Cooper & Oxley Builders Pty Ltd v Steensma
[2016] WASC 386
•30 NOVEMBER 2016
COOPER & OXLEY BUILDERS PTY LTD -v- STEENSMA [2016] WASC 386
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2016] WASC 386 | |
| Case No: | CIV:1157/2016 | 9 NOVEMBER 2016 | |
| Coram: | LE MIERE J | 30/11/16 | |
| 15 | Judgment Part: | 1 of 1 | |
| Result: | Certiorari should issue to quash each determination | ||
| B | |||
| PDF Version |
| Parties: | COOPER & OXLEY BUILDERS PTY LTD AUKE STEENSMA AM LAND PTY LTD STEVE LIEBLICH |
Catchwords: | Judicial review Certiorari Whether adjudicator obliged to consider set off defence to payment claim under Construction Contracts Act Jurisdictional error Turns on own facts Judicial review Certiorari Time at which liability is to be determined under Construction Contracts Act Whether adjudication should have regard to evidence arising after payment claim is made Whether adjudicator erred by supplying subcontract terms into contract via s 17 of the Construction Contracts Act Jurisdictional error Turns on own facts |
Legislation: | Construction Contracts Act 2004 (WA), s 6, s 26, s 27, s 31, s 32 |
Case References: | Alliance Contracting Pty Ltd v James [2014] WASC 212 Perrinepod Pty Ltd v Georgiou Building Pty Ltd [2011] WASCA 217 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CIVIL
- Applicant
AND
AUKE STEENSMA
Respondent
AM LAND PTY LTD
Other Party
- Applicant
AND
STEVE LIEBLICH
Respondent
AM LAND PTY LTD
Other Party
Catchwords:
Judicial review - Certiorari - Whether adjudicator obliged to consider set off defence to payment claim under Construction Contracts Act - Jurisdictional error - Turns on own facts
Judicial review - Certiorari - Time at which liability is to be determined under Construction Contracts Act - Whether adjudication should have regard to evidence arising after payment claim is made - Whether adjudicator erred by supplying subcontract terms into contract via s 17 of the Construction Contracts Act - Jurisdictional error - Turns on own facts
Legislation:
Construction Contracts Act 2004 (WA), s 6, s 26, s 27, s 31, s 32
Result:
Certiorari should issue to quash each determination
Category: B
Representation:
CIV 1157 of 2016
Counsel:
Applicant : Mr D S Ellis
Respondent : No appearance
Other Party : No appearance
Solicitors:
Applicant : Mills Oakley Lawyers
Respondent : No appearance
Other Party : No appearance
CIV 1459 of 2016
Counsel:
Applicant : Mr D S Ellis
Respondent : No appearance
Other Party : No appearance
Solicitors:
Applicant : Mills Oakley Lawyers
Respondent : No appearance
Other Party : No appearance
Case(s) referred to in judgment(s):
Alliance Contracting Pty Ltd v James [2014] WASC 212
Perrinepod Pty Ltd v Georgiou Building Pty Ltd [2011] WASCA 217
- LE MIERE J:
Summary
1 The applicant, Cooper & Oxley, entered into a construction contract with AM Land Pty Ltd. AM Land made two claims for progress payments which were not paid by Cooper & Oxley. Cooper & Oxley asserted that it was entitled to set off its entitlement to liquidated damages and damages for rectification work against any amount claimed by AM Land. AM Land applied to have the dispute adjudicated by an adjudicator under the Construction Contracts Act 2004 (WA) (the Act).
2 The adjudicator decided that AM Land's claims in respect of each progress claim and Cooper & Oxley's asserted set off each gave rise to a payment dispute under the Act and he did not have jurisdiction to adjudicate more than one payment dispute. The adjudicator decided to adjudicate the payment dispute in relation to one of AM Land's progress claims but not the other progress claim and not Cooper & Oxley's claim to set off damages due to it against the amounts claimed by AM Land. The adjudicator determined that Cooper & Oxley was liable to AM Land and that Cooper & Oxley should pay to AM Land $182,047.44.
