John Holland Pty Ltd v Chidambara
[2017] WASC 179
•30 JUNE 2017
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: JOHN HOLLAND PTY LTD -v- CHIDAMBARA [2017] WASC 179
CORAM: CHANEY J
HEARD: 12 JUNE 2017
DELIVERED : 30 JUNE 2017
FILE NO/S: CIV 2969 of 2016
BETWEEN: JOHN HOLLAND PTY LTD
Applicant
AND
RAJ CHIDAMBARA
RespondentSCHNEIDER ELECTRIC BUILDINGS (AUSTRALIA) PTY LTD
Other Party
Catchwords:
Construction contracts - Adjudication determination - Procedural fairness - Determination on basis not contended for by either party - Unreasonable or irrational decision - Determination on basis of contract in different terms from that on which application based - Whether money paid pursuant to determination should be repaid when determination quashed
Legislation:
Construction Contracts Act 2004 (WA), s 15, s 25, s 32, s 38, s 39, s 42, s 43, s 45
Result:
Determination quashed
Order for repayment
Category: B
Representation:
Counsel:
Applicant: Mr J D Maclaurin
Respondent: No appearance
Other Party : Mr M J Feutrill
Solicitors:
Applicant: Clyde & Co
Respondent: No appearance
Other Party : Jackson McDonald
Case(s) referred to in judgment(s):
BM Alliance Coal Operations Pty Ltd v BGC Contracting Pty Ltd [2013] QCA 394
Brodyn Pty Ltd v Davenport (2004) 61 NSWLR 421
Cape Range Electrical Contractors Pty Ltd v Austral Construction Pty Ltd [2012] WASC 304
Cape Range Electrical Contractors v Austral Construction Pty Ltd [2012] WASC 304
Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280
Commissioner of State Revenue (Vic) v Royal Insurance Australia Ltd [1994] HCA 61; (1994) 182 CLR 51
Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87
Go Electrical Pty Ltd v Class Electrical Services Pty Ltd [2013] NSWSC 517
Hall Contracting Pty Ltd v MacMahon Contractors Pty Ltd [2014] NTSC 20
J Hutchinson Pty Ltd v Cada Formwork Pty Ltd [2014] QSC 63
John Holland Pty Ltd v Roads and Traffic Authority of New South Wales (2006) 66 NSWLR 624
John Holland Pty Ltd v TAC Pacific Pty Ltd [2010] 1 Qd R 302
Laing O'Rourke Australia Construction Pty Ltd v Samsung C & T Corporation [2016] WASCA 130
Minister for Immigration and Ethnic Affairs v Wu Shan Liang (1996) 185 CLR 259
Ostwald Bros Pty Ltd v Jaylon Pacific Pty Ltd [2016] QSC 240
Re Ellis; Ex parte Triple M Mechanical Services Pty Ltd [No 2] [2013] WASC 161
Red Ink Homes Pty Ltd v Court [2014] WASC 52
Roxborough v Rothmans of Pall Mall Australia Ltd [2001] HCA 68; (2001) 208 CLR 516
Summers v Commonwealth (1918) 25 CLR 144
Ucar v Nylex Industrial Products Pty Ltd (2007) 17 VR 492
Zurich Bay Holdings Pty Ltd v Brookfield Mulitplex Engineering and Infrastructure Pty Ltd [2014] WASC 40
CHANEY J: The applicant (John Holland) seeks judicial review of an adjudication by the respondent (adjudicator) under the Construction Contracts Act 2004 (WA) (CC Act). The adjudication concerned a payment claim by Schneider Electric Buildings (Australia) Pty Ltd (SEBA) pursuant to a subcontract between SEBA and John Holland whereby SEBA agreed to provide the technology package for the Perth Children's Hospital project (Project) in Nedlands. The adjudication required John Holland to pay SEBA an amount of $6,131,962.27, exclusive of GST, on or before 8 November 2016. John Holland subsequently paid the amount of the adjudication.
In these proceedings, John Holland seeks a writ of certiorari and a declaration of invalidity of the adjudication on three grounds. In addition, it seeks consequential orders that the whole of the amount paid as required by the adjudication be repaid by SEBA to John Holland. SEBA opposes the application and contends that, even if the adjudication is quashed or declared invalid, it is not obliged to refund the amount paid, and the court should not make consequential orders to that effect.
The Subcontract and Deed of Variation
By subcontract dated 29 May 2013 (Subcontract) SEBA agreed to provide the technology package for the Project. The Subcontract was subsequently varied by an Amendment Deed dated 21 January 2016 (Amendment Deed). The recitals to the Amendment Deed read as follows:
AJohn Holland entered in a Subcontract with Subcontractor pursuant to which Subcontractor agreed to provide Technology Package for the Project and the Guarantor agreed to guarantee the performance of the Subcontractor's obligations.
BSubcontractor has issued various Claims under the Subcontract including disputes, delays, variations and extension of time Claims. John Holland does not accept Subcontractor's Claims. John Holland maintains that the Subcontract Sum allowed for all risks of Works under the Subcontract and co‑ordination of Works, except where the change has arisen from a major change in the design of the Project, as directed by the Principal.
CJohn Holland claims that the Subcontractor is in delay in completing the Works, which was caused or contributed to by Subcontractor and has resulted in loss, damage and wasted costs to John Holland. The Subcontractor does not accept John Holland's claims.
DThe Date for Completion under the Subcontract for the Works was 30 June 2015. As at the Execution Date, Completion has not been achieved, John Holland asserts that it is entitled to apply liquidated damages to the Subcontractor. The Subcontractor does not accept John Holland's claim and claims that the Date for Completion should be extended.
EWithout any admissions as to liability, the Parties have agreed to settle their respective Claims on the terms set out in this Deed.
The terms of the settlement embodied in the Amendment Deed involved the payment of what was referred to as a 'Subcontract Sum Adjustment' of more than $17 million in excess of the original contract sum. The Subcontract Sum Adjustment, together with amounts still to be paid under the original subcontract were to be 'claimed by the subcontractor and paid by John Holland in accordance with the subcontract, as amended by [the Amendment Deed]'.
The Amendment Deed also contained a number of amendments to the Subcontract. Among the amendments was an amendment to sch A of the Subcontract to amend the date for completion to 20 April 2016. The Subcontract also provided for Stage Dates for Completion which were also amended to provide the following Stage Dates for Completion:
•All construction works - 28 February 2016;
•Commissioning and testing - 22 March 2016;
•Building tuning complete - 20 April 2016.
A new schedule was added to the Subcontract to provide for milestones in respect of which payment would be made by John Holland.
Special Condition 19 in sch B of the Subcontract was amended to include a number of provisions relating to the Subcontract Sum Adjustment. Those additional provisions included cl 19.6 which read:
Subject to clauses 19.3 and 19.4, if the Subcontractor has not completed all of the relevant Milestone Works by its corresponding Milestone Date, the Subcontractor shall be entitled to claim and be paid the relevant portion of the Subcontract Sum Adjustment (as reasonably assessed by John Holland) as follows:
(a)Milestone Works less than 80% complete due to any act or omission of the Subcontractor: no entitlement until 80% is reached;
(b)Milestone Works less than 80% complete due to any act or omission of John Holland or John Holland's Personnel: entitlement calculated on a percentage complete basis (as reasonably determined by John Holland), at what the percentage complete would have been but for such act or omission, subject to such percentage complete being 80% or more; or
(c)Milestone Works 80% or more complete: entitlement calculated on a percentage complete basis (as reasonably determined by John Holland).
The Subcontractor shall not be entitled to claim and be paid for any incomplete Milestone Works (or any part thereof) until the month that the relevant Milestone Works are completed.
The Amendment Deed also added Special Condition 20 in sch B of the Subcontract, which read as follows:
20.The Prevention Principle.
