Supreme Court New South Wales

• Medium Neutral Citation: Pittwater Council v Keystone Projects Group Pty Ltd [2014] NSWSC 1791
• Hearing dates: 11 November 2014
• Decision date: 17 December 2014
• Jurisdiction: Equity Division
• Before: Hallen J

Decision

(i)Orders that the Summons be dismissed;

(ii)Orders that the Plaintiff pay the costs of the first Defendant; otherwise, makes no order as to costs;

(iii)Orders that the Court Books be returned.

• Catchwords: BUILDING AND CONSTRUCTION - Building and Construction Industry Security of Payment Act 1999 (NSW) - Whether adjudicator failed to exercise powers in good faith - Whether adjudicator erred in his approach to the application of s 20(2B) and 22(2)(c) of the Building and Construction Industry Security of Payment Act 1999 (NSW)
• Legislation Cited: Building and Construction Industry Security of Payment Act 1999 (NSW); Civil Procedure Act 2005 (NSW); Practice Note SC Eq 3; Supreme Court Act 1970 (NSW); Uniform Civil Procedure Rules 2005 (NSW)
• Cases Cited: Birdon Pty Ltd v Houben Marine Pty Ltd [2011] FCAFC 126; Brookhollow Pty Ltd v R & R Consultants Pty Ltd [2006] NSWSC 1; Brodyn Pty Ltd t/as Time Cost and Quality v Davenport & Anor [2004] NSWCA 394; Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd [2010] NSWCA 190; (2010) 78 NSWLR 393; Clarence Street Pty Ltd v Isis Projects Pty Ltd [2005] NSWCA 391; (2005) 64 NSWLR 448; Clyde Bergemann v Varley Power [2011] NSWSC 1039; Coordinated Construction Co Pty Ltd v Climatech (Canberra) Pty Ltd [2005] NSWCA 229; Coordinated Construction Co Pty Ltd v J M Hargreaves (NSW) Pty Ltd [2005] NSWCA 228; Cornerstone Danks Street v Parkview Constructions [2014] NSWSC 866; Downer Construction (Australia) Pty Ltd v Energy Australia [2007] NSWCA 49; (2007) 69 NSWLR 72; Eastland Truss & Timber Pty Limited v Matthew John Byrnes t/as Qualibuilt Constructions [2014] NSWSC 1461; Falgat Constructions Pty Ltd v Equity Australia Corporation Pty Ltd [2005] NSWCA 49; Holmwood Holdings Pty Ltd v Halkat Electrical Contractors Pty Ltd [2005] NSWSC 1129; John Holland Pty Ltd v Roads and Traffic Authority of New South Wales [2007] NSWCA 19; Laing O'Rourke Australia Construction Pty Ltd v H&M Engineering & Construction Pty Ltd [2010] NSWSC 818; Minister for Commerce (formerly Public Works & Services) v Contrax Plumbing (NSW) Pty Ltd [2005] NSWCA 142; Multiplex Constructions Pty Ltd v Luikens [2003] NSWSC 1140; Northbuild Construction P/L v Central Interior Linings P/L [2011] QCA 22; [2012] 1 Qd R 525; Owners Strata Plan 61172 v Stratabuild Ltd [2011] NSWSC 1000; Pacific General Securities Ltd v Soliman and Sons Pty Ltd [2006] NSWSC 13; (2006) 196 FLR 388; Patrick Stevedores Operations No. 2 Pty Ltd v McConnell Dowell Constructors (Aust) Pty Ltd [2014] NSWSC 1413; Perform (NSW) Pty Ltd v MEV-AUS Pty Ltd [2009] NSWCA 157; Protectavale Pty Ltd v K2K Pty Ltd [2008] FCA 1248; State Water Corporation v Civil Team Engineering Pty Ltd [2013] NSWSC 1879; Taylor Projects Group Pty Ltd v Brick Dept Pty Ltd [2005] NSWSC 439; Timwin Construction Pty Ltd v Façade Innovations Pty Ltd [2005] NSWSC 548; Walter Construction Group Ltd v CPL (Surry Hills) Pty Ltd [2003] NSWSC 266
• Category: Principal judgment
• Parties: Pittwater Council (ABN 61 340 837 871) (Plaintiff); Keystone Projects Group Pty Ltd (ABN 87 132 932 917) (first Defendant); Adjudicate Today Pty Ltd (ABN 39 109 605 021) (second Defendant); Robert Sundercombe (third Defendant)
• Representation: Counsel: Ms J Wright (Plaintiff); Mr B DeBuse; Mr M Fantin (Defendants); Solicitors: King & Wood Mallesons (Plaintiff); HWL Ebsworth Lawyers (Defendants)
• File Number(s): 2014/282134

JUDGMENT

The Nature of the Claim

1 HIS HONOUR: By its amended Summons, filed on 30 September 2014, the Plaintiff, Pittwater Council ("the Council"), seeks a declaration that the determination in respect of adjudication reference 2014ADJT330, issued by the second Defendant, Adjudicate Today Pty Ltd ("ATPL"), on behalf of the third Defendant, Robert Sundercombe ("the Adjudicator"), to the Council and the first Defendant, Keystone Projects Group Pty Ltd ("Keystone"), under cover of facsimile dated 19 September 2014 ("the Determination"), was not a good faith exercise on the part of the Adjudicator of his responsibilities under s 22 of the Building and Construction Industry Security of Payment Act 1999 (NSW) ("the Act"), and is, therefore, void.

2 In addition, the Council seeks an interim and permanent order restraining Keystone from taking any steps in reliance on, or to enforce, the Determination, and a similar order restraining ATPL from issuing an Adjudication Certificate in respect of the Determination. The Council also seeks a declaration that it is not liable for the payment of any fees of ATPL, or the Adjudicator, in respect of the Determination. Finally, it seeks the costs of the proceedings.

3 The Council does not seek any alternative order, under s 69 of the Supreme Court Act 1970 (NSW), in the nature of certiorari, that the Determination be quashed.

4 The only Defendant that has appeared in the proceedings is the first Defendant, Keystone. None of the other Defendants filed any documents or participated in the hearing. Keystone opposes the relief sought by the Council.

The Commencement of the Proceedings

5 The proceedings were commenced in the Building and Technology List by Summons filed on 25 September 2014. In accordance with Practice Note SC Eq 3 ("the Practice Note"), Paragraph 8, there was to be filed, with the Summons, a "Technology and Construction List Statement", setting out, in summary form, the nature of the dispute, the issues which the Plaintiff believed were likely to arise, the Plaintiff's contentions, the questions (if any) the Plaintiff considered were appropriate to be referred to a referee for inquiry and report, and a statement whether the parties attempted to mediate and whether the Plaintiff was willing to proceed to mediation at an appropriate time.

6 Relevantly, and in accordance with Paragraph 10 of the Practice Note, the Council filed an amended Technology and Construction List Statement on 30 September 2014, to which Keystone responded, on 7 October 2014, in a document described as a "Technology and Construction List Response". (Keystone did not file any Cross-Claim in the general form of Cross-Summons for which provision is made in Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"), rule 9.1.)

7 It appears, from the filed Statement and Response, that the Plaintiff and Keystone agreed that the nature of the dispute concerned the validity of the Determination and that the issues likely to arise (amended to use the terminology adopted above) were as follows:

"1. Whether or not the Determination is void.

2. Whether the Adjudicator lawfully exercised the functions required for the making of a valid determination under section 22 of the Act.

3. Whether Keystone should be restrained from taking any steps to enforce the Determination.

4. Whether ATPL should be restrained from issuing an adjudication certificate pursuant to section 24 of the Act in respect of the Determination."

8 The Council alleged, and Keystone denied, that the Adjudicator failed to consider whether the amount claimed by Keystone in its "Payment Claim" (a term to which I shall later refer), which had been served upon the Council on 1 August 2014, was properly payable, taking into account the provisions of the Contract between the Council and Keystone ("the Contract").

9 Keystone asserted that the Adjudication Determination accorded with the requirements of the Act, including, though not limited to, s 22; that, even if the Adjudicator had erred in allowing the whole of the amounts claimed in items 18, 19, 20 and 21 (as to which see later), he had nevertheless exercised his responsibilities in good faith; and that the Adjudication Determination was not void.

10 The parties appeared to agree that there were no questions appropriate for referral to a referee.

11 Whilst Keystone stated that it was prepared to proceed to mediation at an appropriate time, the Council stated "the matter may not be appropriate for mediation". So far as I am aware, there has been no mediation of the parties' dispute.

12 The matter was listed for hearing, for one day, on 11 November 2014. Despite the fact that four folders of documents were provided to the court (one of which comprised a copy affidavit, with annexures, of Peter Thomas Pether, a partner at the firm of the solicitors representing the Council, and an affidavit, with annexures, of Peter Geoffrey Rodham, a Property and Building Projects Officer at the Council, and the other three of which, together, comprised one affidavit and annexures of Mark Anthony Nelson, a director of Keystone), and notwithstanding that each counsel provided a detailed outline of submissions together with a folder of authorities, the matter was concluded within one day.

13 I am most grateful to the legal representatives of the parties for the manner in which the case was conducted and for the assistance that each provided to the court. Without their compliance with obligations under s 56 of the Civil Procedure Act 2005 (NSW), it would not have been possible to conclude the hearing within the allotted time.

The Act

14 I shall deal, first, with the provisions of the Act that apply before turning to the facts of the present case.

15 The Act applies to any construction contract, whether written or oral, or partly written and partly oral, and applies, therefore, even if the contract is expressed to be governed by the law of a jurisdiction other than New South Wales: s 7(1). (There is no dispute that the Contract in this case was a construction contract to which the Act applies. Accordingly, it is unnecessary to refer to the types of construction contracts to which the Act does not apply.)

16 Section 3 sets out the object of the Act which "is to ensure that any person who undertakes to carry out construction work (or who undertakes to supply related goods and services) under a construction contract is entitled to receive, and is able to recover, progress payments in relation to the carrying out of that work and the supplying of those goods and services". It then describes the means by which the Act ensures that a person is entitled to receive a progress payment, which is "by granting a statutory entitlement to such a payment regardless of whether the relevant construction contract makes provision for progress payments". Finally, in the event of disagreement, there is a statutory procedure for the interim determination of entitlements to progress payments, which procedure, in summary, involves (a) the making of a payment claim by the person claiming payment, (b) the provision of a payment schedule by the person by whom the payment is payable, (c) the referral of any disputed claim to an adjudicator for determination, and (d) the payment of the progress payment so determined.

17 Section 3(4) makes clear that the Act does not limit (a) any other entitlement that a claimant may have under a construction contract, or (b) any other remedy that a claimant may have for recovering any such other entitlement.

18 The definition of "progress payment" in s 4 of the Act refers to s 8, which sets out the circumstances in which an entitlement to a progress payment accrues. Section 8, which has been described as creating "a novel right to progress payments in respect of a construction contract" (Birdon Pty Ltd v Houben Marine Pty Ltd [2011] FCAFC 126, per Keane CJ, at [21]), does not limit the payment to payment for construction work actually completed and/or related goods and services actually supplied, but creates a statutory right to progress payments for persons who have undertaken to carry out construction work, and/or to supply related goods and services, under a construction contract. It is the source of the statutory right to receive progress payments.

19 The amount of the progress payment is dealt with in s 9 of the Act. Section 9, similarly, does not impose any limit based on a distinction between construction work actually completed (and/or related goods and services actually supplied) and construction work undertaken to be carried out (and/or related goods and services undertaken to be supplied), under a construction contract. The section states how the amount of the progress payment to which a person is entitled in respect of a construction contract is to be calculated. It provides that a progress payment is to be (a) the amount calculated in accordance with the terms of the contract, or (b) if the contract makes no express provision with respect to the matter, the amount calculated on the basis of the value of the construction work carried out, or undertaken to be carried out, by the person (or of related goods and services supplied, or undertaken to be supplied, by the person) under the contract.

20 Section 10 of the Act provides:

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

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

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

(i) the contract price for the work, and

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

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

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

(2) Related goods and services supplied or undertaken to be supplied under a construction contract are to be valued:

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

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

(i) the contract price for the goods and services, and

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

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

(iv) if any of the goods are defective, the estimated cost of rectifying the defect,

and, in the case of materials and components that are to form part of any building, structure or work arising from construction work, on the basis that the only materials and components to be included in the valuation are those that have become (or, on payment, will become) the property of the party for whom construction work is being carried out."

21 Part 3 of the Act (sections 13 - 32 inclusive) then sets out a procedure for recovering payments.

22 The claimant (which, in this case, is Keystone) initiates the procedure by making a "payment claim" which identifies the construction work (or related goods and services) to which the progress payment relates, and indicates the amount of the progress payment that it claims to be due ("the claimed amount"): s 13. The terms of this document must make clear that that it contains the required information: Walter Construction Group Ltd v CPL (Surry Hills) Pty Ltd [2003] NSWSC 266, at [82]. But the terms must be read in context, remembering that "Payment claims are usually given and received by parties experienced in the building industry who are familiar with the particular construction contract, the history of the project and any issues which may have arisen between them regarding payment. Those matters are part of the context": Protectavale Pty Ltd v K2K Pty Ltd [2008] FCA 1248, at [11] - [12].

23 It is the service of the payment claim that is the trigger that commences the process that leads to the statutory rights in s 15(2).

24 The person upon whom a payment claim is served ("the respondent") (which, in this case, is the Council) may reply to the claim by providing a "payment schedule" to the claimant which "must identify the payment claim to which it relates", and "must indicate the amount of the payment (if any) that the respondent proposes to make" ("the scheduled amount"). If the scheduled amount is less than the claimed amount, the schedule must indicate why the scheduled amount is less and (if it is less because the respondent is withholding payment for any reason) the reasons for withholding payment. It is s 14 sets out the way in which the respondent may dispute, in whole or in part, its liability.

25 If the respondent does not reply, it becomes liable, by virtue of s 14(4), to pay the amount sought in the claimant's payment schedule. Then, by s 15(2)(a) of the Act, the claimant is given alternative rights: first, to recover the unpaid amount from the respondent as a debt in any court of competent jurisdiction or, second, to make an adjudication application in relation to the claim under s 17(1)(b) of the Act. (It is unnecessary to refer further to s 15 of the Act because of the facts of the present case.)

26 Section 17 of the Act permits the claimant to apply for adjudication of a payment claim ("the adjudication application") if, as in the present case, a payment schedule has been provided but the scheduled amount indicated therein is less than the claimed amount indicated in the payment claim. The adjudication application, a copy of which must be served on the respondent, (a) must be in writing; (b) must be made to an authorised nominating authority chosen by the claimant; (c) in a case such as the present one, must be made within 10 business days after the claimant receives the payment schedule; (d) must identify the payment claim and the payment schedule (if any) to which it relates; (e) must be accompanied by such application fee (if any) as may be determined by the authorised nominating authority; and (f) may contain such submissions relevant to the application as the claimant chooses.

27 It is the duty of the authorised nominating authority (which in this case, is ATPL) to which an adjudication application is made to refer the application to an adjudicator (being a person who is eligible to be an adjudicator as referred to in s 18) (who, in this case, is Mr Sundercombe) as soon as practicable, who, upon accepting an adjudication application, is taken to have been appointed to determine the application: s 19. The adjudicator need not be legally qualified.

28 The adjudicator is entitled to a fee for which the parties to the adjudication are liable: s 29. The adjudicator enjoys a statutory immunity from personal liability for things done, or omitted to be done, in exercise of his or her functions, if done in good faith: s 30(1).

29 The respondent may lodge, with the adjudicator, a response to the claimant's adjudication application (the "adjudication response") at any time within a specified period. That adjudication response, which must be served upon the claimant, must be in writing, must identify the adjudication application to which it relates, and may contain such submissions relevant to the response as the respondent chooses to include: s 20.

30 However, s 20(2B) of the Act specifically provides that the respondent cannot include, in the adjudication response, any reasons for withholding payment unless those reasons have already been included in the payment schedule provided to the claimant. (It will be necessary to refer to this provision of the Act later in these reasons.)

31 Section 21 identifies the adjudication procedure. It provides for the adjudicator to take certain steps, within specified periods, and permits the adjudicator to request further written submissions from either party. If he or she exercises this power, the other party must be given an opportunity to comment on those submissions. The adjudicator is also given power to set deadlines for further submissions and comments by the parties. He or she may also call a conference of the parties.

32 Under s 21(3), an adjudicator must determine an adjudication application as expeditiously as possible and, in any case, within 10 business days after the date on which the adjudicator notified the claimant and the respondent as to his or her acceptance of the application, or within such further time as the claimant and the respondent may agree.

33 It is necessary to set out the terms of s 22 of the Act:

"(1) An adjudicator is to determine:

(a) the amount of the progress payment (if any) to be paid by the respondent to the claimant (the 'adjudicated amount'), and

(b) the date on which any such amount became or becomes payable, and

(c) the rate of interest payable on any such amount.

(2) In determining an adjudication application, the adjudicator is to consider the following matters only:

(a) the provisions of this Act,

(b) the provisions of the construction contract from which the application arose,

(c) the payment claim to which the application relates, together with all submissions (including relevant documentation) that have been duly made by the claimant in support of the claim,

(d) the payment schedule (if any) to which the application relates, together with all submissions (including relevant documentation) that have been duly made by the respondent in support of the schedule,

(e) the results of any inspection carried out by the adjudicator of any matter to which the claim relates.

(3) The adjudicator's determination must:

(a) be in writing, and

(b) include the reasons for the determination (unless the claimant and the respondent have both requested the adjudicator not to include those reasons in the determination).

(4) If, in determining an adjudication application, an adjudicator has, in accordance with section 10, determined:

(a) the value of any construction work carried out under a construction contract, or

(b) the value of any related goods and services supplied under a construction contract,

the adjudicator (or any other adjudicator) is, in any subsequent adjudication application that involves the determination of the value of that work or of those goods and services, to give the work (or the goods and services) the same value as that previously determined unless the claimant or respondent satisfies the adjudicator concerned that the value of the work (or the goods and services) has changed since the previous determination.

(5) If the adjudicator's determination contains:

(a) a clerical mistake, or

(b) an error arising from an accidental slip or omission, or

(c) a material miscalculation of figures or a material mistake in the description of any person, thing or matter referred to in the determination, or

(d) a defect of form,

the adjudicator may, on the adjudicator's own initiative or on the application of the claimant or the respondent, correct the determination."

34 Brereton J, in Holmwood Holdings Pty Ltd v Halkat Electrical Contractors Pty Ltd [2005] NSWSC 1129, wrote, at [35]:

"Section s 22(2) has a dual function: it prescribes matters to which the adjudicator is required to have regard, and it identifies those as the only matters to which the adjudicator is to have regard, on its face making the list exclusive [Co-ordinated Construction Co Pty Ltd v J. M. Hargreaves (NSW) Pty Limited [2005] NSWCA 228, [65] (Basten JA)]. One of the prescribed matters is 'the provisions of the construction contract from which the application arises'."

35 Section 23 of the Act requires the respondent to pay the adjudicated amount (if any), either 5 business days after service upon it of the determination, or on the date fixed by the adjudicator pursuant to s 22(1)(b).

36 Where the adjudicated amount is not so paid, the claimant may request the issue of an adjudication certificate and may serve a notice of intention to suspend work under the contract: s 24(1).

37 By s 25 of the Act, an adjudication certificate may be filed "as a judgment for a debt in any court of competent jurisdiction". Importantly, the section does not deem an adjudication certificate to be a judgment of a court of competent jurisdiction for all purposes. Rather, it provides only that it may be "filed as a judgment" and is "enforceable" as if it were a judgment for a debt.

38 Section 25(4) provides:

"If the respondent commences proceedings to have the judgment set aside, the respondent:

(a) is not, in those proceedings, entitled:

(i) to bring any cross-claim against the claimant, or

(ii) to raise any defence in relation to matters arising under the construction contract, or

(iii) to challenge the adjudicator's determination, and

(b) is required to pay into the court as security the unpaid portion of the adjudicated amount pending the final determination of those proceedings."

39 Section 32 acknowledges the essentially provisional nature of the adjudication process. It provides as follows:

"(1) Subject to section 34, nothing in this Part affects any right that a party to a construction contract:

(a) may have under the contract, or

(b) may have under Part 2 in respect of the contract, or

(c) may have apart from this Act in respect of anything done or omitted to be done under the contract.

(2) Nothing done under or for the purposes of this Part affects any civil proceedings arising under a construction contract, whether under this Part or otherwise, except as provided by subsection (3).

(3) In any proceedings before a court or tribunal in relation to any matter arising under a construction contract, the court or tribunal:

(a) must allow for any amount paid to a party to the contract under or for the purposes of this Part in any order or award it makes in those proceedings, and

(b) may make such orders as it considers appropriate for the restitution of any amount so paid, and such other orders as it considers appropriate, having regard to its decision in those proceedings."

Some Background Facts

40 Keystone did not dispute the following contentions of fact asserted by the Council (which I have amended to use the terminology referred to above, and to correct some minor typographical errors):

"1. On or about 31 July 2014 the Council entered into a contract with Keystone under which Keystone agreed to undertake building works at Avalon Beach Surf Life Saving Club in Avalon, New South Wales ([the] Contract).

2. The works performed by Keystone under the Contract were 'construction works' within the meaning of ss. 5 and 6 of the Act.

3. On 1 August 2014, Keystone served upon the Council a payment claim pursuant to s 13(1) of the Act ([the] Payment Claim).

4. On 15 August 2014, the Council served upon Keystone a payment schedule pursuant to s 14 of the Act ([the] Payment Schedule).

5. On 29 August 2014, Keystone lodged an adjudication application ([the] Application) with ATPL pursuant to s 17 of the Act.

6. On 2 September 2014, ATPL sent a facsimile to the Council and Keystone nominating the Adjudicator as an adjudicator in relation to the Application.

7. On 3 September 2014, the Adjudicator gave notice accepting the Application pursuant to s 19(1) of the Act and was, as a consequence, taken to have been appointed as adjudicator for the purpose of the Application pursuant to s 19(2) of the Act.

8. On 5 September 2014, the Council lodged an Adjudication Response with ATPL pursuant to s 20 of the Act ([the] Adjudication Response).

9. By facsimile dated 19 September 2014, ATPL:

(a) sent to the Council and Keystone the Determination which set out an adjudicated amount of $272,286.76 (Adjudicated Amount); and

(b) stated that if the Council failed to pay the whole or any part of the Adjudicated Amount, Keystone may make an application to ATPL for an adjudication certificate to file in court as judgment under s 25 of the Act."