3 AM Land then applied to have the dispute in relation to its second progress claim adjudicated under the Act. The second adjudicator decided that Cooper & Oxley could not assert its set off against AM Land's payment claim. The second adjudicator determined that Cooper & Oxley was liable to AM Land and determined that Cooper & Oxley pay AM Land $88,626.88.
4 Cooper & Oxley applies to the court for judicial review of each of the determinations and a writ of certiorari to quash each determination for jurisdictional error.
5 For the reasons which follow the adjudicator in each determination made a jurisdictional error and the determinations should be quashed.
The contract
6 Cooper & Oxley entered into a contract to build the Sage Hotel in Hay Street, West Perth. On 20 April 2015 Cooper & Oxley entered into a subcontract with AM Land for AM Land to construct ceilings, partitions and linings for the hotel. The subcontract included terms providing for progress claims, payment certificates and time for payment. Clauses 17.1 and 17.2 provide for the subcontractor to make progress claims. Clause 17.3 provides that the contractor shall issue a payment certificate to the subcontractor within 21 days from the end of the month in which the subcontractor's progress claim was received. Clause 17.4 provides for the time for payment by the contractor of progress claims. Clause 17.5 provides for the amount of payment of the subcontractor's progress claims. Clause 17.10 provides that the contractor may set off from any monies due, or reasonably anticipated by the contractor to become due, to the subcontractor any debt, amount, claim for damages or any other entitlement the contractor may have against the subcontractor.
7 Clause 21 provides that if the subcontractor fails to complete relevant work by specified dates or substantial completion by the date for substantial completion the subcontractor shall pay the contractor liquidated damages at the specified rate.
AM Land makes progress claims
8 On 21 October 2015 AM Land issued progress claim 5. The progress claim listed in detail contract works, their value, the previous value completed, the percentage completed to date, the value completed to date and the amount claimed in respect of each item of work. The claim also included claims for variations. The progress claim concluded:
Total value of work completed to date $282,652.21
Less previously claimed $100,604.77
Amount this claim $182,047.44
9 On 2 November 2015 Cooper & Oxley sent an email to AM Land stating that it attached its assessment of AM Land's progress claim 5. Attached to the email was a copy of AM Land's progress claim 5. Cooper & Oxley had made certain changes to selected percentages in the 'complete to date' column and corresponding changes to the 'net total this claim' and 'value completed to date' columns. These dollar value changes are then carried through to the 'contract works total' row and from there to the 'total value of work completed to date'. The amount shown in the last three rows including 'amount this claim $182,047.44' was not changed.
10 On 24 November 2015 AM Land delivered progress claim 6. The progress claim took the same form setting out details of work completed and variations and concluding:
Total value of work completed to date $371,278.94
Less previous claimed $282,652.26
Amount this claim $88,626.68
11 Cooper & Oxley did not pay the amounts claimed by AM Land in progress claims 5 and 6, or any part of the claims. Prior to the issue of the progress claims Cooper & Oxley had issued default notices to AM Land. On 2 December 2015 Cooper & Oxley informed AM Land that pursuant to cl 35.2 of the subcontract AM Land had not rectified substantial breaches identified in the default notice issued on 18 November 2015 and pursuant to cl 35 all remaining aspects of the works would be taken out of the hands of AM Land and performed by others and any additional costs or losses incurred by Cooper & Oxley as a result of AM Land's failure to remedy the substantial breaches may be recovered from AM Land as a debt due.
12 On 11 December 2015 Cooper & Oxley informed AM Land that it had engaged a different ceiling and wall contractor to complete AM Land's works and set out the amount estimated it would cost to complete the works. Cooper & Oxley stated that pursuant to cl 17.10 of the subcontract Cooper & Oxley will set off those costs to complete AM Land's works against any outstanding claims in relation to the subcontract and reserved the right to recover any further losses incurred as a result of AM Land's default
AM Land applies for adjudication
13 On 21 December 2015 AM Land applied under s 26(1) of the Act for adjudication of the payment dispute described in its application. In its application AM Land said that Cooper & Oxley's response to its progress claim does not comply with the requirements of the subcontract defining how Cooper & Oxley should respond to a progress claim and does not represent a payment certificate under the contract. AM Land said that Cooper & Oxley's email of 11 December 2015 gave rise to a payment dispute under the Act and that Cooper & Oxley's email disputes the unpaid sums in their entirety.
