Forico Pty Limited v Sive
[2018] TASSC 21
•3 May 2018
[2018] TASSC 21
COURT: SUPREME COURT OF TASMANIA
CITATION: Forico Pty Limited v Sive [2018] TASSC 21
PARTIES: FORICO PTY LIMITED (ACN 169 204 059)
v
SIVE, Jonathan H
AUSTRALIAN BUILDING AND CONSTRUCTION
DISPUTE RESOLUTION SERVICE PTY LTD
SEMF PTY LTD (ACN 117 492 814)
FILE NO: 2733/2017
DELIVERED ON: 3 May 2018
DELIVERED AT: Hobart
HEARING DATE: 26 March 2018
JUDGMENT OF: Marshall AJ
CATCHWORDS:
Contracts – Building, engineering and related contracts – Remuneration – Statutory regulation of entitlement to and recovery of progress payments – Adjudication of payment claims – Jurisdictional error.
Aust Dig Contracts [279.6]
REPRESENTATION:
Counsel:
Applicant: S B McElwaine SC
SEMF: I Griscti
Solicitors:
Applicant: Shaun McElwaine + Associates
SEMF: Barry.Nilsson.Lawyers
Judgment Number: [2018] TASSC 21
Number of paragraphs: 87
Serial No 21/2018
File No 2733/2017
FORICO PTY LIMITED (ACN 169 204 059) v JONATHAN H SIVE,
AUSTRALIAN BUILDING AND CONSTRUCTION DISPUTE
RESOLUTION SERVICE PTY LTD and SEMF PTY LTD (ACN 117 492 814)
REASONS FOR JUDGMENT MARSHALL AJ
3 May 2018
The applicant, Forico Pty Limited ("Forico"), is aggrieved by an adjudication determination made under the Building and Construction Industry Security of Payment Act 2009 ("the Act"). It seeks an order in the nature of a writ of certiorari to quash the determination.
Commencing in November 2014, and up until February 2015, the third respondent SEMF Pty Ltd ("SEMF") and Forico entered into contracts for the design, project management and construction supervision of a new infeed deck, log yard, and a 10,000 square metre seal at Forico's Surrey Hills Woodchip Mill at Hampshire.
On 10 November 2014, Forico and SEMF entered into a written contract for the provision of project management services. The parties have referred to this agreement as the Project Management Services Contract ("PMSC"). Under the PMSC, SEMF provided monthly timesheets to Forico for its approval by the issuing of monthly purchase orders. This procedure was agreed in an email dated 12 November 2014.
In November 2014, Forico accepted SEMF's offer to provide "log deck detailed design" services. Construction of the pavement was the subject of an agreement between Forico and Venarchie Contracting Pty Ltd ("Venarchie") in early February 2015. On 27 July 2015, SEMF advised Forico that construction activities for the "Surrey Hills chipping facility" were completed on 17 July 2015. A certificate of practical completion was issued by SEMF on 22 July 2015.
After completion, the asphalt seal in the pavement in the log yard adjacent to the log deck loading ramp failed in multiple areas. SEMF provided Venarchie with various notices to rectify the defects. Venarchie alleged that the defects occurred as a result of design failures. SEMF alleged poor construction workmanship by Venarchie.
On 12 August 2015, a meeting occurred between representatives of Forico, SEMF and Venarchie, at which it was agreed that SEMF would engage Pitt and Sherry Engineers to undertake an independent engineering assessment of the log yard pavement design and its construction to determine the reason for the failure of the pavement.
By email dated 14 August 2015, SEMF advised Forico of the remaining purchase orders "for the SEMF works" in August, and confirmed that "no costs for SEMF will be charged to this project in September". On 18 August 2015, SEMF advised that it would pay for what became known as the Pitt and Sherry report.
On 7 September 2015, SEMF made an offer to Forico for approval "to continue to act as Superintendent throughout the defects liability periods". The offer stated that the defects liability period was expected to last 12 to 15 months. SEMF appeared to consider the PMSC an inadequate vehicle to deal with the Venarchie issue, so it proposed a new arrangement. Forico did not accept SEMF's offer.
On 8 October 2015, SEMF sent an email to Forico. The email referred to advice from Venarchie that it would not perform the rectification works. In par 3 of that lengthy email, the following was said:
"SEMF's original engagement with Forico was based on time and materials, to perform the role of the project manager and superintendent. As the works have reached Practical Completion these roles have effectively come to a conclusion.
It was for this reason that a letter of offer was submitted to Forico for the extension of superintendent services, again based [on] time and materials basis."