41 Having regard to the references to paragraph numbers of the Adjudicator's reasons particularised in the Amended Technology and Construction List Statement, the relevant claims made by Keystone that were in issue in the present case are identified as:

(1) Item 18 - VR05 - Structural Steel to Lift Shaft ($9,125);

(2) Item 19 - VR 53 - Delays due to window anodising ($81,995);

(3) Item 20 - VR 54 - Delays due to restaurant alterations ($156,630); and

(4) Item 21 - VR 55 - Delays due to structural steel delays ($29,469).

42 It can be seen that the amount in issue is $277,219.

The Documents

43 There were many documents which, it was agreed, had been provided to the Adjudicator and which one party, or the other, relied upon at the hearing. I shall now identify a number of them to which specific reference was made.

44 The first relevant document is the Contract between the Council and Keystone.

45 The Contract includes, relevantly, "AS 4000 1997" ("the General Conditions of Contract"), "Annexure Part A to AS 4000 1997" ("the first Annexure") and "Annexure Part B to AS 4000 1997" ("the second Annexure"). Each of the first Annexure and the second Annexure was "completed and issued as part of the Tender Documents and, subject to any amendments to be incorporated into the Contract, is to be attached to... AS4000 1997... and shall be read as part of the Contract".

46 Clause 34.9 in the General Conditions of Contract states:

"34.9 Delay damages

For every day the subject of an EOT [Extension of Time] for a compensable cause and for which the Contractor gives the Superintendent a claim for delay damages pursuant to subclause 41.1, damages certified by the Superintendent under subclause 41.3 shall be due and payable to the Contractor."

47 In the second Annexure, under Clause 34, "Time and Progress", the following appears:

"ADD TO THE END OF CLAUSE 34.9 THE FOLLOWING:

'The Contractor shall not be entitled to claim any delay damages which could reasonably have been avoided by the Contractor.'"

48 In relation to extensions of time, the following paragraph, which appears in the first Annexure, is relevant:

"23. Qualifying causes of delay

Causes of delay for which EOTs will not be granted

(page 3, paragraph (b)(iii) of clause 1 and subclause 34.3)

Any event occurring on or after the date for practical completion

Any cause of delay within the reasonable control of the Contractor or any subcontractor (including selected or novated subcontractors)

Any cause of delay caused or contributed to by the Contractor failing to comply with its obligations under the Contract

Any cause of delay which does not affect the Contractor's critical path for completion of the Works

Any cause of delay which the Contract expressly excludes the Contractor's entitlements to an EOT".

49 Also in the first Annexure is the following Clause:

"26. Delay damages, other compensable causes

(page 1, clause 1 and subclause 34.9)

Nil".

50 Clause 36.1 of the General Conditions of Contract is in the following terms:

"36.1 Directing variations

The Contractor shall not vary WUC [Work Under Contract] except as directed in writing.

The Superintendent, before the date of practical completion, may direct the Contractor to vary WUC by any one or more of the following which is nevertheless of a character and extent contemplated by, and capable of being carried out under, the provisions of the Contract:

a) increase, decrease or omit any part;

b) change the character or quality;

c) change the levels, lines, positions or dimensions;

d) carry out additional work;

e) demolish or remove material or work no longer required by the Principal."

51 In the second Annexure, the following appears:

"ADD TO THE END OF CLAUSE 36.1 THE FOLLOWING:

'The Contractor shall not be bound to execute a variation directed after practical completion unless the variation is in respect of rectification work referred to in clause 35.'"

52 In the General Conditions of Contract, Clause 36.4 is in the following terms:

"36.4 Pricing

The Superintendent shall, as soon as possible, price each variation using the following order of precedence:

a) prior agreement;

b) applicable rates or prices in the Contract;

c) rates or prices in a priced bill of quantities, schedule of rates or schedule of prices, even though not Contract documents, to the extent that it is reasonable to use them; and

d) reasonable rates or prices, which shall include a reasonable amount for profit and overheads,

and any deductions shall include a reasonable amount for profit but not overheads.

That price shall be added to or deducted from the contract sum."

53 It is, next, necessary to refer to the Payment Claim.

54 The Payment Claim from Keystone addressed to the Council is dated 1 August 2014. The total amount of the Payment Claim was $352,256. The documents in support of the Payment Claim stated that the amount previously claimed, which had been paid by the Council, was $3,011,586.

55 In relation to Item 18, VR 05, a document headed "Avalon SLSC Construction Minutes", which Minutes were dated 3 April 2014, states:

"EOT27 - VR05 Structural Steel to Lift Shaft

Parties could not agree on this ongoing matter. To be referred to the Superintendent for decision.

Action: Peter Rodham to prepare draft documentation and forward to... Petar Bosnjak."

56 (Peter Rodham and Petar Bosnjak, to each of whom reference is made, are, respectively, the Property and Building Projects Officer for the Council and the Project Manager for Keystone.)

57 In relation to Item 19, VR 53, a letter dated 10 June 2014 reveals that the claim for costs and expenses said to have been "incurred as a result of proposed Variation Cost adjustments to the Contract Works" were:

1. Delays agreed as per EOT No. 40a of 18 days delayed to date @ $3,700/day $66,600

2. Additional charges for the extension of Scaffold to the project due to the delays of the Aluminium Windows and Doors being installed $ 4,700

Sub Total $ 71,300

Margin (15%) $10,695 Total Cost (excluding GST) $81,995

58 A document dated 7 April 2014, signed by Les Munn, the Principal of the Council, acknowledges the claim for the delay of 18 Working Days.

59 In relation to Item 20, VR 54, a letter dated 10 June 2014 reveals that the claim for costs and expenses said to have been "incurred as a result of proposed Variation Cost adjustments to the Contract Works" were:

1. Delays agreed as per EOT No 42a of 35 days delayed to date @ $3,700/day $129,500

2. Additional charges for the extension of Scaffold to the project due to the delays of the Aluminium Windows and Doors being installed (In total) $ 6,700

Sub Total $ 136,200

Margin (15%) $ 20,430 Total Cost (excluding GST) $ 156,630

60 A document dated 7 April 2014, signed by Les Munn, the Principal of the Council, acknowledges the claim for the delay of 35 Working Days.

61 In relation to Item 21, VR 55, a letter dated 10 June 2014 reveals that the claim for costs and expenses said to have been "incurred as a result of proposed Variation Cost adjustments to the Contract Works" were:

1. Delays agreed as per EOT No 44 of 25 days delayed to date @ $3,700/day @25% of the project works $23,125

2. Additional charges for the extension of Scaffold to the project due to the delays of the Aluminium Windows and Doors being installed $ 2,500

Sub Total $ 25,625

Margin (15%) $ 3,843.75 Total Cost (excluding GST) $ 29,468.75

62 A document dated 23 May 2014, but not signed on behalf of the Council, makes the claim for the delay of 25 Working Days.

63 Relevantly, in relation to the disputed claims, the Payment Claim identified the amount claimed and how it had been calculated by reference to various documents attached.

64 I shall next refer to the Payment Schedule.

65 The Payment Schedule from the Council is dated 15 August 2014 and is in the following terms:

"I assess Keystone Projects Group Pty Ltd (the Contractor) entitlement under Progress Claim Number 15 (July 2014) of $320,233.00 + GST.

Following my assessment the difference between the claimed amount and the certified amount is for the following reasons:

1. The adjusted contract value of WUC is $2,780,820.16 + GST.

This figure is made up of the Contract amount $2,449,385.25 + approved variations of $331,434.92

A breakdown of the approved variations can be seen in Attachment 1.

2. Payment to date (Claims 1 - 14) from the Principal (Pittwater Council) to the Contractor is $2,742,167.07 + GST

A breakdown of the previous progress payments can be seen in Attachment 2.

3. The outstanding amount for completion of WUC by the Principal to the Contractor is $38,653.09 + GST

4. The certified amount of works completed eligible for Progress Claim Number 15 is $12,171.12 + GST.

This figure is made up of the Contract Trade percentage completed of $12,100.42 + approved variations percentage completed of $70.70

A breakdown of the approved percentage of WUC completed can be seen in Attachment 3.

5. Evidence has been provided that the Contractor has accepted via email that a credit is owed to the Principal of $1,575.56 for Dulux paint.

The email can be seen in Attachment 4.

Pursuant to the Australian Standards AS4000 clause 37.2(b) I certify that the Contractor owes the Principal (Pittwater Council) Liquidated Damages to today's date of $48,000 being for 48 days delay (11th June - 15th August inclusive) at $1,000/day.

The below summarizes money owed by each party:

Contractor Owes:

$1,575.56 = Paint Credit

$48,000 = Liquidated Damages

$49,575.56 = Total

Principal Owes:

$12,171.12 + Progress Claim Number 15

The Contractor owes $37,404.44 on this Claim to the Principal."

66 It is not in dispute that the Payment Schedule was served in accordance with s 14. The Council accepted that Item 18, VR 05, was not referred to expressly in the Payment Schedule: T17.24 - 17.32. However, it contended that it had "set out a list of approved variations and, necessarily, VR 05 was not on that list because it is not approved" so it was thereby omitted: T 17.27 - 17.29.

67 In its submissions, the Council wrote that the Payment Schedule indicated that Keystone owed $37,404 on the claim to the Council and that Keystone should pay this amount back. It was accepted, however, that, under the Act, the Adjudicator could not determine the amount that was to be paid back to the Council but could only determine, at best, that no amount was payable: T12.9 - 12.20.

68 Importantly, the Council stated nothing in the Payment Schedule about the delay damages or about the daily rate at which such damages should be calculated. Nor did it state that the amount of $3,700, plus GST, per day, was only agreed on one occasion or that it was not the agreed rate at which the delay damages should otherwise be calculated.

69 The Adjudication Application by Keystone to ATPL is dated 29 August 2014. It consisted of 274 pages, and comprised "Written Submissions", a copy of the Payment Claim, a copy of the Payment Schedule, a Statutory Declaration and supporting documents.

70 The Written Submissions of Keystone which formed part of the Adjudication Application, included:

"Written Submission Annexure 2 - Variations

...

2. The term compensable cause is defined in the AS 4000-1997 as...

(a) Any act, default or omission of the Superintendent, the Principal or its consultants, agents or their contractors (not being employed by the Contractor); or

(b) Those listed in item 26:

3. Item 26 in the Annexure Part A to AS 4000-1997... states 'NIL' for other compensable causes. Therefore compensable cause is defined as 'any act, default or omission of the Superintendent, the Principal or its consultants, agents or their contractors (not being employed by the Contractor).'

...

8. The EOT number 38A which the Respondent also approved... was a result of design changes to the construction drawings which required hand demolition in lieu of [demolition] by heavy machinery. The Respondent approved additional 10 working days to the construction programme. The Respondent also accepted the delay claim which was submitted as Variation 46A (VR46A)... associated with the approved EOT 38A. The full amount was paid to the Claimant, which may be confirmed by the Respondent's own 'Approved Variations' schedule as attached to the Payment Schedule...

9. The Claimant will not speculate as to the reasons why the Respondent is withholding payments for the claimed delay costs as no reasons are provided in the Payment Schedule. Therefore the Respondent is barred under... Section 20(2B) of the Act to provide any additional reasons for withholding the payment in the adjudication response.

Daily Delay Rate

10. The Claimant and the Respondent agreed on a daily rate of $3,700 + GST. The delay rate of $3,700 + GST was based on a genuine pre-estimate of the Claimant's daily costs in running the project. The delay rate essentially consists of the Claimant's preliminaries which include: supervision, project management and administration, site labour, consumables, small tools and head office costs. Consequently any delays or disruptions which result in the increased project duration will necessarily incur the described costs. While other works were done on site during the delay period, such works however were not on critical path but still required all the resources as listed previously. Therefore each additional day added to the duration of the project would also require the mentioned resources.