20.1The parties acknowledge and agree that the Subcontractor is not entitled to any extension of time in respect of any delay caused or contributed to by any other subcontractor or consultant engaged by or on behalf of John Holland, except where the Subcontractor has notified John Holland in accordance with the Subcontract of the potential delay to its Works caused by that subcontractor or consultant and subject to compliance with the Subcontract terms and John Holland has failed to take reasonable steps to mitigate such cause of delay.
20.2The Subcontractor shall have no Claim, and is barred from making a Claim, against John Holland where it has failed to comply with clauses 10.6A, 10.6B, 10.7, 11.2 and 11.8. If the Subcontractor fails to comply with these clauses then:
(a)the Subcontractor shall have no entitlement to claim a Variation or an extension of time;
(b)any principle of law or equity (including those which might otherwise entitle the Subcontractor to relief including the 'prevention principle'), which might otherwise render:
(i)any Staged Date for Completion;
(ii)the Date for Completion
unenforceable, and render liquidated damages penal, shall not apply.
20.3For the avoidance of doubt, nothing in clause 20.2 is intended to apply to the Subcontractor's failure to comply with clauses 10.6A, 10.6B, 10.7, 11.2 and 11.8 of the Subcontract prior to the Execution Date in relation to a Claim as set out in Annexure 4.
Clause 10.6 of the Subcontract which dealt with claims for extensions of time was deleted by the Amendment Deed and replaced with a new condition 10.6A and 10.6B. Clause 10.6A required the subcontractor, where it considered it had been, or was likely to be, delayed in achieving completion by reason of a 'delay event', to give John Holland a notice containing specified information. Where a delay event continued for a 'further delay period' notices were required to be issued on a weekly basis. Clause 10.6B required that, in order to claim an extension of time, the subcontractor must have given a delay notice for a delay event and, within seven business days after the delay event ceases, must have given notice to John Holland of its claim for an extension of time containing specified information including the number of days the extension of time claimed together with the basis of calculating that period.
Clause 10.7 and cl 10.8 of the Subcontract provided:
Conditions Precedent to Extension
It is a condition precedent to the Subcontractor's entitlement to an extension of time that the Subcontractor:
(a)must not have caused, or contributed to, the delay;
(b)has taken all steps necessary both to either avoid or minimise the consequences of the delay;
(c)no reasonable reprogramming or alteration of sequences or activities or other method could avoid the delay;
(d)must not have been given an instruction under clause 10.11;
(e)must have given the notices and must have made claim strictly as required by clause 10.6; and
(f)must have given the notice or claim in accordance with clause 17.8
The Subcontractor shall have no claim against John Holland if it fails to comply with the requirements of this clause 10.7
Extension of Time
If the conditions precedent in clause 10.7 have been satisfied, John Holland will extend the Date for Completion as follows:
(a)if clause 10.6(b) applies, by a reasonable period to be notified in writing to the Subcontractor, within the period specified in Schedule A after receipt of:
(i)the first claim under clause 10.6(b), by way of an interim determination on the Subcontractor's application for an extension of time; and
(ii)the Subcontractor's last claim under clause 10.6(b) determined after reviewing all the circumstances and making a final determination on the Subcontractor's application for an extension of time with regard to the Extension Event; or
(b)If clause 10.6(b) does not apply, by a reasonable period determined by John Holland and notified to the Subcontractor within the period specified in Schedule A after receipt of the Subcontractor's claim under clause 10.6(a).
(c)For the avoidance of doubt, and without limiting the other requirements under this clause 10, strict compliance with the notice requirement under this clause 10, or any other provision of the Subcontractor is an essential condition to any entitlement to an extension of time or an adjustment under this clause 10 or any other provision of the Subcontract.
Clause 13.6 of the Subcontract provides for liquidated damages to be paid by SEBA to John Holland in the event of delays in completion of the works. Clause 13.6 provided:
Liquidated Damages
If the Subcontractor does not reach Completion of the Works at a Stage, as the case may be, by the Date for Completion, it must pay the amount specified in Schedule A for every day after the Date for Completion that the Works or a Stage are not completed until the earlier of:
(a)the Works reaches Completion; or
(b)the liquidated damages cap of 15% of the Subcontract Sum is reached; or
(c)the Subcontract is terminated.
This amount is an agreed genuine pre‑estimate of John Holland's damages if Completion of the Works or a Stage, as the case may be, occurs after the Date for Completion excluding any Loss which John Holland may suffer and against which the Subcontractor separately indemnifies John Holland under this Subcontract.
Clause 12.18 entitled John Holland to deduct from any moneys due to SEBA any debt or other moneys due from SEBA to John Holland and 'any claim to money that John Holland may have against [SEBA] whether for damages (including liquidated damages) or otherwise'.
SEBA's payment claim
On 31 August 2016, SEBA submitted its payment claim to John Holland in the sum of $6,642,642 plus GST (August payment claim). The August payment claim included claims for the March 2016 and April 2016 milestone works. On 21 September 2016, John Holland sent SEBA its payment schedule assessing the sum payable as minus $6,907,085.12 (excluding GST), being an amount said by John Holland to be payable by SEBA to John Holland. John Holland summarised its payment schedule of 21 September 2016 as being $817,914.88, being John Holland's assessment of the amount claimed by SEBA, from which was deducted liquidated damages claimed by John Holland of $7,725,000 resulting in a net sum of $6,907,085.12.
On 4 October 2016, SEBA lodged an adjudication application pursuant to s 25 of the CC Act (Adjudication Application). On 18 October 2016, John Holland lodged a response to SEBA's Adjudication Application (Response).
SEBA's Adjudication Application
In its application, SEBA asserted that the construction works to be performed by John Holland are still not complete and that delays prevented SEBA's subcontract works from being completed. It also asserted that further variations had been directed and that SEBA has continued to progress the works to the best of its ability but they remain ongoing.[1]
[1] Adjudication Application, s 1: Executive Summary [11], [12].
SEBA included with its application an expert report of Mr Deon Visagie of Proplan as to SEBA's entitlement to extensions of time. In its application, SEBA asserted that John Holland had no entitlement to set off any amounts against SEBA's payment claim, including in relation to liquidated damages. Clause 23.1 of the Adjudication Application gave SEBA's reasons for that contention as:
In respect of the alleged entitlement to set off LDs:
(a)John Holland has failed, refused and/or neglected to properly assess SEBA's entitlement to extensions of time;
(b)the expert report of Mr Deon Visagie of Proplan (Attachment 3) concludes that SEBA is entitled to EOT's of at least 155 calendar days on Stage Date Completion 1 and further analysis will be undertaken when the works are complete of the full entitlement to extensions of time;
(c)the SEBA works are ongoing and remain the subject of ongoing delays caused by John Holland which are being notified on an ongoing basis but where claims for extensions of time cannot be made because the Subcontract requires these claims to be made when the delay ceases (and its subcontractors) (as further explained in the statutory declaration of Mr Swart)'
(d)a final assessment of SEBA's entitlement to extensions of time for the works cannot be carried out until after the works are complete;
(e)it would be inappropriate and premature for John Holland to deduct LDs at this stage of the works and thereby deny SEBA payment for having completed the works under the Subcontract.
I pause to note that those submissions assume the continued operation of the Subcontract terms in relation to completion dates and extensions of time.
After dealing with compliance with all preconditions to entitlement to claim payment, the Adjudication Application recited the milestone works in respect to which payment was claimed. It recited the provisions of cl 19.6 and in respect to the March milestone, SEBA said that it had assessed that work as 92% complete, but had elected only to claim for 80% in the August payment claim. That assessment was said to be supported by an independent report by Aquenta which was provided with the Adjudication Application. John Holland had assessed the March milestone as 73.56% complete.
