for the return of moneys claimed by Tenix under the bank guarantees, which are separate security instruments to the subcontract.
44 Tenix further says that even if the adjudication application was seeking the adjudication of Tenix's claim for liquidated damages and was therefore capable of being adjudicated, the adjudicator would not have the power under s 31(2)(b) of the CC Act to determine that Tenix must pay any money to restore the security. Tenix says that was the reason that the adjudication application was made and that is why the adjudicator was correct to dismiss it under s 31(2)(a) of the CC Act.
Consideration of the first question - does the exclusion in s 4(3)(c) of the CC Act apply to the subcontract?
45 The exclusion in s 4(3)(c) of the CC Act applies if the subcontract works are the constructing of 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.
46 There are two aspects to the first question which need to be decided:
• Firstly, are the subcontract works the constructing of plant?
• Secondly, if that is the case, is the purpose of the wastewater treatment plant to extract or process any 'mineral bearing or other substance' as part of the water treatment? There is no suggestion that the wastewater treatment plant will extract or process oil, natural gas or any derivative of natural gas.
Are the subcontract works the constructing of plant for the purpose of s 4(3)(c) of the CC Act?
47 The subcontract works are part of the works involved in the upgrade of the Karratha Wastewater Treatment Plant. An outline of the upgrade is contained in a document dated 20 July 2012 designated as Plan JN00-0-1 and entitled 'Notice of proposal to upgrade Karratha Wastewater Treatment Plant No. 1' (notice of proposal). It states that to increase the capacity of the wastewater treatment facilities in Karratha and improve the quality of the effluent available for recycling, the Water Corporation proposes to expand the capacity of the current wastewater treatment plant, construct an effluent disposal facility, construct a water recycling plant and replace the existing recycled water pump station. It further states that the works will involve major cut and fill earthworks, upgrades to power supplies and major mechanical, electrical and civil construction on site.
48 Schedule 2 of the subcontract describes the subcontract works as 'the provision of all plant, equipment, labour and materials to complete the earthworks and associated works in accordance with the specifications, drawings and other documents listed in that schedule, which are described as being 'the provision of a complete bulk earthworks package'. The scope of those works can be summarised as being general site works, drainage works, excavation, supply of fill, construction of anaerobic ponds, oxidation ponds, storage ponds and sludge drying beds, supply and installation of liner to each pond and drying bed, inlet works, installation of pipework and landscaping.
49 Alliance says that it is not constructing a plant, only the supporting infrastructure to the plant, and that the subcontract works do not perform any activity themselves such as extraction or processing, and cites Karara as authority for its contention that it cannot be said to be 'constructing plant' within the meaning of s 4(3)(c) of the CC Act.
50 Tenix says that the subcontract works form a very substantial part of the formation of the wastewater treatment plant and that the processing of wastewater will occur in the ponds constructed by the subcontract works, and cites Conneq as authority for its contention that the subcontract works are encompassed within the meaning of the term 'work constructing any plant' in s 4(3)(c) of the CC Act.
51 In Karara , at [16], Le Miere J held that the construction of a pipeline to transport water from a bore field to a mine site, which was then used for the purpose of extracting or processing iron ore, was not part of the plant for that purpose because the function of the pipeline was simply to transport the water, and no part of the extraction or processing of the iron ore takes place in the pipeline.
52 In this matter the processing of the wastewater will occur in the ponds constructed by Alliance, which distinguishes it from the situation in Karara , which I do not consider to have any application in deciding whether the subcontract works are the constructing of plant for the purposes of s 4(3)(c) of the CC Act.
53 In Conneq , at [59], the Tribunal, constituted by Supplementary President Corboy J and Senior Member Raymond, stated that the term 'work constructing any plant' encompasses work forming part of the process of constructing a plant. That view was based on the meanings given to the word 'construct' by the Macquarie Dictionary , which include 'to form by putting together parts; build; frame; devise'.
54 In Conneq the contractor was not responsible for performing all the work necessary to create an operational plant. In other words, the contractor was not responsible for the entire process of constructing the plant, just part of that process. The Tribunal, at [60] in Conneq , decided that because the work to be undertaken by the contractor formed part of the process of creating an operating plant, it was work constructing the plant for the purposes of s 4(3)(c) of the CC Act.