11. A detailed breakup of the estimate is attached...There is no dispute regarding the daily amount claimed. The Respondent previously approved, and paid the full amount which was based on $3,700 plus GST per working day in variation 46A ...".

71 The Adjudication Application - Lodgement Advice was dated 2 September 2014 and was sent, to the Council, by facsimile, on that date.

72 The Adjudication Application - Notification of the Adjudicator's Acceptance was dated 3 September 2014 and was sent, to the Council, by facsimile, on that date. The Notification advised that the Adjudicator had accepted appointment and provided details regarding the preparation and lodgement of the Adjudication Response.

73 The Council's Adjudication Response consisted of 72 pages and comprised "Submissions", a "Tender Bundle" of documents, a Statutory Declaration of John Weymouth Berry and a Statutory Declaration of Peter Geoffrey Rodham.

74 The Written Response Submissions of the Council included:

"5. In relation to V5, the cost of steel was included in the Contract. This is therefore not a variation and Keystone has no entitlement to the amount claimed.

6. In relation to each of the other claims:

...

e) Keystone now seeks payment for the delay damages for the period of each extension of time granted;

f) Keystone's entitlement under the Contract to delay damages is nil; and

g) The parties additionally agree that Keystone had no entitlement to delay damages for these specific claims.

...

12. ...The Council's reasons for withholding payment are set out in the Payment Schedule and this Response. Contrary to Keystone's contention, those reasons are valid and the correct position between the parties under the Contract is that payment is owed by Keystone to the Council. Accordingly the Adjudicator is requested to determine that Keystone should bear 100% of the costs of the adjudication.

...

66. Item 26 expressly provides that the amount fixed for delay damages for the compensable cause is Nil.

67. Keystone has no entitlement to any delay damages under the Contract.

68. Keystone's submission that the Respondent has failed to provide reasons in the Payment Schedule for withholding payment for any of the 'delay variations' is incorrect. The Payment Schedule (Tab 8 of the Application) expressly states that:

'... the difference between the claimed amount and the certified amount is for the following reasons:

The adjusted contract value of WUC is $2,780,820.16 + GST. This figure is made up of the Contract amount $2,449,385.25 + approved variations of $331,434.92

A breakdown of the approval variations can be seen in Attachment 1."

69. V5 and the 'delay variations' V53, V54, V55 are not set out in Attachment 1. They are not approved variations. That is the reason for withholding payment.

70. Keystone has made no submissions in relation to V5. To establish an entitlement to a claim for providing steel support for the lift, Keystone would need to identify a direction in writing pursuant to clause 36.1. It has failed to do so. That is because no such direction exists. Further, the Superintendent has not priced the variation pursuant to clause 36.4. On the contrary, the Superintendent has rejected Keystone's claim for this work, as per the documents attached to Tab 6 of the Tender Bundle.

71. If, which is denied, Keystone was entitled to delay damages, those damages would be, pursuant to clause 34.9 'certified by the Superintendent under subclause 41.3'. No damages have been certified by the Superintendent under subclause 41.3 because no 'delay variations' have been approved.

72. Absent a certification by the Superintendent under subclause 41.3, Keystone has no entitlement to delay damages.

73. ... Keystone's bald assertion that the parties 'agreed on a daily rate of $3,700 + GST' is denied. Keystone does not point to any provision in the Contract which sets out this rate. Presumably then the 'agreement' is asserted to have been as an amendment to the terms of the Contract. No details are provided as to that amendment. Was it in writing? If so, where are the documents which evidence it? Was it oral? If so between whom, when, where etc? In the Council's submission, the adjudicator cannot accept the existence of any such agreement."

75 The Statutory Declaration of John Weymouth Berry was made on 5 September 2014. Relevantly, it provided:

"1. In 2001, I was employed by Pittwater Council (Council) as the Senior Officer, Building Services.

2. I make this Statutory Declaration in support of the Council's Adjudication Response dated 5 September 2014.

...

4. In May 2013, I became the Project Manager of the Project and I occupied that role until I retired from the Council in March 2014.

...

10. On 16 July 2013, I received variation VR03a for delays associated with demolition works.

11. On 31 March 2014, I received an amended variation claim VR46a, which included 10 days delay costs at a rate of $3,700 per day.

12. In early April 2014, I participated in several internal meetings between the Superintendent and the Council, which discussed the payment of the delay costs to Keystone included in variation VR46a.

13. The Council was of the opinion that it was reasonable for the Council to pay Keystone the costs claimed as variation VR46a due to the unforeseen delays as a result of the Land and Environment Court injunctions, vandalism, issues with the demolition plans and unforeseen problems during the demolition process.

14. The Council agreed to pay Keystone the delay costs claimed in variation VR46a in good faith because these delays were not the fault of the contractor and were out of its control. The Council's decision was that the payment of the delay costs was limited to this variation only. There was no general agreement between the Council and Keystone that Keystone would be entitled to delay costs on an ongoing basis.

15. The Council accepted Keystone's rate of delay costs of $3,700 per day for variation VR46a only. Keystone was able to provide the Council with its overhead costs to justify the payment of that rate.

16. On 7 April 2014, Les Munn, who was my manager at the Council at the time, approved variation VR46a.

...

19. During the meeting [on 3 April 2014], the Council and Keystone went through individual variations and extension of time claims. In relation to the extension of time claims, I, on behalf of the Council, said words to the following [e]ffect:

'The Council would accept Keystone's extension of time claims to assist it in reaching practical completion subject to there being no delay costs associated with these extensions of time.'

20. I recall that Keystone did not object to the Council's position that there were [to] be no delay costs associated with any extensions of time.

21. The delay costs claimed that are made in the adjudication and referred to as V53 and V54 were two of those variations and extensions of time claims agreed on at the meeting on 3 April 2014."

The Adjudication Determination

76 The Adjudication Determination, which is dated 19 September 2014, commences with the cover sheet, which is in the following terms:

"Determination

This is a determination made under the Building and Construction Industry Security of Payment Act 1999 (NSW) ('the Act').

In respect of the claimant's payment claim, I determine that:

the amount of the progress payment to be made by the respondent to the claimant is the adjudicated amount;

the date upon which the payment became due is the due date for payment;

the rate of interest on the adjudicated amount is the rate indicated on the first page of this determination; and

the fees and expenses of the Authorised Nominating Authority and the fees and the expenses of the adjudicator, are apportioned as indicated on the first page of this determination.

...

B. The claimed amounts and scheduled amounts

7. The amounts stated by the parties in their various submissions are provided in Attachment No. 1 'Claimed Amount / Scheduled Amount / Adjudicated Amount' of this determination and explained as follows.

8. The various amounts stated in the payment claim and the payment schedule are listed in the respective columns.

9. The payment schedule does not 'reply' to the payment claim as contemplated under the Act. Normally payment schedules follow payment claims precisely and 'reply' to the payment claim on an item by item basis...".

77 There are other relevant paragraphs of the Adjudication Determination, which the parties agreed relate to Item 18 ([115] - [125]), to Item 19 ([126] - [135]), to Item 20 ([136] - [138]), and to Item 21 ([139] - [141]). Because they are relevant to the dispute, I shall set them out verbatim.

"Item 18 - VR05 Structural Steel to Lift Shaft ... $9,125

115. The respondent did not provide any submissions with respect to this item in the payment schedule.

116. The claimant did not address this item in the adjudication application.

117. The adjudication response reads in part as follows:

'...In relation to V5, the cost of steel was included in the contract. Therefore, this is not a variation and Keystone is not entitled to the claimed amount...

...The payment schedule (Tab 8 of the Application) expressly states that '...the difference between the claimed amount and the certified amount is for the following reasons:

'1. The adjusted contract value of the WUC is $2,780,820.16 + GST. This figure is made up of the contract amount of $2,449,385.25 + approved variations of $331,434.92.

A breakdown of the approved variations can be seen in Attachment 1...'.

V5 ... [is] not set out in Attachment 1... [It is] not [an] approved variation [emphasis added]. That is the reason for withholding payment...'.

118. While the respondent's 'reasons for withholding payment' in the adjudication response are vague, the respondent's entitlement to even the present 'reasons for withholding payment' is dependent on it not offending s 20(2B) of the Act. This states that respondents cannot include 'reasons for withholding payment' that were not included in payment schedule in the adjudication response.

119. S 14 of the Act 'Payment Schedules' reads in part as follows:

'(3) If the scheduled amount is less than the claimed amount, the schedule must indicate why the scheduled amount is less and (if it is less because the respondent is withholding payment for any reason) the respondent's reasons for withholding payment.'

120. One of the relevant authorities on the requirements of s 14(3) of the Act regarding 'reasons for withholding payment' is the judgment of Palmer J in Multiplex Constructions Pty Ltd v Luikens and Anor [2003] NSWSC 1140 (Multiplex and Luikens) which reads in part as follows:

'78 Section 14(3) of the Act, in requiring a respondent to 'indicate' its reasons for withholding payment, does not require that a payment schedule give full particulars of those reasons. The use of the word 'indicate' rather than 'state', 'specify' or 'set out', conveys an impression that some want of precision and particularity is permissible as long as the essence of 'the reason' for withholding payment is known sufficiently to enable the claimant to make a decision whether or not to pursue the claim and to understand the nature of the case it will have to meet in an adjudication.'

121. Therefore, if the respondent did not consider the claimant was entitled to the claimed amount for this item it was obligated to provide its 'reasons for withholding payment' in the payment schedule. This 'reason for withholding payment' must be a more particularised argument than just not including the variation as 'an approved variation' in an incorrectly identified attachment included in the payment schedule. The title of the document is 'Avalon Surf Club - Approved Variations' is not 'Attachment 1'.

122. Therefore, I determine that the respondent has not provided any valid 'reasons for withholding payment' with respect to this item in the payment schedule.

123. Therefore, the issues the respondent has raised in the adjudication response are 'new reasons for withholding payment' and cannot be considered. The claimant has not has [sic] an opportunity to respond to the 'new reasons for withholding payment'.

124. They are not 'duly made' and cannot be considered in this determination.

125. Therefore, as the respondent had an obligation to raise its 'reasons for withholding payment' in the payment schedule and did not do so I am left with no alternative to determine that the adjudicated amount for this item is the claimed amount.

Item 19 - VR53 Delays due to window anodizing ... $81,995.00

126. The respondent did not provide any submissions with respect to this item in the payment schedule.

127. The adjudication application reads in part as follows:

'The claimant will not speculate as to the reasons why the respondent is withholding payment for the delay claim costs as no reasons were provided in the payment schedule. Therefore, the respondent is barred under Section 20(2B) of the Act to provide [sic] any additional reasons for withholding payment in the adjudication response.'

128. The adjudication response reads in part as follows:

'...In relation to [V53, V54 and V55] ... Keystone's entitlement under the Contract to delay damages is nil ...

....The payment schedule (Tab 8 of the Application) expressly states that: '....the difference between the claimed amount and the certified amount is for the following reasons:

'1. The adjusted contract value of the WUC is $2,780,820.16 + GST. This figure is made up of the contract amount of $2,449,385.25 + approved variations of $331,434.92.

A breakdown of the approved variations can be seen in Attachment 1 ...

