Hanson Construction Materials Pty Ltd v Brolton Group Pty Limited

By a summons filed on 5 November 2019, the plaintiff, Hanson Construction Materials Pty Ltd, seeks a declaration that an adjudication determination dated 29 October 2019 and amended on 31 October 2019 (the Determination) of the second defendant (the Adjudicator) made under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the SOP Act) in favour of the first defendant, Brolton Group Pty Ltd, in the sum of $2,877,052.75 is void, together with ancillary relief.

The proceeding arises out of a contract dated 13 September 2017 by which Brolton agreed to construct for Hanson a quarry processing plant at Bass Point, New South Wales. It is common ground that the contract was terminated by Hanson on 3 October 2018.

Clause 11 of the contract dealt with price and payment. Clause 11.1 set out the amount payable under the contract subject to the proviso that “the amount payable by the Principal [that is, Hanson] does not exceed the GMP [Guaranteed Maximum Price] as adjusted by any additions or deletions made pursuant to the Contract”. The GMP was stated to be $85,000,000 (excluding GST).

Clause 11.4 dealt with interim payments. It relevantly provided:

Clause 11.8 provided:

Clause 12 dealt with termination. It provided for termination for default by the Contractor (cl 12.1.1), default by the Principal (cl 12.1.2) and termination for insolvency (cl 12.1.3). Clause 12.2 also provided for termination for convenience by the Principal.

Clause 12.3 was in the following terms:

On 28 August 2019, Brolton served a payment claim in the amount of $6,300,962.64, which was described as “Progress Claim for September 2018”. The progress claim included a number of previous claims that had been made by Brolton. It also included a number of subcontractor invoices which covered work performed by the relevant subcontractors between the period from 25 September 2018 to 10 October 2018. Lastly, it included a claim for interest under cl 11.8 of the contract in the amount of $272,768.95.

On 10 September 2019, Hanson served a payment schedule specifying the amount Hanson intended to pay as “Nil”. It gave two reasons. First, it said that the amount claimed exceeded the GMP. Second, it claimed that Hanson was entitled to liquidated damages for delay in the amount of $1,625,000.

On 20 September 2019, Brolton lodged an adjudication application with Australian Solutions Centre Pty Ltd.

In submissions made in support of the adjudication application, Brolton accepted that under s 8 of the SOP Act it was entitled to a progress payment on and from each reference date. On the question whether a valid reference date was available to support its payment claim, it said this:

Hanson served its adjudication response on 30 September 2019. In that response, it accepted that 25 September 2018 was an available reference date for the payment claim. However, it made two points. First, consistently with the High Court’s decision in Southern Han Breakfast Point Pty Ltd (In Liq) v Lewence Construction Pty Ltd (2016) 260 CLR 340; [2016] HCA 52 it submitted that no further reference dates could arise under the contract following its termination on 3 October 2018. Second, it pointed out that the payment claim included 79 subcontractors and supplier invoices dated after 25 September 2018 and also included the claim for interest up until 28 August 2019. According to Hanson, it followed that the actual payment claim could not be supported by a reference date of 25 September 2018 because it claimed amounts for work done after that date. It could not be supported by a later reference date because no further reference dates arose under the contract. The result, according to Hanson, was that the Adjudicator did not have jurisdiction to adjudicate the claim.

Hanson relevantly made two other points.

First, Brolton had claimed in its adjudication application that Hanson had been responsible for delays in the supply and delivery of steel material and claimed an extension of time and delay costs resulting from that delay. In response, Hanson submitted that Brolton was not entitled under the contract to an extension of time or delay costs until it made a claim for them under cl 7.3 which relevantly provided:

Hanson pointed out that no written claim was received for an extension of time until 28 September 2018.

Second, in its adjudication response, Hanson asserted that Brolton “has provided no evidence whatsoever of any connection between any delay and any of the costs supposedly incurred. The Claimant has not sought to demonstrate that the costs would not have been incurred otherwise, but for the supposed delay”.

