J Hutchinson Pty Ltd v Glavcom Pty Ltd

[2016] NSWSC 126

Supreme Court

New South Wales

Medium Neutral Citation:	J Hutchinson Pty Ltd v Glavcom Pty Ltd [2016] NSWSC 126
Hearing dates:	10 and 18 February 2016
Decision date:	25 February 2016
Before:	Ball J
Decision:	The proceedings be dismissed with costs.
Catchwords:	BUILDING AND CONSTRUCTION – adjudication determination – whether adjudicator committed jurisdictional error – whether amounts owing by a subcontractor under a construction contract can be setoff against a payment claim – whether contractual provisions imposing conditions on payment of a payment claim are void - Building and Construction Industry Security of Payment Act 1999 (NSW), ss 8, 9, 10 and 34 EQUITY – fraud – setting aside adjudication determination obtained by fraud EVIDENCE – application of the principle in Jones v Dunkel PRACTICE AND PROCEDURE – whether party bound by way case conducted before an adjudicator
Legislation Cited:	Building and Construction Industry Security of Payment Act 1999 (NSW) Building and Construction Industry Payments Act 2004 (Qld) Evidence Act 1995 (NSW)
Cases Cited:	Bauen Constructions v Westwood Interiors [2010] NSWSC 1359 Briginshaw v Briginshaw (1938) 60 CLR 336 Brodyn Pty Ltd v Davenport [2004] NSWCA 394; (2004) 61 NSWLR 421 Fabre v Arenales (1992) 27 NSWLR 437 Gaymark Investments Pty Ltd v Walter Construction Group Ltd (2000) 16 BCL 449 HM Australia Holdings Pty Limited v Edelbrand Pty Limited t/as Domus Homes & Anor [2011] NSWSC 604 Jones v Dunkel (1959) 101 CLR 298 Lean Field Developments Pty Ltd v E & I Global Solutions (Aust) Pty Ltd [2014] QSC 293 Lewence Constructions Pty Ltd v Southern Han Breakfast Point [2015] NSWCA 288 Liftronic Pty Ltd v Unver (2001) 75 ALJR 867 Pacific General Securities Ltd v Soliman & Sons Pty Ltd [2006] NSWSC 13 St Hilliers Contracting Pty Ltd v Dualcorp Civil Pty Ltd [2010] NSWSC 1468 Turner Corporation Limited (Receiver and Manager Appointed) v Austotel Pty Limited (1994) 13 BCL 384 Wentworth v Rogers (No 5) (1986) 6 NSWLR 534
Texts Cited:	J Dorter, “The Effect of Contract Clauses on Claims for Delay and Disruption” (2002) 19 International Construction Law Review 319
Category:	Principal judgment
Parties:	J Hutchinson Pty Ltd (ABN 52 009 778 330) (Plaintiff) Glavcom Pty Ltd (ABN 14 113 218 750 (First Defendant) William Timothy Sullivan (Second Defendant)
Representation:	Counsel: D Miller SC with B Le Plastrier (Plaintiff) M Christie SC with B Kremer (First Defendant)   Solicitors: Colin Biggers & Paisley (Plaintiff) K&L Gates (First Defendant) Submitting Appearance (Second Defendant)
File Number(s):	2016/19462
Publication restriction:	None

Judgment

Introduction

1. By a Summons filed on 20 January 2016, the plaintiff, Hutchinson, seeks to set aside an adjudication determination dated 8 January 2016 made under s 22 of the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Security of Payment Act) by the second defendant (the Adjudicator) by which the Adjudicator determined that Hutchinson owed the first defendant, Glavcom, the sum of $1,263,399.72 plus GST in respect of a payment claim for the sum of $2,948,510.80 served by Glavcom on Hutchinson on 23 November 2015. The payment claim was made in respect of a subcontract between Hutchinson and Glavcom dated 31 July 2014 by which Glavcom as subcontractor agreed for the sum of $5,300,000.00 to carry out the design, fabrication and installation of joinery at the Bondi Pacific, a new residential and commercial redevelopment on the site of the former Swiss Grand Hotel at Bondi Beach.

2. On 2 December 2015, Hutchinson served a payment schedule in response to the claim stating the amount owing as -$6,322,578.96. The principal basis on which Hutchinson contested Glavcom’s claim was that it maintained that it was entitled to setoff against the amount claimed by Glavcom an amount of $4,325,200.00 in liquidated damages for delay in completing the work the subject of the subcontract. The Adjudicator rejected Hutchinson’s claim for liquidated damages. Hutchinson submits that in doing so, the Adjudicator made a number of jurisdictional errors; and for that reason the adjudication determination is liable to be set aside.

3. Two other issues are also raised in the proceeding.

4. First, by an amended technology and construction list statement filed with leave of the court on 18 February 2016, Hutchison contends that Glavcom included with its payment claim a statutory declaration required by the subcontract stating that all payments made to, on behalf and in respect of Glavcom’s workers engaged on the project had been paid which was knowingly false. It submits that, as a result, the determination is voidable at Hutchinson’s option.