... The 'delay variations' V53, V54, V55 are not set out in Attachment 1. They are not approved variations. That is the reason for withholding payment...'.

129. The respondent does not dispute that the only 'reason for withholding' payment indicated in the payment schedule is that this variation '...was not set out in Attachment No. 1...' Which is an incorrectly identified attachment included in the payment schedule. The title of the document is 'Avalon Surf Club - Approved Variations' not 'Attachment 1'.

130. The parties are referred to my consideration of Item 18 VR05 'Structural Steel to Lift Shaft' and the following references:

i) S 20(2B) of the Act;

ii) S 14 (3) of the Act; and

iii) Multiplex and Liukens.

131. The circumstances with respect to this variation are identical to those in Item 18 VR05 'Structural Steel to Lift Shaft' and as I did with respect to that variation, I determine that the respondent has not provided any valid 'reasons for withholding payment' with respect to this item in the payment schedule.

132. Therefore, the issues the respondent has raised in the adjudication response are 'new reasons for withholding payment' and cannot be considered.

133. Once again the claimant has not has [sic] an opportunity to respond to the 'new reasons for withholding payment'.

134. These new 'reasons for withholding payment' are not 'duly made' and cannot be considered in this determination.

135. Therefore, as the respondent had an obligation to raise its 'reasons for withholding payment' in the payment schedule and did not do so I am left with no alternative to determine that the adjudicated amount for this item is the claimed amount.

Item 20 - VR54 Delays due to restaurant alterations ... $156,630.00

136. The circumstances with respect to this variation are identical to those in Item 19 VR53 'Delays due to window anodising'.

137. The parties are referred to my consideration of that item.

138. Once again, as the respondent had an obligation to raise its 'reasons for withholding payment' in the payment schedule and did not do so I am left with no alternative to determine that the adjudicated amount for this item is the claimed amount.

Item 21 - VR55 Delays due to structural steel delays ... $29,469.00

139. The circumstances with respect to this variation are identical to those in Item 19 VR53 'Delays due to window anodising'.

140. The parties are referred to my consideration of that item.

141. Once again, as the respondent had an obligation to raise its 'reasons for withholding payment' in the payment schedule and did not do so I am left with no alternative to determine that the adjudicated amount for this item is the claimed amount."

78 Under the heading "Calculation of the progress payment", the Adjudicator stated:

"193. As outlined foregoing I have considered the parties' entitlements for the various items in the payment claim and the payment schedule.

194. The adjudicated amounts for these items are indicated on Attachment No. 1.

195. Based on the parties' submissions I am satisfied that the claimant has carried out the work that was claimed in the payment claim which I value pursuant to s 10(1)(b) of the Act at the amount indicated in Attachment No. 1.

196. Therefore the GST inclusive adjudicated amount is the claimed amount of $272,286.76."

79 The Adjudicator then dealt with the "Due Date for payment" (Paragraphs 197 to 200), "Interest" (Paragraphs 201 to 204), "Adjudication Fees" (Paragraphs 205 to 207), "Unsolicited submission" (from the claimant) (Paragraph 208) and "The parties' submissions" ((Paragraph 209).

The Council's Submissions at the Hearing

80 The Council submitted, in relation to Item 18, VR05, that the Adjudicator:

(i) Noted that the Council had raised in the Adjudication Response that "the cost of steel was included in the contract. Therefore, this is not a variation and Keystone is not entitled to the claimed amount";

(ii) Determined that the Council had "not provided any valid 'reasons for withholding payment' with respect to this item in the payment schedule"; and

(iii) Concluded that "Therefore, as the respondent had an obligation to raise its 'reasons for withholding payment' in the payment schedule and did not do so I am left with no alternative to determine that the adjudicated amount for this item is the claimed amount".

81 In relation to Item 19, VR53, the Council submitted that the Adjudicator:

(i) Noted that the Council had raised in the Adjudication Response that "Keystone's entitlement under the Contract to delay damages is nil";

(ii) Determined that the Council had "not provided any valid 'reasons for withholding payment' with respect to this item in the payment schedule";

(iii) Concluded that: "Therefore, as the respondent had an obligation to raise its 'reasons for withholding payment' in the payment schedule and did not do so I am left with no alternative to determine that the adjudicated amount for this item is the claimed amount".

82 In relation to Item 20, VR54, the Council submitted that the Adjudicator:

(i) Stated that the circumstances with respect to this claim were identical to those in relation to VR53;

(ii) Concluded that: "as the respondent had an obligation to raise its 'reasons for withholding payment' in the payment schedule and did not do so I am left with no alternative to determine that the adjudicated amount for this item is the claimed amount".

83 In relation to Item 21, VR55, the Council submitted that the Adjudicator:

(i) Stated that the circumstances with respect to this claim were identical to those in relation to VR53;

(ii) Concluded that: "as the respondent had an obligation to raise its 'reasons for withholding payment' in the payment schedule and did not do so I am left with no alternative to determine that the adjudicated amount for this item is the claimed amount".

84 In relation to the Adjudication, the Council then submitted that the Adjudication is void because the Adjudicator "clearly failed in his responsibilities" under s 22 of the Act by:

(a) Failing to have regard to the terms of the Contract by simply adopting the amounts claimed in the Payment Claim for each of the claimed items. In particular, the Adjudicator failed to have regard to:

(i) whether Keystone had any entitlement under the Contract to a Variation for the cost of steel for item VR05; and

(ii) whether Keystone had any entitlement under the Contract to delay damages for items VR53, VR54 and VR55;

(b) Finding that he was "left with no alternative to determine that the adjudicated amount" for each of those items "is the claimed amount", without addressing the merits of those claims and coming to a view on what was properly payable. (The amount claimed for these four items was $277,220 from a total claimed in the Payment Claim of $352,256 and more than the total adjudicated amount of $272,286.76);

(c) Ignoring matters of real relevance in relation to the terms of the Contract, namely:

(i) whether Keystone had any entitlement under the Contract to a Variation for the cost of steel for item VR05; and

(ii) whether Keystone had any entitlement under the Contract to delay damages for items VR53, VR54 and VR55;

simply because these matters were not raised in submissions duly made by the parties. The Adjudicator was required to consider these matters, even where he only gained an awareness of them from having come into contact with submissions not duly made;

(d) Failing to have regard to, and grapple with, the matters set out at s 22(2) of the Act, which included Keystone's entitlements under the Contract. The Adjudicator did not have regard to, or consider, the provisions of the Contract, either in relation to whether the cost of steel was included and therefore not a Variation, VR05, or in relation to delay damages, VR53, VR54, VR55;

(e) Failing to expose any reasoning which would justify his acceptance of Keystone's claim for a variation for the cost of steel, VR05, and delay damages, VR53, VR54 and VR55; and

(f) Falling into jurisdictional error by disregarding something that the Act requires to be considered as a condition of jurisdiction, being the provisions of the Contract: s 22(2)(a). This error was material because, had the Adjudicator considered whether Keystone had any entitlement under the Contract to a variation for the cost of steel and delay damages, there would have been a prospect of the Adjudicator changing his mind.

85 In relation to its claim for a declaration that the Council was not required to pay the costs of the Adjudicator, the Council submitted that, pursuant to s 29(4) of the Act, an adjudicator is not entitled to be paid any fees or expenses in connection with the adjudication, of an adjudication application, if he or she fails to make a decision on the application within the time allowed by s 21(3). If the Determination is void, then there was no decision made within the time allowed by s 21(3).

Keystone's Submissions at the Hearing

86 In relation to Item 18, VR 05, Keystone submitted that it was clearly a claim for variation. The Council had only raised the question of entitlement in the Adjudication Response, with no reason for withholding payment appearing in the Council's Payment Schedule. That the item did not appear in a list of approved variations attached to the Payment Schedule did not address whether the steel had been provided as additional to the Contract and, thus, a variation. No dispute as to quantum had been raised in either the Payment Schedule or the Adjudication Response.

87 At [26] of Keystone's written submissions at the hearing, the following passage appears:

"The words used by the adjudicator that 'I am left with no alternative but to determine that the adjudicated amount for this item is the claimed amount' is on a fair reading, having regard to the process which he has undertaken to determine what is in issue before him, intended to convey that there being no issue which is properly raised as to entitlement or value and there has been nothing that has been raised that places him on notice as to a matter which he considers [a]ffects either the entitlement or value and as a result the course mandated by the SOP Act is that he determine the amount owing as the amount claimed. If the adjudicator had done otherwise it would have been arbitrary and capricious unless some reason had been developed for doing so the adjudicator obviously thought no such reason existed."

88 In relation to the submission by the Council that it was not entitled to delay damages, Keystone submitted that the Council's contention was untenable, because, on the proper construction of the Contract, there was clearly an entitlement to delay damages. Reference was made to Clause 34.9 and the definition of "compensable cause".

89 It was also put that the Adjudication Determination made clear that the Adjudicator had considered the Response submissions and the Contract in making his Determination but, even if there was no specific reference to either, that did not demonstrate a lack of good faith.

90 Finally, it was submitted that, in circumstances where a component of the Payment Claim is undefended (as the Council's reasons for non-payment were excluded from consideration by reason of s 20(2B) of the Act), the Adjudicator's reasons in relation to such a component could, permissibly, be brief. The court could, legitimately, assume that, in examining the Payment Claim, the Adjudication Application and any supporting material for a fatal flaw manifestly apparent on their face, the Adjudicator had found none, with the result that he accepted Keystone's claims.

91 During Keystone's oral submissions, the following exchange took place (at T32.38 - 32.41):

"HIS HONOUR: I hope I'm not doing Ms Wright's submissions a disservice, but I gather that she accepted the conclusion by the adjudicator that there were no reasons for withholding payment and the payment schedule was not able to be the subject of complaint by the Council.

De BUSE: Yes.

HIS HONOUR: Did I capture that correctly?

WRIGHT: Yes, your Honour."

The Relevant Principles

92 As has been pointed out in a number of cases, the purpose of the Act is to provide a practical mechanism to ensure that contractors receive periodical and prompt progress payments for the work that they do.

93 It is not the purpose of the Act to ensure that they are paid immediately for such work: see, for example, Patrick Stevedores Operations No. 2 Pty Ltd v McConnell Dowell Constructors (Aust) Pty Ltd [2014] NSWSC 1413, per Ball J, at [27].

94 It can also be seen that the Act is not concerned with giving effect to the rights of the parties under the construction contract. Section 32(2) makes tolerably plain that the determination of such rights is left with the courts. The process which the Act provides contemplates an "assessment" by the adjudicator, which assessment may be enforced as if it were a judgment of a court of competent jurisdiction but only insofar as a court has not determined, or does not determine, otherwise. There is no determination, even provisionally, of the actual rights of the parties, and there is no judicial determination of such rights under their construction contract.

95 The position was put succinctly by Handley JA in Falgat Constructions Pty Ltd v Equity Australia Corporation Pty Ltd [2005] NSWCA 49; (2005) 62 NSWLR 385, at [22]:

"[T]he Act confers statutory rights on a builder to receive an interim or progress payment and enables that right to be determined informally, summarily and quickly, and then summarily enforced without prejudice to the common law rights of both parties which can then be determined in the normal manner."

