Robson Civil Projects Pty Limited v Walter Mining Pty Limited [2009] NSWSC 1071 (24 September 2009)

Last Updated: 9 October 2009

NEW SOUTH WALES SUPREME COURT

CITATION:

Robson Civil Projects Pty Limited v Walter Mining Pty Limited [2009] NSWSC 1071

JURISDICTION:

FILE NUMBER(S):

55087/2009

HEARING DATE(S):

24 September 2009

EX TEMPORE DATE:

24 September 2009

PARTIES:

Robson Civil Projects Pty Limited ABN 62 008 430 939 – Plaintiff

Walter Mining Pty Limited ABN 79 113 284 263 - First Defendant

Michael Brand - Second Defendant

Adjudicate Today Pty Limited - Third Defendant

JUDGMENT OF:

Hammerschlag J

LOWER COURT JURISDICTION:

Not Applicable

LOWER COURT FILE NUMBER(S):

Not Applicable

LOWER COURT JUDICIAL OFFICER:

Not Applicable

COUNSEL:

F.P. Hicks [Plaintiff]

M. Ashhurst SC [First Defendant]

SOLICITORS:

Moray & Agnew [Plaintiff]

DLA Phillips Fox [First Defendant]

CATCHWORDS:

BUILDING AND CONSTRUCTION LAW - Adjudication determination made pursuant to s 22 of the Building and Construction Industry Security of Payment Act 1999 (NSW) (“the Act”) - Whether the adjudicator failed to make a bona fide attempt to exercise his powers under the Act – Whether the plaintiff was denied a measure of natural justice as required under the Act – Held that there was no failure by the adjudicator to make a bona fide attempt to perform his task under the Act, nor any substantial denial of natural justice - The adjudicator considered the operation of the appropriate clauses of the contract in question, the operation of the Act, and he afforded each party the opportunity to make submissions.

LEGISLATION CITED:

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

CATEGORY:

Principal judgment

CASES CITED:

Downer Construction (Australia) Pty Ltd v Energy Australia [2007] NSWCA 49

Brodyn Pty Ltd t/a Time Cost and Quality v Davenport [2004] NSWCA 394 ; (2004) 61 NSWLR 421
Transgrid v Siemens Ltd [2004] NSWCA 395 ; (2004) 61 NSWLR 521

Reiby Street Apartments Pty Ltd v Winterton Constructions Pty Ltd [2006] NSWSC 375

Lansky Constructions Pty Ltd v Noxequin Pty Ltd (in liq) t/a Fyna Formwork [2005] NSWSC 963

Multiplex Constructions Pty Ltd v Luikens [2003] NSWSC 1140

Timwin Construction Pty Ltd v Façade Innovations Pty Ltd [2005] NSWSC 548

Austruc Constructions Ltd v ACA Developments Pty Ltd [2004] NSWSC 131

John Holland Pty Ltd v Roads & Traffic Authority of New South Wales [2007] NSWCA 19

Co-ordinated Construction Co Pty Ltd v Climatech (Canberra) Pty Ltd [2005] NSWCA 229.

Coordinated Construction Co Pty Ltd v J M Hargreaves (NSW) Pty Ltd [2005] NSWCA 228

Perform (NSW) Pty Ltd v MEV-AUS Pty Ltd [2009] NSWCA 157

TEXTS CITED:

DECISION:

Summons dismissed with costs.

JUDGMENT:

IN THE SUPREME COURT

OF NEW SOUTH WALES

EQUITY DIVISION

TECHNOLOGY AND CONSTRUCTION LIST

HAMMERSCHLAG J

24 SEPTEMBER 2009

55087/2009 ROBSON CIVIL PROJECTS PTY LIMITED –V- WALTER MINING PTY LIMITED

EX TEMPORE JUDGMENT

INTRODUCTION

1 HIS HONOUR : The plaintiff seeks to have declared void an adjudication determination (“the determination”) dated 7 September 2009 made by the second defendant (“the adjudicator”) in favour of the first defendant in the amount of $591,359.35 under the provisions of the Building and Construction Industry Security of Payment Act 1999 (NSW) (“the Act”). The plaintiff seeks ancillary relief restraining the first defendant from obtaining any adjudication certificate or seeking to obtain payment or otherwise claim monies in respect of the determination.