Forico did not respond to this offer of SEMF. However, on 20 October 2015, it did accept an offer from SEMF for a proposed new agreement for civil design services to rebuild the defective pavement. Also, on 20 October 2015, Forico accepted SEMF's offer for a new project management services agreement related to the proposed new design.
On 3 November 2016, Forico provided SEMF with independent reports obtained by it, and claimed compensation for the consequences of defective design and construction supervision work. SEMF denied liability. By this stage lawyers were involved for Forico and SEMF, and correspondence was exchanged between those lawyers.
On 16 June 2017, SEMF sent Forico a tax invoice dated 5 June 2017. The invoice stated that it was for professional services rendered from 20 August 2015 until 20 May 2017. The claimed amount was $98,430.66.
Forico treated the 5 June 2017 tax invoice as a payment claim made under s 17 of the Act. In response, on 21 June 2017, Forico provided a payment schedule under s 18 of the Act in which it stated that it would not make any payment in relation to the payment claim. SEMF did not make an adjudication application under s 21 of the Act in relation to the payment claim.
On 3 August 2017, SEMF delivered a second payment claim to Forico for $98,430.66. The payment claim stated that it was related to the invoice dated 5 June 2017 and served on 16 June 2017. The payment claim was served under s 17 of the Act. The tax invoice included with the payment claim referred to various dates between 20 August 2015 and 28 November 2016.
On 11 August 2017, Forico sent SEMF a payment schedule under s 18 of the Act. It stated that it would not make any payment to SEMF in relation to the claim. On 25 August 2017, SEMF lodged an adjudication application under s 21 of the Act. It applied to a nominating authority, ABC Dispute Resolution Service Pty Ltd ("ABC"), the second respondent in the proceeding. Also, on 25 August 2017, ABC notified the appointment of the first respondent as the adjudicator.
On 18 September 2017, the adjudicator published his adjudication determination under s 25 of the Act. The determination required Forico to pay SEMF the sum of $98,430.66 and to also pay SEMF the sum of $6,215 for the adjudicator's fees.
The legislative context
Section 3 of the Act provides that it is the object of the Act that any person who undertakes to carry out building and construction work, or undertakes to supply building or construction-related services, is entitled to progress payments in relation to the work. Section 12 relevantly provides an entitlement to progress payments to a person who has undertaken to supply building or construction-related services under a building or construction contract. The entitlement is expressed to arise "on and from each reference date".
"Reference date" is defined in s 4 as follows:
"reference date, in relation to a building or construction contract, means —
(a)a date determined by, or in accordance with, the terms of the contract as the date on which a claim for a progress payment may be made in relation to —
(i)work carried out, or undertaken to be carried out, under the contract; or
(ii)building or construction-related goods and services supplied, or undertaken to be supplied, under the contract; or
(b)if the contract does not expressly provide for such a date, the last day of each month in which —
(i)building work or construction work is carried out under the contract; or
(ii)building or construction-related goods and services are supplied under the contract."
Section 17 of the Act deals with claims for progress payments. It provides:
"(1) A person (in this Act referred to as a 'claimant') who is, or who claims to be, entitled to a progress payment under section 12 in respect of a building or construction contract may serve a payment claim on the person who is, or may be, liable under the contract to make the payment.
(2) A payment claim must —
(a) be in writing; and
(b) be addressed to the person on whom it is served; and
(c) state the name of the claimant; and
(d) identify the building work or construction work, or building or construction-related goods and services, to which the progress payment relates, in sufficient detail to enable the person on whom it is served to assess the claim; and
(e) specify the amount of the progress payment that the claimant claims is due; and
(f) state that the claim is made under this Act; and
(g) include the prescribed details, if any.
(3) A payment claim may also include an amount —
(a) that the respondent is liable to pay the claimant under section 29(3) ; or
(b) that is held under the building or construction contract by the respondent, as security or otherwise, and that the claimant claims is due for release.
(4) A claimant must not serve more than one payment claim in respect of each reference date under the building or construction contract.
(5) However, subsection (4) does not prevent the claimant from including in a payment claim an amount that has been the subject of a previous claim.
(6) A payment claim may be served only within whichever of the following periods occurs later:
(a) the period determined by or in accordance with the terms of the building or construction contract;
(b) the period of 12 months after —
(i)the building work or construction work to which the claim relates was last carried out; or
(ii)the building or construction-related goods and services to which the claim relates were last supplied."
Under s 18 of the Act, the person on whom the payment claim is served may provide a payment schedule in relation to the claim. The payment schedule is the response to the payment claim. Where a payment schedule is served, the claimant may apply under s 21 of the Act to a nominating authority to have the payment claim adjudicated.