In relation to the April milestone, the Adjudication Application noted that John Holland had assessed the April milestone as 70.57% complete, but that SEBA had calculated that it had completed approximately 92% of the April milestone works, although it only elected to claim for 80% of those works. In respect to both the March and April milestones, SEBA asserted that, if John Holland's assessments were preferred then, had it not been delayed by John Holland, it would have exceeded the relevant 80% threshold in respect of each milestone and was thus entitled to payment.
The Adjudication Application then dealt with claims for variations in relation to rectification works and several other matters.
The Adjudication Application then dealt with John Holland's purported set‑off. SEBA submitted that John Holland did not have any entitlement to assess and set‑off liquidated damages on the basis that the works are ongoing and remain the subject of ongoing delays caused by John Holland (and its subcontractors) so that 'a final assessment of SEBA's entitlement to extensions of time for the works cannot be carried out until after the delays for which notices have been given have ceased because under the Subcontract only then can SEBA make a claim for extensions of time'.[2]
[2] Adjudication Application cl 189.2.
At par 189.3 of the Adjudication Application, SEBA said:
It is critical that the Subcontract does not permit extensions of time to be claimed until after the Delay Event ceases. It is premature for John Holland to impose LD's until all delays for which notices have been given (and there are many) have ceased. It would be inappropriate and premature for John Holland to deduct LD's at this stage of the works and to thereby deny SEBA payment for having completed the works under the Subcontract.
At par 192 of the Adjudication Application, SEBA said:
In support of SEBA's position that John Holland has no entitlement to set off any amount in respect of liquidated damages, SEBA refers to and relies upon:
192.1the statutory declaration of Mr Swart - which sets out the background to the Subcontract, the progress and delays to the works that have been caused by John Holland and which continue to delay the Works and summarises the process that SEBA has followed in submitting some 718 claims for extension of time as a result of John Holland caused delays to SEBA's works; and
192.2the Expert Delay Report prepared by Proplan (Attachment 3):
(a)SEBA instructed Mr Deon Visagie of Proplan to undertake a preliminary assessment as to SEBA's entitlement to extensions of time in respect to SDC1;
(b)which demonstrates that SEBA is entitled to an extension of time of at least 155 days in respect of Stage Date Completion 1 - it is not possible to finalise the assessment as the works and delays are still ongoing and therefore it is not appropriate to impose liquidated damages at this time; and
(c)there are dozens of Delay Events that are still continuing and for which EOT claims are not yet due under GC10.6B(b).
SEBA asserted that John Holland was late in completion of the works and that it was impermissible for it to set‑off liquidated damages in circumstances where it had failed to carry out and complete its own construction works. It asserted that it had made approximately 718 claims for extension of time. Reference was made to the specific delays said to have been caused by John Holland. Those were described as follows:
The delays caused to SEBA's works by John Holland (and its subcontractors) are set out in detail in the statutory declaration of Mr Swart and the Expert Delay Report prepared by Proplan and include, but are not limited to, the following:
202.1lack of access to the Site for SEBA to perform its works;
202.2fire door rectification works - the fire doors installed by John Holland were not in accordance with the Australian Standards and were required to be removed, altered and then replaced (which happened on several occasions in respect of some doors) which impacted on SEBA's works in fitting off required electrical items;
202.3delays caused by the State Primary Access Control Programme;
202.4incomplete doors, doorframes and ceilings;
202.5John Holland issuing and continue to issue directions to SEBA to vary the works;
202.6various late responses by John Holland in relation to requests for information; and
202.7the mechanical cause and effects matrix.[3]
[3] Adjudication Application [202].
SEBA referred to its expert report suggesting that at least 155 calendar days extension of time was required in respect to the first stage date for completion, and that further analysis would be required so as to assess SEBA's full entitlement to an extension of time having regard to the 718 extension of time claims and ongoing delays caused by John Holland to the works.[4]
[4] Adjudication Application [209], [210].
John Holland's Response
In the Response, John Holland submitted that it was not liable to pay SEBA any amount at all in respect to the August payment claim because it was entitled to set‑off liquidated damages payable to it under the Subcontract. In relation to the claims for milestone works, John Holland submitted that SEBA had failed to complete at least 80% of each of the March and April milestones so it had no entitlement to claim in respect of those milestones. In respect of other miscellaneous variations which SEBA claimed, John Holland submitted that the directed works were within SEBA's original scope of works or were claims barred by the Amendment Deed.
After setting out its account as to the background to the dispute between SEBA and John Holland, the Response dealt with John Holland's claimed entitlement to liquidated damages. Reference was made to the numerous extension of time claims made by SEBA and asserted that each of SEBA's extension of time claims failed to meet the conditions precedent for such claims under the Subcontract, and in any event were without merit. It recited that John Holland had sought independent expert advice in relation to extensions of time, and based on a provisional assessment of that report, John Holland had extended the date for completion by 22 days to 12 May 2016 and granted extensions of time to other relevant Stage Dates for Completion. John Holland referred to the terms of cl 13.6 of the Subcontract and asserted that there are no conditions to payment of liquidated damages so that its entitlement to payment is triggered as soon as SEBA fails to complete the works or a stage by the relevant date of completion. John Holland submitted that, even after taking into account the 22 days' 'unilateral extensions of time' which it had granted, SEBA had failed to complete the works by:
(a)a period of 132 days (ie 154 days less 22 days' extension of time) after the Date for Completion and Stage Date for Completion of the Stage Date for 'Building Tuning';
(b)a period of 181 days (ie 206 days less 25 days' of extension of time) after the Stage Date for 'all construction works'; and
(c)a period of 168 days (ie 183 days less 15 days' of extension of time) after the Stage Date for 'Commissioning and Testing'.[5]
[5] Response to Application for Adjudication [4.7].
At par 4.9 of the Response, John Holland submitted that it was 'critical to note' that SEBA's Adjudication Application only claims entitlement to an extension of time of 155 days. On that basis, John Holland submitted that even if the full 155 days was permitted, SEBA would nevertheless have failed to complete 'all construction works' by 48 days, and in those circumstances, John Holland's entitlement to liquidated damages under cl 13.6 of the Subcontract would total $8,640,000 which would entitle John Holland to liquidated damages of the maximum capped by cl 13.6(b) in the amount of $7,725,000.
At cl 4.10, John Holland submitted:
John Holland acknowledges that notices of dispute have been issued by SEBA for its extension of time claims. However, on the terms of the Subcontract, the mere fact that SEBA has not completed the Works or a Stage by the Date for Completion triggers SEBA's liability to pay liquidated damages to John Holland. John Holland is, from that point, entitled to payment of liquidated damages. The dispute resolution process is an entirely separate process under the Subcontract, and independent of John Holland's entitlement to seek payment of liquidated damages as soon as SEBA's liability is triggered. The fact that notices of dispute have been issued by SEBA is not a ground on which SEBA can be excused from paying liquidated damages under the Subcontract.
John Holland submitted that cl 12.18 provided a mechanism for the recovery of liquidated damages by way of set‑off from the moneys due to SEBA.
The Response then dealt with John Holland's submissions as to SEBA's failure to meet the conditions precedent for extension of time claims, the merit of SEBA's extension of time claims and John Holland's discretion to unilaterally extend the date for completion. John Holland's entitlement to liquidated damages was reiterated at par 4.39 to par 4.60 in slightly more detail but to the same effect as the earlier submissions on that issue.
The Response then dealt with SEBA's claim to milestone works, essentially claiming that SEBA had no entitlement because it had not achieved 80% of the works the subject of the March and April milestones. In that respect, John Holland relied on a report by an independent expert, TBH, which was included with the Response documents. That report assessed SEBA's progress for the March milestone at 72.17%, and the April milestone at 70.73%, and on that basis, John Holland argued SEBA had no entitlement under Special Condition 19.6 to any payment in respect to the milestone works.
