Supreme Court New South Wales

• Medium Neutral Citation: NC Refractories Pty Ltd -v- Consultant Bricklaying Pty Ltd [2013] NSWSC 842
• Hearing dates: 20 June 2013
• Decision date: 20 June 2013
• Jurisdiction: Equity Division - Technology and Construction List
• Before: Hammerschlag J

Decision

Proceedings dismissed. Plaintiff to pay first defendant's costs

• Catchwords: BUILDING AND CONSTRUCTION - Building and Construction Industry Security of Payment Act 1999 (NSW) ss 4, 8, 13(5) - whether a payment claim was based on a construction contract - the parties entered into a verbal construction contract and the defendant served a payment claim - the plaintiff stated it would pay a lesser amount and the defendant sent a revised invoice - the plaintiff contended that the second invoice was not based on the construction contract but on a later independent arrangement arising out of the parties' communications which was not a construction contract - the plaintiff contended that if the claim was based on a construction contract it was the second claim under it and was in respect of the same reference date of the first claim and was impermissible under s 13(5) - held that the second claim was made under the original contract which had been varied and that the second claim was not impermissible as a duplication because the first one had by necessary implication been withdrawn. Held further that, in any event, prerogative relief sought by the plaintiff should be withheld on discretionary grounds
• Legislation Cited: Building and Construction Industry Security of Payment Act 1999 (NSW)
• Category: Principal judgment
• Parties: NC Refractories Pty Ltd - Plaintiff; Consultant Bricklaying Pty Ltd - First Defendant; Daniel Massey - Adjudicator - Able Adjudication Pty Ltd - Second Defendant
• Representation: Counsel: R.V. Zikmann - Plaintiff; R.W. Notley - First Defendant; Solicitors: Maclarens Lawyers - Plaintiff; ERA Legal - First Defendant
• File Number(s): 2013/53078

EX TEMPORE Judgment

Introduction

1 HIS HONOUR: By its Further Amended Summons filed 13 May 2013 the plaintiff (or respondent) seeks an order quashing an adjudication determination ("the determination") made by the second defendant on 23 January 2013, purportedly under s 22 of the Building and Construction Industry Security of Payment Act 1999 (NSW) ("the Act"), in favour of the first defendant (or claimant) for $41,463.60, including GST.

Factual background

2 The first defendant is a specialist bricklaying company which was retained by the plaintiff to carry out brickwork on a furnace in Wagga Wagga in the State of NSW belonging to Renewed Metal Technologies. The payment under the contract was to be calculated on an hourly basis, plus expenses.

3 By all accounts there were problems which brought about delays, amongst others, because bricks supplied to the plaintiff from a supplier in India to be used by the first defendant were not cut properly. Ultimately, the principal directed the plaintiff to engage another contractor (Beroa Australia) to complete or, on one view of things, redo the work.

4 On 11 December 2012 the first defendant served on the plaintiff a payment claim (in the form of a tax invoice number 654) for a total of $56,995.60 derived from 1,082 man hours at $70 ($75,740), 106 travel hours at $40 ($4,240), expenses of $8,197.82, making a total of $88,177.82 plus GST of $8,817.78, less $40,000 previously paid.

5 There was then an exchange of emails between the plaintiff and the first defendant. Two of them are critical. In an email at 5:07pm on 11 December 2012, Mr Naresh Sharma of the plaintiff wrote to the first defendant:

Mick

I am very disappointed with the out come (sic) of this project. You worked through the difficult part of the project, Dome. However the lack of attention to man-power and lack of continued supervision led to crises from RMT/Turnkey which resulted in the final outcome.

This has significant monetary burden on us and effect (sic) our reputation as supplier and installer.

Regardless of above, the guys have to paid (sic). I expect you to provide me actual costs incurred by you + 10% (not @$70 per hour).

I do not intend to drag on the issue but you have to be realist (sic) under the situation.

We will pay @$50 for Ord Hour, @$60 for OT1.5 and @70 for OT2.

Consider the above in view that none of these are recoverable are 100% our costs.

Await your response

Naresh

6 It is possible that Mr Sharma was not in possession of full information about the standard of the works at this time.

7 Mr Mick Mulligan of the first defendant responded at 12:34am on 12 December 2012. Relevantly, he said:

Attached revised invoice reflecting reduction in rates. Would ask that this be settled as a matter of urgency.

8 The attached revised invoice was numbered 654/1 and dated 11 December 2012. It claimed a reduced amount of $41,463.60. The travel hours and expenses were unchanged, but the man hours claim was reduced.

9 This is the payment claim which forms the foundation of this dispute.

10 On 13 December 2012 the plaintiff served payment schedules in respect of both invoices asserting a nil balance on the grounds that "works not completed, and due to poor workmanship, all installed brickwork removed & replaced by others".

