06 September 2005
Key Points:
Amounts for payment that a construction contract requires to be paid as part of the total price of construction work are amounts due "for that construction work" and can be claimed under the Building and Construction Security of Payment Act 1999 (NSW).
In Consolidated Construction Co. Pty Limited v JM Hargreaves (NSW) Pty Limited [2005] NSWCA 228, the Court of Appeal rejected a submission that amounts for "delay damages" and "contractual interest", which were permitted to be claimed in progress claims under a construction contract, could not be claimed under the Building and Construction Security of Payment Act 1999 (NSW) because they were not "for construction work".
Background
On 12 June 2003, Coordinated Construction Co Pty Limited ("CC") and JM Hargreaves (NSW) Pty Limited ("JMH") entered into a sub-contract, an amended version of AS 4903-2000, under which JMH agreed to carry out certain design and construction works for CC in connection with the redevelopment of a Sydney hotel.
The sub-contract expressly permitted JHM to claim "delay damages" in progress claims made under the contract and, if payment of those progress claims was not made, to claim interest at the contractual rate of 8 percent.
In its payment claim made under the Act, JMH included amounts for:
CC's contest of the adjudications
In consecutive adjudications under the Act, the amounts for delay damages and/or contractual interest were awarded to JMH by adjudicators.
CC commenced proceedings in the Supreme Court seeking declarations that the adjudication determinations, were void for failing to comply with a basic or essential requirement of the Act. CC's main argument was that it was a basic or essential requirement of the Act that progress payments under that Act could include only amounts "for construction work" in a direct sense. CC relied on the definition of "claimed amount" under the Act, which means "an amount of a progress payment claimed to be due for construction work carried out, or for related goods and services supplied" and section 13(2) of the Act, which requires the "claimed amount" to be indicated in a payment claim made under the Act. CC argued that amounts for delay damages and contractual interest were not amounts "for construction work" and could not be claimed in a payment claim under the Act, nothwithstanding that they could be claimed properly in a progress claim under the construction contract.
At first instance, Justice McDougall held that even if it was not open to the adjudicators to include in their determinations amounts for delay damages and/or contractual interest, the inclusion of those amounts did not amount to a failure of the audjudicator to comply with a basic and essential requirement for, or an essential pre-condition of, a valid determination. Thus, he held that the correctness or otherwise of the adjudication determination was not reviewable. Consolidated Constructions appealed.
The Court of Appeal decision
In dismissing the appeal, Justice Hodgson (with whom Justice Ipp agreed) stated that "in the case of a construction contract that provides that progress payments include certain amounts, section 9(a) strongly suggests that such amounts are to be included in progress payments required by the Act, whether or not they are for construction work or related goods and services." The effect of section 9(a) is that amounts for progress payments under the Act are to be calculated in accordance with the terms of the contract. Thus, "any amount that a construction contract requires to be paid as part of the total price of construction work is generally an amount due for that construction work, even if the contract labels it as `damages` or `interest`." Accordingly, the amounts for delay damages and contractual interest were properly claimed and allowed by the adjudicators and no error of the kind that, according to Brodyn, could invalidate the determinations was shown.
Whether amounts "for construction work" in substance "represent the increased cost or price of construction work actually carried" will at times involve questions of fact and degree. For instance, Justice Hodgson stated that "any amount which is truly payable as damages for breach of contract is generally not an amount due for that construction work." Thus, even if a construction contact permits such a claim to be made under the contract it does not necessarily follow that that amount can be recovered under the Act. Here Justice Hodgson was satisfied that the "delay damages" were not damages for breach of contract per se but "rather are additional amounts which may become du and payable under the contract." Any questions of fact and degree of this nature, according to Justice Hodgson, are for the adjudicator to determine having regard to section 9(a) of the Act, other provision of the Act and the contract.
Leave to re-argue Brodyn refused
Justice Hodgson noted that CC advanced two bases to re-argue the correctness of Brodyn, namely:
Justice Hodgson stated that CC's application to re-argue Brodyn focussed on the first basis. He stated that he was not persuaded that Brodyn was clearly wrong and refused leave to re-argue Brodyn on that basis. In any case, because he found that the claims for delay damages and contractual interest were properly made and allowed there could be no error of law to justify certiorari, even if that relief were available. Justice Hodgson did not address the second basis.
Although Justice Basten agreed that a reconsideration of Brodyn on the first basis was not demonstrated, he nevertheless expressed a view that there "may be room for debate" on the second basis. Brodyn held that an adjudicator's determination would not be invalid if it (a) complied with the basic requirements of the Act; (b) was a bona fide attempt by the adjudicator to exercise the relevant power; and (c) there was no substantial denial of natural justice by the adjudicator in exercising his or her powers under the Act. According to Justice Basten each of these three elements "could require further consideration". For instance, there is yet to be a full debate as to what the basic requirements of the Act are and the requirement that the denial of natural justice is "substantial" before an adjudication is determined void is inconsistent with High Court authority and may require re-evaluation.
If Justice Basten's views are acceded to then, potentially, there is yet more to be said about Brodyn in the Court of Appeal.
For further information, please contact Frank Bannon.