Reliance was also placed by John Holland on an assessment carried out by TBH of the Aquenta Report submitted by SEBA. At cl 5.17 of the Response, John Holland submitted:
TBH is critical of the findings in the Aquenta report, and TBH's comments are summarised as follows:
8Based on my review of Aquenta's expert report Section 7, I conclude that:
a.Mr Glover has not used the correct Baseline Programme in his assessment to determine the distribution of Baseline budgeted labour units for each of the Milestones in Schedule AA;
b.Mr Glover has not used the correct Programme in his assessment to determine SEBA's progress at the end of August 2016 in relation to the Milestones in Schedule AA;
c.Mr Glover has erroneously increased percentages not previously reported by SEBA in the Subcontractor's Programme of Works, which is against the Subcontract's requirements;
d.Mr Glover's assessment is based on an overall percentage complete of all budgeted labour units and therefore has not been carried out in accordance with the Subcontract, which requires the progress to be measured against the January, February, March and April Milestone individually so that Payment for Works can be determined in alignment with the breakdown of payment in the Subcontract.
The Response then dealt with door rectification claims, which John Holland rejected on the basis that, whilst it was accepted that John Holland's direction in relation to the fire rated doors gave SEBA an entitlement to claim variations, in breach of cl 11.5(b) of the Subcontract, SEBA had failed to provide adequate evidence substantiating its entitlement to be paid the amounts claimed for rectification works, and SEBA had claimed excessive numbers of hours and rates in relation to the works. Submissions were also made in relation to other aspects of the claim which are not material for present purposes.
The Adjudicator's Determination
The Adjudicator's Determination was delivered on 1 November 2016. After receipt of the Adjudication Application and the Response, the adjudicator carried out a site inspection. He also convened a conference, the objective of which was to clarify certain matters in the submissions. In his determination, the adjudicator said that the reason for the conference was that he had several questions arising from the submissions and from his observations at the site, and that those present at the conference were given an opportunity to respond to questions, and to respond to comments from the other party.
In relation to the claims for milestone works, the adjudicator referred to the expert reports supplied by each party. He noted that the TBH report provided by John Holland assessed the March milestone works complete by 72.17% and the April milestone works complete by 70.73%. He noted that the applicant assessed the milestone works as 92% complete in respect of each of the March and April milestones, although, in each case, it elected to claim for 80% completion. He noted that each of the applicant and the respondent had used different procedures to determine their assessment of the percentage to which each milestone was completed. Having noted those different procedures, the adjudicator continued:
8.7Upon reading the reports of the Applicant and the Respondent, I conclude that:
(a)Both parties have adapted different procedures for assessment;
(b)Each party is giving an opinion; an opinion does not become a contract; contract means an agreement between the parties'
(c)The parties did not have an agreed procedure for assessing Milestone Completion. In this scenario, I do not say that either report (TBH or Aquenta) is wrong. It is suffice to conclude that there was no agreed procedure between the parties for assessing the completion of milestones.
8.8The overall purpose of assessment (percentage of completion of milestones) relates to clause 19.6 of the Deed; that is, upon 80% completion of the milestone, the Applicant shall claim for payment of money. Since the parties do not have an agreed procedure for assessment, clause 19.6 leads to a disagreement or manifests a disagreement between the parties.
8.9In its plain meaning (Oxford Dictionary), Contract means a written or spoken agreement, especially one concerning employment, sales or tenancy, that is intended to be enforceable by law. Since the procedure for assessment of milestones was not agreed by the parties, clause 19.6 is a disagreement; alternatively, it can be said that, due to the lack of an acceptable assessment procedure, clause 19.6 manifests as a disagreement. However, clause 19.6 was bundled with other written clauses in the Deed to create the appearance of an agreement. Truly, clause 19.6 is a disagreement.[6]
[6] Adjudicator's Determination 1 November 2017.
The adjudicator said that the objective of cl 19.6 is clear, namely that the parties intended to have a provision in the contract documents about SEBA's entitlement to claim progress payments for milestone works. He said however, that 'clause 19.6 is a disagreement'. On that basis, he concluded that the Subcontract did not contain a 'proper provision' through which SEBA's entitlement to progress payments can be calculated and concluded that in those circumstances, s 15 of the CC Act was applicable.
Section 15 of the CC Act provides:
The provisions in Schedule 1 Division 3 are implied in a construction contract that does not have a written provision about whether or not the contractor is able to make a claim to the principal for a progress payment for the obligations the contractor has performed.
Division 3 of sch 1 deals with claims for progress payments. It provides:
3. Entitlement to claim progress payments
The contractor is entitled to make one or more claims for a progress payment in relation to those of the contractor's obligations that the contractor has performed and for which it has not been paid by the principal.
4. When claims for progress payments can be made
(1)A claim by the contractor for a progress payment can be made at any time after the contractor has performed any of its obligations.
(2)The making of a claim for a progress payment does not prevent the contractor from making any other claim for moneys payable to the contractor under or in connection with this contract.
Consequently, the adjudicator concluded that SEBA was entitled to make progress claims in relation to milestone works, and could make those claims at any time after performing any of its obligations. Thus, he concluded, SEBA was entitled to make a claim for payment for the March milestone works and the April milestone works even if the percentage completion stood below 80%. It is this aspect of the determination that is the subject of ground 2 of the grounds of review.
The adjudicator then turned to the question of calculation of the amount payable to SEBA for milestone works. He noted that John Holland had already assessed the March milestone at 72.17%, and the April milestone at 70.73%, and SEBA had assessed each milestone at 92% complete but claimed only 80%. He considered that it was inappropriate to award any more than SEBA had claimed, and accordingly determined that the task which befell him was to decide the percentage completion of each milestone between the lower band assessed by John Holland and the 80% claimed by SEBA. In reasoning that SEBA should be paid for 80% completion of each of the March and April milestone works, the adjudicator said:
Other evidentiary documents are available in Applicant's submissions that speak about the progress of works. These are the Inspection and Test Reports signed by the representatives of SEBA, John Holland, Norman Disney & Young (NDY) and the State of Western Australia. At the conference of the parties, I was informed that these four representatives met frequently at site to go through the progress of works. Such progress reports are multiple sheets running into several pages. As a sample, I have enclosed pictures (Figure 2 & 3). I place more weightage on such evidence because these reports were generated after an inspection at site. In this instance, the State (or the people of Western Australia) are the eventual users of this facility. NDY is a third party to the contract. Hence, the reports attested by the State and/or NDY has more significance then the report by TBH.[7]
[7] Adjudicator's Determination [8.14].
Figure 3 referred to by the adjudicator constitutes what I take to be a sign off of Figure 2 by each of John Holland, SEBA, Norman Disney & Young and the State representative. What is to be made of the table which constitutes Figure 2 was not explained to me by counsel, and is not self‑evident. I do not, however, understand that there is any challenge to the proposition that the tabulation in Figure 2, and other progress reports of which Figure 2 is an example, support the conclusion accepted by the adjudicator that the milestone works were at least 80% complete.[8]
[8] Adjudicator's Determination [8.13].
The adjudicator then dealt with various matters which are not the subject of challenge in these proceedings. He then turned to the question of liquidated damages. After referring to John Holland's position in relation to liquidated damages, the adjudicator said that 'three examples are noticeable in the submissions; these examples confirm that the parties, by conduct, abandoned the stage dates for completion'.