Under s 25 of the Act the adjudicator is to determine the adjudication application. Section 26 provides that the respondent must pay the amount determined by the adjudicator.
Claim for relief
Forico contends that the adjudicator made jurisdictional errors in arriving at his determination. It seeks relief in the nature of certiorari to quash the determination. It is not in dispute that, after the judgments of the High Court in Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd [2018] HCA 4 and Maxcon Constructions Pty Ltd v Vadasz [2018] HCA 5, determinations of adjudicators can only be reviewed for jurisdictional error.
Grounds for relief
The grounds for relief claimed by Forico are set out below, together with the arguments for and against each ground.
Ground (aa)
Ground (aa) provides:
"(aa)The respondent did not have jurisdiction to make the determination because the payment claim of SEMF Pty Ltd (SEMF) dated 3 August 2017 (the payment claim) was not a payment claim within the meaning of the Act in that SEMF did not undertake to supply building or construction-related services under a building or construction contract as claimed in the payment claim, the existence of which was an essential jurisdictional fact;"
Ground (a)
Ground (a) is said by Forico to raise the same question as ground (aa) and is said to point to erroneous jurisdictional fact findings made by the adjudicator.
The key findings made by the adjudicator
The key findings made by the adjudicator are set out in par 30 of SEMF's outline of submissions. They are as follows:
"30The Adjudicator made the following key findings:
(a) The Surrey Hills Recommissioning – Project Management Services Contract dated 10 November 2014 was the contract relevant to this dispute. In the context of four contracts operating concurrently the cost of certain risks was allocated to Forico in the Project Management Services Contract (PMSC) under the term entitled 'Engagement of Sub-Consultants'.
(b) On a proper understanding of the facts, the Adjudicator rejected the respondent's contention that SEMF represented it would pay for the Pitt & Sherry report and its conduct operates as an estoppel.
(c) The Adjudicator identified two important issues within the context of his dispute. First, the occurrence of an unexpected contingency – here, the failure of the pavement, and secondly, whether the risk of that occurrence was allocated by the parties under the PMSC.
(d) The Adjudicator found that the PMSC addresses the commercial risk associated with engagement of sub consultants in a manner favourable to SEMF:
The provision of the contract clearly states that 'Unless otherwise explicitly stated with our Offer no allowance has been made for the engagement and/payment of Sub consultants and/or Suppliers. You will directly engage and make all required payments to Sub consultants and/or Suppliers'. Therefore, as agent of the respondent under the building or construction contract, the record shows the claimant was given authority to incur reasonable costs and expenses in performing administrative services under the agreement at the time of the log yard pavement failure.
(e) The Adjudicator considered that this interpretation was affirmed by evidence of the parties' understanding of the contractual terms.
(f) The Adjudicator rejected the submission by Forico that the PMSC ended, finding that this is not supported by the evidence. The Adjudicator undertakes a thorough analysis of the circumstances surrounding the completion of works and discovery of the failures in the pavement. The investigation into the cause of the failure was required of the respondent, which became the responsibility of SEMF under the PMSC. The investigation was outside the scope of the 'Section 7 Fees' agreed to by the claimant and consequently covered by the PMSC.
(g) The Adjudicator deals with other arguments raised by Forico, including the contention that there is no reference date within the meaning of the act [sic] (Forico's payment schedule [22]-[26]). This submission is rejected by the Adjudicator. The PMSC is still on foot and it provides for a time to claim payment of 'no later than the 7th day of each month'. SEMF was entitled to be paid for completed work with a corresponding date by which to deliver the claim for payment.
(h) The Adjudicator also addresses the argument put by the respondent that the claim is barred by section 17(4) of the Act as the payment claim was in respect of the same claim as the invoice served earlier on 16 June 2017. Section 17(4) provides a claimant must not serve more than one payment claim in respect of each reference date under the building or construction contract. This is qualified by section 17(5) which states that 'subsection (4) does not prevent the claimant from including in a payment claim an amount that has been the subject of a previous claim'. The Act permits the making of successive claims in respect of the same work where there has not been payment.
(i) The Adjudicator goes on to consider the various elements of the matter before him – payment claim, payment schedule, adjudication application and adjudication response and concludes that these all comply with the Act.
(j) The Adjudicator considers the applicant's role and obligations under the PMSC and determines that the contract provided it with authority to administer and certify transactions between the respondent and the civil contractor. He was satisfied the claimant carried out project management services and satisfied the requirements for a progress payment under the construction contract as set out in section 12 of the Act.
(k) It was determined by the Adjudicator that SEMF, pursuant to its role as Forico's superintendent, properly incurred costs as its agent. Accordingly Forico is obliged to indemnify it pursuant to the terms of the PMSC." [Footnotes omitted.]
Jurisdictional error
In Re Refugee Review Tribunal; ex parte Aala [2000] HCA 57, 204 CLR 82, Hayne J said at [163]:
"There is a jurisdictional error if the decision maker makes a decision outside the limits of the functions and powers conferred on him or her, or does something which he or she lacks power to do. By contrast, incorrectly deciding something which the decision maker is authorised to decide is an error within jurisdiction."
Discussion of ground (aa)
Forico and SEMF agree that the service of a valid payment claim is a jurisdictional pre-condition to the conduct of a valid adjudication. It is also agreed that the claim must be in relation to work carried out pursuant to a building and construction contract.
SEMF submits that the payment claim was made under the PMSC. This was the finding of the adjudicator. Forico submits that the payment claim was not made under the PMSC.
Clause 2 of the PMSC is entitled "SCOPE OF WORKS". Sub-clause 6 is headed "Close-Out Tasks" and refers to:
"(a) finalise works packages
(b) identify defects and follow up
(c) budget finalisation"
SEMF contends that the work referred to in the claim relates to "close-out tasks" and, in particular, "identify defects and follow". Forico submits that the work referred to in the payment claim was outside the scope of the PMSC.
Mr Gerard Bower is the Mills and Parts Manager of Forico. He has given evidence of a procedure adopted by Forico and SEMF for the payment of fees under the PMSC. SEMF, under this procedure, would email Forico a monthly capital expenditure spreadsheet in the form of a report and forecast. The spreadsheet was divided between various components of the project, including work undertaken pursuant to the PMSC. If Mr Bower approved of SEMF's estimates, he would issue a purchase order for an agreed figure. Forico would then pay that amount to SEMF.
At pars 61-63 of his affidavit, Mr Bower said:
"61SEMF do [sic] not seek approval, in writing or otherwise, from Forico to incur a disbursement for the cost of the Pitt & Sherry Report prior to the liability for that report being incurred. SEMF did not otherwise request Forico to vary this clause in the agreement and Forico did not agree to vary it.
62None of the itemised charges in the tax invoices of SEMF dated 5 June 2017, which forms the basis for the payment claim, were the subject of the capital expenditure spreadsheet approval process which I have referred to above. On no occasion did SEMF propose inclusion of these fees in the schedule.
63None of the individually itemised claims in the tax invoice of 5 June 2017 were the subject of the approved purchase order procedure which I have referred to above. SEMF did not request inclusion of any of these amounts in any purchase order, and Forico did not issue a purchase order to SEMF for any of those amounts."
Forico submits that the evidence supports a finding that Forico and SEMF did not enter into a building or construction contract pursuant to which SEMF undertook to supply the services set out in its payment claim, and which required each amount of the payment claim to be paid by Forico as part of the total price for agreed work.
Forico points to SEMF's email of 14 August 2015 as being the final claim by SEMF for project management. On 28 August 2015, SEMF issued a tax invoice under the PMSC for work rendered from 21 July 2015 to 20 August 2015. Under the heading "Itemised work completed this month", the tax invoice referred to "Final Project Management invoice as agreed". Forico points to this evidence as showing that it was the intention of the parties to conclude the PMSC. Later, it transpired that SEMF had omitted certain fees owed to it under the "final" invoice, and issued an invoice dated 29 October 2015 for those fees. Forico agreed to pay this additional claim.
It will be recalled that in September 2015, Forico rejected SEMP's offer to provide further services throughout the defects liability period, as it was reluctant to spend more on supervision. It will also be recalled that in October 2015 Forico accepted SEMF's offer to provide project management services in relation to the rectification of the pavement defects, being a proposed new design, and not the design that had failed.
Forico contends that the obligations of the parties pursuant to the PMSC concluded on 28 August 2015 when Forico made the final payment claim as submitted to it. Although, by reason of a mistake, Forico paid SEMF an additional sum in October 2015. Forico says that the parties entered into a new agreement for the payment of that sum only.
SEMF submits that the procedure adopted by it and Forico for payment for work done under the PMSC did not form part of the PMSC and was not a necessary pre-condition for a valid payment claim. SEMF points to the lack of evidence that their agreed procedure was to be incorporated within the PMSC. SEMF contends that the issue is one of substance, not form, and the proper question is, did the payment claim relate to works pursuant to the PMSC?