5. Second, Glavcom submits in relation to Hutchinson’s claim based on jurisdictional error that any error was immaterial because the Adjudicator was not empowered to make a deduction for liquidated damages in any event. He was only empowered to value the work performed by Glavcom in accordance with s 10 of the Security of Payment Act.

The statutory declaration

6. It is convenient to begin with the allegations concerning the statutory declaration.

7. Clause 37.0 of the subcontract relevantly provides:

It is a precondition to a reference date arising under the Security of Payment Act, the Subcontractor being entitled to make a payment claim under the Security of Payment Act and to the Subcontractor becoming entitled to make a progress claim under subclause 37.1, that the Subcontractor executes the formal instrument of agreement and submits the ‘Payment Claim Documentation’, which is as follows:

(a)   a declaration in the form of Annexure Part I executed by a person authorised to do so on behalf of the Subcontractor, declaring that the Subcontractor’s employees, workers, Subcontractors and suppliers who at any time have been used by the Subcontractor on WUS [that is, work under subcontract] have at the date of the claim been paid all money due and payable to them in relation to WUS;

(b)   a declaration in the form of Annexure Part M executed by a person authorised to do so on behalf of the Subcontractor;

…

8. Clause 37.1 relevantly provides:

The Subcontractor shall claim payment progressively in accordance with this clause 37 and Item 37(a) while WUS is being carried out, at practical completion and at the final payment claim under subclause 37.4.

…

The Subcontractor shall, as a precondition to payment of any progress claim and the final payment claim, give to the Main Contractor executed document in form of Annexure Part Q, declarations in the form of Annexure Part I and Annexure Part L executed by persons authorised to do so on behalf of the Subcontractor, declaring that the Subcontractor’s employees, workers, secondary subcontractors and suppliers who at any time have been employed by the Subcontractor on WUS have at the date of the claim been paid all money due and payable to them in respect of the employment on WUS. If the declarations are not provided or are false, the Main Contractor is entitled to withhold payment until satisfactory declarations are provided.

Item 37(a) of Part A provides:

37   Progress claims

(subclause 37.1)

(a) Times for progress claims:  21st day of each month for WUS completed up to the 28th day of the preceding month

9. The payment claim served by Glavcom on 23 November 2015 included statutory declarations signed by Mr Callipari, the sole director of Glavcom, in the form of Annexure Part I and Annexure Part M. Originally, Hutchison relied on both statutory declarations. However, now it only relies on the one in the form of Annexure Part M. That statutory declaration was relevantly in the following terms:

I, PASQUALIE CALLIPARI a Director or person authorised by the Subcontractor on whose behalf this declaration is made, hereby declare that I am in a position to know the truth of the matters which are contained in this Subcontractor’s Statement and declare the following to the best of my knowledge and belief:

(a)   …

(b)   All workers compensation insurance premiums payable by the Subcontractor in respect of the work done under the contract have been paid. The Certificate of Currency for that insurance is attached and is dated 06/06/15.

10. In his determination, the Adjudicator addressed the question whether Glavcom had complied with the requirements of cls 37.0(a) and (b). In addressing that question the Adjudicator said (at para 21):

Having regard to the apparent object of clause 37 of the Subcontract and the declarations regarding the Claimant’s payment of moneys due and payable to others, a declaration which is in fact untrue would justify the withholding of a payment.

However, on the material before him, the Adjudicator was not prepared to conclude that the declarations were untrue.

11. In its amended list statement, Hutchinson contends that from the date that Glavcom made its payment claim to the date of the determination Glavcom acted fraudulently in that it put forward and maintained in the adjudication the statutory declaration of Mr Callipari which it knew to be untrue. Alternatively, Hutchinson contends that Glavcom put forward and maintained the statutory declaration with reckless indifference to the truth or falsity of the representations made on the face of the declaration that workers’ compensation insurance premiums had been paid. In support of those contentions, Hutchinson relies on the fact that on 25 January 2016 the Workers Compensation Nominal Insurer filed an Originating Process seeking to wind up Glavcom in insolvency following service of a creditor’s statutory demand dated 10 November 2015 that claimed an amount of $134,030.83 in respect of workers compensation insurance premiums said to be owing by Glavcom for the period of insurance commencing on 6 June 2015. Hutchinson was not aware of those facts until about 3 February 2016, after the Adjudicator had handed down his determination.

12. Hutchinson submits that by swearing the false declaration and placing it before the Adjudicator, Glavcom obtained a determination in its favour by fraud. That is said to be apparent from the fact that the Adjudicator specifically addressed in his determination the question whether the statutory declarations were true and said (in the passage quoted above) that if they were not that would justify the withholding of a payment.