The first example was the 'Gait Analysis Room, Additional Services'. The adjudicator noticed that the date on which additional services were requested for the gait analysis room was 18 to 19 June 2016, a matter not in dispute. He noted a direction in a document dated 19 June 2016 in relation to that work, which showed as a completion date 'as directed on site by John Holland'. The adjudicator concluded that that amounted to confirmation that the parties did not mention any specific date for completion of that work, but they intended to complete it on a reasonable date. He continued:
18.8Note that, if a piece of work was started on 18 June 2016, it can only be completed on 18 June 2016 or thereafter; completion date depends upon the complexity of the work. It is not possible for the parties to go back in time and complete the work by 28 February 2016. Time can only move forward, and not backwards. Consequently, the 'Date for Completion' that was said to be 28 February 2016 in contract documents is voidable.
18.9The Respondent acknowledged that (Response, para 9.34, 9.39) this work in Gait Analysis Room was within the original scope of works. Hence, it follows that, the Respondent decided to commence some parts of the original scope of works in June 2016, which was clearly beyond the original Date for Completion (28 February 2016); further, it was beyond the Commissioning and Testing Date (22 March 2016) and later than the target date for 'Building Tuning' (20 April 2016). This proves that the parties, by conduct, voided or abandoned all these target dates for completion of works, commissioning, testing and tuning. Therefore, none of these dates can be used for the calculation of liquidated damages.
The second example related to additional data points. He noted that the original scope of works included 500 data points, but that John Holland did not 'ask or expect the installation of all the 500 points to be completed by 28 February 2016'. He said that John Holland proceeded on that task on a 'piecemeal basis' saying:
Different installation points were identified each month and the work proceeded that way, without a definite timeframe. At the conference of the parties (par 13.5), the Applicant produced a table showing installation points, relevant correspondence, cumulative numbers and dates, arranged month-wise. That table of data stands as evidence that installation of 500 data points proceeded on a piecemeal basis each month without a definite timeframe. Again, this leads to the conclusion that 'Date for Completion, 28 Feb 2016' was abandoned by the Respondent and the original scope of works (Data Points) was instructed to be done on a piecemeal basis, in subsequent months, without a definite timeframe. This confirms that all the target dates in the Deed (Date of completion, Commissioning, Testing and Building Tuning) were abandoned again and again; those dates are voidable in their contract.[9]
[9] Adjudicator's Determination [18.13].
The third example referred to door rectification works. The adjudicator noted that those works were commenced as a variation to the original scope of works and thus, for payment purposes, were considered as a variation rather than as part of the milestone works. He observed, however, that only when the relevant doors were rectified, could the corresponding 'field device fit off and panel termination' jobs, which form part of the original scope of works, be completed by SEBA. Thus, he said, to complete the original scope of works, SEBA was 'influenced by the speed of door rectification works'. The adjudicator noted that SEBA could only complete its work on the door rectification works when other rectification work had first been carried out by John Holland or its contractors. As with the gait analysis room, the direction as to completion was expressed as 'as directed by John Holland representatives on site'. The adjudicator said that the parties continued the arrangement for door modification for more than 900 doors over several weeks. He said:
The parties had not discussed specific dates for completing door rectification works; they assembled at the site daily and progressed with the works day after day. Based on this practice, I conclude that, door rectification was extended day after day. This is akin to the 'Extension of Time' that is described in clause 10.8 of the Subcontract.[10]
[10] Adjudicator's Determination [18.17].
He referred to an answer provided by John Holland to a question as to the number of doors modified daily in which John Holland said that 'due to the critical and urgent nature of the door rectification works, John Holland departed from normal procedures and process of agreeing a rate and defined scope in advance, and instructed SEBA to commence the works immediately'. He continued:
18.21I agree with the opinion of the Respondent that the precise scope of door rectification was unknown in the early days (say, April‑June 2016). Parties relied on 'Daywork' basis for the wages (Subcontract, Clause 11.5) and progressed with the work day after day. FTA (a contractor acting for John Holland) identified the doors and gave instructions from time to time. Since FTA (and thus, John Holland) orally extended the work day after day, I conclude that SEBA was given 'Extension of Time' orally by FTA day after day, and week after week.
18.22Again, from this 'Third Example: Door Rectification Works', I conclude that the parties, by conduct, voided or abandoned all the target dates for completion of works (28 Feb 2016), commissioning and testing (22 Mar 2016) and tuning (20 April 2016); the parties proceeded on door rectification works on piecemeal basis, without any agreement on the Date for Completion. Therefore, none of these dates can be used for the calculation of liquidated damages, or for any other calculation relating to contractual entitlements.
The adjudicator concluded that the claim for liquidated damages 'must be dismissed' saying:
18.24In the most basic form, liquidated damages depend on the promise made by one party to another that the construction work would be completed by a specific date; if that promise is broken, then LD is payable. It is true that SEBA and John Holland entered into such a promise and an acceptance, thereby formed a contract and it is reflected as clause 13.6 on Liquidated Damages in the document that was drafted in 2013. By conduct, the parties abandoned the Dates for Completion later on (my para 18.9, 18.13 and 18.22). Hence, a Date for Completion does not exist in their working arrangement now.
18.25It may noted that a contract may be oral or written or both. Specifically, the Construction Contracts Act recognises it at section 3 in the interpretation of Construction Contract. Any oral conversation between FTA and SEBA relating to door rectification is necessarily a part of the construction contract between the parties. Such conversation between FTA and SEBA has 'time‑related' implications in their working arrangement. FTA extended the work day after day. That conversation must be taken into account in the analysis of Extension of Time, and other parameters. Incidentally, the report by TBH does not take that information into account and hence, TBH report is incomplete. Similarly, the arguments by the Respondent (Response, para 4.1‑4.60) fails to consider the details of the working arrangement between FTA and SEBA. Hence, the Respondent's arguments about Date for Completion are erroneous.
The grounds of review
The grounds of review are set out in the application, and read as follows:
Ground One
1The Respondent failed to afford the Applicant procedural fairness by, in breach of the requirements of natural justice, finding that:
(a)the Applicant's claimed set‑off on account of liquidated damages must be rejected, because the parties had, by conduct, abandoned any Date for Completion under the relevant contract; and hence
(b)there was no Date for Completion upon which to base liquidated damages;
when this was a finding for which neither party contended, was not the subject of (and was a significant departure from) the parties' positions in the application and response documents, was not reasonably contemplated by the Applicant as being open to be made, and was a matter upon which the Applicant was denied a proper opportunity to make submissions upon.
1AThe Respondent made a jurisdictional error in the finding that:
(a)the Applicant's claimed set‑off on account of liquidated damages must be rejected, because the parties had, by conduct, abandoned any Date for Completion under the relevant contract; and hence
(b)there was no Date for Completion upon which to base liquidated damages;
when such finding was unreasonable and irrational, involved the Respondent ignoring the provisions of the relevant contract, and the Respondent misunderstanding his proper function under the Act.
Ground Two
2The Respondent's finding that:
(a)the relevant contract did not have a written provision about whether or not the contractor (Other Party) is able to make a claim for a progress payment for the obligations the contractor has performed;
(b)the terms set out in Schedule 1 Division 5 of the Act should therefore be implied into the contract by the operation of section 15 of the Act; and
(c)as a result, the contractor could, under the contract, make progress claims after performing any of the obligations and regardless of the percentage of completion of Milestone works;
was:
(i)a failure to afford the Applicant procedural fairness, in breach of the requirements of natural justice, as this was a finding for which neither party contended, was not the subject of (and was a significant departure from) the parties' positions in the application and response documents, was not reasonably contemplated by the Applicant as being open to be made, and was a matter upon which the Applicant was denied a proper opportunity to make submissions upon; or
(ii)otherwise a jurisdictional error in that the Respondent unreasonably and irrationally, through the operation of a statutory provision of the Act, implied a term into the contract which bore upon the nature of a payment claim under the contract.