In his determination, the Adjudicator rejected Hanson’s submission that no further reference dates arose following termination of the contract on 3 October 2018. Relying on the decision in Impero Pacific Group Pty Ltd v Bonheur Holdings Pty Ltd [2019] NSWSC 286, the Adjudicator held that a further reference date arose on 23 October 2018. He gave the following reasons:

Having reached that conclusion, the Adjudicator rejected Hanson’s submission that the claim for an extension of time had only been made after the last reference date arising under the contract. He stated his conclusion in these terms:

As to the question of causation, the Adjudicator said this:

The Adjudicator then summarised his conclusions in a table which grouped the various invoices in respect of which the payment claim was made into work types and summarised his decision on whether work of that type was a consequence of the delay. It is not necessary for present purposes to set out the whole table. The following is an example of what the Adjudicator did:

Originally, Brolton had sought to defend the Adjudicator’s determination on two bases. One was that the Adjudicator was entitled to select a reference date of 23 October 2018. The other was that, even if he was not, the determination could be supported by reference to a reference date of 25 September 2018. However, during the course of the hearing Mr Sirtes SC, who appeared for Brolton, properly conceded that no reference date arose on 23 October 2018. The difficulty with the Adjudicator’s conclusion that one did arise on that date is that it was common ground that the contract was terminated on 3 October 2018. It was plain that cl 11.4 of the contract did not survive termination. Consequently, no reference date could arise under it. It was doubtful that a reference date could arise under cl 12.3 because it did not provide for a progress payment. Rather, it provided for an adjustment to the rights and liabilities of the parties following termination which could have involved a payment by either party to the other. In any event, that adjustment could only be made once the cost of completing the project was known and the evidence is that the project has not yet been completed. Consequently, any reference date that might arise under cl 12.3 has not yet arisen.

Despite that concession, Brolton resisted the orders sought by Hanson. Its case had the following steps:

Hanson took issue with each of steps (1), (3) and (4).

In addition Hanson advanced a further argument in support of the declaration it sought based on an alleged failure of the Adjudicator to carry out his statutory task under s 22 of the SOP Act, which required him to engage in “a process of evaluation, sufficient to warrant the description” in respect of the parties’ materials and submissions: see Cockram Construction Ltd v Fulton Hogan Construction Pty Ltd (2018) 97 NSWLR 773; [2018] NSWCA 107 at [41] per Meagher JA (with whom Basten JA and Barrett AJA agreed). That failure arose from the way in which the Adjudicator dealt with Hanson’s argument that none of the costs claimed by Brolton in its payment claim were caused by the delay in the supply of steel.

The answer to this question turns on the correct construction of ss 8 and 13 of the SOP Act. Those sections have since been amended, but as applied to the contract in this case, they were in the following terms:

Hanson submits that the claim for a progress payment that was submitted on 29 August 2019 was not a valid payment claim in respect of the 25 September 2018 reference date because it included invoices for work done after 25 September 2018. It contends that that submission is consistent with the High Court’s judgment in Southern Han. It also pointed to the following passage from the judgment of Parker J in Impero at [18]:

The express statement by Parker J is also said to be implicit in an earlier decision of mine in Patrick Stevedores Operations No 2 Pty Ltd v McConnell Dowell Constructors (Aust) Pty Ltd [2014] NSWSC 1413 at [36] and [39].

For reasons which will become apparent, it is not necessary to decide this issue. However, had it been necessary, I would have concluded that the progress payment served on 29 August 2019 was capable of being supported by a reference date of 25 September 2018.

In my opinion there is nothing in Southern Han which requires that, for a payment claim to be valid, it must only relate to work done before the reference date in respect of which the payment claim was served. Hanson relies on the following paragraphs of the judgment to suggest otherwise:

However, there is nothing in these passages that deal with work that may be made the subject of a payment claim. Rather, the point made by the High Court is that a payment claim can only be made on and from a reference date, and only one payment claim can be made in respect of each reference date.

I accept that Hanson’s contention is supported by the passage quoted from the judgment of Parker J in Impero and is implicit in my judgment in Patrick Stevedores. However, Parker J’s statement was obiter, since his Honour found that the payment claim in question in that case was supported by a reference date. And to the extent that I suggested in Patrick Stevedores that the validity of a payment depended on when the work it covered was performed, on reflection, I do not think that can be right.