14 Auke Steensma (the First Adjudicator) was appointed and accepted his appointment as adjudicator. Cooper & Oxley delivered its response on 31 December 2015. In its response Cooper & Oxley said that progress claim 5 and progress claim 6 each gave rise to a separate payment dispute. Cooper & Oxley made a number of other contentions including:
• Cooper & Oxley was entitled to liquidated damages which continue to accrue. As at 4 January 2016 liquidated damages will amount to $454,316 which amount exceeds either or both of the progress claims.
• The costs to Cooper & Oxley to complete the subcontract works less any amounts that would have been due to AM Land are also a debt due to Cooper & Oxley. Cooper & Oxley is entitled to set off that amount against AM Land's claims.
15 Cooper & Oxley contended that any issue of set off is within the jurisdiction of the adjudicator and that the appropriate time to claim a set off is at the adjudication level. Cooper & Oxley submitted that providing the adjudicator is satisfied that Cooper & Oxley has acted pursuant to the subcontract in removing the scope and in the amount claimed by Cooper & Oxley to complete and rectify the works then the adjudicator should set off any such amounts as against any amount that might otherwise be due to AM Land as a debt due.
First determination
16 The First Adjudicator issued his adjudication on 25 January 2016. The adjudicator stated that Cooper & Oxley submits that the two payment claims and the assessment of set off claim against liability to pay liquidated damages are three separate payment claims and disputes. That is incorrect. In its response Cooper & Oxley claimed that each of the progress claims gave rise to a payment dispute but did not contend that its assertion that the liquidated damages and rectification damages it asserted it was entitled to set off against any amount due to AM Land was a payment claim or gave rise to a payment dispute. In any event, the adjudicator found that s 32(3)(b) of the Act estopped him from determining payment claim 6 and from determining the assessment of Cooper & Oxley's set off claim. The adjudicator proceeded to determine the merits of progress claim 5.
17 The adjudicator noted that Cooper & Oxley claimed that its progress claim assessment delivered to AM Land on 2 November 2015 disputes part of the progress claim but said that both AM's progress claim and Cooper & Oxley's progress claim's assessment showed at the bottom line 'amounts this claim $182,047.44' and therefore the claim has neither been rejected or wholly or partly disputed pursuant to s 6(a) of the Act. The adjudicator then stated:
I have no choice but to reject claims made by [Cooper & Oxley] and find that payment claim 5 dated 21/10/2015 to the value of $182,047.44 (excluding GST) should have been paid to [AM Land] by [Cooper & Oxley] on or before 16 December 2015.
- The adjudicator added that because of his finding that Cooper & Oxley's set off claim was a separate payment dispute which he did not have jurisdiction to determine, he had not considered or assessed the merits of any set off claim that may be relevant to the calculation of the monies payable by Cooper & Oxley to AM Land in respect of payment claim 5.
Application for judicial review of first determination
18 Cooper & Oxley applies for judicial review of the adjudicator's determination and a writ of certiorari to quash it on a number of grounds. It is unnecessary to reproduce those ground in these reasons for judgment.
AM Land abides result
19 The respondent to these applications, AM Land, took no part in these applications for judicial review. AM Land informed the court that it would abide the results except as to costs.
First determination should be set aside
20 In determining whether Cooper & Oxley is liable to make a payment to AM Land the adjudicator did not consider the merits of Cooper & Oxley's claimed set off. The adjudicator said that a payment claim is defined to mean a claim made under a construction contract 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. Therefore, the assessment of Cooper & Oxley's set off claim must be deemed a separate payment claim. The adjudicator said that he was estopped 'from determining the assessment of set off claim against liability to pay liquidated damages' by s 32(3)(b) of the Act and therefore he 'remained silent' on that matter. The adjudicator thereby erred.
21 Section 31(2)(b) of the Act provides that an adjudicator must, if he does not dismiss the application without making a determination of its merits:
(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.
