MTR Corporation (Sydney) NRT Pty Ltd v Thales Australia Ltd

1. [1]

   The plaintiffs, MTR Corporation (Sydney) NRT Pty Ltd and UGL Rail Services Pty Ltd are parties to a construction contract (“the Contract”) with the first defendant, Thales Australia Pty Ltd. The Contract is dated 3 August 2015 and relates to works on the Sydney Northwest Rail Link. In the Contract, the plaintiffs are referred to, together, as “SJV”. I shall do the same.

2. [2]

   The Contract concerns, relevantly, the installation by Thales of “I/O points”. I/O points are electronic components whose function is to integrate third party equipment and systems in the Sydney Metro system.

3. [3]

   On 5 June 2020, an adjudicator under the Building and Construction Industry Security of Payment Act 1999 (NSW) (“the Act”) awarded Thales an amount of $25,246,170.25.

4. [4]

   SJV submits that the determination was affected by a number of jurisdictional errors.

5. [5]

   I do not agree.

6. [6]

   I shall deal with each alleged jurisdictional error in turn.

Ground 1 – the I/O Points modification claim

1. [7]

   Thales claimed $32,249,377.10 for what it described in its Payment Claim as the “I/O Points Modification Claim”.

2. [8]

   SJV contends that, in relation to this claim, the Adjudicator denied it procedural fairness because she decided Thales’s claim on the basis that had not been advanced by either party; Thales in particular.

3. [9]

   The Adjudicator was obliged to afford the parties procedural fairness. [1] Where the denial of procedural fairness is material, it is open to judicial review. [2] Where an adjudicator makes a determination on a basis for which neither party contended, and without giving the parties an opportunity to make submissions on the question, a breach of natural justice arises. [3]

4. [10]

   The Contract provided for a number of ways by which the Contract could be modified.

5. [11]

   The first was an “SJV Initiated Modification” under cl 29.

6. [12]

   The next was a “Significant Contractor [ie Thales] Initiated Modification” under cl 30.

7. [13]

   The third was a modification under cl 57. Clause 57 provided, relevantly, that, if SJV gave Thales a direction, other than under cl 29, and that direction amounted to a “Modification” for the purpose of the Contract, Thales could make a claim thereby arising by giving a particular form of notice.

8. [14]

   The Contract also included a “Central Control System Particular Specification” (“the Specification”). Clause 3.7 of the Specification dealt, in terms, with the “Scope of I/O Points” and Thales’s obligations.

9. [15]

   Subclause 3.7.4.1 dealt with “Allowance for I/O Points changes”. It provided that where SJV’s contractors imposed “revised requirements” in relation to physical and field I/O Points, each of these changes was to be “evaluated” in accordance with Schedule 29 of the Contract. Schedule 29 made detailed provision for the amounts to be paid to Thales in relation to any such changes.

10. [16]

    SJV contends that Thales only put its claim in relation to I/O Points as a claim for a “Modification” under cl 57 of the Contract, and that there was a joinder of issue on the claim so put.

11. [17]

    SJV contends that, nonetheless, the Adjudicator decided the I/O Points question in favour of Thales on another basis; namely, as an adjustment to the Contract Price under cl 3.7 of the Specification.

12. [18]

    In those circumstances, SJV made this submission:

13. [19]

    On behalf of SJV it was submitted that:

    1. (1)

       what the Adjudicator should have done had she rejected the sole basis of Thales’s claim [4] but perceived that another basis might be available [5] , was “simple” and that “she could and should have sought further submissions from the parties”; and

    2. (2)

       had she done so, there were a number of arguments SJV would have wished to put in relation to the cl 3.7 point, such that the adjudicator’s failure was material.

14. [20]

    SJV’s complaint about the Adjudicator is directed in particular to what she said at [25] and [26] of the determination:

15. [21]

    As I have read these paragraphs, the Adjudicator was stating that although Thales had brought alternative claims under cl 57 of the Contract and under cl 3.7 of the Specification, the correct characterisation of its claim was under cl 3.7. Indeed, the Adjudicator then proceeded at [31] to [39] deal with the matter on that basis.

16. [22]

    An analysis of SJV’s claim that, in so doing, the Adjudicator decided the matter favourably to Thales on a basis that was not argued by either party, and by Thales in particular, necessitates consideration of the Payment Claim, the Payment Schedule, the Adjudication Application and the Adjudication Response.

17. [23]

    In the Payment Claim, under the heading “Short form description”, Thales described its claim as “I/O Points Modification Claim”. Thales included in its Payment Claim an invoice it sent SJV on 16 March 2020 which described its claim in the same way.

18. [24]

    However, on the same page as the description at [23], and under the heading “Description of the construction work (or related goods and services)” Thales described its claim as follows:

19. [25]

    The Payment Claim did not, in terms, refer to cl 3.7.4.1 of the Specification. However, I accept the submission put forward on behalf of Thales that Thales’s description of the claim was apt to refer to a claim under cl 3.7.4.1 of the Specification.