96 In Birdon Pty Ltd v Houben Marine Pty Ltd, Keane CJ, at [63], put it this way:

"The provisions of the Security of Payment Act establish the content of a new statutory right created by that Act, including the quantification of the entitlement (ss 9 and 17 - 25), the incidents of the right (s 23), and the enforcement of the right (ss 25 and 32). That is, they define the incidents of the novel right. Critically, the existence and quantum of the new statutory right depends not on the true state of underlying facts as regulated by the charter agreement, but on the assessment of the adjudicator who is not required or authorised to make any findings about those facts: Energetech Australia Pty Ltd v Sides Engineering Pty Ltd [2005] NSWSC 1143; (2005) 226 ALR 362 at [97] and [101]."

97 McDougall J, in Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd [2010] NSWCA 190; (2010) 78 NSWLR 393, at [207] - [209], commented:

"The Security of Payment Act operates to alter, in a fundamental way, the incidence of the risk of insolvency during the life of a construction contract. As Keane JA said, of the not dissimilar Queensland statute, the Building and Construction Industry Payments Act 2004 (Qld), in RJ Neller Building P/L v Ainsworth [2008] QCA 397 at [40], the statute 'seeks to preserve the cash flow to a builder notwithstanding the risk that the builder might ultimately be required to refund the cash in circumstances where the builder's ... inability to repay could be expected to eventuate'. It followed, his Honour said, that the risk of inability to repay, in the event of successful action by the other party, must be regarded as one that the legislature has assigned to that other party.

The same is true of the regime established by the Security of Payment Act. Further, the Security of Payment Act operates in a way that has been described as 'rough and ready' or, less kindly, as 'Draconian'. It imposes a mandatory regime regardless of the parties' contract: s 34. It provides extremely abbreviated time frames for the exchange of payment claims, payment schedules, adjudication applications and adjudication responses. It provides a

very limited time for adjudicators to make their decisions on what, experience shows, are often extremely complex claims involving very substantial volumes of documents (see, for example, my decision in Laing O'Rourke Australia Construction v H & M Engineering and Construction [2010] NSWSC 818 at [8]).

The Security of Payment Act gives very valuable, and commercially important, advantages to builders and subcontractors. At each stage of the regime for enforcement of the statutory right to progress payments, the Security of Payment Act lays down clear specifications of time and other requirements to be

observed. It is not difficult to understand that the availability of those rights should depend on strict observance of the statutory requirements that are involved in their creation."

98 This is done by requiring the parties to define clearly, expressly and promptly, the issues in dispute between them (by the Payment Claim and Payment Schedule). The issues so defined are the only issues which the parties are entitled, subsequently, to agitate in their dispute and they are the only issues which the adjudicator is entitled to determine under s 22.

99 Specifically, and relevantly to this case, s 20(2B) of the Act prevents a respondent from including in its adjudication response any reasons for withholding payment that were not included in the payment schedule provided to the claimant.

100 In this way, the scheme of the Act envisages that a respondent should not be able to reject a payment claim, serve a payment schedule which does not disclose the reasons for withholding payment, and then disclose, for the first time, in its adjudication response, that the reasons for the rejection were founded upon a certain construction of the Contract, or upon other matters that the claimant had no prior opportunity of checking or disputing. In this regard, it is to be remembered s 14(3) requires that if the respondent to a payment claim has "any reason" for "withholding payment", it "must indicate" that reason in the payment schedule. In this way, also, the payment claim and the payment schedule should be intelligible to the adjudicator.

101 Palmer J, in Multiplex Constructions Pty Ltd v Luikens [2003] NSWSC 1140, at [76] - [78] (adopted in Clarence Street Pty Ltd v Isis Projects Pty Ltd [2005] NSWCA 391; (2005) 64 NSWLR 448, per Mason P, with whom Giles and Santow JJA agreed) at [27] - [31]) wrote:

"A payment claim and a payment schedule are, in many cases, given and received by parties who are experienced in the building industry and are familiar with the particular building contract, the history of construction of the project and the broad issues which have produced the dispute as to the claimant's payment claim. A payment claim and a payment schedule must be produced quickly; much that is contained therein in an abbreviated form which would be meaningless to the uninformed reader will be understood readily by the parties themselves. A payment claim and a payment schedule should not, therefore, be required to be as precise and as particularised as a pleading in the Supreme Court. Nevertheless, precision and particularity must be required to a degree reasonably sufficient to apprise the parties of the real issues in the dispute.

A respondent to a payment claim cannot always content itself with cryptic or vague statements in its payment schedule as to its reasons for withholding payment on the assumption that the claimant will know what issue is sought to be raised. Sometimes the issue is so straightforward or has been so expansively agitated in prior correspondence that the briefest reference in the payment schedule will suffice to identify it clearly. More often than not, however, parties to a building dispute see the issues only from their own viewpoint: they may not be equally in possession of all of the facts and they may not equally appreciate the significance of what facts are known to them. This will be so especially where, for instance, the contract is for the construction of a dwelling house and the parties are the owner and a small builder. In such cases, the parties are liable to misunderstand the issues between them unless those issues emerge with sufficient clarity from the payment schedule read in conjunction with the payment claim.

Section 14(3) of the Act, in requiring a respondent to 'indicate' its reasons for withholding payment, does not require that a payment schedule give full particulars of those reasons. The use of the word 'indicate' rather than 'state', 'specify' or 'set out', conveys an impression that some want of precision and particularity is permissible as long as the essence of 'the reason' for withholding payment is made known sufficiently to enable the claimant to make a decision whether or not to pursue the claim and to understand the nature of the case it will have to meet in an adjudication."

102 Palmer J expanded upon the pleading analogy in Brookhollow Pty Ltd v R & R Consultants Pty Ltd [2006] NSWSC 1, at [44] - [45]:

"A payment claim under the Act is, in many respects, like a Statement of Claim in litigation. In pleading a Statement of Claim, the plaintiff sets out only the facts and circumstances required to establish entitlement to the relief sought; the Statement of Claim does not attempt to negative in advance all possible defences to the claim. It is for the defendant to decide which defences to raise; the plaintiff, in a reply, answers only those defences which the defendant has pleaded.

In my opinion, a payment claim under the Act works the same way. If it purports reasonably on its face to state what s 13(2)(a) and (b) require it to state, it will have disclosed the critical elements of the claimant's claim. It is then for the respondent either to admit the claim or to decide what defences to raise."

103 In Owners Strata Plan 61172 v Stratabuild Ltd [2011] NSWSC 1000, Macready As J, at [30], noted:

"Section 14(3) requires the recipient to indicate why payment in full is withheld and the reasons for doing so. The joinder of issue thus achieved sets the parameters for the matters that may be contested if an adjudication under the Act ensues...".

104 In Taylor Projects Group Pty Ltd v Brick Dept Pty Ltd [2005] NSWSC 439, Einstein J, at [35], noted that:

"Although a payment schedule need not follow any particular level of formality ... it must nonetheless comply with the basic requirements." (Omitting citations)

105 In Pacific General Securities Ltd v Soliman and Sons Pty Ltd [2006] NSWSC 13; (2006) 196 FLR 388, at [71], Brereton J was "inclined to accept, without deciding, that a payment schedule may 'sufficiently indicate' reasons for withholding payment by reference to reasons previously advanced in an earlier payment schedule, if appropriately worded... ".

106 In Perform (NSW) Pty Ltd v MEV-AUS Pty Ltd [2009] NSWCA 157, at [53], Giles JA, with whom McColl and Young JJA agreed, described Brereton J's inclination as "correct", adding "as was his observation that it was not sufficient to incorporate reasons advanced in previous payment schedules, adjudication responses or otherwise so that the claimant could not know whether all or any and if so which of the grounds previously advanced were now relied on".

107 The Act, then, provides for a mechanism by which an independent person, namely the Adjudicator, carries out certain identified tasks as set out in s 22 of the Act. The first statutory task, described in s 22(1)(a) of the Act, given to the adjudicator is to determine the "adjudicated amount"; that is to say, "the amount of the progress payment (if any) to be paid by the respondent to the claimant".

108 This determination (which requires as a minimum determination whether the construction work the subject of the claim has been performed, and of its value) is one of the basic and essential requirements of validity of a determination: Pacific General Securities Ltd v Soliman & Sons Pty Ltd at [98]; Eastland Truss & Timber Pty Limited v Matthew John Byrnes t/as Qualibuilt Constructions [2014] NSWSC 1461, per Bergin CJ in Eq, at [12].

109 By s 22(2), the adjudicator is next commanded to "consider the following matters only": namely, the matters listed in sub-paragraphs (a) - (e). Sub-paragraph (d) identifies the Payment Schedule to which the application relates, together with all submissions (including relevant documentation) that have been duly made by the respondent in support of the schedule. (Sub-section 22(2)(e) may be ignored, in this case, since there was no inspection carried out by the Adjudicator of any matter to which the claim relates.)

110 In Timwin Construction v Façade Innovations [2005] NSWSC 548, McDougall J, at [39] to [40], wrote:

"There has not been any decision to my knowledge elaborating the requirement of good faith to which Hodgson JA pointed in Brodyn [Brodyn Pty Ltd t/as Time Cost and Quality v Davenport & Anor [2004] NSWCA 394]. Clearly, I think, his Honour was not referring to dishonesty or its opposite. I think he was suggesting that, as is well understood in the administrative law context, there must be an effort to understand and deal with the issues in the discharge of the statutory function: see, for example, the speech of Lord Sumner in Roberts v Hopwood [1925] AC 578, 603, where his Lordship said that a requirement to act in good faith must mean that the board 'are putting their minds to the comprehension and their wills to the discharge of their duty to the public, whose money and locality which they administer.'

That construction of the requirement of good faith is supported by the provisions of s 22(2), requiring an adjudicator to 'consider' certain matters. A requirement to consider, or take into consideration, is equivalent to a requirement to have regard to something: see Zhang v Canterbury City Council [2001] NSWCA 167; (2001) 51 NSWLR 589 at 602 (Spigelman CJ, with whom Meagher and Beazley JJA agreed).

As his Honour emphasised, the requirement to 'have regard to' something requires the giving of weight to the specified considerations as a fundamental element in the determination, or to take them into account as the focal points by reference to which the relevant decision is to be made. His Honour relied on the tests expounded in R v Hunt; ex parte Sean Investments Pty Ltd [1979] HCA 32; (1979) 180 CLR 322 (Mason J) and in Evans v Marmont [1997] NSWSC 331; (1997) 42 NSWLR 70, 79-80 (Gleeson CJ and McLelland CJ in Eq)."

111 His Honour returned to the topic in Laing O'Rourke Australia Construction Pty Ltd v H&M Engineering & Construction Pty Ltd [2010] NSWSC 818. After referring to his earlier decision of Timwin Construction v Façade Innovations, his Honour wrote, at [31] - [39]:

"Shortly after I decided Timwin, Brereton J considered the obligation of good faith in Holmwood Holdings Pty Ltd v Halkat Electrical Contractors Pty Ltd [2005] NSWSC 1129. In a detailed review of the authorities from [66] to [109], his Honour identified what he described as a narrow view and a broader view of good faith. His Honour explained the narrow view, at [80], as 'focussing on whether objectively the exercise of power could be regarded as honestly referrable to the purpose for which the power was conferred, and excluding from its ambit the reasoning process leading to the decision'. His Honour identified the broader view, at [87] and other paragraphs, as including recklessness or caprice in the exercise of the power, although falling short of a wilful and deliberate failure to exercise, or to attempt to exercise, the power. For the reasons given at [111] to [116], his Honour concluded at [110] and [117], that the requirement of good faith required more than honesty. In particular, it required faithfulness to the obligation and a conscientious attempt to perform it (at [117]), and absence of recklessness or caprice [at 110], [117]).