2 On 18 September 2009, by consent and against the usual undertaking for damages, orders for injunctive relief were made and the plaintiff undertook to pay into Court the sum of $596,143.55.

BACKGROUND

3 The plaintiff (or “Robson Civil Projects”) and the first defendant (or “the Subcontractor”) are parties to a written subcontract agreement (“the contract”) dated 9 May 2008 under which the plaintiff engaged the first defendant to construct three tunnels, presumably designated T1, T2 and T3 respectively, and to carry out certain excavation at the Top Ryde Shopping Centre Redevelopment, north west of Sydney.

4 The contract incorporates a schedule which defines the Subcontract Sum as “per the attached Target Incentive Budget Estimate and relevant plant and labour schedules”. The schedule defines “Security” as “5% of the Subcontract Sum”.

5 Clause 7 of the contract is in the following terms:

“ 7. Security for Performance.

(a) The Subcontractor must provide Security for performance of its obligations under this Agreement as set out in the Schedule in a form acceptable to Robson Civil Projects.

(b) Robson Civil Projects will reduce the Subcontractor's Security by half upon the later of the date of the Certificate of Practical Completion for the Project and the date on which the Works are completed.

(c) Robson Civil Projects will release the balance of the Subcontractor's Security at the end of the Defects Liability Period subject to all defects having been rectified to the satisfaction of Robson Civil Projects.

6 Clause 21 of the contract provides as follows:

21. Set Off

Robson Civil Projects may set off any of the following amounts against any amount Robson Civil Projects owes the Subcontractor or against the Subcontractor's security:

(i) any amount the Subcontractor is required to pay under this Agreement.

(ii) any costs Robson Civil Projects incurs by doing something the Subcontractor is required to do but fails to do under the Agreement.

(iii) deleted.

(iv) any amount by which the value of the Works is diminished as a result of the Subcontractor's failure to comply with the Agreement. If the amount can not be agreed by both parties, then the matter is to be referred to an independent quantity surveyor or the institute of arbitrators & mediators."

7 On 27 July 2009 the defendant made a payment claim on the plaintiff for $667,177.79 excluding GST. The claim was described in a covering letter as “an overall final invoice”.

8 The plaintiff responded with a payment schedule dated 3 August 2009 acknowledging liability to pay $54,632.91 excluding GST.

9 The payment claim was framed on the basis that there had been an underpayment in respect of four nominated invoices (14, 17, 18 and 19) from which was deducted certain credits accepted as being due.

10 The payment schedule responded by assessing the value of the works completed, deducting retention monies and setting off (presumably pursuant to clause 21 of the contract) monies for the rectification of defects and repairing damage alleged to have been caused by the first defendant.

11 The amount deducted for defects and repairing damage was described as “backcharges” and amounted to $324,704.90. The retention amount deducted was $174,368.86.

12 Included in the backcharges and designated as follows were the following items:

a Item 1 Pile Repairs -$99,460.60 Works Incomplete, further costs to come;

b Item 13 Removal of bitumen - $11,619.89 Works Complete;

c Item 14 Costs for T3 Overspray - $80,000.00 Estimate Only. Works incomplete $19,801.07 to date. Further costs to come;

d Item 15 Costs for rectification to T2 crown - $10,682.97 Works Complete;

e Item 16 Costs for rectification to T1 eastern portal/crown - $11,392.57 Works Complete.

13 The retention deduction was described simply as “5% Retention - $174,368.86”.

14 On 17 August 2009 the first defendant made an adjudication application which was accepted by the adjudicator on 20 August 2009.

15 In the adjudication application the first defendant made submissions that the backcharges should not be deducted.

16 In relation to Item 1 it said relevantly:

“69 Walter Mining further submit that:

69.1 In regards to the backcharge, in its Payment Schedule, Robson Civil state:

‘ Estimate only. Actual costs to be confirmed’.

69.2 Without any admission of liability, the Adjudicator cannot make an assessment of the value of a backcharge where the value claimed by Robson Civil is an ‘estimate only’ and evidence that any costs have actually been incurred has not been included in it Payment Schedule."