20. [26]

    The reference by Thales to its claim being a “Modification” claim may point to the conclusion that its claim was, or included, a claim under one or of the provisions to which I have referred at [10] to [13] above.

21. [27]

    However, the broader description of that claim as being “for additional I/O Points by Thales beyond its contractual obligations” bespoke an alternate claim under the Specification. That was certainly a conclusion open to the Adjudicator; the determination of the parameters of a payment claim being a matter for her. [6]

22. [28]

    In the Payment Schedule, SJV disputed Thales’s entitlement to rely upon a Modification under any of cll 29, 30 or 57 of the Contract.

23. [29]

    SJV referred to cl 3.7.4.1 of the Specification but in the context of its claim that there should be a judgment on the Contract price in its favour of some $1.2 million.

24. [30]

    In the Adjudication Application, under the heading “Claim for Additional Input and Output (I/O Points)” Thales developed detailed arguments by reference to cl 3.7 of the Specification including, at [81]:

25. [31]

    Thales was making clear at this point that it was contending that a basis upon which it was entitled to be remunerated in relation to I/O Points was cl 3.7.4.1 of the Specification. It was certainly open to the Adjudicator to so construe this part of the Adjudication Application.

26. [32]

    SJV placed particular reliance upon later passages in the Adjudication Application including the following passages which appeared at [91] and [92] under the heading “Threshold Matters”:

27. [33]

    SJV relied upon this passage as demonstrating that Thales made its I/O Point Claim only under cl 57.1 of the Contract.

28. [34]

    I do not read this passage in the Adjudication Application that way.

29. [35]

    It appears to me that Thales was here answering a contention advanced by SJV in the Payment Schedule that Thales was not entitled to maintain its I/O Point Claim under the provisions identified at the first of these two paragraphs: ie under cll 26, 29 or 30 of the Contract.

30. [36]

    I do not read these passages as Thales somehow resiling from its earlier stated claim under cl 3.7.1 of the Schedule. It was certainly open to the Adjudicator to so construe the Adjudication Application.

31. [37]

    SJV recognised, in its Adjudication Response, that Thales was making its I/O Points Claim under cl 3.7.4.1 of the Schedule. Thus, at [28.2] SJV stated, in terms:

32. [38]

    In making that submission, SJV made reference in a footnote to the passage in Thales’s Adjudication Application that I have set out at [30].

33. [39]

    Indeed, SJV went on to argue that not only was Thales not entitled to make a claim under cl 3.7.1.1 of the Specification, but that SJV was entitled to a deduction of the Contract Price thereunder.

34. [40]

    Thales was advancing its I/O Points Claim under cl 3.7.1.1, as an alternative to a claim under cl 57 of the Contract.

35. [41]

    The passages from the determination I have set out at [20] above show that the Adjudicator construed Thales’s Adjudication Application as arguing the matter two ways, under cl 3.7 of the Specification and under cl 57 of the Contract.

36. [42]

    In those passages, the Adjudicator was expressing the view that the true basis of Thales’s claim was under the Specification and not under cl 57 of the Contract.

37. [43]

    That may or may not have been correct. Any error here made by the Adjudicator was within jurisdiction.

38. [44]

    But the Adjudicator was not deciding Thales’s case on a basis that it had not advanced. She preferred one basis to the other.

39. [45]

    I see no lack of procedural fairness on the Adjudicator’s behalf.

Ground 2 – Claim that Thales “did not carry out the work”

1. [46]

   SJV contends that the Adjudicator failed to afford it procedural fairness in that she failed to “consider substantial clearly articulated arguments put to her and thereby failed to have regard to the express mandatory considerations referred to in s 22(2) of the Act”.

2. [47]

   Section 22(2) of the Act requires the Adjudicator to “consider” the matters there enumerated, including the payment schedule and all submissions made by respondents in support of the payment schedule. That requires an adjudicator to engage in “an active intellectual process” [7] and “a process of evaluation, sufficient to warrant the description” of the matters being taken into consideration. [8]

3. [48]

   Before the Adjudicator, SJV contended that Thales had not correctly accounted in accordance with cl 3.2 of the Specification for the actual number of I/O Points because, amongst other things, it included certain software I/O Points “which should not have been included because Thales did not carry out the work”.

4. [49]

   SJV expanded on that contention in its Adjudication Response where it stated:

5. [50]

   The Adjudicator commenced considering this argument at [67] of the determination where she said:

6. [51]

   The Adjudicator continued, at [68]:

7. [52]

   SJV submitted:

8. [53]

   However, the passages in the Determination that follow those I have set out show that the Adjudicator did consider the matter.

9. [54]

   Thus she said at [69] to [71]:

10. [55]

    The material that the Adjudicator said in the last sentence I have set out that she had “already considered and dismissed” related to a count of I/O Points that a Mr Ni had conducted on behalf of Thales.

11. [56]

    The Adjudicator had considered that count and said at [44]:

12. [57]

    The Adjudicator then proceeded to discuss SJV’s contention and concluded at [52] that Thales had not miscounted the I/O Points.