13. Relying on the following passage in Brodyn Pty Ltd v Davenport [2004] NSWCA 394; (2004) 61 NSWLR 421 at [60] per Hodgson JA, Hutchinson submits that a determination obtained by fraud is liable to be set aside:

If there is fraud of the claimant in which the adjudicator is also involved, the determination will be void because the adjudicator has not bona fide attempted to exercise the power. If the determination is induced by fraud of the claimant in which the adjudicator is not involved, then I am inclined to think that the determination is not void but voidable; and it is liable to be set aside by proceedings of the kind appropriate to judgments obtained by fraud.

Proceedings to set aside a judgment obtained by fraud are equitable in nature and are appropriately dealt with in the Equity Division of the court: Wentworth v Rogers (No 5) (1986) 6 NSWLR 534 at 537 per Kirby P.

14. Glavcom makes two responses to these submissions. First, it points out that the statutory declaration would only be false if, at the time that it was signed by Mr Callipari, Mr Callipari knew that the workers compensation payments had not been made (to the best of his knowledge and belief) or was recklessly indifferent to that fact. It relies on evidence given by Mr Callipari in this proceeding that he did not know at the time he signed the statutory declaration that it was false. He accepts that he is the sole director of Glavcom. However, he says he does not handle Glavcom’s administration or prepare its paperwork. That is done by others. Mr Callipari says he cannot recall who prepared the statutory declaration in the form of Annexure Part M and asked him to sign it but he said that it was one of three people. They are Mr Vince Oliveri, Mr Matthew Said, and Mr Stephen Ison. Mr Oliveri and Mr Said both work for Valenzia Corp Pty Ltd, a company that provides consultancy services to Glavcom. Mr Oliveri is described as Glavcom’s Chief Financial Officer. Mr Said is described as Glavcom’s accountant. Mr Ison is said to be Glavcom’s General Manager.

15. Mr Callipari says that he “skimmed” through the statutory declaration before he signed it and that he assumed that it was correct because he expected the person responsible for preparing it and giving it to him to alert him if it was not. Mr Callipari says that he was not aware that the workers compensation premium had not been paid until 2 February 2016. As soon as he became aware of that fact, he arranged for it to be paid. That occurred on 8 February 2016, although the premium was in fact paid by Glace Industries Pty Ltd, a company associated with Mr Callipari’s brother, Mr Frank Callipari, and not by Glavcom.

16. None of Messrs Oliveri, Said and Ison gave evidence. However, Mr Hales, a senior associate employed by Glavcom’s solicitor, did provide two affidavits deposing to the fact that he asked both Mr Oliveri and Mr Said to give evidence in this case and both refused to do so. Mr Oliveri told Mr Hales that he was not willing to give evidence because the matter was going public and “had the potential to jeopardise my career and I am not willing to risk the security I have built up for my family as a result”. Mr Said said that he was suffering from some unidentified medical condition that prevented him from giving evidence. No explanation was given for why Mr Ison did not give evidence.

17. Second, Glavcom submits that, even if the statutory declaration did not comply with the requirements of the subcontract, it was not material to the Adjudicator’s decision. That is because cl 37.0, on which Hutchinson relies, is void under s 34 of the Security of Payment Act. That section provides:

34   No contracting out

(1)   The provisions of this Act have effect despite any provision to the contrary in any contract.

(2)   A provision of any agreement (whether in writing or not):

(a)   under which the operation of this Act is, or is purported to be, excluded, modified or restricted (or that has the effect of excluding, modifying or restricting the operation of this Act), or

(b)   that may reasonably be construed as an attempt to deter a person from taking action under this Act,

is void.

Glavcom submits that it follows from this section that it would have been a jurisdictional error for the Adjudicator to take account of cl 37.0 of the subcontract in determining whether a valid reference date had arisen under the contract.

18. There is a question whether the precondition imposed by cl 37.0 is simply that the statutory declarations be provided or whether it is also a precondition that the statutory declarations be true. In contrast to cl 37.1, there is no specific requirement that the statutory declarations be true; and it makes commercial sense to treat the precondition as a requirement that the statutory declarations be submitted, leaving it to the law of perjury to deal with the consequences if they are false.

19. However, even assuming that what is required by cl 37.0 is that the statutory declaration be true, the question is whether Mr Callipari knew or was recklessly indifferent to the fact that Glavcom had not paid its workers compensation premiums at the time that he signed the statutory declaration. Unless that condition was satisfied, it is difficult to see how the statutory declaration in the form of Annexure Part M could be said to be false. And if the statutory declaration was not false, it is difficult to see how Glavcom could be guilty of fraud of the requisite type by putting it forward. That is so even if Glavcom itself knew that the workers compensation premiums had not been paid (because the knowledge of someone who did know that fact is to be attributed to the company) or it was subsequently discovered that the premiums had not been paid. The question for the Adjudicator was whether a reference date had arisen. The answer to that question depended on whether the statutory declaration was given and arguably whether it was true, not on whether the premiums had actually been paid. No doubt the purpose of requiring the statutory declaration was to secure the payment of workers compensation premiums before Glavcom became entitled to a progress payment. But the question whether the purpose of the requirement had been achieved should not be confused with the question whether the statutory declaration was false.