17 In relation to item 13 it put:

“Walter Mining refer the Adjudicator to paragraph 13.6 of the Statutory Declaration of Andrew David Stuckey (Exhibit 2) and submit that, had clear and proper instruction been given by Robson Civil to Walter Mining, the need to remove bitumen would not have arisen.”

18 In relation to item 14 it put:

“85 Walter Mining refer the Adjudicator to paragraph 13.7 of the Statutory Declaration of Andrew David Stuckey (Exhibit 2) and submit that Walter Mining made several attempts to rectify the T3 overspray but were prevented from continuing such rectification work due to Robson Civil restricting Walter Mining’s access to the Site.

86 Walter Mining further submit that:

86.1 In regards to the backcharge, in its Payment Schedule, Robson Civil state:

‘ Estimate only . Works incomplete. $19,801.07 to date. Further costs to come.’

(emphasis added)

86.2 Without any admission of liability, the Adjudicator cannot make an assessment of the value of the backcharge over and above $19,801.07 where the value claimed by Robson Civil is an ‘estimate only’ and evidence that costs have actually been incurred over and above $19,801.07 has not been included in the Payment Schedule. That is, should the Adjudicator decide Robson Civil is entitled to a deduction for the backcharge, which Walter Mining respectfully submits it should not, the maximum amount Robson Civil can be entitled to is $19,801.07.”

19 In relation to item 15 it put:

“87 Walter Mining refer the Adjudicator to paragraph 13.8 of the Statutory Declaration of Andrew David Stuckey (Exhibit 2) and submit that:

87.1 Walter Mining carried out shotcrete spraying to the T2 crown in accordance with Contract specifications.

87.2 Additional shotcrete spraying, if carried out by Walter Mining, would have been work carried out under the Contract at Contract rates, the cost of which would have been borne by Robson Civil.”

20 In relation to item 16 it put:

“88. Walter Mining refer the Adjudicator to paragraph 13.9 of the Statutory Declaration of Andrew David Stuckey (Exhibit 2) and submit that additional shotcrete spraying if carried out by Walter Mining, would have been work carried out under the Contract at Contract rates, the cost of which would have been born by Robson Civil.”

21 In the adjudication response the plaintiff responded with respect to the backcharges issue, relevantly, as follows:

“57. The Claimant in its application (for example at paragraph 69.2) actually asserts that many of the deductions made by Robson Civil for (in many cases acknowledged) defective work, cannot be validly deducted on the grounds that:

“the Adjudicator cannot make an assessment of the value of a backcharge where the value claimed by Robson Civil is an ‘estimate only’ and evidence of costs have (sic) actually been incurred has not been included in its Payment Schedule.”

58. This submission is of course completely baseless and is indeed contrary to the very wording in the Act.

59. Section 10(1)(b)(iv) of the Act actually uses the word “estimate”:

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

60. This section of the Act makes it abundantly clear that the Respondent is only required to provide an estimate of the cost - it would be a ridiculous (sic) if a Respondent was precluded from withholding monies until extensive remedial works were completed because it could not provide the actual costs of the rectifying (sic) the defective work (as is the case here).

61. Secondly, even in circumstances where the remedial and rectification works had been completed (which in some cases in this matter - they have not), the Respondent is required to provide only reasons for withholding payment - the Respondent is not required to provide a full breakdown of evidence and costs with its payment claim. Substantiation is only required in any adjudication response.”

22 In the adjudication response the plaintiff responded with respect to the retention issue as follows:

“67. It appears from a review of the adjudication application, that notwithstanding that the deduction for retention is raised squarely in the payment schedule, the Claimant had made no submission on this matter at all.

68. The adjudicator referred to subcontract agreement between the parties ( Exhibit 5 to the application ) and in particular to:

(a) The Schedule on page 1; and

(b) Clause 7

69. The adjudicator will note that, the parties have agreed that the Claimant will provide security for performance of its obligations under the contract in the amount of “ 5% of the Subcontract Sum as varied in accordance with this Agreement ”.