There is no requirement in s 13 that the work in respect of which the payment claim is made must be performed before the claim is made. As the High Court held in Southern Han, there is a requirement that the date from which a progress claim may be made (the reference date) has occurred. Where the contract simply specifies that a claim for a progress payment may be made on a particular date each month, without tying that date to the performance of particular work, then, assuming the date has occurred, it is primarily a question for the Adjudicator what work may be made the subject of a progress claim in accordance with the contract by reference to that date. That conclusion is consistent with s 8(2)(a) which expressly contemplates the possibility that the contract might permit the contractor to make a claim not only for work that has been carried out by a date on which the progress claim may be made but also work “undertaken to be carried out (or related goods and services … undertaken to be supplied) under the contract” (emphasis added). None of that is to say that an Adjudicator is entitled to ignore the terms of the contract; and if he or she does so, that may be a ground for relief. Rather, it is simply a recognition that the contract may permit claims for periodic payments to be made in respect of work which has not been performed or completed; and if completion of the work is not itself expressed to be an event by reference to which the first reference date for that work is identified, then, subject to compliance with the requirements of the SOP Act, it is a question for the Adjudicator when the work is properly the subject of a payment claim.

In the present case, cl 11.4 of the contract permitted Brolton to submit a claim for payment on the last Tuesday of each month. It was required to give various information in relation to the amount it claimed. In my view, it was a matter for the Adjudicator to determine whether Brolton had complied with that obligation under the contract and whether, in the light of that information, the amounts claimed were allowable in accordance with the contract at the time they were claimed. That was true of invoices dated after the date of the last reference date, which occurred on 25 September 2018.

As I have said, it was accepted that the Adjudicator was in error when he determined that the payment claim made on 29 August 2019 was supported by a reference date of 23 October 2018. Brolton submits that that was not a reviewable error. If the payment claim was a valid payment claim because it was supported by a reference date, then an application of a different reference date by the Adjudicator was simply an error that was part of his adjudication process that was not reviewable.

Hanson takes issue with that contention on two grounds.

First, relying on the decision of Doyle J in The Trustee for Allway Unit Trust trading as Westside Mechanical Contracting Pty Ltd v R&D Airconditioning Pty Ltd [2018] SASC 46, it submits that it was not open to Brolton to support the determination by reference to a different reference date from the one relied on by the Adjudicator. Second, Hanson submits that the Adjudicator’s decision involved a denial of natural justice. I accept both those submissions.

The facts of Allway were similar to the facts of the present case. The relevant construction contract provided for progress claims to be made on the “23rd day of the month for work done to and including the last day of the month”. The claimant made a payment claim by letter dated 8 December 2017, which included four invoices with dates from 24 September 2017 to 8 December 2017. The letter did not nominate a reference date for the claim. The respondent served a payment schedule dated 19 December 2017 asserting that the 8 December 2017 letter was not a valid payment claim because there was no valid reference date supporting the claim. If it was asserted that the reference date was 8 December 2017 (the date of the last invoice), that was not a valid reference date because the contract had terminated on 31 October 2017. If it was asserted to be 24 [sic] September 2017 or 23 October 2017, then the claim was invalid because it included a claim for work done after those dates.

On 17 January 2018, the claimant made an adjudication application. In that application, it nominated a reference date of 23 December 2017. The Adjudicator accepted that as the relevant reference date (despite the fact that it occurred after service of the payment claim) and dealt with the claim on that basis. During the hearing, the claimant submitted that even if 23 December 2017 was not an available reference date, the payment claim could still be supported by the reference date that arose on 23 October 2017. Doyle J rejected that conclusion. He gave the following reasons for doing so (at [130]):

In my opinion, the conclusion of Doyle J was correct. As the High Court pointed out in Southern Han, a valid payment claim can only be made in respect of a reference date and only one payment claim can be made in respect of each reference date. Consequently, the reference date in respect of which a valid payment claim is made is an essential feature of the payment claim and is part of the characteristics of the payment claim that is subject to adjudication in accordance with the SOP Act. That is so whether the payment claim identifies the relevant reference date or not. If the payment claim does not itself identify the relevant reference date, it will be necessary for that to be determined objectively. That objective determination will depend on a number of factors, including when the reference dates arise under the contract, when the claim is made and the work included in the claim.