13. [58]

    The Adjudicator concluded, at [72]:

14. [59]

    The Adjudicator may not have been correct to come to this conclusion. If she erred, any such error was one made within jurisdiction.

15. [60]

    I am not, however, persuaded that the Adjudicator did not give consideration to the arguments put. The fact that the Adjudicator determined that she could not take account of points made by SJV in its adjudication response that it had not raised in its payment schedule [9] shows that she did. In my opinion, the Adjudicator did “evaluate” SJV’s contentions, in the manner I have set out. Her “evaluation” may not have been correct, but any error in that regard did not deprive her of jurisdiction.

Ground 3 – claims for modifications

1. [61]

   SJV contends that the Adjudicator failed to come to a view or to consider the true merits of Thales’s claims for modifications concerning:

2. [62]

   Between [99] and [196] of the Determination, the Adjudicator dealt with 22 modification claims made by Thales.

3. [63]

   Eleven of those claims were for “Modifications instructed by way of Modification Order” and 11 further claims were said by Thales to arise from a “Direction by SJV other than a Modification Order”.

4. [64]

   The Adjudicator’s analysis of these claims occupies some 16 pages of the 57 page Determination.

5. [65]

   SJV’s contentions relate to just three of these claims two of which, (b) and (c), the Adjudicator dealt with together.

6. [66]

   In relation to items (b) and (c) above, the Adjudicator said at [163]:

7. [67]

   The Adjudicator’s remarks in the last sentence of [163] need to be considered in the light of what she said earlier (at 150]). The Adjudicator there noted that SJV had, in its Payment Schedule, rejected a number of Thales’s claims on the grounds that Thales had not substantiated the claimed amount.

8. [68]

   At [152] she said:

9. [69]

   I do not think it is a fair reading of the Determination to conclude that the Adjudicator failed to come to any view about Thales’s claim concerning these items. Rather, the conclusion I would draw is that the Adjudicator determined, that is formed the view, that as a matter of fact, the quantum of these matters was not in dispute.

10. [70]

    I read the Adjudicator as having concluded, that is formed the view, that the circumstances of these claims were “well known” to SJV, and that if there was something that could be said to contradict them, SJV would have put those matters forward.

11. [71]

    As for the Change of Station Portal Clock issue, the Adjudicator recorded at [166] that the only substantive reason offered by SJV to meet that claim was that it had been the subject of a release of 16 November 2018. The Adjudicator considered the terms of the release and concluded that she was not satisfied that it had effect in relation to the Station Portal Clock.

12. [72]

    The Adjudicator then concluded at [171]:

13. [73]

    The Adjudicator may or may not have been correct in her conclusion concerning the ambit of the 16 November 2018 release.

14. [74]

    But it cannot be concluded, in my opinion, that she did not give proper consideration to the claim.

15. [75]

    The reality and scope of the task before the Adjudicator needs to be considered here. She was faced with an enormous amount of material that she was obliged to consider in the very tight time frames mandated by the Act. SJV called extensive evidence to contradict quantum on many parts of Thales’s claim, including evidence of a quantity surveyor. It deserts reality to isolate the Adjudicator’s consideration of just three of the 22 modification claims made by Thales and assert a lack of consideration by her of those claims without seeing them in the context of the larger task faced by the Adjudicator.

Ground 4

1. [76]

   SJV claimed a deduction or set-off in the order of $800,000 for costs incurred in providing power to the Electronic Ticketing System. This was a matter in respect of which SJV bore the onus.

2. [77]

   SJV contends that the adjudicator “failed to decide whether this set-off had been made out”.

3. [78]

   The Adjudicator dealt with this claim at [239] and [240] as follows:

4. [79]

   SJV focused on the statement made by the Adjudicator at [240] that Thales had evidently, although reasonably, misunderstood SJV’s claim by reason of SJV having failed properly to apprise Thales of it.

5. [80]

   At [239] the Adjudicator concluded that she was not able to take into account SJV’s contentions there recorded. No doubt the adjudicator had in mind s 20(2B) of the Act.

6. [81]

   SJV’s submissions also overlook the last sentence of [240] where the Adjudicator concluded that SJV had “failed to address the timing of the works and the impact, if any, of its release of claims”. Although the Adjudicator did not here state in terms that she considered this failure determinative of SJV’s claim for a deduction or set-off, that appears to me to be implicit in what she said.

7. [82]

   That may, or may not, have been a sufficient basis to reject SJV’s claim.

8. [83]

   But it shows that the Adjudicator did not reject the claim solely on the grounds of some alleged “misunderstanding” by Thales.

Conclusion

1. [84]

   For these reasons, my conclusion is that SJV’s challenge to the determination fails.

2. [85]

   It is therefore unnecessary for me to consider the vexed question, to which I adverted in Diona Pty Ltd v Downer EDI Works Pty Ltd [10] , of whether the Court has discretion to mould relief to allow parts of a determination unaffected by jurisdictional error to survive.

3. [86]

   The parties should bring in short minutes to give effect to these reasons.