- Section 6 of the Act relevantly provides that a payment dispute arises if 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. The payment dispute the subject of the adjudication arose when Cooper & Oxley did not pay the amount claimed by AM Land by its progress claim 5 by the time when the amount claimed was due to be paid under the subcontract or when Cooper & Oxley rejected or wholly or partly disputed the claim. The payment dispute relates to whether Cooper & Oxley was liable to pay the sum claimed by AM Land in its progress claim 5. The payment dispute did not encompass a claim by Cooper & Oxley that AM Land pay to it the amount it asserted AM Land was liable to pay to it for liquidated damages and rectification damages for two reasons. First, in its response Cooper & Oxley raised its set off claim as a shield but not a sword. Cooper & Oxley raised its set off claim as a defence to the claim made against it but did not claim that AM Land should make any payment to it. Secondly, any claim by Cooper & Oxley that AM Land should pay to it an amount in relation to the performance by AM Land of its obligations under the subcontract would be a separate payment claim, the rejection of which would give rise to a separate payment dispute. Section 31(2)(b) of the Act does not empower the adjudicator to determine a payment dispute unless the claimant has made a separate adjudication application in respect of that payment dispute: Alliance Contracting Pty Ltd v James [2014] WASC 212 [50] - [76] (Beech J).
22 That does not mean that the adjudicator must determine the payment dispute arising from Cooper & Oxley's rejection of AM Land's progress claim 5 without considering the merits of Cooper & Oxley's claimed set off. A respondent to an application for adjudication may use its counterclaim or set off as a defence to the claim made against it. The adjudicator is required to take into account the respondent's response, including the merits of any counterclaim or set off, in reaching his determination: Alliance v James [50] - [76]. The adjudicator erred by failing to consider Cooper & Oxley's claimed set off which it raised in its response as a defence to AM Land's claim.
23 A determination made pursuant to s 31(2)(b) of the Act can be challenged by judicial review: Perrinepod Pty Ltd v Georgiou Building Pty Ltd [2011] WASCA 217 [11] (Martin CJ), [7] - [8] (McLure P), [92], [95] (Murphy JA). The adjudicator made a jurisdictional error. The adjudicator found that he was precluded by s 32(3)(b) from considering Cooper & Oxley's set off defence to AM Land's claim. That was an erroneous construction of the Act. An adjudicator may not adjudicate simultaneously two or more payment disputes without the consent of the parties but that does not preclude him from considering the respondent's counterclaim or set off raised by way of defence to the applicant's claim. Sections 27, 31(2)(b) and 32(1)(a)(ii) of the Act require the adjudicator to take into account the respondent's response, including the merits of any counterclaim or set off, in reaching a determination. The adjudicator did not take into account Cooper & Oxley's set off defence raised in its response. The adjudicator thereby failed to take into account a matter which the Act requires he take into account in determining the payment dispute. The adjudicator misconceived the function which he was performing and the extent of his powers.
AM Land applies for second adjudication
24 On 2 February 2016 AM Land made an application for adjudication in respect of progress claim 6. Steve Lieblich (Second Adjudicator) was appointed and accepted his appointment as adjudicator.
AM Land application
25 AM Land said that the amount claimed under progress claim 6 would, pursuant to cl 17.4 of the subcontract, be due for payment 35 days from the end of the month in which the claim was deemed to have been made, that is 4 January 2015. No payment was made and accordingly a payment dispute arose on the following day, 5 January 2016.
26 AM Land said that, pursuant to the terms of the subcontract, progress claim 6 is deemed to have been submitted and made on 25 November 2015. Clause 17.3 of the subcontract provides in effect that the contractor shall issue a certificate to the subcontractor within 21 days from the end of the month in which the subcontractor's progress claim was deemed to be received. Cooper & Oxley did not provide AM Land with any compliant assessment of progress claim 6. Cooper & Oxley did not reject or dispute its claim and should pay the claim. AM Land said that the adjudicator should not consider Cooper & Oxley's set off claim but if he did then the claims were not reasonably assessed and if the adjudicator determined that Cooper & Oxley has a right to set off then $10,105.52 is the maximum that could be claimed as a set off under the subcontract.
Cooper & Oxley's response
27 On 2 February 2016 Cooper & Oxley delivered its response. Cooper & Oxley submitted that it disputed AM Land's progress claim 6 by its email of 11 December 2015. Cooper & Oxley again claimed to set off against any amount claimed by AM Land liquidated damages and rectification damages for which AM Land was liable to it under the subcontract.