Analysis of adjudicator's reasons
It is well settled that, in the context of judicial review of an administrative decision‑maker's reasons for decision, the court should not be 'concerned with looseness in the language ... nor with unhappy phrasing' of the reasons and that the reasons should not be 'be construed minutely and finely with an eye keenly attuned to the perception of error'.[11] The reasons are 'not to be scrutinised upon the overzealous judicial review by seeking to discern whether some inadequacy maybe gleaned from the way in which the reasons are expressed'.[12] In that sense, the court is to apply a beneficial construction to the adjudicator's reasons. That approach must be taken in the context of the informal nature of the adjudication process, as to which Pritchard J observed in Cape Range Electrical Contractors Pty Ltd v Austral Construction Pty Ltd:[13]
These considerations suggest that, in assessing whether an adjudicator has made errors of a kind which would render a determination invalid, it would be entirely inapt to engage in a "line by line" scrutiny of a determination. To do so would be to risk descending into a merits review of an adjudicator’s determination. Further, an approach of that kind would have the potential to undermine the objectives of the CC Act to facilitate an informal and speedy means for resolving payment disputes between parties to construction contracts, while preserving a right to litigate or arbitrate about any substantive areas of dispute underlying those payment disputes.
[11] Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280, 287.
[12] Minister for Immigration and Ethnic Affairs v Wu Shan Liang (1996) 185 CLR 259, 272.
[13] Cape Range Electrical Contractors v Austral Construction Pty Ltd [2012] WASC 304 [58].
That approach has been adopted in other decisions of this court including Red Ink Homes Pty Ltd v Court[14] and Re Ellis; Ex parte Triple M Mechanical Services Pty Ltd [No 2] (EM Heenan J).
[14] Red Ink Homes Pty Ltd v Court [2014] WASC 52 [91]; Re Ellis; Ex parte Triple M Mechanical Services Pty Ltd [No 2] [2013] WASC 161 [84], [88].
Ground 1
Ground 1 asserts a denial of procedural fairness. That failure is said to arise because the adjudicator determined the question of set‑off of liquidated damages on a basis not contended for, nor capable of anticipation by, either party, thereby depriving John Holland of the opportunity to address that basis of the decision.
It can be accepted that relief by way of a writ of certiorari is available where an adjudicator has determined the matter in breach of procedural fairness where it has not been shown that the breach of procedural fairness could not have affected the adjudicator's decision.[15] That proposition stems from the general principle that a party should be given the opportunity to respond to matters prejudicial to its interests that are known only to the decision‑maker and which might be taken into account in the determination of issues that may affect the party's property, rights or legitimate expectations.[16] It can be appreciated that the adjudication procedure is summary in its nature, and might be thought to limit procedural fairness by making no provision for a reply by an applicant to the respondent's Response. However, it is clear from s 32 of the CC Act that the adjudicator is bound to make a determination based on the application and its attachments and the Response and its attachments. If those documents are insufficient for the adjudicator to make a determination, additional submissions and information can be called for under s 32(2).
[15] Zurich Bay Holdings Pty Ltd v Brookfield Mulitplex Engineering and Infrastructure Pty Ltd [2014] WASC 40 [17] ‑ [22]; Ostwald Bros Pty Ltd v Jaylon Pacific Pty Ltd [2016] QSC 240 [30]; Brodyn Pty Ltd v Davenport (2004) 61 NSWLR 421, 441 ‑ 442.
[16] Ucar v Nylex Industrial Products Pty Ltd (2007) 17 VR 492 [27] cited with approval in the context of construction determinations by Applegarth J in John Holland Pty Ltd v TAC Pacific Pty Ltd [2010] 1 Qd R 302 [39].
In Hall Contracting Pty Ltd v McMahon Contractors Pty Ltd,[17] Barr J accepted that an adjudicator's determination is reviewable by the court where there has been a 'substantial denial of natural justice'.[18] I take 'substantial' denial of natural justice to be a denial of natural justice which may have affected the adjudicator's decision, or as Applegarth J put it in John Holland Pty Ltd v TAC Pacific Pty Ltd:[19]
The denial of natural justice must relate to a matter that is germane to the adjudicator's decision and that the opportunity to be heard must have been denied in a real and material sense.
[17] Hall Contracting Pty Ltd v MacMahon Contractors Pty Ltd [2014] NTSC 20.
[18] Hall Contracting [33].
[19] John Holland Pty Ltd v TAC Pacific Pty Ltd [2010] 1 Qd R 302 [37].
The starting point is to ascertain with as much clarity as is possible what it is that the adjudicator has done. The use of expressions like 'the parties abandoned the date for completion', that the parties 'by conduct, voided or abandoned all these target dates', that the dates 'were abandoned again and again', that 'those dates are voidable in their contract' and that 'a date for completion does not exist in their working arrangement now', all serve to confuse the adjudicator's reasoning process. For example, abandonment in the context of the law of contract applies to situations in which parties have acted in relation to each other in such way as to abandon or abrogate the contract.[20] Neither party made any suggestion of any abandonment of the Subcontract, or any of its terms, in their submissions and all of the material before the adjudicator made clear that the parties were in dispute as to the application of the Subcontract terms but not as to their continued operation. Similarly, the reference to the dates for completion being 'voidable' is curious and was not part of either party's contentions in the adjudication. The reference to a 'working arrangement' suggests some kind of relationship outside of the Subcontract, which was not part of either party's contentions.
[20] Summers v Commonwealth (1918) 25 CLR 144, 151 ‑ 152.
SEBA's contentions were not that the date for completion had been abandoned, but rather that it could not be ascertained until such time as the extension of time claims were dealt with, and that they could not finally be dealt with until such time as the causes of the delay had ceased and all extension of time claims could be finalised. Further, it claimed that the ongoing delays were caused by John Holland and its contractors' failure to complete work upon which the completion of SEBA's work depended and, in those circumstances, it was 'not appropriate' for John Holland to deduct liquidated damages.
SEBA contends in these proceedings that the adjudicator substantially accepted its contentions and that, in effect, John Holland by conduct implicitly extended the date for completion. It contends that, by each of the examples which the adjudicator examined, he illustrated that John Holland implicitly extended the time for completion, at least in respect of the part of the work the subject of the particular directions by John Holland. SEBA submits that, in substance, the adjudicator found that by John Holland's conduct, the date for completion was extended for a reasonable time or an indefinite period. It submits that the adjudicator's reference to the date for completion being abandoned, or not existing as part of the parties working relationship, should be interpreted in that sense.
Mindful as I am of the requirement to apply a beneficial construction to the adjudicator's reasons, and to avoid an overzealous analysis of the language used by the adjudicator, I am unable to accept that the adjudicator made his determination on the basis of the substantial acceptance of SEBA's contentions. Both parties approached the adjudication on the basis that the matter was to be determined by reference to the terms of the Subcontract. SEBA's contentions were to the effect that it had complied with the prerequisites of the Subcontract in relation to the extension of time claims, and that it was 'inappropriate' for John Holland to rely on the liquidated damages clause until such time as the contractual mechanism for determination of extensions of time had run its course. In other words, the dates for completion were yet to be finally determined and in those circumstances, the liquidated damages could not, or should not, be applied. That is a quite different proposition than that the parties had 'abandoned' any Stage Dates for Completion, or the Date for Completion itself, and were proceeding on the basis of some 'arrangement' in which dates for completion had no role, whatever may be contemplated by the word arrangement. Indeed, it is a different proposition from that which SEBA suggested in these proceedings was its contention before the adjudicator, namely that time for completion was extended for a reasonable time or an indefinite period.