11 In paragraphs 2 and 4 of its adjudication application (undated but apparently of 3 January 2013) the first defendant described the contract as a verbal contract, having been agreed in or about Monday 12 November 2012.

12 In its adjudication response (also undated but apparently of 11 January 2013) the plaintiff responded to paragraphs 2 and 4 with the words "no contest".

13 It contended that it was an implied term of the contract that works must be completed prior to full payment being made.

14 In its adjudication response the plaintiff asserted poor workmanship. It contended that "It became apparent only when Beroa Australia was directed to remove all installed brickwork that the quality of the workman ship (sic) would have led to a catastrophic failure". It stated that the payment schedule was valued at nil "due to the fact that the contractual obligations of the Claimant were not met, and the quality of workmanship was substandard". It included photographs of allegedly defective work and it referred to air gaps shown in the pictures which it said "would not have provided any resistance to molten metal and hence would have cause (sic) a failure in the steel shell resulting in substantial metal leak and potential risk to human life".

15 The adjudicator rejected the implied term contended for as being not necessary to give business efficacy to the contract. That finding is not challenged.

16 Under the heading "Defective Works" the adjudicator determined as follows:

30. The Respondent submits that it ought not pay the Claim because of defective works.

31. This ground requires some analysis of what happened on site.

32. It is not in dispute that there were issues with the lining bricks which were provided to the Claimant and that therefore there was a need to carefully consider measures to allow those bricks to be used on the project. This caused delay. That delay and debate about methodologies apparently led to friction between the Respondent and the Principal and pressure on the Respondent to complete within a short time frame.

33. That pressure in turn was applied by the Respondent onto the Claimant.

34. The Claimant's principle, Mr Mulligan, left the site on 4 December 2012 at a time when there was particular pressure to complete the works.

35. The Respondent treated this as "abandonment" and in any event the Respondent was directed (see attachment 2 to the Response) to engage others to complete the Claimant's work by the Principal on the same day (4 December 2012).

36. The Claimant treated the email of Mr Faunt (for the Respondent) as termination of the contract and did not return to the site.

37. The Respondent says that when the replacement installer (Beroa ) commenced work it found that there were defects in the work of the Claimant. There is no report on the extent of the defects and indeed they are only set out in the most generalised way in the Response to paragraphs 47 and 48 of the Application.

38. The Claimant accepts that the works were not "perfect" and indeed in an email on 12 December 2012 expresses "shame" about the works.

39. The Claimant, however, also describes the defects as minor and complains that it was not allowed to rectify them before others took over at which time any such opportunity was lost.

40. While it may be that there is defective work there is no attempt by the Respondent to fix a value to that work in circumstances where it engaged (at the direction of the Principal) a new subcontractor to complete the works.

41. That may be because the Respondent has, itself, been terminated by the Principal so that it is unaware of the costs.

42. Without evidence of what the defects were (rather than a generalisation) and without costings arising from the rectification it is not, in my view, a valid operation of the terms of the contract that the Respondent is entitled to simply withhold payment generally. There is no such term of the contract and indeed the Respondent does not attempt to imply that term.

17 Under the heading "Valuing the Claim" the adjudicator determined as follows:

48. There is no dispute as to the number of hours claimed and other costs claimed by the Claimant. So much is clear from the Respondent's response to paragraph 37 of the Application set out in the Response. The Respondent relies on the failure to complete but does not dispute the actual time or costs. In response to paragraph 38 of the application the Respondent's submission is, "no contest".

49. I note that the Claimant has reduced its rates, from those in the earlier claim which it made on the same day and effectively withdrew, at the behest of the Respondent. The rates applied are those sought by the Respondent.

50. Having determined the entitlement of the Claimant above and without evidence or submissions to the contrary, I accept the Claimant's valuation set out in the Claim.

51. Accordingly, I determine that the value of the Claimant's Claim is $41,463.60.

The Act

18 It will suffice to refer only to those sections of the Act which are directly pertinent.

19 Section 4 of the Act defines "construction contract" to mean a contract or other arrangement under which one party undertakes to carry out construction work, or to supply related goods and services, for another party.

20 Section 8(1) provides that on and from each reference date under a construction contract, a person who has undertaken to carry out construction work under the contract is entitled to a progress payment.

21 Section 8(2) defines "reference date" in relation to a construction contract to mean, relevantly, 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 and the last day of each subsequent month.

22 Section 10 provides, relevantly, that construction work carried out under a construction contract is to be valued in accordance with the terms of the contract.

23 Section 13(1) of the Act provides that a person referred to in s 8(1) who is or who claims to be entitled to a progress payment (the claimant) may serve a payment claim on the person who, under the construction contract concerned, is or may be liable to make the payment.