SEMF contends that at the time of the making of the payment claim the PMSC was still on foot as there were outstanding issues of defects still being addressed. It says that it had a role as superintendent to administer the contract between Forico and Venarchie, and that the contract had express provision for the engagement of sub-contractors, such as Pitt and Sherry.
SEMF points to the engagement of Pitt and Sherry being agreed to by Forico at a meeting on 12 August 2015. It says that it had an ongoing role after 28 August 2015 after Forico made the "final" payment claim. It stresses that the scope of works refers to the identification of defects and "follow up".
Conclusion of ground (aa)
The determination of whether the payment claim was made under the PMSC is not without difficulty.
It is critical that when the PMSC was entered into, the parties discussed the manner of payment. In an email dated 12 November 2014, Mr Dunbabbin of SEMF confirmed with Mr Bower of Forico, as follows:
"We confirm that SEMF are happy to work to monthly purchase orders provided by Forico and will provide timesheets for approval by Forico prior to the issue of month invoices."
I accept the submission of counsel for Forico, Mr McElwaine SC, that, objectively construed, SEMF accepted the counteroffer made by Forico to make the above payment method an express term of the PMSC.
That is the procedure that applied up to the final tax invoice which was issued on 28 August 2015. The parties thereafter discussed the possibility of a new agreement, which is outlined at [8] in these reasons.
For all practical purposes the PMSC had concluded with the final payment on 28 August 2015. The extra payment made in October 2015 was to rectify a mistake made in calculation of the amount due in August.
At par 39 of his written outline of argument, Mr McElwaine sets out "findings of jurisdictional fact" which he contends the Court should make. Those facts are as follows:
"a)The services that SEMF undertook to supply pursuant to the PMSC did not include internal time spent by employees of the firm, nor the cost of engaging Pitt and Sherry for an independent report, for the purpose of investigating the reason for the pavement failure. The express terms of the PMSC did not require Forico to pay the amounts the subject of the payment claim as part of the total price for the work. The payment obligation was limited, first to the preliminary estimate in section 7 and then by the necessity to submit, and have approved, monthly fee estimates before the work was undertaken. In contrast, SEMF purported to undertake the work the subject of the payment claim without the prior knowledge, consent or authority of Forico;
b)The obligation of the parties pursuant to the PMSC concluded on 28 August 2015 when Forico paid the final payment claim as submitted to it. Thereafter, by reason of a mistake, SEMF sought payment of a further sum that Forico agreed to. On any view of it, the parties entered into a new agreement for the payment of this particular sum only;
c)The PMSC limited the period of the work required to be undertaken by SEMF to November 2014 – June 2015 based on an estimate of 945 hours. The substantial work purported undertaken by SEMF between August 2014 and 20 May 2017, sits entirely outside of the agreed contractual period;
d)The PMSC did not according to its terms impose an obligation upon SEMF to undertake a detailed analysis in order to determine the cause of the pavement failure, as distinct from work that, in the ordinary course of things, may have been within the scope of the defects liability period assumed by Venarchie under the construction contract. The obligation of Venarchie did not extent to design defects in the work undertaken by SEMF, nor to negligent conduct of the superintendent or contract supervision;
e)The PMSC expressly provided that Forico was not obliged to pay SEMF, as part of the contract price, for disbursements, other than those identified in item 9 of AS4122-2010, or any other disbursement approved of by Forico in writing prior to the disbursement being incurred;
f)The scope of work pursuant to the PMSC did not include a requirement for SEMF to undertake to supply the services the subject of the payment claim, nor to include the disbursements set out in it;
g)To the extent that SEMF sought to enter into a new contract for the supply of services within the meaning of the Act, relevant to the investigation of the pavements failure, the offer that it made was expressly not accepted." [Footnotes omitted.]
Counsel for SEMF, Mr Criscti, submits that the work, the subject of the payment claim, related to close-out tasks, including identifying defects and "follow up". Mr Criscti contends that agreed procedure for payments under the PMSC did not form part of the PMSC. However it illustrated how the parties intended that the PMSC would work, and subsequent dealings were undertaken under that process until the service of the invoice relevant to the first payment claim.
I agree, with respect, with most of the analysis of Mr McElwaine as set out in his proposed findings of jurisdictional fact. However, I do not agree with the assertion in par (c) of those facts that the agreed contractual period ended in June 2015. There must be some allowance for "follow up" which was included in the final invoice which covered the period 21 July 2015 to 20 August 2015.