The defendant appealed. The appeal was dismissed (Halkat Electrical Contractors Pty Ltd v Holwood Holdings Pty Ltd [2007] NSWCA 32). Nonetheless, Giles JA (with whom Santow and Tobias JJA agreed) referred at [26] to what Brereton J had said. His Honour did not think that it was necessary to embark on 'an exegesis of the reference in Brodyn ... to a bona fide attempt to exercise the statutory power'. That was because, as his Honour said at [27], 'the adjudicator simply did not perform the task required by the Act', and thus did not exercise his power in good faith.

The Court of Appeal returned to the topic of good faith in Perform (NSW) Pty Ltd v MEV-AUS Pty Ltd [2009] NSWCA 157. It appeared that the appellant in that case had submitted that the Court of Appeal did not 'fully endorse' the broader approach to good faith that Brereton J had identified in Holmwood. At [114], Giles JA (with whom McColl and Young JJA agreed) said that the Court 'did not endorse it at all'.

I do not think that it is necessary to say more than that, in the words of Lord Sumner in Roberts v Hopwood [1925] AC 578 at 604 (cited by me in Timwin at [38]), for administrative bodies to act in good faith, they must put 'their minds to the comprehension and their wills to the discharge of their duty'. As I said at [39] and [40], that view of the content of the obligation of good faith was supported by the requirement to 'consider' various matters set out in s 22(2) of the Act. It follows that the obligation of good faith requires at least that adjudicators should turn their minds to, grapple with and form a view on all matters that they are required to 'consider'.

...

I looked at the obligation to 'consider' in Timwin, in the paragraphs quoted... above. It is, however, necessary to say a little more about the content of that obligation in the context of the Act.

As a matter of plain English, the obligation to 'consider' something requires that it be given attention, or looked at on its merits (see, for example, the Australian Oxford Dictionary, Second Edition, 2004). Thus, in Tickner v Chapman [1995] FCA 1726; (1995) 57 FCR 451, Black CJ, speaking of a statutory obligation on a minister of the Crown to consider representations made to him, said at 464 that 'the consideration of a representation involves an active intellectual process directed at that representation'. In the same case, Burchett J said at 476 that the obligation required 'the Minister... to apply his own mind to the issues raised by [the representations]', which involved obtaining 'an understanding of the facts and circumstances set out in them, and of the contentions they urged based on those facts and circumstances'. Kiefel J said at 495 that the obligation 'requires that the Minister have regard to what is said in the representations, to bring his mind to bear upon the facts stated in them and the arguments or opinions put forward and to appreciate who is making them'.

In my view, the obligation to consider various matters imposed by s 22(2) of the Act should be read in the same way: namely, as requiring an active process of intellectual engagement. It may be thought that this imposes a substantial burden on adjudicators. That may be so; but there are at least two reasons why, even if that is correct, it does not justify reading down the statutory obligation to 'consider'. The first is that adjudicators are not forced to accept nomination. They may decline nomination; or they may accept only on condition that they are given some longer period of time than ten working days to produce their determination. The second reason is that the outcome of the adjudicator's consideration may have very significant consequences. In this case, the three delay claims total, in round figures, $7.5 million - a little under 75% of the total of the payment claim. Having regard both to the limited ability for adjudicators' determinations to be reviewed and to the nature of the estoppels that they create, the parties to an adjudication are entitled to have the adjudicator's consideration, in the sense that I have explained, of the case that each of them brings."

112 In Pacific General Securities Ltd v Soliman & Sons Pty Ltd, Brereton J, at [82], wrote:

"I therefore respectfully agree with the view tentatively expressed by Hodgson JA in Hargreaves [Coordinated Construction Co Pty Ltd v J M Hargreaves (NSW) Pty Ltd [2005] NSWCA 228]: the adjudicator's duty is to come to a view as to what is properly payable, on what the adjudicator considers to be the true construction of the contract and the Act and the true merits of the claim, and while the adjudicator may readily find in favour of the claimant on the merits of the claim in the absence of a payment schedule or adjudication response, or if no relevant material is advanced by the respondent, the absence of such material does not entitle the adjudicator simply to award the amount of the claim without addressing its merits, which as a minimum will involve determining whether the construction work identified in the payment claim has been carried out, and what is its value."

113 McDougall J recently expressed similar sentiments in Cornerstone Danks Street v Parkview Constructions [2014] NSWSC 866, at [30], writing that:

"In performing the obligation to determine (among other things) the amount of the progress payment (if any) to be paid, the adjudicator must consider the disputes and, in a rational and considered way, deal with them. It is then necessary for him or her to reduce his or her reasons for doing so to writing, along with the determination itself".

114 In this case, what is alleged by the Council is that the Adjudicator did not exercise his function under s 22 of the Act in good faith.

115 In Clyde Bergemann v Varley Power [2011] NSWSC 1039, McDougall J, after referring to his earlier decisions on the question of good faith, added, at [83] - [84]:

"The extent of compliance with the good faith obligation is not to be assessed in a vacuum (and nor is the extent of compliance with the requirement to afford natural justice, subject to the scheme of the Act). Particularly where the disputes are substantial and complex, and where there are thousands of pages of material put before an adjudicator, it is in my view incumbent on the parties to identify with precision all reasons that are open to them (based on the payment claim and payment schedule) in support of or opposition to each element of the claim, and to direct the adjudicator's attention to the relevant parts of the material given to him or her. It is not sufficient to put that material before the adjudicator, accompanied by lengthy but diffuse submissions, and to leave it to him or her to come to the right result for the right reasons based on every detail that may be gleaned from whatever is the relevant material.

On the contrary, in my view, both the requirement to consider in good faith and the requirement to afford natural justice must take into account the magnitude of the task and the way that the parties have put the task before the adjudicator. In particular, it is inappropriate for a party, who has not done what it can to clarify the dispute and guide the adjudicator to the relevant material, to complain, nonetheless, that there was material, that might have borne on the adjudicator's conclusions, that could have led to a different result."

116 In Northbuild Construction P/L v Central Interior Linings P/L [2011] QCA 22; [2012] 1 Qd R 525, White JA, at [107], wrote:

"...It is the manner in which the adjudicator dealt with the claim for variations (including the delay claims) and the valuation of the work done under the contract which Northbuild contended demonstrated that he did not approach and carry out his task in good faith, or, 'have regard to' its submissions. The primary Judge, after quoting extensively from the judgment of Hodgson JA in Brodyn, concluded in a passage about which there can be no criticism:

In summary, what is required of an adjudicator is that he or she make a genuine attempt to understand and apply the relevant contract and to exercise the power in accordance with the Act.

His Honour admonished that in assessing the decision of an adjudicator where there is a claim of want of bona fides:

It does not assist in the determination of such a question to simply cherry pick particular paragraphs from a lengthy decision and, by pointing at them alone, attempt to show an absence of bona fides.

His Honour adopted the approach described by Barrett J in Shellbridge Pty Ltd v Rider Hunt Sydney Pty Ltd and by Hodgson JA in John Holland Pty Ltd v Roads & Traffic Authority of New South Wales. In Shellbridge, Barrett J said:

... the whole of the content and tenor of an adjudication may be called in aid in deciding whether particular submissions were considered in the way the Act requires. Inference is permissible. The question is not to be approached solely by reference to the presence or absence of explicit statements referring expressly to the submissions.

In John Holland, Hodgson JA noted:

The relevant requirement of s 22(2) [s 26 of the Payments Act] is that the adjudicator consider the provisions of the Act, the provisions of the contract and submissions duly made. If an adjudicator does consider the provisions of the Act and the contract which he or she believes to be relevant, and considers those of the submissions that he or she believes to have been duly made, I do not think an accidental or erroneous omission to consider a particular provision of the Act or a particular provision of the contract, or a particular submission, could either wholly invalidate a determination, or invalidate it as regards any part affected by the omission. One could express this by saying that such an accidental or erroneous omission does not amount to a failure to comply with s 22(2), so long as the specified classes of considerations are addressed ...

Although not referred to by the primary Judge, in John Holland Basten JA noted, firmly, that authority to decide the scope of the right conferred by the Act or, if relevant, the scope of the right under the construction contract rests conclusively with the adjudicator."

117 The Adjudicator necessarily determines whether a respondent's submissions are within the parameters of the payment schedule to which they relate. It is only if they are that the Adjudicator would regard those submissions as having been "duly made", that is to say, relevantly to this case, made in support of a reason for withholding payment which has been indicated in the payment schedule in accordance with s 14(3).

118 It is also for the adjudicator to determine, otherwise, whether submissions are "duly made": Coordinated Construction Co Pty Ltd v Climatech (Canberra) Pty Ltd [2005] NSWCA 229, per Hodgson JA, at [24] - [26]; John Holland Pty Ltd v Roads and Traffic Authority of New South Wales [2007] NSWCA 19, per Hodgson JA (with whom Beazley JA agreed), at [63] and per Basten JA, at [71].

119 In Downer Construction (Australia) Pty Ltd v Energy Australia [2007] NSWCA 49; (2007) 69 NSWLR 72, Giles JA (with whom Santow and Tobias JJA agreed) wrote, at [88]:

"There is good reason for leaving determination of the scope and nature of the payment claim to the adjudicator, apart from the purpose of the Act earlier mentioned. The scope and nature of the payment claim will often be, and in the present case was, open to be elucidated and evaluated with the benefit of the adjudicator's specialised knowledge."

120 In Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd, McDougall J wrote, at [220]:

"... Whether or not a submission is 'duly made' depends on an assessment of the issues raised by a payment claim and payment schedule, and a value judgment as to whether a particular submission falls within the ambit of the payment claim or payment schedule, properly understood. That is, specifically, the sort of matter where expert evaluation, and an understanding of the way in which the parties have dealt with each other, will be of assistance."

121 Also see, Clyde Bergemann v Varley Power, per McDougall J, at [13].

122 However, in State Water Corporation v Civil Team Engineering Pty Ltd [2013] NSWSC 1879, Sackar J, after referring to the authorities on this topic, added, at [54] - [57]:

"In the present case, it is obvious that State Water's submissions in its adjudication response included reasons for non-payment which were not, by any stretch of the imagination, included in its three-sentence payment schedule (see [14] above). To my understanding, an unqualified acceptance of State Water's submission would lead to the position that an adjudicator could, wittingly or unwittingly, insulate from review his or her acceptance and consideration of parties' submissions, by formulaically including in his or her adjudication determination a statement to the effect that the submissions were valid, or duly made, for the purpose of the relevant provisions in the Act. In other words, I understand State Water's submission to have the effect of placing the adjudicator's exercise of determining whether or not submissions were "duly made", completely beyond the court's review, provided the adjudicator says he or she turned his or her mind to the question of whether the submissions were duly made.