70. Based on the assessment by Robson Civil that the value of the work completed by the Claimant to the date of the payment claim was $3,487,377.29 (excl GST), Robson Civil has properly retained 5% of this amount to the total value of $174,368.86 as security for the obligations of the Claimant under the contract.

71. Given:

(a) the express contractual term providing an entitlement to deduct security in the amount of 5% of the adjusted Subcontract Sum;

(b) the failure of the Claimant to even address this deduction in its application;

Robson Civil submits that the adjudicator should be quite satisfied that this is:

A valid deduction from the claimed amount.

72. In the alternative to the valuation of the retention provided, and to the extent that the adjusted contract value is greater than the $3,487,377.29 assessed by Robson Civil, having regard to the contract terms (as the adjudicator is required to do pursuant to section 22(2)(b) of the Act), the adjudicator should determine 5% of any such larger amount as the amount to be properly deducted.”

23 For present purposes it is not necessary to set out in full how the adjudicator dealt with each of the backcharge items. It is sufficient for present purposes to set out part of the determination with respect to pile repairs because the adjudicator dealt similarly with each of the other items the relevant respect. The adjudicator determined as follows:

“I am satisfied that clause 21 of the construction contract gives the Respondent a right of set off. Clause 21(iv) of the construction contract provides that the Respondent may set off any amount by which the value of the works is diminished as a result of the Claimant's failure to comply with the construction contract, and if the amount cannot be agreed upon by the parties, then the matter is to be referred to an independent quantity surveyor or the institute of arbitrators & mediators.

Since the respondent asserts that the works have been diminished at the fault of the claimant, and disputes that the claimant performed the excavation work with due care and diligence, and the amount of set off has not been agreed upon by both parties, it seems to me that it would be inappropriate for me to determine the amount of set off in a situation whereby the parties have expressly agreed that a matter such as this is to be referred to an independent quantity surveyor or the Institute of Arbitrators & Mediators. Consequently, I shall make no allowance for the amount of set off claimed in respect of pile repairs in my determination.”

24 With respect to retention, the adjudicator determined as follows:

“The construction contract states (at p.1 of 5 of the construction contract): “Security: 5% of the Subcontract Sum as varied in accordance with this Agreement.”

The Respondent seeks to deduct $174,368.86 (excl GST) from the Claimant’s payment claim on account of retention. The Respondent arrived at this value of retention based on the Respondent's assessment of Tax Invoices V3002-001 to V3002-19. I am satisfied that the respondent's method of valuation of the retention money accords with the construction contract.

However, for the reason I have given earlier in my determination, I have restricted my valuation of the payment claim to the amounts claimed in respect of Invoices Nos. V3002-14, V3002-17, V3002-18 and V3002-19 only (in addition to the alleged backcharges claimed by the Respondent).

Accordingly, for the reasons set out in Table 12 below, I determine that the amount to be withheld by the Respondent on account of retention is $31,124.18 (excl. GST).”

25 It is not necessary to set out the table. The exercise which the adjudicator carried out was to reach a total of $622,483.53 in respect of the four invoices he was assessing, which was reached by deducting various credits and then applying a five percent figure to that, amounting to the figure stated of $31,124.18.

THE PARTIES’ SUBMISSIONS

26 Mr Hicks of counsel appeared for the plaintiff. Mr Ashhurst of senior counsel appeared for the first defendant.

27 In relation to the backcharges Mr Hicks put that the adjudicator failed to make a bona fide attempt to exercise his powers under the Act. He put that the adjudicator was obliged to make an assessment of the amount of the backcharges as part of the assessment of the first defendant’s claim and that in taking the view that it was inappropriate for him to do so because of his view of how cl 21 of the contract operated, he failed to discharge his statutory task, and that the determination is accordingly void.

28 Mr Hicks faintly put a secondary submission, which he did not develop, that the adjudicator had denied the plaintiff natural justice by determining not to assess the quantum of the backcharges for the purposes of set off, without expressly making it clear to the plaintiff before he did so that he intended to do so, and then allowing the plaintiff an opportunity to be heard further.