In conclusion, the payment claim dated 3 August 2017 was not a payment claim of the requisite character under s 12 of the Act because the work referred to in the accompanying tax invoice was not the subject of agreement between SEMF and Forico. Consequently, the adjudicator did not have jurisdiction to embark on his adjudication under the Act.
Ground (a)
Ground (a) of the grounds relied on by Forico refers to alleged erroneous findings of jurisdictional facts made by the adjudicator. In his written submissions Mr McElwaine said at par 24:
"This ground, although technically unnecessary, usefully illustrated the various errors which were made by [the adjudicator] to found his ultimate conclusion that he had jurisdiction to embark upon and to determine the payment claim in accordance with the adjudication mechanisms in Part 5 of the Act."
Given the Court's finding on ground (aa), it is, as Forico concedes, unnecessary to rely on ground (a) for relief in the proceeding. At [70]-[75] of the adjudicator's reasons for determination, he set out why he considered that the PMSC applied to the payment claim. No useful purpose is served traversing each of the facts challenged by Forico. One example will suffice. At [70] the adjudicator said:
"It is undisputed that the claimant performed project management services in relation to a building or construction contract between the respondent and others in respect of the Project."
Forico makes the obvious point that so much was only undisputed up to late August 2015 when the final invoice under the PMSC was issued.
Ground (b)
Ground (b) of Forico's grounds for relief alleges that the adjudicator made a jurisdictional error in determining that SEMF acted as the agent of Forico and was entitled to be indemnified in accordance with the terms of the PMSC, as set out in the payment claim.
If the PMSC did not apply to the payment claim because it had concluded by late August 2015, it does not matter that the adjudicator made his findings of agency, if he had no jurisdiction to embark on his adjudication. Assuming to the contrary of what the Court has found under ground (aa), that the adjudicator had jurisdiction to embark on his adjudication, factual issues such as whether SEMF acted as the agent of Forico were ones within the purview of the adjudicator. If factual errors were involved in that process, they were errors within jurisdiction: See Probuild (above) and Maxcon (above).
This ground is not made out.
Ground (c)
Under this ground Forico alleges that the adjudicator reconstructed the terms of the PMSC to create a building or construction contract between Forico and SEMF, and thereby overlooked the fundamental jurisdictional question raised on the adjudication, whether SEMF had undertaken to supply construction-related services, the subject of the payment claim under the terms of a building or construction contract.
It is not in dispute that an adjudicator is not entitled to construct, vary or add to a contract which founds jurisdiction, although it is open to an adjudicator to wrongly interpret the terms of a contract.
Forico points to various passages from the adjudicator's reasons to support the view that he constructed a new contract between the parties. At [21] of those reasons, the adjudicator referred to four contracts between the parties which related to works on the relevant site, having earlier identified them at [19]. I agree with the submission of SEMF that the adjudicator did not add any terms at [21], but considered how the four contracts operated concurrently, and noted the term concerning the engagement of sub-contractors in the PMSC.
Forico submits that at [22], the adjudicator created a payment obligation for an unexpected occurrence. At that part of his reasons the adjudicator was simply noting that SEMF had sought compensation for an unexpected occurrence (being the pavement failure) and raised the issue of whether the PMSC applied to the unexpected occurrence.
Forico submits that at [28]-[30], the adjudicator reconstructs the PMSC by a reallocation of risk and liability according to "a large shifting financial divide". At [28], the adjudicator uses infelicitous language by stating that, "the parties very simply are seeking to have an adjudicator construct a condition of performance based on the changed circumstances identified by the parties in new material". The language is indicative of a reconstruction of the PMSC, but the adjudicator makes clear at [32] that the issue he is addressing concerns "whether the risk of the unexpected occurrence has been allocated by the parties under the [PMSC]". That task involves an interpretation of the PMSC and not its reconstruction.
At [31] the adjudicator discussed whether the risk of an unexpected occurrence has been allocated under the PMSC. In so doing the adjudicator was interpreting the PMSC, rather than reconstructing it.
Forico submits that at [32] of the adjudicator's reasons, he resurrects the PMSC to impose liability upon Forico, despite its refusal to enter into a new agreement on 7 September 2015. The better view of that paragraph is that the adjudicator makes a finding (albeit one with which the Court has disagreed), that the PMSC was still on foot as at 17 September 2015, and as at the time of the determination in September 2017. This finding is an error within jurisdiction and reflects the adjudicator's views about whether the PMSC was on foot, rather than any suggestion that it be revived.