55 In this matter the subcontract works are clearly a significant and essential part of the process of creating the wastewater treatment plant.
56 Therefore, in my opinion, applying the reasoning in Conneq , the subcontract works are work constructing plant for the purposes of s 4(3)(c) of the CC Act.
Is the purpose of the wastewater treatment plant to extract or process any mineral bearing or other substance for the purpose of s 4(3)(c) of the CC Act?
57 In Conneq , at [70] - [83], the Tribunal decided that the exclusion in s 4(3)(c) of the CC Act applies to the work of constructing a plant for the purpose of processing seawater to produce desalinated water, because salt is a mineral. The Tribunal also stated that the words 'or other substance' in s 4(3)(c) of the Act are to be read contextually with the common subject matter of s 4(3)(a) to s 4(3)(c) of the Act, being limited to substances that are discovered or extracted by drilling or through shafts, pits or quarries, such as coal.
58 Alliance contends that the purpose of the wastewater treatment plant is to process water to remove organic materials and refers to 'Drawing JN00-0-1', which is the notice of proposal, in support of that contention. However, I cannot see any reference in the notice of proposal to the removal of organic materials or, for that matter, any indication of what materials will be removed by the wastewater treatment plant.
59 Tenix contends that 'it is likely that the treatment of the wastewater in this case will involve the extraction of minerals'. Tenix provided a number of articles to the adjudicator regarding the possibility of reclaiming minerals from wastewater and sewerage. However, those articles do not provide any evidence of any particular mineral or minerals being present in or extracted from the wastewater which will be treated in the wastewater treatment plant in this matter. No evidence has been provided regarding the composition of the water in this case. I am not prepared to rely on a supposition to make a finding that there will be any extraction of a mineral or minerals in this matter.
60 No evidence has been provided to establish that any materials or substances which will be removed from the water treated by the wastewater treatment plant will be 'other substances' for the purposes of s 4(3)(c) of the CC Act within the meaning of those words according to Conneq .
61 Therefore, I am unable to find that the purpose of the wastewater treatment plant is to extract or process any mineral or other substance for the purposes of s 4(3)(c) of the CC Act.
Conclusion regarding the first question
62 For the reasons I have stated, I conclude that the exclusion in s 4(3)(c) of the CC Act does not apply to the subcontract works because, although the subcontract works are work constructing a plant, the purpose of the wastewater treatment plant is not to extract or process any mineral or other substance for the purposes of s 4(3)(c) of the Act.
Consideration of the second question - is the adjudication application in respect of a payment dispute for the purposes of the CC Act?
63 The paragraphs in the adjudication application which are the most relevant in the consideration of the second question are paragraphs 5, 6, 7, 8, 40, 41, 42, 43, 52 and 53. When I refer to a paragraph in what follows, it is a reference to a paragraph in the adjudication application.
64 Paragraph 5 refers to Tenix's claim for liquidated damages and also to Tenix's associated recourse to the security provided by Alliance under the subcontract. The reference to the security is clearly a reference to the bank guarantees.
65 Paragraph 6 states that Alliance disputed that claim and this gave rise to a payment dispute, which enlivens the jurisdiction of an adjudicator under the CC Act.
66 Paragraph 7 states that Alliance seeks payment of the amount of $548,416.46, which is the value of the bank guarantees.
67 Paragraph 8 states that, additionally, Alliance seeks interest pursuant to s 33 of the CC Act on the amount determined to be payable to it.
68 Paragraph 40 states that Tenix has made a payment claim within the meaning of s 3(a) of the CC Act, as its claim for liquidated damages is a claim for payment of an amount in relation to the non-performance of Alliance's obligations under the contract to achieve practical completion by the due date. The reference to s 3(a) of the CC Act is an error on two counts. Firstly, s 3(a) in the CC Act does not exist and it should be taken to be a reference to paragraph (a) of the definition of 'payment claim' in s 3 of the CC Act. Secondly, Tenix is the principal, not the contractor, and it should be a reference to paragraph (b) of the definition of 'payment claim' in s 3 of the CC Act. In my opinion, that error is obvious and I accept that the reference to s 3(a) is a reference to paragraph (b) of the definition of 'payment claim' in s 3 of the Act.
69 Paragraph 41 states that the payment claim is the Tenix letter.
70 Paragraph 42 states that Alliance submits that a payment dispute arose in respect of Tenix's payment claim on 2 September 2013 when the Alliance letter was sent to Tenix.