29 In relation to retention, he put that by making no submissions in its adjudication application, the first defendant had effectively conceded the retention entitlement (and the amount), and by adopting as retention 5% of the amount outstanding on the invoices, rather than 5% of the whole Subcontract Sum (as varied), the adjudicator proceeded otherwise than in accordance with the payment claim, the adjudication application, the payment schedule, the adjudication response and the contract. He put it was incumbent upon the adjudicator to invite submissions, given the course he intended to adopt, and that by not doing so the plaintiff had been denied natural justice.

THE LAW

The relevant sections of the Act

30 The object of the Act is stated in s 3(1) to be to ensure that any person who undertakes to carry out construction work (or who undertakes to supply related goods and services) under a construction contract is entitled to receive, and is able to recover, progress payments in relation to the carrying out of that work and the supplying of those goods and services.

31 Under s 13 a person who claims to be entitled to a progress payment (the claimant) may serve a payment claim on the person who, under the construction contract concerned, is or may be liable to make the payment.

32 Under s 14 a person on whom a payment claim is served (the respondent) may reply to the claim by providing a payment schedule to the claimant which must identify the payment claim to which it relates and indicate the amount of the payment (if any) that the respondent proposes to make.

33 Under s 17 a claimant may apply for adjudication of a payment claim (an adjudication application) if the respondent provides a payment schedule but the scheduled amount indicated in the payment schedule is less than the amount claimed. An adjudication application must be in writing and must be made to a nominated authorising authority chosen by the claimant.

34 Under ss 20(1) and 20 (2) the respondent may (within specified time limits) lodge with the adjudicator a response to the claimant’s adjudication application (the adjudication response) which must be in writing, must identify the adjudication application to which it relates, and “may contain such submissions relevant to the response as the respondent chooses to include.”

35 Section 22(1) provides that an adjudicator is to determine the amount of the progress payments (if any) to be paid by the respondent to the claimant (the adjudicated amount), the date upon which any such amount became or becomes payable and the rate of interest payable on any such amount.

36 Section 22(2) of the Act is in the following terms:

“In determining an adjudication application, the adjudicator is to consider the following matters only:

(a) the provisions of the 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.”

The relevant principles

37 The provisions of the Act have been the subject of extensive judicial consideration. A review of the authorities yields the following relevant principles.

38 The Act seeks to facilitate speedy resolution of claims to progress payments without excessive formality or intervention by the Court and the scope for invalidity for non-jurisdictional error is limited: Downer Construction (Australia) Pty Ltd v Energy Australia [2007] NSWCA 49 at [81] .

39 Sections 13, 17, 18, 19, 21 and 22 of the Act contain certain basic requirements as well as more detailed requirements. The legislature did not intend exact compliance with all of the more detailed requirements to be essential to the existence of a determination. What was intended to be essential was compliance with the basic requirements, 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 that power, and no substantial denial of the measure of natural justice that the Act requires to be given: Brodyn Pty Ltd t/a Time Cost and Quality v Davenport [2004] NSWCA 394 ; (2004) 61 NSWLR 421at 442; Transgrid v Siemens Ltd [2004] NSWCA 395 ; (2004) 61 NSWLR 521 at 540.

40 If the basic requirements of the Act are not complied with, or if a purported determination lacks a bona fide attempt by the adjudicator to exercise the relevant power, or if there is a substantial denial of the measure of natural justice required, a purported determination will be void because then there will not be satisfaction of a requirement that the legislature has indicated to be essential to the existence of a determination: Brodyn v Davenport at 442; Transgrid v Siemens at 540; Reiby Street Apartments Pty Ltd v Winterton Constructions Pty Ltd [2006] NSWSC 375 at [73] - [75] ; Lansky Constructions Pty Ltd v Noxequin Pty Ltd (in liq) t/a Fyna Formwork [2005] NSWSC 963 at [20] ; Multiplex Constructions Pty Ltd v Luikens [2003] NSWSC 1140 at [90] - [92] .

41 The requirement of good faith is not a reference to dishonesty or its opposite but to the necessity for there to have been an effort to understand and deal with the issues in the discharge of the statutory function: Timwin Construction Pty Ltd v Façade Innovations Pty Ltd [2005] NSWSC 548 at [38] .