The adjudicator did not address questions of SEBA's extension of time claims and John Holland's treatment of them. Rather, he appears to have proceeded on the basis that that aspect of the parties' dispute was of no relevance, since the contractual provisions relating to dates for completion had been 'abandoned' and 'did not exist in their working arrangement now' and were now the subject of some contract on different terms from the Subcontract. That the adjudicator found there to be some different contract can be seen from what the adjudicator said in cl 18.25 of the Adjudication (set out above at [48]). In that clause, the adjudicator seems to suggest that conversations between FTA, another subcontractor to John Holland, and SEBA are 'necessarily a part of the construction contract between the parties and 'must be taken into account in the analysis of extension of time and other parameters'. The conversations referred to are presumably a reference to instructions referred to in cl 18.21 of the Adjudication which were given by FTA to SEBA in relation to door rectification works.
John Holland contends that the consequence of the adjudicator's conclusion that the date for completion had been abandoned was that time was at large, and that the adjudicator had effectively invoked the prevention principle, namely that where delay is brought about by a principal, the principal is prevented from further insisting upon strict contractual times which are replaced by whatever is a reasonable time in all the facts and circumstances.[21] John Holland notes that Special Condition 20, which was introduced into the Subcontract by the Amendment Deed, excluded, among other things, the prevention principle where the Subcontractor failed to comply with various clauses of the Subcontract, including cl 10.7. In the Response, John Holland dealt with its allegation that SEBA had no entitlement to claim extensions of time by reason of a failure to comply with cl 10.7.[22] Because of the adjudicator's conclusion that the time for completion had been abandoned, he did not consider whether John Holland's arguments in relation to cl 10.7 had merit. Had John Holland been aware of the adjudicator's proposed conclusion that the time for completion had been abandoned, it would have had the opportunity to draw to the attention of the adjudicator the provisions of Special Condition 20 and make submissions as to its significance to the case. In the way the case was put by the parties to the adjudicator, there was no necessity for John Holland to, and it did not, make reference to Special Condition 20 in its Response. Had the adjudicator accepted that Special Condition 20 had application, he would have been required to direct his attention to the question of whether or not cl 10.7 had been complied with by SEBA.
[21] Dorter J and Sharkey J, Building & Construction Contracts in Australia (2nd Ed) [9.80].
[22] Response [4.13] ‑ [4.27].
Even apart from the application of Special Condition 20, John Holland was deprived of the opportunity of addressing the concept of 'abandonment' as that expression is used in a contractual sense. In the circumstances, I am not satisfied that had the opportunity been provided to John Holland to address these issues with the adjudicator, its submissions may not have affected the adjudicator's decision. In the circumstances, I consider that there has been a substantial denial of natural justice and the adjudicator's decision should be set aside on that basis.
Ground 1A
Ground 1A asserts that the adjudication was unreasonable and irrational, and involved the adjudicator ignoring the provisions of the relevant contract and misunderstanding his proper functions under the Act. An adjudicator is required to make a determination as to liability to make a payment on the basis of the construction contract under which the payment dispute arises (s 31(2)(b) read with s 6, s 7 and s 25). The question of when an adjudicator falls into jurisdictional error in approaching that task was explained in Laing O'Rourke Australia Construction Pty Ltd v Samsung C & T Corporation[23] where Martin CJ said:
The provisions of the Act which I have identified, read in the context of the evident purpose and objective of the Act, lead inexorably to the conclusion that an adjudicator will not exceed the jurisdiction to make a determination conferred by the Act merely because he or she misconstrues the contract or makes an error in the application of its terms to the facts found. Samsung did not contend otherwise. At the other end of the spectrum, it can also be concluded with confidence that an adjudicator who expressly excluded from consideration the construction contract in respect of which the payment dispute arose, or who took no account whatever of that contract, would exceed the jurisdiction conferred by the Act to determine a payment dispute arising under a construction contract.
… Rather, in cases which do not fall within either of the two categories I have identified (within which categories it can be said with clarity and certainty that jurisdiction has, or has not, been exceeded), the preferable course when judicial review of a determination is sought is to ascertain with as much clarity as possible precisely what the adjudicator has done, and then determine whether his or her actions constitute a determination of the kind for which the Act makes provision. If the answer to that question is in the affirmative, the adjudicator will have acted within the jurisdiction conferred by the Act and any application for judicial review must be dismissed [101] ‑ [102].
[23] Laing O'Rourke Australia Construction Pty Ltd v Samsung C & T Corporation [2016] WASCA 130 [101] ‑ [102] (Martin CJ, McLure P & Newnes JA agreeing).
Although it is by no means pellucidly clear, the adjudicator appears to have determined the question of liquidated damages on the basis of a contract other than in the terms of the Subcontract - see [18.24] ‑ [18.25] above at [48].
The adjudicator's function is to determine a payment dispute 'under a construction contract' (CC Act s 25). The construction contract under which SEBA made its application was the Subcontract. The adjudicator made his decision on the basis of some different or at least varied contract. In my view, that approach is at the end of the spectrum which renders the approach one in excess of jurisdiction by reason of the adjudicator failing to have proper regard to the terms of the Subcontract and misunderstanding his proper functions under the CC Act.
Ground 1A is made out.
Ground 2
Ground 2 is concerned with the implication into the Subcontract of sch 1 div 4 of the CC Act by the operation of s 15. That course is open where a construction contract does not have a written provision concerning the payment of progress payments. Clause 19.6 of the subcontract (as inserted by the Amendment Deed) is clearly a provision of that description. The adjudicator concluded that the Subcontract did not contain such a provision on the basis that cl 19.6 was not an agreement, but was a 'disagreement'. What the adjudicator had in mind by the use of the expression 'disagreement' in the context of a consideration of the proper construction of the Subcontract is a mystery. It was not a proposition advanced by either party in the adjudication, and it is not one which could have been readily anticipated. SEBA in these proceedings did not seek to support the proposition that s 15 could be applied, and it would be unreasonable to expect that John Holland should have addressed it in the Response or anticipated that the adjudicator may apply its provisions. There is no suggestion that s 15 was raised by the adjudicator at the site meeting or the conference. Reaching a conclusion on that basis when it was not a position contended for by either party, without providing the parties with notice of the proposed conclusion, amounted to a failure to afford John Holland procedural fairness. It may also well be that the implication of sch 1 div 3 into the Subcontract for the reason that cl 19.6 was a 'disagreement' can properly be described as unreasonable or irrational on the basis that the conclusion that cl 19.6 had no application and could be ignored was a conclusion that was not reasonably open.
Putting aside my conclusions on grounds 1 and 1A, I would not, however, have quashed the adjudication on the basis of ground 2 alone. The issue to which this conclusion was directed was whether or not SEBA had achieved 80% completion of the various milestone works so as to be entitled to claim payment having regard to cl 19.6. Because the adjudicator found cl 19.6 to be a 'disagreement', he concluded that by reason of sch 1 div 3 of the CC Act SEBA did not need to establish 80% completion in order to be entitled to a progress payment. Having reached that conclusion, it was necessary for the adjudicator then to address the question of the extent to which SEBA had completed the works in order to determine the quantum of its entitlement under sch 1 div 3. He undertook that process, and concluded that SEBA had completed at least 80% of the works. That conclusion of fact would have given rise to SEBA's entitlement to a progress payment pursuant to cl 19.6 of the Subcontract. The implication of s 15 was therefore unnecessary, and of no practical effect, in determining SEBA's entitlement to payment for its progress claims. The error made by the adjudicator did not affect the outcome of the adjudication.
John Holland argued that, having concluded that the 80% threshold was not a prerequisite to the making of a progress payment claim, the adjudicator did not undertake the same depth of analysis of the question of the extent of completion as would have been required had he been applying cl 19.6. I do not accept that submission. Whether or not the adjudicator was assessing the degree of completion for the purposes of cl 19.6, or for the purposes of sch 1 div 3, the burden lay on SEBA to establish the extent of completion of the works. The adjudicator identified in cl 8.4 of the adjudication his reasons for concluding that the works were at least 80% complete. There is no challenge in these proceedings to that finding of fact.