20. The court must, in answering the question whether it is satisfied on the balance of probabilities that the allegation of fraud is made out, take into account the gravity of the matters alleged: Evidence Act 1995 (NSW), s140(2)(c); Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-2 per Dixon J. It is not disputed that an allegation of fraud is a particularly serious one and that that must be taken into account in determining whether the court is satisfied that it has been made out.

21. I am not satisfied that the allegation that Mr Callipari knew that the workers compensation premium had not been paid, or was recklessly indifferent either to that fact or to whether he was in a position to know that fact, at the time he signed the statutory declaration has been made out. Glavcom is a substantial company. It appears that it employs in the order of one hundred people or more. The work it does is for large commercial projects. Although Mr Callipari, as might be expected, pays close attention to the overall cash position of the company, he says, and I accept, that he is a cabinet maker and French polisher by training and his focus in the business is on sales and supervision of work in the factory. He says, and I accept, that he leaves the administrative side of the business to others, particularly Messrs Oliveri and Said. Although the amount of the workers compensation premium is significant, it is not large compared to the total turnover of Glavcom. There is no reason to think that Mr Callipari would have personal knowledge of whether the premium had been paid or not. Given the size of the business it was reasonable of Mr Callipari to rely on others who to his knowledge knew or could be expected to know the relevant facts. Consequently, when he swore in the statutory declaration that he was in a position to know the truth of the statements contained in the statutory declaration and that to the best of his knowledge and belief workers compensation premiums had been paid, in my opinion, he was entitled to rely on what he was told by others who were involved in the administration of the company and could be expected to know the relevant facts. The statement that he was in a position to know the relevant facts did not require him to undertake his own investigation of the matter.

22. Mr Callipari said that he could not remember who completed the statutory declaration and gave it to him. But again that is not surprising. He gave evidence, which I accept, that he was routinely asked to sign statutory declarations in connection with payment claims; and there is no reason why he should remember who completed and signed the declaration in question. No reason was advanced for why Mr Callipari could not rely on any of the individuals in question. It may be inferred from Mr Callipari’s evidence that each of them was involved in the accounting side of the business and that each of them had personal knowledge concerning the question whether the workers compensation premium had been paid. It was not put to Mr Callipari that he had reasons for doubting what he was told by any of the relevant individuals.

23. Hutchinson places weight on the fact that none of Messrs Oliveri, Said or Ison gave evidence and submits that, in accordance with the principle stated in Jones v Dunkel (1959) 101 CLR 298, the court should draw an inference adverse to Glavcom from the failure to call them. In my opinion, no adverse inference should be drawn. On the basis of the evidence given by Mr Callipari, there is no reason to think that two out of three of the witnesses could shed any light on the question whether the statutory declaration was true or false, since there is no reason to think that they were involved in its preparation. On the evidence given by Mr Callipari, one of the three did prepare the statutory declaration. That person may well have been able to give evidence relevant to the question whether the statutory declaration was false or not. However, there is a substantial risk that if that person were required to give evidence he could only do so by incriminating himself, since it is difficult to see how that person could not have known that the workers compensation premiums had not been paid. In those circumstances, it is explicable that that person was not willing to give evidence and was not called by Glavcom: see Fabre v Arenales (1992) 27 NSWLR 437 at 449-50 per Mahoney JA (with whom Priestley and Sheller JJA agreed).

18. Even if the conclusion of the previous paragraphs is wrong, I accept Glavcom’s submission that the truth or otherwise of the statutory declaration was irrelevant to the Adjudicator’s determination.

19. Section 8 of the Security of Payment Act provides:

8   Rights to progress payments

(1)   On and from each reference date under a construction contract, a person:

(a)   who has undertaken to carry out construction work under the contract, or

(b)   who has undertaken to supply related goods and services under the contract,

is entitled to a progress payment.

(2)   In this section, reference date, in relation to a 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 work carried out or undertaken to be carried out (or related goods and services supplied or undertaken to be supplied) under the contract, or

(b)   if the contract makes no express provision with respect to the matter—the last day of the named month in which the construction work was first carried out (or the related goods and services were first supplied) under the contract and the last day of each subsequent named month.

26. Section 8 gives a person who performs construction work, or provides related goods and services, under a construction contract a right to receive a progress payment on each reference date, which is a date determined in accordance with the contract or a date fixed by s 8(2)(b). It is apparent from s 8 that the contract can fix a date, or provide a method for fixing a date, other than the date set out in s 8(2)(b). But the section cannot be interpreted as permitting other conditions to be attached to the occurrence of a reference date or a right to receive a progress payment. Any provision that purported to do so would be a provision that sought to modify or to restrict the circumstances in which a person was entitled to a progress payment and would therefore be void under s 34.