However, the true position, which I think emerges from a more fulsome reading of the authorities, is slightly different. In Coordinated Construction Co Pty Ltd v Climatech (Canberra) Pty Ltd [2005] NSWCA 229 itself, Basten JA appeared (at [43]) to agree with Hodgson JA that it was for the adjudicator to determine whether or not a claimant's submissions were within the parameters of the payment claim to which they relate (and by analogy whether a respondent's submissions were within the parameters of the payment schedule to which they relate), and also observed that it was for the adjudicator to determine whether or not the mandatory requirements in s 13(2) of the Act had been satisfied (at [44]-[46]), and that intervention by a court where it thinks that the mandatory requirements in s 13(2) have not been met "will only be justified if the legislature has imposed an objective requirement, rather than one which the adjudicator has power to determine" (at [44]). Nonetheless, his Honour was careful to add (at [47]) that:

[47] It does not follow that the formation of a relevant opinion by an adjudicator with respect to compliance with s 13(2) will in all circumstances be beyond review. The principle stated by Latham CJ in R v Connell; Ex parte Hetton Bellbird Collieries Ltd (1994) 69 CLR 407 at 432, as applied by Gummow J in Minister for Immigration and Multicultural Affairs v Eshetu (1999) 197 CLR 611 at [133], was to the following effect:

If the opinion which was in fact formed was reached by taking into account irrelevant considerations or by otherwise misconstruing the terms of the relevant legislation, then it must be held that the opinion required has not been formed. In that event the basis for the exercise of power is absent, just as if it were shown that the opinion was arbitrary, capricious, irrational or not bona fide.

Thus, as noted in Brodyn, an essential element in the formulation of such an opinion is that is must be undertaken in good faith, but that is not a sufficient condition of validity.

The same, in my view, may be said about the adjudicator's opinion with respect to whether, for the purpose of s 20(2B), a respondent's submissions come within the parameters of the respondent's payment schedule."

123 The method of calculation of a progress payment is primarily by reference to the terms of the construction contract: s 9(a). It is only if the contract makes no express provision for calculation that the alternative in s 9(b) applies.

124 Similarly, the valuation of construction work is to be undertaken primarily by reference to the terms of the contract: s 10(1)(a). Again, it is only if the contract makes no express provision for this that the alternative in s 10(1)(b) applies. Section 10(1)(b)(iii) includes "any variation agreed to by the parties to the contract by which the contract price, or any other rate or price set out in the contract, is to be adjusted by a specific amount...".

125 In determining the adjudication application, the adjudicator is required to consider the provisions of the construction contract under which the claimed entitlement arises (s 22(2)(b)), presumably to determine "the amount calculated in accordance with the terms of" that contract. In other words, the task requires the adjudicator to identify the contractual provisions relevant to quantification of the amount of a progress payment, to decide (where there is a contest) the proper construction of those provisions, and to apply them to the facts of the particular dispute.

126 Compliance with the requirements of s 22(2) - to consider the specified matters and those matters only - is not a precondition to the existence of authority to make a decision, and non-compliance does not result in invalidity if an adjudicator either considers (only) the matters referred to in s 22(2), or bona fide addresses the requirements of s 22(2) as to what is to be considered: Brodyn Pty Ltd t/as Time Cost and Quality v Davenport & Anor [2004] NSWCA 394, at [56] - [57]; Holmwood Holdings Pty Ltd v Halkat Electrical Contractors Pty Ltd, at [36].

127 Thus, "an error of fact or law, including an error in interpretation of the Act, or of the contract, or as to what are the valid and operative terms of the contract, does not prevent a determination from being an adjudicator's determination within the meaning of the Act. Section 22(2) does require the adjudicator to consider the provisions of the Act and the provisions of the contract; but, so long as the adjudicator does this, or at least bona fide addresses the requirements of s 22(2) as to what is to be considered, an error on these matters does not render the determination invalid": Minister for Commerce (formerly Public Works & Services) v Contrax Plumbing (NSW) Pty Ltd [2005] NSWCA 142, per Hodgson JA, at [49].

128 It has been pointed out that "there is a distinction between the primary function of determining the matters set out in [s 22(1) of the Act] and the obligation to justify that determination in writing, and with reasons, being the obligation imposed by [s 22(3) of the Act]": Cornerstone Danks Street v Parkview Constructions [2014] NSWSC 866, per McDougall J, at [29].

129 The reasons should show that the adjudicator has turned his, or her, mind to the dispute and has addressed the issues raised by the parties in support of, and in opposition to, the Payment Claim. He or she should analyse each of the documents to the best of his, or her, ability for the purposes of identifying the claims made by the plaintiff in its response to the adjudication application.

130 The Act does not state any requirement regarding the length, detail, or elaboration of the reasons. Sackar J, in State Water Corporation v Civil Team Engineering Pty Ltd, wrote, at [10]:

"The strict timeframes imposed by the Act, and the complexity of some of the cases, means adjudicators are often required to make their determinations in an intense, 'pressure cooker environment', and therefore considerable latitude should, in my view, be afforded to an adjudicator as to the manner and form of the determination (Shell Refining (Australia) Pty Ltd v AJ Mayr Engineering Pty Ltd [2006] NSWSC 94 at [25] and [26] per Bergin J, as her Honour then was)."

131 The decision of the adjudicator is subject to the supervisory jurisdiction of the court: Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd. However, the grounds on which an adjudication under the Act can be reviewed are limited. McDougall J summarised these grounds in Timwin Construction Pty Ltd v Façade Innovations Pty Ltd, at [1], where his Honour, referring to Brodyn Pty Ltd t/as Time Cost and Quality v Davenport & Anor, said that judicial review was available in the following circumstances:

"(a) Where an adjudicator fails to comply with the basic and essential requirements prescribed in the Act for there to be a valid determination;

(b) Where the adjudication determination does not amount to an attempt in good faith to exercise the relevant power, having regard to the subject matter of the legislation;

(c) Where a party has been denied natural justice (for which purpose the narrow statutory scheme limits the extent of natural justice required); and

(d) Where the adjudication determination was procured by fraud in which the adjudicator was complicit."

Determination

132 It is clear that Keystone's obligations were "construction work", and that the Contract was a "construction contract", for the purposes of the Act.

133 There is also no dispute that the mechanism provided by the Act, so far as it related to steps to be taken by the Council and by Keystone, was followed.

134 The sole issue is whether, in proceeding the way that he did, the Adjudicator turned his mind, in good faith, to the task entrusted to him by the Act.

135 It seems to me that the Adjudicator did consider all of the relevant documents. In particular, he considered the Contract. He identified it in the "Introduction". It is clear, also, that the Adjudicator considered the Payment Claim and the Council's Payment Schedule. He specifically stated that, in that Payment Schedule, the Council did not challenge the valuation attributed to the claims in the Payment Claim.

136 (The Council, in fact, provided very little by way of reasons for non-payment. Nor did it state any reasons to suggest that the calculations were wrong or that the methodology was wrong. It did not dispute the amounts stated in the Payment Claim in relation to each of the disputed items.)

137 Whilst the Adjudicator read the Response Submissions, he concluded that he was precluded from relying upon them because of s 22(2B) of the Act.

138 The Adjudicator concluded that he was satisfied of the amount claimed in the Payment Claim. He was not required to carry out an independent assessment of the value of the claims that were the subject of the Payment Claim in circumstances where that value was not challenged in the Payment Schedule.

139 In relation to delay damages, Keystone was asserting, not only the entitlement to such damages (which the Adjudicator took into account in his consideration of the construction of the Contract), but also the manner in which the delay damages were to be calculated.

140 There was evidence in Keystone's Payment Claim which established a rate at which the delay damages were to be calculated. On one occasion, the rate had been accepted as $3,700, plus GST, per day. There had been nothing in the Payment Schedule stating that Keystone was not entitled to delay damages or that the rate used to calculate the claim was not the correct rate.

141 The Adjudicator turned his mind to this. Whilst his phraseology may have left a little to be desired, he did engage actively with the dispute, such as it was, that had been tendered for his decision and he dealt with it in a way that was reasoned, and not in a way that was perverse, arbitrary or capricious. For example, once he accepted the Council had not asserted, in the Payment Schedule, that Keystone was not entitled to delay damages, that the Council had not challenged the rate used to calculate the claim as being the correct rate, and concluded that delay damages were payable, the mathematical calculation of the delay damages would have been a relatively simple matter.

142 In my view, the statement that he was "left with no alternative" (where that phrase appears in the Determination) meant no more than that he was satisfied that the calculation of the amount claimed was available on what he had read, and that he accepted it. There was a detailed break-up of the claims, to which the Adjudicator expressly referred, and upon which he relied. There was nothing in the Payment Schedule to the contrary available for him to consider. There was evidence of non-payment of the relevant part of the amount claimed. Bearing in mind the volume of documents provided to him, it would not have been realistic to address in a detailed way every single point raised. The Adjudicator acknowledged that he did not do so.

143 It matters not whether the Adjudicator was right or wrong. He carried out the task entrusted to him in good faith and he gave reasons for his conclusion. I do not accept that the Adjudicator simply allowed the claim in full in default of any duly made submission against it. His reference to s 10(1)(b) suggests that he considered and determined what construction work had been carried out (or what related goods and services had been supplied) and valued that work (or related goods and services).

144 As was written by Palmer J in Brookhollow Pty Ltd v R & R Consultants Pty Ltd, at [62], even though s 22(2) "requires the adjudicator to see that... the process is not abused", "[t]hat does not mean... that the adjudicator must play devil's advocate on behalf of the... respondent". His Honour went on to say that "[t]he adjudicator is not required to test the payment claim and the adjudication application for all possible defects and non-compliances with all or any provisions of the Act and all or any of the terms of the contract".

145 At [65], his Honour also stated that "If a fatal flaw in compliance with the Act or the contract is manifestly apparent... the adjudicator will refuse to make a determination in favour of the claimant. If no fatal flaw appears, the adjudicator is entitled to make a determination in favour of the claimant even if a more penetrating analysis of the claim and the provisions of the Act or the contract would have revealed a flaw upon which the respondent could successfully have relied".

146 In this case, the Adjudicator found no fatal flaw available to the Council upon which it could successfully rely. He expressly stated that "The parties' various entitlements are considered and determined (see: Paragraph 11 of the Adjudication). At Paragraph 193, he specifically stated that he had "considered the parties' entitlements for the various items in the payment claim and payment schedule". At Paragraph 195, he stated that he was "satisfied that the claimant had carried out the work that was claimed in the payment claim which I value pursuant to s 10(1(b) of [the] Act at the amount indicated...".

147 In my view, the Adjudicator considered the matters he was required to consider in s 22(2) and he addressed the requirements of the sub-section. He did not automatically determine the progress claim as the amount claimed by the claimant, or simply award the amount of the claim without any addressing of its merits.

148 The Adjudicator also considered the Response Submissions, but concluded that they were submissions which were not "duly made" and that, therefore, the submissions could not be considered. It was not suggested that he was wrong in coming to this view. Nor was it suggested that his decision, in this regard, was not reasonable or without foundation. It follows that he was right to disregard them, as to do otherwise would have expanded the scope, or ambit, of the matters relied upon by the Council beyond the reasons contained in the Payment Schedule. The determination would not be made void simply because of an erroneous decision if that decision were reasonable and not without foundation.

149 The Adjudicator's reasons, in my view, reveal that he applied himself to the task of coming to the Determination and that he did so with close regard to the provisions of the Act concerned with payment claims, payment schedules and submissions duly made.

150 In all the circumstances, the Determination by the Adjudicator is not void. I am satisfied that the Adjudicator lawfully exercised the functions required for the making of a valid determination under s 22 of the Act. There is no reason, therefore, to restrain Keystone from taking any steps to enforce the Determination or to restrain ATPL from issuing an adjudication certificate pursuant to s 24 of the Act in respect of the Determination.

151 Thus, the Court:

(a) Orders that the Summons be dismissed;

(b) Orders that the Plaintiff pay the costs of the first Defendant; otherwise, makes no order as to costs;

(c) Orders that the Court Books be returned.

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Decision last updated: 17 December 2014