In the circumstances, while I accept that ground 2 is made out, I would not have granted the relief sought on that basis alone.
Order for repayment
The amended application for review seeks only relief by way of a writ of certiorari. In its submissions, however, John Holland indicated that, in the event that the adjudication is quashed, it seeks an order for repayment of the $6,131,962.27 paid in accordance with the determination. SEBA accepts that it is open to the court to make such an order, but opposes an order being made.
The circumstances in which the payment was made were described in the supplementary affidavit of Marc Mannes affirmed on 27 April 2017. Mr Mannes is general counsel of John Holland. He deposed to the fact that, in relation to an earlier determination of a payment dispute between John Holland and SEBA in relation to the same project, SEBA had demanded payment on the due date, and reserved its rights and remedies under the Subcontract, the Amendment Deed and at law. On the morning of the date on which payment was to be made pursuant to that determination, SEBA wrote to John Holland noting that it had not received confirmation of payment of the amount due and gave notice of an intention to suspend performance of its obligations in accordance with s 42 of the CC Act. That action was not taken because John Holland then provided a remittance advice as confirmation of payment.
On 4 November 2016, SEBA wrote to John Holland in relation to the respondent's adjudication requiring payment on the due date and reserving rights and remedies under the Subcontract, the Amendment Deed and at law. Mr Mannes said that, as SEBA had previously threatened to suspend work for non‑payment of the earlier adjudication, he was concerned that SEBA would suspend its work for non‑payment of the respondent's adjudication and so he advised John Holland to make payment in accordance with the determination given the impact that suspension of SEBA's works would have on the Project.
Section 38 of the CC Act provides that an adjudicator's determination is binding on the parties to the construction contract. Section 39 provides that a party liable to pay an amount under a determination must do so on or before the date specified in the determination. Interest runs on an amount which is unpaid after the date specified in the determination (s 39(2)). Section 42 enables a contractor to give the principal notice of the contractor's intention to suspend performance of its obligations if the principal does not pay in accordance with the determination. Determinations may be enforced as judgments of a court of competent jurisdiction with leave of that court (s 43). Those sections demonstrate that there are serious consequences for non‑compliance with an adjudicator's determination.
In relation to similar legislation in other jurisdictions, there are a number of cases where courts have held that where a superior court quashes an adjudication determination, and moneys have been paid pursuant to that determination, the successful party is entitled to restitution of the moneys so paid.[24]
[24] John Holland Pty Ltd v Roads and Traffic Authority of New South Wales (2006) 66 NSWLR 624, 633 ‑ 634; Go Electrical Pty Ltd v Class Electrical Services Pty Ltd [2013] NSWSC 517 [11], [20]; J Hutchinson Pty Ltd v Cada Formwork Pty Ltd [2014] QSC 63 [83]; BM Alliance Coal Operations Pty Ltd v BGC Contracting Pty Ltd [2013] QCA 394 [76] ‑ [77].
John Holland submitted that those cases should be distinguished on the basis that the relevant legislation under which the adjudications were made provided that the adjudication determination could be enforced as an order of the court without leave, whereas an adjudication determination under the CC Act could only be enforced with leave of the relevant court. I do not consider that that distinction is material to the general proposition that where a determination is quashed, the successful party is entitled to restitution of any moneys paid pursuant to that determination.
SEBA submits that the application by John Holland for repayment of the funds is, in substance, an application for summary judgment against SEBA on a cause of action for restitution for unjust enrichment. On that basis, it submits that the same degree of care is required on the application for repayment of the funds as is required for an application for summary judgment, and that an order should not be made unless it is clear, on the material before the court, that there is no real question to be tried.[25] SEBA relies on what it refers to as 'a critical feature' of the decision in Roxborough v Rothmans of Pall Mall Australia Ltd[26] that restitution lies where there has been a payment of money by one party to another for a consideration which has failed and in respect of which the other party has no title to retain the moneys. In that passage of the decision, Gleeson CJ, Gaudron and Hayne JJ identified the critical question as being: as between the parties, who has the superior claim? In Roxborough, as in Commissioner of State Revenue (Vic) v Royal Insurance Australia Ltd,[27] which was cited with approval in Roxborough, the question as to who had a superior claim was considered in a context where the defendant had no title to retain the moneys which had been paid.
[25] Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87, 99.
[26] Roxborough v Rothmans of Pall Mall Australia Ltd [2001] HCA 68; (2001) 208 CLR 516 [27].
[27] Commissioner of State Revenue (Vic) v Royal Insurance Australia Ltd [1994] HCA 61; (1994) 182 CLR 51.
SEBA argues that this is not such a case. It argues, relying on the affidavit of Barend Swart of 10 April 2017, that it had undertaken substantial work under the Subcontract and was entitled to payment for that work, including the payment which was the subject of the determination in question in these proceedings. Thus, SEBA argued that it could not be said that there was no issue as to SEBA's entitlement to retain the funds, and that any question of repayment should be the subject of separate proceedings in which the availability of a restitutionary remedy in favour of John Holland could be fully litigated. It submits that if John Holland demonstrates in any future litigation or arbitration that SEBA was not entitled to receive or attain the payment, then it would then be entitled to restitution. It distinguishes the decisions in J Hutchinson Pty Ltd v Cada Formwork Pty Ltd and BM Alliance Coal Operations Pty Ltd v BGC Contracting Pty Ltd on the basis that orders for repayment were based on established principle without considering the difference between reversal of a court order finally determining the parties' rights on the one hand, and setting aside an adjudication determination leaving the parties' rights and entitlements to payment unresolved on the other.
SEBA's submission that an order for repayment of the funds is tantamount to a summary judgment application on a claim for restitution ignores the interim nature of the adjudication process. It is well accepted that the adjudication process under the CC Act is designed to provide an informal and speedy means of resolving payment disputes between parties to construction contracts while preserving a right to litigate and arbitrate substantive areas of dispute.[28] Section 45 of the CC Act confirms that position by providing that an adjudication determination does not prevent the parties from litigating or arbitrating their dispute and requiring a court or arbitrator dealing with that dispute to bring to account moneys paid pursuant to an adjudicator's determination. An order for repayment of money paid pursuant to a determination which is subsequently quashed does not, therefore, finally determine the question of entitlement to moneys in the way which a summary judgment order would. The CC Act simply has the effect of determining who should hold funds pending the final resolution of the parties' dispute by whatever means will result in a final binding determination of entitlements.
[28] Cape Range Electrical Contractors Pty Ltd v Austral Construction Pty Ltd [2012] WASC 304 [58]; CC Act s 30.
There seems to me to be no reason in principle why any order for repayment consequent upon the quashing of a determination under the CC Act should not be approached on the same basis. I am satisfied that John Holland would not have made the payment of $6,131,962.27 if not for the adjudicator's determination and his direction for payment of that amount by the stipulated date. Clearly, John Holland maintained that it was not liable to pay any amount to SEBA in respect of the relevant claim by reason of its entitlement to set‑off liquidated damages. It is reasonable to infer that, as with the earlier adjudication determination, SEBA would have threatened to exercise its entitlement to suspend its obligations under the Subcontract had payment not been forthcoming. It is clear that the Project was already substantially behind schedule for completion, and the consequences to John Holland, had it declined to make payment and had SEBA suspended its works, would have been serious and costly. I am satisfied that the payment was made only because of the requirements of the determination, and was thus a payment made under the compulsion of s 39 of the CC Act.
In those circumstances, I am satisfied that it would be unjust for SEBA to retain the funds pending final resolution of the dispute between the parties, and that the position should be restored to that which would have subsisted had the determination not been made.
There should be orders that the adjudicator's determination dated 1 November 2016 be quashed, and the sum paid by John Holland to SEBA pursuant to that determination be repaid to John Holland.
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