27. In my opinion, a provision in a contract that makes the occurrence of a reference date conditional on the provision of a statutory declaration or a true statutory declaration concerning the payment of other amounts owed by the subcontractor falls into that category. That is not a provision which provides a mechanism for fixing a date. Rather, it is a provision that seeks to add an additional condition to the right to obtain a progress payment. As Applegarth J pointed out in Lean Field Developments Pty Ltd v E & I Global Solutions (Aust) Pty Ltd [2014] QSC 293, when dealing with the equivalent provision in the Building and Construction Industry Payments Act 2004 (Qld) (s 99), a contractual condition that facilitates the purposes of the Act may not infringe the prohibition contained in s 34. A condition that set out the form of a payment claim may, for example, fall into that category. However, the apparent purpose in this case of the requirement to supply a statutory declaration in the form of Annexure Part M is to make the payment of progress payments conditional on the payment by Glavcom of workers compensation premiums. It is not clear how that furthers the purposes of the Security of Payment Act, which is to ensure that those who do construction work have a cash flow from that work they do so that they are in a position to meet their financial obligations.

28. Hutchinson seeks to answer the point made in the previous paragraph in two ways. First, relying on the decision in Lewence Constructions Pty Ltd v Southern Han Breakfast Point [2015] NSWCA 288, it submits that the question whether a reference date arises under a contract is not a jurisdictional fact. It is a question for the adjudicator and as a matter of fact the Adjudicator in this case thought that the truth or otherwise of the statutory declaration was material, indeed critical, to the question whether there was a valid payment claim. Second, Hutchinson submits that Glavcom conducted the case before the Adjudicator on the basis that cl 37.0 of the subcontract was valid and it submitted that the Adjudicator should accept the statutory declarations made by Mr Callipari, with the result that there was a valid reference date and payment claim. The Adjudicator accepted that submission. Glavcom is bound by the way it conducted the case before the Adjudicator: see HM Australia Holdings Pty Limited v Edelbrand Pty Limited t/as Domus Homes & Anor [2011] NSWSC 604 at [96] per Einstein J, citing Liftronic Pty Ltd v Unver (2001) 75 ALJR 867 at [44] per McHugh J.

29. As to the first point, there can be no doubt that following the Court of Appeal’s decision in Lewence, the question whether a reference date has arisen under a construction contract is not a jurisdictional fact. Whether a reference date had arisen or not was a question for the Adjudicator to decide. But it does not follow from that that any decision taken by the Adjudicator in relation to that question cannot involve jurisdictional error. Section 34 of the Security of Payment Act renders void provisions of contracts that restrict or modify the Act. It was not open to the Adjudicator to seek to apply a provision which was rendered void by s 34; and if the Adjudicator had done so in my opinion he would have made a jurisdictional error because he would have taken into account a matter which the Security of Payment Act made irrelevant. It follows that whether Glavcom had fraudulently failed to comply with cl 37.0 of the subcontract was irrelevant to the Adjudicator’s decision, since that clause was void in any event.

30. As to the second point, an issue before the Adjudicator was whether Glavcom had submitted a valid payment claim. In its payment schedule, Hutchinson accepted that Glavcom had submitted a statutory declaration in the form of Annexure Part M but disputed its validity on the ground that Glavcom had not in response to a “show cause” notice provided evidence of “compliance with contractual and statutory obligations with regards to payment of Glavcom’s suppliers and subcontractors”. In response, Glavcom submitted in its adjudication application that the “show cause” notice was invalid and that it had done everything that it was required to do by cl 37.0 of the subcontract. It did not make the additional submission that cl 37.0 was void and that therefore it was not required to provide a statutory declaration in the form of Annexure Part M.

31. It was not until after this proceeding had been commenced that Hutchinson first raised the issue that the statutory declaration provided by Glavcom in the form of Annexure Part M was fraudulent. Indeed, a necessary part of Hutchinson’s argument is that it did not and could not with reasonable diligence have discovered that fact at the time of the adjudication. It is in response to that submission that Glavcom, for the first time, contends that cl 37.0 is void. In raising that point, Glavcom is not departing from the way in which it put its case in the adjudication. Rather, it is raising an additional point in response to a new point raised in this proceeding by Hutchinson. That additional point is not inconsistent with the way it put its case in the adjudication. It is not inconsistent to assert that the requirement to provide a statutory declaration was invalid but to assume for the purpose of the adjudication that it was valid and contend that it was complied with.

32. Hutchinson submits that in its adjudication application Glavcom asserted that its Part M statutory declaration was valid, which is said to be inconsistent with “the now newly raised argument of s 34 invalidity”. But that submission rests on a confusion. To say that the statutory declaration was valid is to say that it was given in accordance with cl 37.0 of the subcontract. To say that there is s 34 invalidity is to say that cl 37.0 itself is rendered void by s 34.