Second Determination
28 On 24 February 2016 the Second Adjudicator delivered his determination (Second Determination). The Second Adjudicator determined that Cooper & Oxley was liable to AM Land and determined that Cooper & Oxley pay AM Land $88,626.88.
29 The adjudicator found that the payment dispute arose either on 5 January 2016, as asserted by AM Land, or alternatively on 11 December 2016, as asserted by Cooper & Oxley. The application for adjudication was made within time, on which ever of those dates the payment dispute arose.
30 The adjudicator found that pursuant to s 17 of the Act some of the provisions in sch 1 div 5 cl 7 are implied in the subcontract. The adjudicator found that cl 7(1) and 7(2) are not implied in the subcontract because the subcontract has provisions, specifically cl 17(3) about those matters, that is the timing and content of a notice of dispute. The adjudicator determined that sch 1 div 5 cl 7(3) and 7(4) are implied in the subcontract because:
I find no written provision in the contract about how [Cooper & Oxley] is to respond to the subject Payment Claim, in the event that no Payment Certificate was issued, in accordance with the contract, in relation to that Payment Claim.
- The adjudicator found that cl 7.3 should be implied in the subcontract but modified for the following reason:
The contract does include a written provision about the timing of payment (in cl 17.4) and so I ignore that provision ('within 28 days after a party receives a payment claim') of schedule 1 division 5 clause 7(3).
Thus, the adjudicator found that the following provisions are implied in the subcontract:
(3) Within [35 days of the end of the month in which the Progress Claim was received (or was deemed to be received)], the [Respondent] must do one of the following, unless the claim has been rejected or wholly disputed in accordance with [clause 17.3] -
(a) pay the part of the amount of the claim that is not disputed;
(b) pay the whole of the amount of the claim.
(4) If under this contract the [Respondent] is entitled to retain a portion of any amount payable by the [Respondent] to the [Applicant] -
(a) subclause (3) does not affect the entitlement; and
(b) the principal must advise the contractor in writing (either in a notice of dispute or separately) of any amount retained under the entitlement.
32 The adjudicator then went on to consider Cooper & Oxley's set off claim. Having referred to cls 17.5 and 17.10 of the subcontract the adjudicator said that Cooper & Oxley may set off its reasonable assessment of any debt, amount claimed for damages or any other entitlement, from any monies due. The adjudicator then went on to consider the merits of the set off claimed and directed himself that the question to be answered is: has Cooper & Oxley made and provided a reasonable assessment of its alleged entitlement, for the purpose of set off against any amount that it would otherwise be liable to pay AM Land in relation to the payment claim? The adjudicator considered Cooper & Oxley's statement of the rectification damages to which it was entitled in its email of 11 December 2015. The adjudicator considered that each of the assessments made by Cooper & Oxley were not reasonably substantiated for the purpose of its set off against the payment claim. The adjudicator said that 'subsequent additional information' that is information subsequent to Cooper & Oxley's email of 11 December 2015 'is the subject of a prospective future claim by [Cooper & Oxley] against [AM Land] and does not form part of the payment claim dispute that is the subject of this adjudication'. The adjudicator added a second reason for having no regard to this 'subsequent additional information': 'furthermore, [AM Land] has no opportunity to respond to this new information within the framework of this adjudication process, and so it would be a breach of procedural fairness if I were to include it in my considerations'. The adjudicator considered that no amount should be set off against the amount otherwise determined as liable for payment by Cooper & Oxley to AM Land in relation to the payment claim.