71 Paragraph 43 states that if there is any doubt about the submission in paragraph 42 the parties were clearly in dispute when Alliance gave the notice of dispute.
72 Paragraph 52 states that when an application for adjudication is made under the CC Act the adjudicator is empowered by s 31 of the CC Act to determine on the balance of probabilities whether any party is liable to make a payment, or to return any security.
73 Paragraph 53 states that Alliance seeks a return of the security or, alternatively, a payment equivalent to the value of the security which it says was wrongfully drawn down.
74 There are a number of observations I will make regarding the statements in those paragraphs.
75 Paragraph 5 refers to Tenix's claim for liquidated damages and paragraph 40 says that claim is a payment claim.
76 However, paragraph 5 also refers to Tenix's recourse to the bank guarantees and paragraph 7 of the adjudication application states that Alliance seeks payment of the value of the bank guarantees. Also, paragraph 53 states that Alliance seeks a return of the security (that is, the bank guarantees) or a payment equivalent to the value of the security.
77 I note that in paragraphs 7 and 53 Alliance does not seek a determination regarding whether the liquidated damages claimed by Tenix are payable. Instead, Alliance seeks the payment of the equivalent value of the bank guarantees.
78 Usually the party to a construction contract which is seeking payment of a payment claim would make an application for adjudication seeking a determination that the other party to the contract make a payment to it. However, s 25 of the CC Act states that if a payment dispute arises under a construction contract, any party to the contract may apply to have the dispute adjudicated.
79 Therefore, it is open to a party against whom a payment claim has been made, which it disputes, to apply for adjudication of that payment dispute. Under s 31(2)(b) of the CC Act the adjudicator has the power in such a situation to determine whether or not the applicant party is liable to make the payment claimed by the respondent party.
80 If the adjudication application was seeking the determination of whether or not Alliance is liable to pay the claim for liquidated damages then it would be an application for the adjudication of a payment dispute under s 26 of the CC Act. However, that is not what Alliance seeks in the adjudication application.
81 I do not agree with the statement by Alliance in paragraph 41 that the payment claim is the Tenix letter. It is the assertion in the Tenix letter that Alliance is liable for and must pay the liquidated damages to Tenix which is the payment claim. The reason I make that point is because, in my view, by stating that the Tenix letter is the payment claim, Alliance has conflated the claim for liquidated damages with Tenix's recourse to the bank guarantees, because both of those are referred to in the Tenix letter. Whilst the recourse to the bank guarantees followed from the liquidated damages claim, it is a separate and distinct matter from it.
82 The claim by Tenix for liquidated damages falls within paragraph (b) of the definition of 'payment claim' in s 3 of the CC Act. Although the Tenix letter does not demand payment of the liquidated damages it is clearly a claim for the payment of the amount of the liquidated damages within the meaning of the word 'claim' in the Macquarie Dictionary , which includes 'an assertion of a right or alleged right, an assertion of something as a fact, a right to claim or demand'. The Tenix letter indicates that Tenix intends to recover payment of the amount of the liquidated damages from the amount which it would otherwise be liable to pay to Alliance as the final payment of the subcontract price, but that there will be insufficient monies under that liability to discharge the liability for liquidated damages, so in the meantime it has had recourse to the bank guarantees to recover part of the liquidated damages. Clause 12.2 of the subcontract deals with the calculation of the final amount due and the date for payment of it.
83 The Alliance letter does not refer to the claim for liquidated damages by Tenix and reject or dispute that claim and, therefore, it did not give rise to a payment dispute in respect of the liquidated damages claim for the purposes of s 6(a) of the CC Act. However, the notice of dispute clearly disputes the liquidated damages claim and was given prior to the date on which final payment would be due under clause 12.2 of the subcontract and therefore the notice of dispute gave rise to a payment dispute in respect of the liquidated damages claim for the purposes of s 6(a) of the CC Act.
84 Looking at paragraphs 5, 6 and 7 and then paragraphs 52 and 53 it is clear that Alliance believes that once the payment dispute arose in respect of the liquidated damages claim, Alliance could apply for the adjudication of that dispute and that the adjudicator then has the power under s 31(2)(b) of the CC Act to determine that Tenix pay the equivalent value of the bank guarantees to Alliance, which Alliance says were wrongly drawn down by Tenix.