At [37] of the adjudicator's reasons, he discusses whether there was an obligation on Forico to pay fees and disbursements as a consequence of SEMF's liability to investigate the cause of the pavement failure. The adjudicator was not thereby manufacturing a contractual obligation to pay fees which were never agreed. He was simply giving his view about what was covered by the PMSC, apart from the standard fees contained in cl 7 of the PMSC.
At [39] of the adjudicator's reasons, he discusses what he considered to be work within the scope of works in the PMSC. If, in doing so, he imposed a liability pursuant to the PMSC for work beyond the agreed scope of the engagement, he made an error within jurisdiction.
Forico submits that at [70]-[75] of the adjudicator's reasons, he used "the created contract" as the jurisdictional basis for his determination. I disagree. I consider that at those paragraphs the adjudicator gave his reasons as to why the PMSC applied to the claim before him. If he erred in so doing, it was an error within jurisdiction. This is on the basis that the conclusions of the Court on ground (aa) are in error.
Ground (c) is not made out.
Ground (d)
Forico contends that the adjudicator wrongly determined a reference date for the payment of claims within the meaning of s 12 of the Act. Reference date is defined in s 4 of the Act as follows:
"… in relation to —
(i) work carried out, or undertaken to be carried out, under the contract; or
(ii) building or construction-related goods and services supplied, or undertaken to be supplied, under the contract; or
(b)if the contract does not expressly provide for such a date, the last day of each month in which —
(i) building work or construction work is carried out under the contract; or
(ii) building or construction-related goods and services are supplied under the contract."
It is common ground that the reference date under the PMSC is the seventh day of each month. The entitlement under s 12 to a progress payment is "on and from each reference date". Under s 17(4), a claimant must not serve more than one payment claim in respect of each reference date. However, s 17(5) provides that a claimant is not prevented from including in a payment claim an amount which has been the subject of a previous claim.
Forico contends that the first payment claim, served on 16 June 2017, was based on a tax invoice dated 5 June 2017 for services rendered in the period 20 August 2015 to 20 May 2017. The reference date for the first payment claim was therefore 7 May 2017. The second payment claim which gave rise to the adjudication was made on 3 August 2017. Because the second payment claim was based on the same tax invoice dated 5 June 2017, as was the first payment claim, Forico submits that the reference date was also 7 May 2017 for the second payment claim. It contends that date was not available as it was spent under s 17(4) of the Act.
SEMF submits that the second payment claim was made on 3 August 2017, and served on 8 August 2017, not being later than 7 August 2017 which is the reference date. The adjudicator found 7 August to be the reference date.
In my view it does not matter that each payment claim was based on the same tax invoice. The reference date relates to the date of the payment claim and not to the date of any tax invoice on which it is based. In any event, s 17(5) permits the including in a payment claim of an amount which has been the subject of a previous claim. The reference date for the second payment claim was 7 August 2017, not 7 May 2017.
Ground (d) has not been made out.
Ground (e)
Ground (e) is allied to ground (d). It relies on the Court finding the reference date is 7 May 2017, and complains about the payment claim including work up to 20 May. As the Court has found that the reference date is 7 August 2017, this ground cannot be made out.
Grounds (f) and (g)
Mr McElwaine submits that because the payment claim relied on a reference date well after the PMSC had ended, the adjudicator had no jurisdiction to deal with the matter. The Court has earlier accepted Forico's position that the PMSC ended in late August 2015, so this issue is now a moot one. If the Court is in error in coming to that view, and the PMSC was still on foot in August 2017, as the adjudicator found, there would be no merit in these grounds. In the circumstances it is unnecessary for the Court to form a view about grounds (f) and (g), given its findings under ground (aa).
Ground (i)
Forico submits that the determination made by the adjudicator was not authorised by the Act because the adjudicator's reasoning process was irrational. Mr McElwaine conceded that to determine a decision-maker engaged in irrational reasoning includes a "reasonably high standard". He went on to outline various aspects of the determination which he contended contained errors of law and fact.
In DYS16 v Minister for Immigration and Border Protection [2018] FCAFC 33 at [20], the Full Court of the Federal Court said:
"Having regard to the authorities it is possible, but difficult, to impugn a decision such as that presently under consideration, on the ground of unreasonableness. An administrative decision may be found to be 'illogical' or 'irrational' eve n if it does not involve the exercise of a discretion … Nonetheless, the 'illogicality' and 'irrationality' grounds of review have been circumvented by authority."
In Saunders and Ward Pty Ltd v Resource Management and Planning Appeal Tribunal [2016] TASFC 3 at [24], Estcourt J (with whom Tennent and Pearce JJ agreed), adopted the submissions of counsel on the topic of irrationality and illogicality, including the following:
"In a case of suggested illogicality, or a faulty inferential reasoning, the decisive test is not whether there was an error in logic or reasoning but whether there was no foundation for the conclusion reached."