42 An adjudicator is only required to consider submissions which are “duly made” under s 22(2)(d).

43 Section 14(2) provides that the payment schedule must identify the payment claim to which it relates and must indicate the amount of the payment (if any) that the recipient of the payment claim proposes to make.

44 Section 14(3) requires the respondent to indicate why payment in full is withheld and the reasons for doing so.

45 Both ss 22(2)(c) and (d) make reference to “submissions” (including relevant documentation). The parenthesised words show that the legislature had in mind that the word “submissions” was not to be construed narrowly and that the submissions may include relevant documentation in support: Austruc Constructions Ltd v ACA Developments Pty Ltd [2004] NSWSC 131 at [68] – [69].

46 Under s 22(2) the adjudicator is required to consider the provisions of the Act, the provisions of the contract and submissions duly made. If an adjudicator does consider the provisions of the Act and the contract which he or she believes to be relevant, and considers those of the submissions that he or she believes to have been duly made, an accidental or erroneous omission to consider a particular provision of the Act or the contract or a particular submission is not sufficient to invalidate the determination.

47 The legislature entrusts to the adjudicator the role of determining whether submissions are or are not duly made and if the adjudicator addresses that question and comes to the conclusion that a submission was not duly made, a failure to take account of that submission is not a failure to afford the measure of natural justice contemplated by the Act: John Holland Pty Ltd v Roads & Traffic Authority of New South Wales [2007] NSWCA 19 at [63] and [71]; Co-ordinated Construction Co Pty Ltd v Climatech (Canberra) Pty Ltd [2005] NSWCA 229.

48 In Coordinated Construction Co Pty Ltd v J M Hargreaves (NSW) Pty Ltd [2005] NSWCA 228 at [52] Hodgson JA said:

The task of the adjudicator is to determine the amount of the progress payment to be paid by the respondent to the claimant; and in my opinion that requires determination, on the material available to the adjudicator and to the best of the adjudicator’s ability, of the amount that is properly payable. Section 22(2) says that the adjudicator is to consider only the provisions of the Act and the contract, the payment claim and the claimant’s submissions duly made, the payment schedule and the respondent’s submissions duly made, and the results of any inspection; but that does not mean that the consideration of the provisions of the Act and the contract and of the merits of the payment claim is limited to issues actually raised by submissions duly made: see The Minister for Commerce v. Contrax Plumbing (NSW) Pty. Ltd. [2005] NSWCA 142 at [33] - [36] . The adjudicator’s duty is to come to a view as to what is properly payable, on what the adjudicator considers to be the true construction of the contract and the Act and the true merits of the claim. The adjudicator may very readily find in favour of the claimant on the merits of the claim if no relevant material is put by the respondent; but the absence of such material does not mean that the adjudicator can simply award the amount of the claim without any addressing of its merits.

49 In Perform (NSW) Pty Ltd v MEV-AUS Pty Ltd [2009] NSWCA 157 at [67] Giles JA said:

In my opinion, what a payment schedule indicates as the reasons for the scheduled account being less than the claimed amount and for withholding payment is also a matter for the adjudicator, and if the adjudicator makes an error in that respect it does not invalidate the determination. Added reference to s 22(2)(d) does not take this further, see Brodyn Pty Ltd v Davenport at [56] holding that it is sufficient that the adjudicator bona fide address the requirements of s 22(2) as to what is to be considered. By s 22(2) the legislature has committed to the adjudicator consideration of the payment claim, any payment schedule, and all submissions duly made. There is no reason to regard a correct view of what a payment schedule indicates as more basic and essential to a valid determination than an adjudicator’s view of what a payment claim identifies or indicates, or whether a submission has been duly made.