The jurisdictional issues

33. As I have said, the date of the subcontract was 31 July 2014. The Adjudicator found (and it is not disputed) that under the terms of the subcontract Hutchinson was required to give Glavcom non-exclusive access to the site within fourteen days of the date of the subcontract – that is, by 14 August 2014. The date for practical completion of the subcontract was 21 April 2015. In fact, on the findings made by the Adjudicator, access was not made available “until late March 2015 (at best) or on 8 April 2015” leaving only 13 calendar days of access before the date of practical completion.

34. Clause 39.7 of the subcontract provides:

If the Main Contractor [that is, Hutchinson] commits a substantial breach of the Subcontract, the Subcontractor [that is, Glavcom] may, by hand or by registered post, give the Main Contractor a written notice to show cause.

The clause goes on to identify substantial breaches as including a failure to “rectify inadequate Subcontractor’s non-exclusive possession of the site if that failure continues for longer than the time stated in Item 40(b)”. The time stated in Item 40(b) is 35 days.

35. Under cl 39.9, if Hutchinson fails to show reasonable cause, Glavcom may suspend work. It may also terminate the contract within 28 days of the suspension if Hutchinson fails to remedy the breach. Glavcom is also entitled to claim damages.

36. Clause 34.3 of the subcontract relevantly provides:

Claim

The Subcontractor is entitled to an extension of time if, and only if:

(a)   the Subcontractor is or will be delayed by a cause described in the next paragraph;

(b)   the Subcontractor gives a written notice to the Main Contractor of the details of the possible delay and the cause, not later than 48 hours after the possible delay becomes evident to the Subcontractor;

(c)   within 48 hours after the delay ceases, the Subcontractor gives the Main Contractor a written claim for an extension of time for practical completion specifying the number of days claimed and setting out the facts on which the claim is based;

(d)   in respect of a cause of delay described in sub-paragraph (iv) below, the Main Contractor receives an extension of time under the main contract in relation to the same cause of delay;

(e)   the date for practical completion has:

(i)   not passed, practical completion will be delayed beyond the date for practical completion; or

(ii)   passed, practical completion has been delayed; and

(f)   the cause of delay is not in any way connected with an act or omission of the Subcontractor.

37. Clause 34.4 relevantly provides:

If the Subcontractor does not strictly comply with the requirements set out in this subclause, it shall not be entitled to an EOT.

Curiously, however, no requirements are set out in subclause 34.4.

38. Clause 34.5 relevantly provides:

If the Subcontractor is entitled to an extension of time for practical completion the Main Contractor shall, within 45 days of receipt of the claim in accordance with the second paragraph of subclause 34.3, grant a reasonable extension of time. …

…

A delay by the Main Contractor or the failure of the Main Contractor to grant a reasonable extension of time or to grant an extension of time within 45 days of receipt of the claim in accordance with the second paragraph of this subclause 34.3, shall not cause the date for practical completion to be set at large but nothing in this paragraph shall prejudice any right of the Subcontractor to damages.

39. The Adjudicator found that Glavcom had not made any applications for extensions of time in accordance with cl 34.4 and was, because of the delay, barred from doing so. Nonetheless, he concluded that Hutchinson had failed to give access to the site in accordance with the contract and that was a fundamental breach that disentitled Hutchinson from making any claim for liquidated damages.

40. The Adjudicator expressed his reasoning in these terms in para 96 of his determination:

The Claimant has not succeeded in this adjudication in its claims associated with delays and has not taken the necessary steps to claim for extensions of time. The Claimant is time barred by the terms of the Subcontract from making such claims but this does not translate to the Claimant being liable to the Respondent for damages, liquidated or otherwise, for delays which are the direct and consequential result of the lengthy fundamental breach of the Respondent’s access obligations. The absence of an adjustment to the date for practical completion does not relieve the Respondent from its breach regarding access and does not entitle the Respondent to take advantage of its own fundamental breach by applying liquidated damages for the period from 21 April 2015 onwards.

41. Similarly, in para 97 the Adjudicator said:

… The Claimant has not submitted claims for extensions of time in accordance with the terms of the Subcontract and the Respondent has not granted any extension of time to the date for practical completion although it was open to the Respondent to grant an extension of time notwithstanding that a claim had not been made. The Respondent had no obligation under the Subcontract to grant an extension of time for the benefit of the Claimant. In circumstances where the Respondent was in substantial breach of the Subcontract for such a long period, where the Respondent had unilaterally reduced the period for which contractually the Claimant was entitled to access to the site by more than 90%, the Respondent could not take advantage of its own substantial breach by requiring practical completion by 21 April 2015 and by applying liquidated damages for late completion by the Claimant on the basis that completion by 21 April 2015 was not achieved. It was open to the Respondent to extend the time for the effects of its fundamental breach and had it done so and the Claimant not met the extended date the Claimant would have been exposed to the application of liquidated damages. According to Mr Miceli, who was on site from 8 April 2015, the works could never have reached practical completion in the period between 8 April 2015 and 21 April 2015. The delay in allowing access was so fundamental in this instance so as to make achievement of practical completion by 21 April 2015 impossible regardless of anything that the Claimant could do. [Footnote omitted]

42. In its adjudication application, Glavcom set out various reasons why Hutchinson was not entitled to liquidated damages. One was based on the prevention principle, which was described in these terms:

Prevention Principle Generally

(a)   The prevention principle is a general principle of fairness that prevents a principal (or in respect of the Subcontract, the Main Contractor) from levying liquidated damages in circumstances where it has caused the delay, where the contract has either no mechanism for extending the completion date or that mechanism has become inoperable.