The gist of the so-called irrational reasoning is what Mr McElwaine described in his oral address as "the elephant in the room", that is how the adjudicator could say that the PMSC related to the claimed work if it was not work within cl 7 of the PMSC which referred to "fees". The answer to that question appears to be that the adjudicator considered the claimed work under the "follow up" clause in "close-out tasks" under cl 2.6.
Whilst Forico may have grounds to quibble with aspects of the reasoning process of the adjudicator, I do not consider his reasoning process to be so flawed as to be characterised as irrational and illogical, rather the determination deals with matters in such a way that reasonable minds might differ on the correct approach. It cannot be said in each instance of the matters complained of by Forico that there was no foundation whatsoever for the conclusion reached. Whilst there is difficulty in accepting the reasoning that the PMSC remained on foot after 28 August 2015, given the conduct of the parties, it was not irrational to interpret the "close-out tasks" part of the PMSC as arguably keeping it on foot.
The adjudicator did not deal with every argument raised by Forico, including what Forico alleged to be further express terms of the PMSC, which are dealt with in these reasons under ground (aa). Failure to do so does not make the determination irrational. It appears that the adjudicator relied only on the express terms that were written in the PMSC. To do so is not illogical or irrational.
Forico contends that at [21] of the determination, the adjudicator added terms to the PMSC which were not the subject of agreement between the parties. Whilst [21] is difficult to read, it does not add any terms to the PMSC, but deals with how the four contracts operating at the project work together.
Forico alleges that at [22] the adjudicator added to, varied or qualified the PMSC. This paragraph of the determination deals with the rejection of an argument of Forico based on an estoppel, and does not purport to alter the PMSC.
Forico submits that at [28]-[31], the adjudicator reallocates obligations, responsibilities and risks under the PMSC. In those paragraphs the adjudicator was merely seeking to determine what the PMSC provided for in the event of an unexpected occurrence. Whilst some of the language used is not ideal (such as "the parties very simply are seeking to have an adjudicator construct a condition of preference based on changed circumstances"), there is nothing in those paragraphs which rises to the level of irrational or illogical reasoning, such that it can be said that there is no foundation at all for the conclusions reached at [31].
There is a real contest as to whether the adjudicator properly applied the term of the PMSC concerning the engagement of sub-contractors and suppliers, but it is clear at [31] that he attempted to do so. Whether he did so correctly is a matter on which reasonable minds might differ.
Forico contends that the adjudicator ignored the terms of the PMSC in coming to his view that SEMF acted as agent of Forico, with authority to incur costs and expenses. This issue was dealt with under ground (b). Again, whether SEMF was given authority to incur reasonable costs and expenses is a matter on which reasonable minds might differ.
Mr McElwaine submits that at [31] the adjudicator ignored the terms of the PMSC to impose liability on Forico by reference to the subjective intentions of the parties or surrounding circumstances which were not identified. The adjudicator here uses loose language in referring to "circumstances surrounding the contract", but his conclusion about the issue of liability for consultant's costs is referrable to his view of a meeting which occurred on 16 June 2016 when superintendent costs were discussed. Although there are difficulties in following the reasoning in [31], such difficulties do not rise to a level where the reasoning can be said to be irrational or illogical.
At [37] the adjudicator found that SEMF had a duty to investigate the pavement failure under the PMSC, although such was unrelated to cl 7 fees under the PMSC.
Forico submits that this is an incorrect view of the PMSC. SEMF takes the opposite approach. One can see the difficulty in following the reasoning of the adjudicator at [37] where he describes the duty to investigate the failure of the pavement as an administrative matter, but ultimately it is clear that he considered the liability of the risk that there would be a duty to investigate to fall on Forico. This is consistent with his observation that the expert report was commissioned by SEMF on behalf of Forico. Whether or not that factual analysis is correct, is open to debate. However the views expressed by the adjudicator are not ones which can be described as irrational or illogical.
Ground (i) is not made out. I reject the contention that each of the above matters cumulatively show the adjudicator's reasoning and the outcome as capricious, illogical, irrational or so unreasonable that no reasonable adjudicator could have made such a decision if properly instructed as to the facts and law.
Orders
The Court will order as follows:
1The determination of the first respondent of 18 September 2017 is quashed.
2The judgment in favour of the third respondent in action 2850/2017 be set aside.
3The amount paid by the applicant into Court on 19 October 2017, together with any interest, be paid out.
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