Second determination should be set aside
33 The Second Adjudicator wrongly made a determination of liability as at 4 January 2016. He should have made the determination as at the date of the determination. Section 31(2)(b) of the Act requires the adjudicator to determine whether any party to the payment dispute is liable to make a payment, not to determine whether any party was at some anterior time liable to make a payment. Furthermore, as counsel for Cooper & Oxley, Mr Ellis, submitted the legislature cannot have intended that an adjudicator should ignore an event which has occurred after the payment dispute first arose, such as payment of part or whole of the claim or compromise of the payment dispute. Nor should be imputed to the legislature an intention that evidence about liability which emerges after the date of the dispute is not to be considered by the adjudicator. In determining liability as at 4 January 2016 rather than at the time the determination was made on 24 February 2016, the adjudicator misunderstood his function under s 31(2)(b) of the Act and made a jurisdictional error. The adjudicator's error significantly affected the determination because it led the adjudicator to exclude or not take into account material relevant to determining the amount of Cooper & Oxley's setoff as at 24 February 2016. For example, the adjudicator had no regard to Cooper & Oxley's claim for liquidated damages which Cooper & Oxley asserted to be $891,488 as at the date of determination.
34 The adjudicator erred by failing to have regard to Cooper & Oxley's defence in their response. The effect of s 27, s 31(2)(b) and s 32(1)(a)(ii) is that the adjudicator must have regard to the defence of set off put forward by Cooper & Oxley in its response. The adjudicator erred in disregarding parts of the response which he described as 'subsequent additional information'. That was information that had not been adverted to in the 11 December 2015 email notwithstanding that it put forward matters which Cooper & Oxley claim to be entitled to set off against AM Land's claim as at the date of determination. In doing so, the adjudicator misunderstood his function and the nature and extent of his powers. This error was a jurisdictional error.
35 The adjudicator erred in implying into the subcontract provisions of sch 1 div 5 cl 7 of the Act. Section 17 of the Act is:
The provisions in schedule 1 division 5 about when and how a party is to respond to a claim for payment made by another party are implied in a construction contract that does not have a written provision about that matter.
36 It is a precondition to implying the provisions in sch 1 div 5 that the construction contract does not have a written provision about that matter, that is, about when and how a party is to respond to a claim for payment made by another party.
37 An adjudicator should consider the contract terms, form a view about their meaning and decide whether the contract has a written provision about when and how a party is to respond to a claim for payment. However, that is not what the adjudicator did in making the second determination. The adjudicator considered the relevant provisions of the subcontract and compared them with the provisions in sch 1 div 5 cl 7 about when and how to respond to a payment claim. The adjudicator found that
Schedule 1 division 5 clause 7(3) and 7(4) are implied in the subject contract, because I find no written provision in the contract about how the respondent is to respond to the payment claim, in the event that no payment certificate was issued, in accordance with the contract, in relation to the payment claim.
38 The adjudicator thereby erred. Section 17 provides that the provisions in sch 1 div 5 about when and how a party is to respond to a claim for payment are implied in a contract that does not have a written provision about when and how a party is to respond to a claim for payment. The adjudicator found that the provisions in sch 1 div 5 are implied in a contract that does not have a written provision about each element of the provisions in div 5 about when and how a party is to respond to a claim for payment. That is not what s 17 of the Act says or means.
39 Part 2 div 2 of the Act describes circumstances in which different provisions in sch 1 are to be implied into construction contracts which do not have a written provision about a particular matter. For example, s 16 provides for implied terms about how a party is to make a claim for payment. Section 16 requires that the entirety of the provisions in sch 1 div 4 are to be implied in contracts which contain no written provision about how a party is to make a claim for payment. Section 17, in contrast, implies in a construction contract that does not have a written provision about 'that matter', that is, when and how a party is to respond to a claim for payment, not the entirety of the provisions in sch 1 div 5 but only the provisions in div 5 about when and how a party is to respond to a claim for payment. An adjudicator must form an opinion whether the contract has a written provision about when and how a party is to respond to a claim for payment. What is sufficient to constitute provisions about when and how a party is to respond to a claim for payment may be informed by the provisions in sch 1 div 5. However, on its proper construction s 17 does not require the adjudicator to compare relevant provisions of a construction contract with the provisions of sch 1 div 5 and imply the provisions in sch 1 div 5 in the construction contract if and to the extent that any of the elements of the provisions in sch 1 div 5 are not contained in the construction contract.
40 The adjudicator exceeded his authority and fell into jurisdictional error by misconstruing s 17 of the Act and thereby misconceived the limits of his functions or powers.
Conclusion
41 A writ of certiorari should issue to quash each of the first determination and the second determination.
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