The rationale of the prevention principle has been described by senior construction lawyer John Dorter as:

‘A party in default under a contract will not be allowed to take advantage of its own wrong …’

(b)   When the prevention principle operates, the Principal (or in this Subcontract, the Main Contractor) loses its rights to recover liquidated damages and time is set at large (requiring completion within a reasonable time only and for damages for delay to be general damages) (Peak Construction (Liverpool Ltd v McKinney Foundations Ltd) (Peak). [Footnotes omitted]

It is apparent from the footnote to the quote from Dorter that the quote was taken from J Dorter, “The Effect of Contract Clauses on Claims for Delay and Disruption” (2002) 19 International Construction Law Review 319.

43. Glavcom made further submissions in relation to the operation of the prevention principle by reference to the decision in Gaymark Investments Pty Ltd v Walter Construction Group Ltd (2000) 16 BCL 449. Hutchinson made extensive submissions in its adjudication response on why the prevention principle did not operate in this case. Its principal submission, relying on the decision of Cole J in Turner Corporation Limited (Receiver and Manager Appointed) v Austotel Pty Limited (1994) 13 BCL 378 at 384 was that Gaymark was not good law in New South Wales.

44. Hutchinson submits that the Adjudicator committed a jurisdictional error in three ways.

45. First, he failed to consider the terms of the subcontract or consider them in a bona fide manner. If he had considered the terms of the contract, he would have appreciated that an extension of time could be granted if and only if Glavcom complied with cl 34.3. The Adjudicator would also have appreciated that cls 39.7 to 39.9 of the subcontract set out the consequences, in addition to damages, of a substantial breach by Hutchinson. Those consequences included a right to serve on Hutchinson a show cause notice and a right to suspend or terminate the contract if Hutchinson failed to show cause.

46. Second, Hutchinson submits that the Adjudicator reached an irrational conclusion and did not set out any sufficient process of reasoning to justify the conclusion that he reached. In making that submission, Hutchinson referred to the decisions of Pacific General Securities Ltd v Soliman & Sons Pty Ltd [2006] NSWSC 13; Bauen Constructions v Westwood Interiors [2010] NSWSC 1359; St Hilliers Contracting Pty Ltd v Dualcorp Civil Pty Ltd [2010] NSWSC 1468. The relevant principles to be derived from those cases were stated by McDougall J in Bauen in these terms:

[22] Adjudicators are required, by s 22(3)(b) of the Act, to give the reasons for their determination unless the parties have dispensed them from doing so. That engages the problem of sufficiency of reasons …

[23] Although adjudicators work under significantly greater time pressures than judges, and their reasons should not be scrutinised with the attention to detail to which the reasons of trial judges and intermediate appellate courts are subjected in ultimate courts of appeal, nonetheless the reasons must indicate why it was that the adjudicator arrived at the determination given in accordance with s 22(1) …

47. Third, Hutchinson submits that the Adjudicator failed to comply with the rules of natural justice. In its submission, Glavcom did not ask the Adjudicator to make a finding that by reason of Hutchinson’s breach of the contract, it should be disentitled to liquidated damages. Consequently, Hutchinson did not address that issue. Hutchinson accepts that Glavcom raised the question of the application of the prevention principle. However, the Adjudicator specifically said (at para [101]) that, given the conclusions he had reached “it is not necessary to deal with the arguments based on prevention or implied terms”. Had the Adjudicator addressed the issue in terms of the prevention principle, he would have concluded that Glavcom’s submissions were bound to fail.

48. I do not accept that the Adjudicator failed to consider the terms of the subcontract. He set out the relevant terms and it is plain from what he said that he had regard to them. However, he concluded that Hutchinson was not entitled to rely on them because it was itself in substantial breach of the subcontract.

49. The other issues raised by Hutchinson are more difficult. However, I have concluded that the Adjudicator did set out his reasoning in sufficient detail and did comply with the rules of natural justice.

50. As part of its submissions, Glavcom stated that there was a principle of law that a party in default under a contract will not be allowed to take advantage of its own wrong. It stated that principle in the context of its discussion of the prevention principle, although it appears to have treated that principle as something different from the prevention principle, since it submitted that the stated principle provided the “rationale” for the prevention principle. Glavcom referred to authority (the article written by Dorter) in support of the principle it stated. Hutchinson addressed the prevention principle in some detail in its adjudication response, but it did not specifically address the principle that a party cannot take advantage of its own breach.