50 At [99] His Honour said:

Subject to any s 21(4) request, the appellant had to deal with that through submissions duly made in support of a payment schedule and lodgement of an adjudication response. It was confined to the reasons for withholding payment in the payment schedule, but it was up to the appellant to make submissions and the adjudicator could not go beyond the submissions: s 22(2)(d). The appellant had the opportunity to make all submissions it wished in that respect. The adjudicator would have denied natural justice if he had come to his determination on a basis other than one within the joinder of issue before him. But allowing for the backcharge claims and claiming a set-off was not of that nature. Even without taking account of the faxes on 29 April 2008, the respondent claimed money and the appellant opposed payment of the money because of the backcharge claims. It was necessary for the adjudicator to decide whether the backcharge claims stood as a set-off against the claim and justified valuing the claim at $nil. Nothing was done by the respondent or the adjudicator whereby the appellant could reasonably have thought that a right of set-off was accepted or conceded, or that whether the backcharge claims could stand as a set-off against the claim was not an issue for decision. It was always an issue for the appellant to address, within the Act’s mechanism for submissions, and a matter for the adjudicator’s decision, in accordance with the Act notwithstanding that submissions going to it had not been made. There would not have been denial of natural justice in his coming to a decision in the absence of submissions in support of a right of set-off.

CONSIDERATION

51 The plaintiff’s submission that there was not a bona fide attempt by the adjudicator to exercise the relevant power is unsustainable.

52 The thrust of the submission was that:

a the adjudicator failed to attempt to exercise his relevant power and function by not considering “the matters raised by the payment schedule and the adjudication response concerning the backcharges when determining the entitlement” of the first defendant to a progress payment;

b it was incumbent upon him to make an assessment of the value of the backcharges being claimed by the plaintiff and to then consider (and presumably allow) set off; and

c by taking the approach that he did, he did not fulfil his statutory task, or make a bona fide attempt to do so.

53 The adjudicator was obliged under s 22(2)(b) of the Act to consider the operation of the contract from which the application arose. That is what he did.

54 Clause 21(iv) of the contract allows for set off against any amount which the plaintiff owes the first defendant, and any amount by which the value of the Works is diminished as a result of the subcontractors failure to comply with the agreement. The amount of the set off under the provision is to be determined either by agreement or by an independent quantity surveyor or by the Institute of Arbitrators and Mediators.

55 The adjudicator determined that under the contract no set off was available unless the amount to be set off was reached in one of the ways so contemplated, and that the backcharges were therefore not available as a deduction as claimed by way of set off in the payment schedule because the amounts had not been agreed or independently determined.

56 It is not necessary for present purposes to intrude upon the question whether the adjudicator’s view of the operation of the contract in the context of s 22(2)(b) is correct. It is undoubtedly a view that was reasonably open for him to take.

57 As Hodgson JA pointed out in Coordinated Construction v J M Hargreaves (NSW) and Giles JA pointed out in Perform (NSW) Pty Ltd v MEV-AUS , the adjudicator had the obligation to consider the operation of the Act irrespective of the form of the submissions duly made. This is precisely what the adjudicator did in this case.

58 Each party had the opportunity to make submissions on the operation of cl 21 of the contract. The defendant made the submission (albeit expressly only with respect to items 1 and 14) that the provision did not operate to facilitate set off in relation to estimates (that is before the precise figure had been determined by the mechanism provided).

59 The proposition as to how clause 21 operates was fairly and squarely in play. There was no failure on the part of the adjudicator to make a bona fide attempt to perform his task and there was no denial, let alone any substantial denial of natural justice.

60 The plaintiff’s submission in relation to the retention is unsustainable for similar reasons.

61 I should point out that on my reading, although the parties and the adjudicator appear to have approached cl 7 on the basis that it concerns and allows for retention, this does not appear to be the case.

62 Even though the first defendant made no express submission in the adjudication application with respect to retention and notwithstanding that only the plaintiff put a contention as to how cl 7 operated (which I think is erroneous), it was incumbent upon the adjudicator to consider the operation of the provision. That is what he did.

63 It seems to me that although his view was erroneous, for the reasons I have said, he did attempt to perform the task with which he was charged. Neither party was denied any opportunity to put to the adjudicator any submission they wished.

64 In the way the matter was approached, it seems to me that the plaintiff obtained a windfall of $31,124.18, based on a construction of the contract which I consider to be erroneous, but one which was reasonably open for the adjudicator to take. The plaintiff can hardly have any complaint about this.

65 The summons is dismissed with costs.

66 The amount of $596,143.55 together with any interest accrued thereon is immediately to be released to the first defendant. These orders may be entered forthwith.

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LAST UPDATED:

8 October 2009