85 In paragraph 52 Alliance states that under s 31 of the CC Act the adjudicator is empowered to 'determine whether any party to the payment dispute is liable to make a payment or to return any security'. Then in paragraph 53 Alliance states that it is seeking 'in effect a return of the security, alternatively a payment in the form of a payment equivalent to the value of the security which Alliance says was wrongfully drawn down'.
86 In my opinion, Alliance has misconstrued the meaning of the words 'whether any party to the payment dispute is liable to make a payment, or to return any security' in s 31(2)(b) of the CC Act in contending that they enable the adjudicator to determine that Tenix make a payment to Alliance equivalent to the value of the bank guarantees or 'return' the bank guarantees. Those words must be construed in the context of the other provisions of the CC Act and, in particular, the definition of 'payment claim' in s 3 of the Act and the definition of when a 'payment dispute' arises in s 6 of the Act.
87 'Payment claim' is defined in s 3 of the CC Act to mean a claim for particular types of payment and a 'payment dispute' is defined in s 6 of the CC Act as arising for the purposes of the Act in only the circumstances, which are set out in s 6(a), s 6(b) and s 6(c) of the Act, namely:
a) when the amount claimed in a payment claim has not been paid or has been disputed by the time it is due;
b) when money retained under the contract has not been paid by the time it is due; or
c) when any security held under the contract has not been returned by the time it is due.
88 In my view, under s 31(2)(b) of the CC Act an adjudicator may only determine whether a party to a construction contract is liable to make a payment which falls within s 6(a) or s 6(b) of the Act, or to return a security which falls within s 6(c) of the Act.
89 Neither the payment sought by Alliance in the adjudication application, that is, the payment of the equivalent of the value of the bank guarantees, nor the 'return' of the bank guarantees, fit within any of the circumstances set out in s 6(a), s 6(b) or s 6(c) of the CC Act for the following reasons:
• The payment sought does not fall within the definition of 'payment claim' in s 3 of the CC Act and therefore cannot give rise to a payment dispute under s 6(a) of the Act.
• It is not contended that a payment dispute has arisen under s 6(b) of the CC Act.
• Although paragraph 53 of the adjudication application states that Alliance seeks a return of the security, that is not a payment dispute under s 6(c) of the CC Act. Section 6(c) of the Act deals with the situation where a security held by a party to a construction contract is not returned by the time it is due to be returned under the contract. The subcontract provides, in clause 8.7.7, that Tenix is to release any remaining security upon expiry of the defects liability period, but that is not the situation here. This is a situation where Tenix had recourse to the bank guarantees before the due date for the release of the bank guarantees to Alliance.
90 Therefore, neither the payment sought by Alliance, nor the 'return' of security referred to in paragraph 53 can be the subject of a determination under s 31(2)(b) of the CC Act.
91 Although the adjudication application refers to the payment dispute which arose when Alliance disputed the claim by Tenix against Alliance for liquidated damages, it does not seek a determination in respect of that payment claim and, in my opinion, it is not therefore an application for the adjudication of that payment dispute.
92 That raises the question of what the adjudication application seeks to have adjudicated.
93 The determination which Alliance seeks in the adjudication application is that Tenix pay to it the value of the bank guarantees, or 'return' that security and, in my opinion, it is the dispute which has arisen from Tenix having recourse to the bank guarantees which Alliance has applied to have adjudicated under the CC Act.
94 The dispute regarding Tenix having recourse to the bank guarantees is not a payment dispute for the purposes of the CC Act because it does not fall within s 6 of the Act and therefore it is not a dispute which Alliance can apply to have adjudicated under s 26 of the Act. Accordingly, in my opinion, the adjudication application has not been prepared in accordance with s 26 of the Act and it must be dismissed under s 31(2)(a)(ii) of the Act.
Conclusion on the issue to be determined
95 For the above reasons, I have concluded that the adjudicator's decision to dismiss the adjudication application is correct and must be affirmed.
Order
96 The Tribunal will therefore issue the following order:
1. The decision of the adjudicator dated 7 November 2013 dismissing the adjudication application is affirmed.
I certify that this and the preceding [96] paragraphs comprise the reasons for decision of the State Administrative Tribunal.
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MR D AITKEN, MEMBER