24 Section 13(5) provides that a claimant cannot serve more than one payment claim in respect of each reference date under the construction contract. Section 13(6) provides that subsection (5) does not prevent the claimant from including in a payment claim an amount that has been the subject of a previous claim.

25 Under s 14 a person on whom a payment claim is served (the respondent) may reply to the claim by providing a payment schedule to the claimant indicating the amount, if any, that the respondent proposes to pay.

26 Section 17 of the Act provides that a claimant may apply for adjudication of a payment claim if the respondent provides a payment schedule, but the scheduled amount is less than the claimed amount indicated in the payment claim. The adjudication application may contain such submissions relevant to the application as the claimant chooses to include.

27 Section 19 provides for the appointment of an adjudicator.

28 Section 20 provides that a respondent may lodge with the adjudicator a response to the claimant's adjudication application within a specified period and that the response may contain such submissions relevant to the response as the respondent chooses to include.

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

The plaintiff's contentions

30 The plaintiff submits that the adjudicator had no jurisdiction and the determination is a nullity because:

(a) the payment claim was not, and consequently the determination was not, based on a construction contract as required by s 8(1) of the Act; and

(b) the determination was based on a payment claim which was by virtue of s 13(5) of the Act impermissibly served by the claimant on the respondent the day after an earlier claim with the same reference date under the construction contract (assuming there was one).

31 The plaintiff additionally submits that the determination should be quashed because the adjudicator failed to deal with (or make a bona fide attempt to deal with) a submission put by the plaintiff in its adjudication response (and payment schedule) that no amount was payable to the first defendant because the work was defective and of nil value. The plaintiff says that it was not afforded natural justice.

32 It submits that the adjudicator was obliged to value the construction work carried out, but failed to do so but it accepts, however, that on its approach the only value which could have been reached by the adjudicator was nil.

Jurisdiction

33 The existence of a construction contract is a jurisdictional prerequisite for a valid adjudication.

34 The plaintiff concedes (and it did in its adjudication response) that originally there was a verbal construction contract between the parties under which the first defendant was to do the bricklaying at an hourly rate.

35 It submits, however, that the payment claim, the subject of the determination, is not based on that contract but on some other arrangement (binding or not binding) embodied in the exchange of emails in which the plaintiff indicated its intention to make payment on a varied basis and the first defendant submitted the revised invoice. This, it puts, is not a construction contract because it was not a contract or arrangement under which the first defendant undertook to carry out any work for the plaintiff. The work had already been carried out by then.

36 The plaintiff's contention is unsustainable because the original construction contract was varied, not discharged, by the exchange of emails. The obligation to make payment was in respect of work carried out pursuant to the original construction contract. All that changed was the rate at which the first defendant was to be paid. The variation is inconceivable without the continued existence of that part of the original contract which was not varied.

37 The plaintiff's second contention that the first defendant served on it more than one payment claim in respect of each reference date under the construction contract is unsustainable for a related reason.

38 Section 13(5) is directed to the vice of there being in existence at any one time more than one payment claim in respect of each reference date under a construction contract.

39 The plaintiff's statement that it would pay a different rate was an offer to the defendant, which it accepted by issue of the second invoice. By necessary implication, the earlier invoice was withdrawn, leaving only the later one alive. There was thus no contravention of s 13(5) but even if there, I would withhold prerogative relief in this case because, not only was the point not taken by the plaintiff either in its payment schedule or adjudication response, the first defendant served the second claim as a consequence of what was in effect an invitation by the plaintiff to do so. I would also take into account the fact that the amount in dispute is within the jurisdiction of the Local Court.

Failure to consider and natural justice

40 The attention which an adjudicator must devote to dealing with submissions made and the extent of the reasons dealing with them that the adjudicator must give to comply with his or her statutory obligations is to be considered in the context that they are subject to stringent time limits and their determinations are made in the particular circumstances of how the parties present and explain their positions. They need not refer to all of the evidence but it needs to be clear that the relevant evidence or point has been considered. Their reasons are to be considered as a whole.

41 I do not consider that the plaintiff's complaint has been made out.

42 Paragraph 30 of the determination records the plaintiff's submission that it ought not pay the claim because of defective works. The adjudicator then went on to consider the submission but was not satisfied on the material before him that the work done was of nil value. The plaintiff's only position was that the work was of nil value.

43 Having not accepted that position, and the plaintiff not having attempted to fix any other value to the work, the adjudicator proceeded to value the work in accordance with the contract, according to the number of hours at the rates ultimately agreed plus expenses, in respect of which he recorded there was no dispute.

44 The correctness of his process of analysis may be debated, but it is abundantly clear that he engaged with the task with which he was charged.

45 The proceedings are dismissed.

46 The plaintiff is to pay the first defendant's costs.

47 The Exhibits are to be returned.

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Decision last updated: 25 June 2013