47. The Adjudicator did not discuss the prevention principle or the relationship between that principle and the principle that a party in breach will not be allowed to take advantage of its own breach. However, it is plain from what the Adjudicator said that he accepted the latter principle, and he made factual findings that made it appropriate to apply that principle. The Adjudicator did not discuss the question whether the principle was good law. Nor, as I have said, did he discuss the relationship between that principle and the prevention principle. However, from his comment in para 101 of his determination he appears to have formed the view that the two principles were distinct. In my opinion, none of that involved a failure to give adequate reasons for his decision or a denial of natural justice. The Adjudicator accepted without analysis a principle of law that was put to him. But that was in circumstances where Hutchinson did not take issue with the principle. To some extent, that is understandable because the principle was stated by Glavcom in a single sentence and in the context of a discussion of the prevention principle. Nonetheless, the principle was stated and some authority was given for it. Hutchinson had an opportunity to deal with the principle and the authority referred to, but for whatever reason did not do so; and, in those circumstances, the Adjudicator accepted the principle without analysis. None of that seems to me to involve an irrational conclusion, a failure to give adequate reasons or a denial of natural justice.

Did the Adjudicator have power to deduct an amount for liquidated damages?

52. In view of the conclusions I have reached, it is strictly not necessary to deal with this issue. However, I should say something about it in case I am wrong on the question whether the Adjudicator committed a jurisdictional error.

53. Glavcom submits that, even if the Adjudicator did make a jurisdictional error in concluding that Hutchinson was not entitled to liquidated damages, he was not entitled to deduct liquidated damages from the amount claimed by Glavcom and that consequently his error had no effect on his decision with the result that his decision should not be set aside.

54. As to the first limb of this submission, Glavcom relies on ss 9 and 10 of the Security of Payment Act, which relevantly provide:

9   Amount of progress payment

The amount of a progress payment to which a person is entitled in respect of a construction contract is to be:

(a)   the amount calculated in accordance with the terms of the contract, or

(b)   if the contract makes no express provision with respect to the matter, the amount calculated on the basis of the value of construction work carried out or undertaken to be carried out by the person (or of related goods and services supplied or undertaken to be supplied by the person) under the contract.

10   Valuation of construction work and related goods and services

(1)   Construction work carried out or undertaken to be carried out under a construction contract is to be valued:

(a)   in accordance with the terms of the contract, or

(b)   if the contract makes no express provision with respect to the matter, having regard to:

(i)   the contract price for the work, and

(ii)   any other rates or prices set out in the contract, and

(iii)   any variation agreed to by the parties to the contract by which the contract price, or any other rate or price set out in the contract, is to be adjusted by a specific amount, and

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

55. It is common ground that in this case the subcontract did not provide a method for calculating the amount of a progress payment. Consequently, the amount was to be determined in accordance with s 9(b). That section provides that the amount of the progress payment shall be “the amount calculated on the basis of the value of construction work carried out or undertaken to be carried out by the person”. It is also common ground that the subcontract provides a method for valuing construction work carried out or undertaken to be carried out by Glavcom, with the result that under s 10(1)(a) the work is to be valued in accordance with the subcontract. However, in Glavcom’s submission, it is plain from these provisions that the amount of the progress payment is the value of the work calculated in accordance with the contract. It is not that amount less any setoff Hutchinson might have, including a setoff for liquidated damages because of delay.

56. Hutchinson makes two responses to this submission. First, it disputes Glavcom’s interpretation of ss 9 and 10. Second, it submits that in any event Glavcom impliedly accepted before the Adjudicator that if liquidated damages were payable they could be deducted from the amount otherwise owing to Glavcom. It made no submission that the right of setoff did not exist.

57. In my opinion, there is merit in Glavcom’s interpretation of s 9. Section 9(b) says nothing about a setoff. It says that the amount of a progress payment is to be determined by the value of the relevant work. It is difficult to see how a right of setoff can be implied in the face of the clear language of the section. There is nothing inherently uncommercial or absurd in a provision which does not permit Hutchinson to setoff amounts due to it against amounts due to Glavcom for the work that it has done. If the parties had wanted to allow for a right of setoff, they were free to do so by specifically providing in the contract for the calculation of a progress payment which included a right of setoff. The parties did not do that in this case.

58. However, I accept that Glavcom did not raise that issue before the Adjudicator. It was clearly an issue relevant to the determination of the amount payable to Glavcom in respect of its payment claim and ought to have been raised by Glavcom before the Adjudicator if it intended to rely on it. For that reason, had it been necessary, I would have concluded that Glavcom was prevented from raising the issue now.

Orders

59. The proceedings should be dismissed with costs.

60. At the beginning of the hearing, Hutchinson indicated that if it was otherwise unsuccessful, it would seek a stay of any judgment based on the determination of the Adjudicator. If Hutchinson still seeks a stay, I will hear argument on that issue at 9.30 am on Tuesday, 1 March 2016, or such other time as is convenient to the parties and fixed with my Associate.

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Decision last updated: 25 February 2016