In the present case, as the case was ultimately put, the parties agreed that the relevant reference date in the case of the payment claim in question was 25 September 2018. On that basis, what the Adjudicator was asked to adjudicate was a payment claim in respect of that reference date. It was not, therefore open to the Adjudicator to determine the claim as if it were a payment claim by reference to some other date. Conversely, if the parties had left it to the Adjudicator to determine the relevant reference date, it would not have been open to them to justify the determination on the basis that it was a determination of a payment claim by reference to some other reference date.

As to Hanson’s second point, it is well accepted that a determination is void if “there is a substantial denial of the measure of natural justice that the Act requires to be given”: see Watpac Constructions v Austin Corp [2010] NSWSC 168 at [141] per McDougall J, quoting Brodyn Pty Ltd v Davenport (2004) 61 NSWLR 421 at [55] per Hodgson JA. There will be a denial of natural justice where the adjudicator determines a dispute on a basis for which neither party has contended without giving the parties an opportunity to make submissions on the matter: Watpac at [143] quoting Musico v Davenport [2003] NSWSC 977 at [107].

In the present case, neither party contended for a reference date of 23 October 2018. It was Hanson’s submission that the reference date was 25 September 2018 and could not be later because the contract had been terminated. In para [49] of its submissions in support of its adjudication application, Brolton must be understood as submitting that reference dates were available in August and September 2018 because the previous payment claims served in respect of those reference dates were not valid. It was not open in those circumstances for the Adjudicator to choose a reference date of 23 October 2018 without giving the parties an opportunity to make submissions on that choice.

The choice of reference dates had a substantial effect on the outcome of the determination. It provided an answer to Hanson’s submissions that Brolton had made progress claims for work done after 25 September 2018, which were not permitted by the contract. It also provided an answer to Hanson’s submission that any claim for extensions of time and delay costs were only submitted after the reference date (on 28 September 2018). It follows that there was a substantial denial of natural justice.

The parties provided the Court with extensive submissions on whether it had power to grant conditional relief in this case. It is not necessary to review the relevant authorities in detail. I accept Brolton’s submission that the recent trend in the authorities in New South Wales is to the effect that the Court does have power in effect to sever that part of a determination that is within jurisdiction from that part which is not and to grant relief in relation to the latter on condition that the claimant pays the former: see YTO Construction Pty Ltd v Innovative Civil Pty Ltd [2019] NSWCA 110; Rhomberg Rail Australia Pty Ltd v Concrete Evidence Pty Ltd [2019] NSWSC 755; CC Builders (Aust) Pty Ltd v Milestone Civil Pty Ltd [2019] NSWSC 1251.

However, even accepting that the Court has power to sever that part of the determination within jurisdiction from that part that is not, I would not exercise the discretion in this case. The error that the Adjudicator made went to the heart of the payment claim and altered the lens through which that payment claim was assessed. The issue that was before the Adjudicator was what amounts were properly claimable under the contract as at 23 September 2018. Instead, the Adjudicator addressed the question by reference to a reference date of 23 October 2018. As I have explained, that affected his assessment of what work could be claimed. It also affected his assessment of Brolton’s claim that it was entitled to an extension of time and delay costs. It is not readily apparent what effect those matters had on the Adjudicator’s decision. For example, it is not clear how the Adjudicator would have dealt with the fact that a number of invoices related to work done both before and after 23 September 2018. Similarly, it is not clear what effect it would have had on the determination if the claim had to be assessed as things stood before Brolton made a written request for an extension of time, although on the face of it, if Brolton was not entitled to an extension of time, that would have affected its whole claim. It is not for the Court to decide these matters on the merits. But that is what it would have to do in order to “sever” the determination in this case.

Having regard to the conclusions I have reached, Hanson’s alternative ground for relief does not arise. However, if it had, I would have decided it against Hanson. The Adjudicator recognised that there was a causation issue. He was faced with a large number of invoices. Having regard to the time available, it was appropriate for him to seek to deal with those invoices in groups. In adopting that approach, he addressed the question whether the costs incurred were caused by Hanson’s delays. He gave brief reasons for his conclusions. In my opinion, those reasons were adequate. He therefore discharged his duties under s 22.

The orders of the Court are: