SUPREME COURT OF QUEENSLAND CITATION: PARTIES: FILE NO: SC No 6814 of 2011 DIVISION: PROCEEDING: QCLNG Pipeline Pty Ltd v McConnell Dowell Constructors (Aust) Pty Ltd and Consolidated Contracting Company Australia Pty Ltd & Anor [2011] QSC 292 QCLNG PIPELINE PTY LTD ACN 140 760 612 (applicant) v McCONNELL DOWELL CONSTRUCTORS (AUST) PTY LTD ACN 002 929 017 CONSOLIDATED CONTRACTING COMPANY AUSTRALIA PTY LTD ACN 140 609 052 (first respondent) PHILIP DAVENPORT (second respondent) Trial Division Application DELIVERED ON: 5 October 2011 DELIVERED AT: Brisbane HEARING DATES: 31 August 2011; 1 September 2011 JUDGE: ORDERS: Peter Lyons J The Court declares that the adjudication decision of the second respondent delivered on 3 August 2011 is void. The Court orders that: 1. The Registrar of the Supreme Court: (a) shall return to the applicant the bank guarantee filed by the applicant on 9 August 2011 so that it can be presented and surrendered to the Australia and New Zealand Banking Group Ltd for release; (b) shall provide written notice to Australia and New Zealand Banking Group Ltd, at Level 10, 20 Martin Place, Sydney NSW 2000 Australia, that the said bank guarantee is released; and (c) shall provide a copy of the said notice to the solicitors for the applicant. 2. The first respondent pay the applicant's costs of and incidental to the application, to be assessed on the standard basis.
2 CATCHWORDS: CONTRACTS BUILDING, ENGINEERING AND RELATED CONTRACTS REMUNERATION STATUTORY REGULATION OF ENTITLEMENT TO AND RECOVERY OF PROGRESS PAYMENTS ADJUDICATION OF PAYMENT CLAIMS where applicant engaged first respondent to design and construct a gas pipeline in Central Queensland where vegetation clearing and pipeline construction along a right of way (ROW works) was suspended pending statutory approvals where, pursuant to contractual provisions, first respondent issued variation proposal claiming payment for costs occasioned by suspension where applicant then issued suspension notice confirming first respondent was to immediately cease ROW works where first respondent issued second variation proposal, and then an interim consolidated claim where first respondent then issued payment claim where applicant responded with payment schedule where first respondent applied for adjudication under Building and Construction Industry Payments Act 2004 (Qld) where second respondent determined first respondent was entitled to payment from applicant under the Act where applicant seeks to have decision of second respondent set aside, or declared void whether payment claim classified as a claim relating to construction work or to related goods and services whether payment claim made by first respondent is invalid by reason of non-compliance with the Act ADMINISTRATIVE LAW JUDICIAL REVIEW GROUNDS OF REVIEW FAILURE TO OBSERVE STATUTORY PROCEDURE where applicant made submissions regarding compliance of first respondent with contract whether decision of second respondent is of no effect due to failure to carry out his duty to consider matters, including submissions, under s 26(2) of the Act ADMINISTRATIVE LAW JUDICIAL REVIEW GROUNDS OF REVIEW PROCEDURAL FAIRNESS HEARING NATURE OF HEARING OPPORTUNITY TO PRESENT CASE where second respondent made findings which applicant had no opportunity to address whether decision of second respondent is of no effect due to denial of natural justice where second respondent not provided with copy of second variation proposal whether material to decision of second respondent ADMINISTRATIVE LAW JUDICIAL REVIEW GROUNDS OF REVIEW UNREASONABLENESS whether decision of second respondent void on ground of unreasonableness Building and Construction Industry Payments Act 2004 (Qld), s 10, s 11, s 17(2)(a), s 26(2)
3 Brodyn Pty Ltd v Davenport (2004) 61 NSWLR 421, considered Halkat Electrical Contractors Pty Ltd v Holmwood Holdings Pty Ltd [2007] NSWCA 32, considered Laing O Rourke Australia Construction Pty Ltd v H&M Engineering and Construction Pty Ltd [2010] NSWSC 818, cited Neumann Contractors P/L v Peet Beachton Syndicate Limited [2009] QSC 376, cited Northbuild Construction Pty Ltd v Central Interior Linings Pty Ltd [2011] QCA 22, considered Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355, cited Protectavale Pty Ltd v K2K Pty Ltd [2008] FCA 1248, considered T & M Buckley P/L v 57 Moss Road P/L [2010] QCA 381, applied Trysams Pty Ltd v Club Constructions (NSW) Pty Ltd [2007] NSWSC 941, considered COUNSEL: SOLICITORS: P O Shea SC, with T Sullivan SC and M Drysdale for the applicant J Bond SC, with J Gleeson SC and N Pane for the first respondent No appearance for the second respondent Corrs Chambers Westgarth for the applicant Norton Rose Australia for the first respondent No appearance for the second respondent [1] PETER LYONS J: On 3 August 2011, the second respondent determined, under the Building and Construction Industry Payments Act 2004 (Qld) (BCIP Act), that the first respondent (MCJV) was entitled to a payment from the applicant (QCLNG) which included the sum of $73,089,718 (disputed amount). [2] QCLNG now seeks to have the adjudication decision set aside, or declared void. It alleges that MCJV s payment claim was invalid in the sense that it did not sufficiently comply with the requirements of s 17(2) of the BCIP Act, to invoke the provisions of that Act which would result in an effective adjudication decision. It also alleges that the adjudication decision is of no effect, there being a denial of natural justice, or a failure by the second respondent sufficiently to carry out his duties under the BCIP Act, when purporting to perform the functions of an adjudicator under the Act. General background [3] By a contract dated 23 August 2010, QCLNG engaged MCJV to design and construct a gas pipeline in central Queensland. The contract sum exceeded $735 million. [4] Part of the work involved vegetation clearing and pipeline construction along a right of way (the vegetation clearing is referred to as the ROW Works). The contract
4 provided for the issue of a Full Notice to Proceed, as a trigger for the commencement of much of the work. A condition of the contract provided for the obtaining of certain authorisations required by legislation, or necessary for the commencement of works. The Full Notice to Proceed could not issue unless this condition was satisfied or waived. [5] It would appear that the Full Notice to Proceed issued on 18 February 2011, QCLNG waiving the condition just mentioned on the same day; with the ROW Works to commence on 23 February 2011. However, it then emerged that there was still some difficulty about environmental authorisations. MCJV alleges that this prevented the commencement of works, notwithstanding that MCJV had mobilised a crew, and arranged for the provision of machinery, to carry out the works. [6] On 21 March 2011, MCJV issued a document to QCLNG (VP48), intended to take effect as a variation proposal under the contract, under cover of a letter of the same date. The letter referred to earlier letters from MCJV, of 8 March 2011 (L0663) and 18 March 2011 (L0693), asserting that the ROW Works could not commence, because approvals had not been obtained from the relevant Environmental Authorities. VP48, in effect, claimed the sum of $365,698.88 as costs incurred by reason of the mobilisation of a crew to commence the ROW Works, when the work could not be commenced. Attached to VP48 were spreadsheets, giving details of the staff and machinery, together with hours and rates, relied upon to establish the quantum claimed. [7] On the same day, QCLNG issued a document intended to take effect as a suspension notice under cl 55.1 of the contract. The suspension notice referred to instructions on 17, 18 and 19 March 2011 that MCJV not undertake the ROW Works. The suspension notice then confirmed that MCJV was required immediately to cease the ROW Works, but otherwise required it to proceed with work under the contract. The suspension notice also suggested that MCJV may have been in breach of the contract in relation to obtaining environmental authorisations. [8] Under cover of a letter dated 28 March 2011 (L0736), MCJV issued a further variation proposal (VP53). VP53 was based on the suspension notice. The covering letter also claimed an extension of time (under cl 28.1 of the contract). Unlike what had happened with VP48, no calculations were attached to VP53, that document stating that the cost calculations were [t]o be advised. The covering letter requested an extension of time to submit the estimate associated with VP53, in accordance with cl 32.4(a). [9] By letter dated 5 April 2001 (L0768), MCJV provided detailed supporting records that are currently available relating to the effect of the suspension of works, and made a further request for an extension of time to submit the estimate of loss associated with VP53. By a letter dated 18 April 2011 (L0795), MCJV provided additional supporting information relating to VP53. Yet further supporting information was provided under a cover of a letter of 27 April 2011 (L0811). This letter also sought an extension of the time for compliance with cl 32.4(a). [10] MCJV sent a letter dated 30 May 2011 (L0886) to QCLNG, enclosing an Interim Consolidated Claim (ICC). The ICC consolidated the claims made in VP48 and VP53, sought the extension of contractual dates, and claimed compensation in
5 respect of labour, plant and equipment which had been stood down, and in respect of a number of other matters. The ICC made claims not only for relief provided for in the contract, but also for damages for its breach. [11] It would appear that QCLNG sought further particulars of the matters raised in the ICC. By a letter dated 10 June 2011 (L0921), MCJV provided some response to this request. A further letter of the same date from MCJV (L0923) advised that documents were available for inspection, and that certain costs claimed were actual costs incurred by it. By a letter dated 16 June 2011 (L0936) (in response to a letter from QCLNG of the same date), MCJV confirmed that documents in support of the ICC had been provided to QCLNG, including some 23 lever arch files. [12] Under cover of a letter dated 20 June 2011 (L0953), MCJV sent to QCLNG a document intended to be a payment claim under the BCIP Act for May 2011 (payment claim). Enclosed with the letter was a spreadsheet of six pages providing information relating to the calculation of the amounts claimed. A section on page 6 entitled Unapproved Variations provided calculations of the disputed amount. The payment claim referred to and incorporated L0886, L0921, L0923 and L0936. A note at the bottom of page 6 identified the document as a payment claim under the BCIP Act. A similar statement was made in the covering letter. [13] QCLNG responded by a document dated 4 July 2011 (payment schedule). By a document dated 15 July 2011, MCJV applied for adjudication under the BCIP Act of the payment claim (adjudication application). QCLNG provided a document in response (adjudication response). 1 [14] The dispute was referred to the second respondent, who provided his decision on 1 August 2011 (adjudication decision). That decision is the subject of present proceedings. [15] Before turning to the contentions of the parties, it is convenient to note some provisions of the contract, and some provisions of the BCIP Act. Contractual provisions [16] Clause 1.4 of the contract included definitions. One was as follows: Variation means any addition, deletion or change in the Works or the timing and sequence of the Works or other matters as described in clauses 15 (Verification of the Company Provided Information), 21.10 (the Company Provided Items) and 32.2(a)(i) to 32.2(a)(v) (Right of the Company to issue a Variation Order) (inclusive). [17] Clause 32 of the contract dealt with variations. It included the following: 32.1 Variations Generally (a) The Company has the right to instruct a Variation and the Contractor has the right to request a Variation. 1 The copy of the adjudication response provided in the trial bundle is undated; however, the date of the adjudication response is noted in the decision of the adjudicator as 22 July 2011.
6 (b) (c) (d) Prior to instructing or authorising any Variation, the Company may require the Contractor to submit estimates as described in clause 32.4(a). The Contract Price, the Milestone Dates, the Completion Date and/or the Execution Plan shall be subject to adjustment for a Variation only as a result of a Variation Order. Such adjustment shall be calculated in accordance with the principles set out in clause 32.5(c). The Contractor shall not be entitled to receive a Variation to cover any instruction, decision or act of the Company which may be made or given in order to ensure that the Contractor complies with any of its obligations under the Contract. 32.2 Right of the Company to issue a Variation Order (a) The Company has the right to issue a Variation Order to the Contractor at any time prior to the Date of Taking Over to do any of the following: (i) make any revision to the Works which may include additions, omissions, substitutions and changes in quality, form, character, kind, position, dimension, level or line and changes in any method of construction; (ii) revise elements of the Works already completed in accordance with the Contract; (iii) omit any portion of the Works or engage a third party to carry out such omitted Works. For the avoidance of doubt, the Contractor shall not be entitled to any loss of profit, opportunity or any other similar type of loss or Consequential Loss as a result of such portion of the Works being omitted; (iv) after commencement of the Works, accelerate the Works or any part thereof within limits of practicality for Contractor in order to recover all or part of any delay in respect of which Contractor would otherwise have been entitled to an extension of time in accordance with Clause 28 (Extensions of Time, Acceleration and Recovery); and (v) any other matter where the Contract provides for a Variation; (vi) at it's sole direction, request Contractor to provide additional plant, equipment and services from Third Parties as a Variation which shall be reimbursed at actual third party invoiced cost after deduction of all discounts, plus the percentage stated in Attachment 5 to Exhibit B (Compensation) to cover all handling, overheads and profit. Such miscellaneous prices shall not be applicable to any items for which Rates and Prices (other than those in Attachment 5 to Exhibit B (Compensation) are provided for in Exhibit B (Compensation); and
7 (b) (c) (vii) any other matter where the Contract provides for a Variation. No Variation shall in any way vitiate or invalidate the Contract. When required by the Company on receipt of any Variation Order, the Contractor shall proceed immediately as instructed even though the amount of any adjustment to the Contract Price, the Milestone Dates, the Completion Date and/or the Execution Plan may not have been determined. 32.3 The Contractor's Request for a Variation (a) If the Contractor considers that an occurrence has taken place which constitutes a Variation, the Contractor, before proceeding with any work affected by such occurrence, shall request in writing that the Company issue a Variation. Any such request must be made within forty eight (48) hours of the beginning of the occurrence and shall be in accordance with Paragraph 3.2 (Contractor Requested Variation) of Exhibit E (Administrative Procedures). (b) Any such request shall be in the form of a Variation Proposal and shall include details of the occurrence including any relevant dates and the clause or clauses of this Contract under which the Contractor considers itself to be entitled to a Variation. (c) If the Contractor fails to submit requests for Variation in accordance with clause 32.3(a) and fails to provide supporting estimates in accordance with clause 32.4(a), the Contractor shall waive all claims which it might otherwise have had to claim a Variation and any rights concerning adjustment to the Contract Price, the Milestone Dates and the Completion Date. (d) The Company shall within a reasonable time of having received a request for a Variation and the supporting estimates give notice to the Contractor stating that: (i) the proposed Variation or part thereof is accepted in principle in which case the Company will issue such Variation; and/or (ii) what is requested or part thereof is already included in the obligations undertaken by the Contractor under the terms of this Contract and that the request is accordingly rejected; and/or (iii) the request or part thereof is rejected for other stated reasons. Should the Contractor wish to pursue any request for a Variation, or part thereof, which has been rejected by the Company, it shall proceed in accordance with the provisions of clause 32.6. 32.4 The Contractor's Estimates (a) Within seven (7) Days of: (i) the Contractor having been requested by the Company in accordance with clause 32.2(a); or
8 (b) (ii) the Contractor having requested a Variation in accordance with clause 32.3(a), or such longer time as the Company shall agree where reasonable for any specific Variation, the Contractor shall submit to the Company fully detailed estimates prepared on a basis as directed by the Company and in accordance with paragraph 3.2 of Exhibit E (Administrative Procedures). The estimates referred to in clause 32.4(a) shall include: (i) a description of the Works to be varied under the Variation; (ii) a detailed execution plan for the execution of the Variation showing the resources to be employed; (iii) (iv) the effect on the Contract Price (if any); the effect on the Execution Plan (if any); including details of the modifications to the Milestone Dates and/or the Completion Date, together with such supporting documents in such detail as the Company may reasonably require for the purpose of verifying the Contractor's written estimates. [18] Some other contractual provisions may be noted briefly. Clause 28 provided for extensions of time, but expressly stated that an adjustment to the Completion Date did not, of itself, entitle MCJV to an increase in the contract price. Clause 55 made provision for QCLNG to give a notice suspending the works. [19] Exhibit E to the contract identified administrative procedures. Clause 3.2 of Exhibit E required MCJV, within 48 hours of an occurrence which it considered entitled it to a variation, to give notice of its intention to raise a Variation Proposal. Attachment A1 to Exhibit E was the standard form to be used for a Variation Proposal. It included an entry for the total cost of the Variation; and provided for the attachment of a cost calculation sheet. Statutory provisions [20] The object of the BCIP Act, and the means of achieving that object, are set out in section 7 and section 8 respectively, as follow: 7 Object of Act The object of this Act is to ensure that a person is entitled to receive, and is able to recover, progress payments if the person (a) undertakes to carry out construction work under a construction contract; or (b) undertakes to supply related goods and services under a construction contract. 8 How object is to be achieved The object is to be achieved by (a) granting an entitlement to progress payments whether or not the relevant contract makes provision for progress payments; and (b) establishing a procedure that involves
9 (i) the making of a payment claim by the person claiming payment; and (ii) the provision of a payment schedule by the person by whom the payment is payable; and (iii) the referral of a disputed claim, or a claim that is not paid, to an adjudicator for decision; and (iv) the payment of the progress payment decided by the adjudicator. [21] Section 10 of the BCIP Act contains a definition of construction work. The relevant part of the definition is as follows: 10 Meaning of construction work (1) Construction work means any of the following work (a) the construction, alteration, repair, restoration, maintenance, extension, demolition or dismantling of buildings or structures, whether permanent or not, forming, or to form, part of land; (b) the construction, alteration, repair, restoration, maintenance, extension, demolition or dismantling of any works forming, or to form, part of land, including walls, roadworks, powerlines, telecommunication apparatus, aircraft runways, docks and harbours, railways, inland waterways, pipelines, reservoirs, water mains, wells, sewers, industrial plant and installations for land drainage or coast protection; (c) the installation in any building, structure or works of fittings forming, or to form, part of land, including heating, lighting, airconditioning, ventilation, power supply, drainage, sanitation, water supply, fire protection, security and communications systems; (d) the external or internal cleaning of buildings, structures and works, so far as it is carried out in the course of their construction, alteration, repair, restoration, maintenance or extension; (e) any operation that forms an integral part of, or is preparatory to or is for completing, work of the kind referred to in paragraph (a), (b) or (c), including (i) site clearance, earthmoving, excavation, tunnelling and boring; and (ii) the laying of foundations; and (iii) the erection, maintenance or dismantling of scaffolding; and (iv) the prefabrication of components to form part of any building, structure or works, whether carried out onsite or off-site; and (v) site restoration, landscaping and the provision of roadways and other access works; [22] Section 11 defines the expression related goods and services. Relevantly, it provides:
10 11 Meaning of related goods and services (1) Related goods and services, in relation to construction work, means any of the following (a) goods of the following kind (i) materials and components to form part of any building, structure or work arising from construction work; (ii) plant or materials (whether supplied by sale, hire or otherwise) for use in connection with the carrying out of construction work; (b) services of the following kind (i) the provision of labour to carry out construction work; (ii) architectural, design, surveying or quantity surveying services relating to construction work; (iii) building, engineering, interior or exterior decoration or landscape advisory services relating to construction work; (iv) soil testing services relating to construction work; (c) goods and services, in relation to construction work, of a kind prescribed under a regulation for this subsection. [23] A statutory right to the progress payment is established by s 12, as follows: 12 Rights to progress payments From each reference date under a construction contract, a person is entitled to a progress payment if the person has undertaken to carry out construction work, or supply related goods and services, under the contract. [24] Section 17(1) provides that a person entitled to a progress payment may serve a payment claim on the person liable to make the progress payment. Section 17(2) then provides: 17 Payment claims (2) A payment claim (a) must identify the construction work or related goods and services to which the progress payment relates; and (b) must state the amount of the progress payment that the claimant claims to be payable (the claimed amount); and (c) must state that it is made under this Act. [25] The Act then makes provision for the delivery of a payment schedule (in s 18) and an application for adjudication (in s 21). Section 24 provides for the making of an adjudication response by the respondent to the payment claim. [26] Adjudication procedures are dealt with in s 25. Subsections (1) and (2) are not relevant to the present case. Section 25 then continues: 25 Adjudication procedures
11 (3) Subject to subsections (1) and (2), an adjudicator must decide an adjudication application as quickly as possible and, in any case (a) within 10 business days after the earlier of (i) the date on which the adjudicator receives the adjudication response; or (ii) the date on which the adjudicator should have received the adjudication response; or (b) within the further time the claimant and the respondent may agree, whether before or after the end of the 10 business days. (4) For a proceeding conducted to decide an adjudication application, an adjudicator (c) may ask for further written submissions from either party and must give the other party an opportunity to comment on the submissions; and (d) may set deadlines for further submissions and comments by the parties; and (e) (f) may call a conference of the parties; and may carry out an inspection of any matter to which the claim relates. [27] An adjudicator s decision-making power is regulated by s 26, in the following terms: 26 Adjudicator s decision (1) An adjudicator is to decide (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 amount became or becomes payable; and (c) the rate of interest payable on any amount. (2) In deciding an adjudication application, the adjudicator is to consider the following matters only (a) the provisions of this Act and, to the extent they are relevant, the provisions of the Queensland Building Services Authority Act 1991, part 4A; (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 properly 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 properly 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.
12 (3) The adjudicator s decision must (a) be in writing; and (b) include the reasons for the decision, unless the claimant and the respondent have both asked the adjudicator not to include the reasons in the decision. The adjudication decision [28] In correspondence shortly after the adjudication response, there was debate about the provision of further submissions to the second respondent. The position ultimately reached on behalf of MCJV was that it would provide further submissions if requested by the second respondent. None were requested. [29] Both parties were prepared to grant the second respondent more time to determine the claim. On 26 July 2011, the Adjudication Co-ordinator advised that at the moment the second respondent did not know whether an extension of time would be required. In the event, the adjudication decision was delivered within the time specified in the BCIP Act. [30] Jurisdictional issues were raised in the material before the second respondent. Although he recognised that he could not make a decision binding on the parties in respect of those issues, he considered it necessary to satisfy himself that he had jurisdiction. He did so. [31] Section 6 of the adjudication decision dealt with the question whether cl 55 of the contract determined the amount claimable by MCJV. The adjudicator decided that it did not, that being the subject of provisions of cl 32. [32] Section 7 dealt with the cause of the interruption to the work. The adjudicator determined that the reason that MCJV could not proceed with the work was that QCLNG had not obtained a necessary approval or approvals under the Environment Protection and Biodiversity Conservation Act 1999 (Cth). That finding is not in issue in these proceedings. In section 8 of the adjudication decision, the adjudicator determined that cl 10.2 of the contract, relating to non-compliance by MCJV with environmental and other legislation, was not relevant. [33] Clause 11 of the contract deals with extensions of time. In sections 9 and 10 of the adjudication decision, the second respondent determined that this clause did not affect the outcome of the adjudication proceedings. [34] The adjudication decision, in section 11, dealt with cl 32.3(a) of the contract. This part of the determination is contentious, and will require further consideration. [35] Section 12 of the adjudication decision dealt with cl 32.4, including time limits provided in the clause. Again, this part of the decision is contentious, and will require later consideration. [36] The adjudication decision dealt with cl 32.3(c) in section 13. The clause provides that in certain circumstances, MCJV is taken to have waived claims to a variation. The adjudicator determined that MCJV had not waived its claim.
13 [37] The balance of the decision deals with issues of quantum, the due date for payment, and interest. It is not necessary to refer to these matters further. The adjudicator determined that the sum of $86,832,133 million (exclusive of GST, but including the disputed amount) was payable, and was due for payment on 11 July 2011. The decision makes provision for the payment of interest. Contentions of the parties [38] QCLNG submitted that the payment claim did not satisfy the requirements of s 17(2)(a) of the BCIP Act, the satisfaction of those requirements being a precondition to the procedures and the creation of rights for which the Act subsequently makes provision. In that sense, it was submitted that the disputed claim was invalid. Reliance was placed on a passage from Protectavale Pty Ltd v K2K Pty Ltd (Protectavale) 2 stating that a payment claim must be sufficiently detailed to enable the principal to understand the basis of the claim. The passage continues, [i]f a reasonable principal is unable to ascertain with sufficient certainty the work to which the claim relates, he will not be able to provide a meaningful payment schedule. It was submitted that the payment claim did not provide that level of certainty, as it did not enable QCLNG to understand the work to which the claim relates, or to ascribe a value to it. Reliance was also placed on what was suggested to be a similar approach taken in Neumann Contractors P/L v Peet Beachton Syndicate Limited (Neumann Contractors). 3 [39] It was contended on behalf of QCLNG that, in the adjudication proceedings, it had argued that MCJV was not entitled to the benefit of cl 32 because it had failed to submit a request for a variation within the time specified in cl 32.3(a); and that, in dealing with its argument, the second respondent made findings of which QCLNG had no notice, and which it had no opportunity to address; and that it would have done so, had it been given that opportunity. One of those findings was that the variation was a continuing occurrence. It was submitted that these findings were of sufficient significance to have the consequence that the adjudication decision should be set aside by reason of a substantial denial of natural justice, a form of jurisdictional error. 4 [40] The submissions made on behalf of QCLNG referred to earlier decisions relating to the obligations of an adjudicator in exercising his power to determine an adjudication application under the BCIP Act. Some of those authorities refer to an obligation to act in good faith, or not to act in bad faith. 5 However, it was submitted that the proper approach is to consider whether there has been jurisdictional error because of a failure to perform the function required of the adjudicator by the BCIP Act, which includes the duty to consider only the matters set out in s 26(2) of that Act. The submission relied on James Trowse Constructions Pty Ltd v ASAP 2 3 4 5 [2008] FCA 1248 at [12]. [2009] QSC 376. For the proposition that an adjudication decision might be set aside by reason of a substantial denial of natural justice, reliance was placed on John Holland Pty Ltd v TAC Pacific Pty Ltd [2010] 1 Qd R 302 at [18]; James Trowse Constructions Pty Ltd v ASAP Plasterers Pty Ltd & Ors [2011] QSC 145 at [45] and [50]; see also John Holland at [40]-[41]; and Walton Construction (Qld) Pty Ltd v Corrosion Control Technology Pty Ltd [2011] QSC 67 at [58]-[60]. See, for example, Queensland Bulk Water Supply Authority v McDonald Keen Group Pty Ltd (in liq) [2009] QSC 165 at [32]-[33]; and on appeal [2010] 2 Qd R 322 at [40]-[51]; James Trowse Constructions Pty Ltd v ASAP Plasterers Pty Ltd [2011] QSC 145 at [16]-[36].
14 Plasterers Pty Ltd 6 and Northbuild Construction Pty Ltd v Central Interior Linings Pty Ltd (Northbuild). 7 In determining whether an adjudicator has carried out his or her obligation to consider a matter, reference was made to the discussion of authorities in Laing O Rourke Australia Construction Pty Ltd v H&M Engineering and Construction Pty Ltd (Laing O Rourke) 8 where McDougall J concluded that the obligation found in the NSW equivalent to s 26(2) should be read as requiring an active process of intellectual engagement. [41] It was submitted that a finding recorded in the adjudication decision that cl 32.3(a) did not apply to MCJV s variation request meant that there was no variation request of the kind for which the contract provides, so that MCJV had no contractual entitlement under cl 32 for the payment it claimed in respect of the variation. This was said to demonstrate a failure to make a genuine attempt to understand and apply the contract, and to consider the submissions made by the parties. Alternatively, it was submitted that the adjudicator s finding that cl 32.3(a) did not apply to VP53 had the consequence that the adjudicator found for MCJV on a contractual basis which had not been raised in the adjudication proceedings, and accordingly there had been a substantial denial of natural justice. [42] It was also submitted that the manner in which the adjudication decision dealt with the provisions of cl 32.4 of the contract (specifying the time within which detailed estimates were to be provided) demonstrated that the adjudicator had paid no regard to QCLNG s adjudication response on this issue. [43] It was further submitted that the adjudicator s treatment of the effect of cl 55 demonstrated that the adjudicator had failed to consider QCLNG s submissions in respect to this clause. [44] In addition, it was submitted that the second respondent s decision was so unreasonable that no reasonable person in his position could have made it. [45] For MCJV it was submitted that the payment claim complied with s 17(2)(a) of the BCIP Act. Reliance was placed on the approach taken in T & M Buckley P/L v 57 Moss Road P/L (T & M Buckley). 9 [46] With respect to the adjudicator s findings relating to cl 32.3 of the contract, it was submitted that there was no substantial denial of natural justice, the findings being based on material before the adjudicator, and QCLNG having had sufficient opportunity to deal with the issues. In this context, reliance was placed on Habib v Director-General of Security, 10 and on Lidono Pty Ltd v Commissioner of Taxation. 11 It was also submitted that there was no substantial denial of natural justice, because the findings relied upon in QCLNG s submissions did not relate to a critical issue or factor in the adjudication decision in respect of cl 32.3(a). [47] MCJV also submitted that it had expressly raised the proposition that the occurrence relevant to the identification of the variation was a continuing occurrence; and 6 7 8 9 10 11 [2011] QSC 145. [2011] QCA 22 at [96]. [2010] NSWSC 818 at [34]-[39]. [2010] QCA 381 at [34]-[38]. (2009) 255 ALR 209 at [64]. (2002) 191 ALR 328 at [18]-[20].
15 accordingly QCLNG had had the opportunity to make submissions in relation to the adjudicator s finding that the variation was a continuing occurrence. [48] It was submitted that, when the adjudication decision is properly understood, the adjudicator found that the time bar in cl 32.3(a) did not apply; and that his statement that cl 32.3(a) was not relevant should be understood in that sense. It was also submitted that the second respondent had considered and rejected each of QCLNG s submissions relating to this clause. Accordingly, it was submitted that QCLNG s contention that the adjudicator had failed to make a genuine attempt to decide the claim in accordance with the BCIP Act, should be rejected. Moreover, it was submitted that this analysis demonstrated that QCLNG was wrong in contending that the adjudicator held that MCJV was entitled to succeed on a basis other than cl 32.3(a). [49] MCJV also took issue with QCLNG s contention that the adjudicator had failed to consider its submissions about the time limit found in cl 32.4 of the contract, for the provision of estimates of the effect of a variation, including the effect on the contract price. MCJV s submissions referred to correspondence subsequent to VP53 in which MCJV had provided supporting information for the claim. It also referred to its letters requesting an extension of time for complying with cl 32.4, and the absence of a refusal by QCLNG of those requests. It was in those circumstances, so it was submitted, that the adjudicator found that QCLNG had failed to identify non-compliance with cl 32.4; and the finding did not mean that the adjudicator had failed to consider the submissions made by QCLNG on this clause. In any event, it was submitted, relying on John Holland Pty Limited v Roads & Traffic Authority of New South Wales & Ors (John Holland v RTA) 12 that a failure to consider a single submission does not have the consequence that the decision is invalid. It was also submitted that the claim would fail only if there was a failure to comply with time bars both in cl 32.3(a) and cl 32.4(a), with the consequence that the failure to consider this matter would not be a material omission. [50] It was also submitted that the second respondent had considered QCLNG s contentions in respect of cl 55, and had rejected them; so that he had not failed to perform the function which he was required to perform by the BCIP Act. [51] It was further submitted that it had not been demonstrated that the second respondent s decision was so unreasonable that no reasonable person in his position could have made it. [52] At a relatively late stage in the hearing, it became apparent that the parties had not provided the second respondent with VP53, although he had been provided with the covering letter, L0795. That resulted in the parties providing further written submissions, after the hearing. These submissions are summarised later in these reasons. Payment claim and the requirements of s 17(2)(a) of the BCIP Act [53] In my view, the claim for the disputed amount is to be classified, for the purposes of the contract, as a claim for an adjustment to the contract price. The adjustment was 12 [2007] NSWCA 19 at [54]-[55].
16 occasioned by the need to hold staff and machinery ready to perform work under the contract for a period when they could not be deployed to do that work. [54] It is debatable whether a claim of this nature is a claim which relates to construction work, or a claim which relates to related goods and services, for the purposes of s 17(2)(a). There has been no suggestion that the contract is not a construction contract, as that expression is used in the BCIP Act. The contract may be better characterised, by reference to the definition of the expression construction contract, as a contract under which one party undertakes to carry out construction work for another party; rather than a contract to supply related goods and services. That analysis would suggest that s 17(2)(a) required the payment claim to identify the construction work to which the claimed progress payment relates, being the ROW Works, notwithstanding that, in respect of the disputed claim, no work was able to be carried out. The alternative view is that the contract included an obligation (either express or implied) to supply related goods and services; and that the payment claim is for a progress payment relating to the supply of such goods and services. [55] Neither party contended that it was necessary to determine the proper characterisation of the contract or the claim, in order to determine whether the payment claim satisfied the requirements of s 17(2)(a). However, it may be easier to satisfy the requirements of s 17(2)(a) in the present case, if it is said that the disputed claim is for a payment which relates to construction work, than if it is for a payment which relates to the provision of related goods and services. [56] In Protectavale, 13 Finkelstein J referred to authorities which, in relation to the requirements of s 17(2)(a) of the BCIP Act and corresponding provisions in other States, note the emphasis in the legislation on speed and informality. Citing Hawkins Construction (Aust) Pty Ltd v Mac s Industrial Pipework Pty Ltd [2002] NSWCA 136 at [20], his Honour stated that the requirements of the section should not be approached in an unduly technical manner. His Honour continued: Nonetheless a payment claim must be sufficiently detailed to enable the principal to understand the basis of the claim. If a reasonable principal is unable to ascertain with sufficient certainty the work to which the claim relates, he will not be able to provide a meaningful payment schedule. That is to say, a payment claim must put the principal in a position where he is able to decide whether to accept or reject the claim and, if the principal opts for the latter, to respond appropriately in a payment schedule [57] His Honour s approach was adopted by White J (as her Honour then was) in Neumann Contractors. 14 [58] The requirements of s 17(2)(a) of the BCIP Act have been considered recently in T & M Buckley. 15 The leading judgment was given by Philippides J, with whom Fraser and White JJA agreed. Philippides J referred to submissions made in reliance on Protectavale and Neumann Contractors. 16 Her Honour, however, 13 14 15 16 [2008] FCA 1248 at [11]-[12]. [2009] QSC 376 at [28]-[29]. [2010] QCA 381. Ibid at [12].
17 endorsed the approach taken in Nepean Engineering Pty Ltd v Total Process Services Pty Ltd (in liq) 17 and Coordinated Construction Co Pty Ltd v Climatech (Canberra) Pty Ltd. 18 The approach taken in these cases may be identified from the following passages of her Honour s judgment: [35] In Nepean Engineering Pty Ltd, Hodgson JA (with whom Ipp JA agreed) in considering the degree of identification required for a payment claim, had regard to the observations in Clarence Street Pty Ltd concerning the different functions of a payment claim and payment schedule and to his statements in Climatech Pty Ltd (at [25]) that what was required was sufficient identification to enable the respondent to understand the basis of the claim. His Honour noted Basten JA s statements in Climatech Pty Ltd (at [42]) that to be valid a claim must be reasonably comprehensible to the other party, and expressed the degree of identification required in terms of whether in all the circumstances, the material in the payment claim was sufficient to convey to the recipient just what was the work for which payment was claimed (at [28]). What was required was that the payment claim purport in a reasonable way to identify the work the subject of the claim, and a payment claim was not a nullity for failure to identify the work unless the failure was patent on its face. The payment claim did not cease to satisfy the requirement concerning identification because it could be subsequently shown that the payment claim was not entirely successful in identifying all of the work. [36] Santow JA (at [47]-[48]) expressed the view that, in respect of the minimum necessary to satisfy the identification requirement that the payment claim purport in a reasonable way to identify the work there must be sufficient specificity in the payment claim for its recipient actually to be able to identify a payment claim for the purpose of determining whether to pay, or to respond by way of a payment schedule indicating the extent of payment, if any. But having said that, his Honour stated his agreement with what Hodgson JA said in Climatech Pty Ltd that what was required was sufficient identification to enable the respondent to understand the basis of the claim and disavowed the notion that there was a legal necessity to include any material directed merely to persuading a respondent to accept a payment claim (at [25]). [59] What is required, therefore, is that a payment claim purport, in a reasonable way, to identify the work the subject of the claim, so that a respondent can understand the basis of the claim. The decision in T & M Buckley provides a useful illustration of the application of this approach in a case with some similarity to the present case. In that case, there was a claim for suspension costs. The payment claim sought an amount for such costs, with a calculation identifying the total for the relevant month, less an amount equivalent to 10 per cent, described as retention. An attachment specified a daily rate, for the period of the suspension; as well as an additional value, described as a variable preliminary value, per day. At first 17 18 (2005) 64 NSWLR 462. [2005] NSWCA 229.
18 instance, it had been held that the payment claim did not comply with the Act because it had failed to specify how the variable preliminary value was calculated. This was overturned on appeal. Her Honour said, referring to the decision of the judge at first instance: [38] The issue for determination was not whether the payment claim explained in every respect the means by which a particular claim item had been calculated, but whether the relevant construction work or related goods and services was sufficiently identified as explained above. That is, whether the payment claim reasonably identified the construction work to which it related such that the basis of the claim was reasonably comprehensible to the applicant. [60] As has been mentioned, the payment claim consisted of a six page spreadsheet. It included the claim for the disputed amount, under the heading Unapproved Variations. The relevant entry under that heading was Suspension of the vegetation clearing activities and pipeline construction work along the ROW with the total amount claimed being identified. There was also a reference to VP53, as well as L0921, L0923 and L0936. [61] VP53 again referred to the suspension of the vegetation clearing activities and pipeline construction along the right of way. It referred to the instruction to suspend work of 21 March 2011. It noted that the suspension was continuing, and stated that it was anticipated that for every calendar day when the suspension operated, the direct costs and indirect costs (identified as including Project Management, Supervision, camp accommodation and mess facilities, etc ) would amount to AUD $1 million per day. The covering letter also contained the following: From the 18 March to the date of this letter, the following activities as a minimum have been directly and continue to be affected by this Suspension of the Works: Mobilisation of Main Spread Construction workforce for Stringing, Bending, Welding, NDT, Field Jointing Crews (programme activities ID B01FL00040; B01FL00045); Mobilisation of Minor Spread Construction workforce for ROW, Stringing, Bending, Welding, NDT and Field Joint Coating Crews (programme activities ID B01FL00080; B01FL00085 and B01FL00090); Right of Way clearing and preparation on the Gas Collection Header (programme activity ID B01H700040) and all subsequent successor activities; Construction of and Operation of Camp No. 02 at KP-05 of Export Pipeline (programme activity ID A01FL00030, A01FL00035 and A00H100005); Construction of the laydown area at the Receipt Station (KP-0 of the Export Pipeline); Construction and Operation of the Laydown Area and Camp No. 04 at KP-278 of the Export Pipeline (programme activity ID A01FL00070, A01FL00075 and A00H100020); and Pot-holing and locating of services along the ROW.
19 [62] Another document incorporated into the payment claim was the ICC. There were a number of appendices to the ICC. The appendices set out in detail (and on a daily basis for each category) the cost of staff, labour, vehicles, and plant and equipment, together with costs associated with subcontractors and office costs and head office support costs. Staff were generally identified by name and position. An identification number was assigned to vehicles and plant. The dates and hours claimed, and the rate applied, appeared in the appendices. Substantial details of the amounts claimed in relation to subcontracts and ancillaries were also set out. [63] However the amount claimed was derived by calculating the total of these costs under the headings previously mentioned, allocated to the project; and deducting amounts for activities and works which were able to be carried out notwithstanding the suspension. The total deducted was $9,250,401.71. The tables for the deductions refer to vehicles and plant by an identification number, in most cases. For labour, the deduction is calculated by identifying the labour category, the location, the week for which a deduction is allowed, and the number of days in the week and hours per day used in the calculation. However, persons are not named. Some of the labour categories correspond to the position descriptions used in the calculation of total costs, but others do not. [64] It should be added that the amount claimed in the ICC was for a suspension extending until 12 June 2011, whereas the payment claim was for the period up to 31 May 2011. However, the manner in which information was provided in the ICC appears to make it possible by calculation to exclude amounts relating to periods outside the period covered by the payment claim. [65] As mentioned, L0921, L0923 and L0936 were all referred to in a note to the payment claim, and identified additional information made available by MCJV to QCLNG in respect of the ICC. [66] If the payment claimed is characterised as a payment relating to construction work, then it seems to me that the construction work to which the claim to payment relates is clearly identified, namely, the ROW Works which had been suspended. [67] If the payment claimed is characterised as a payment relating to the supply of related goods and services, different considerations might arise. It was submitted on behalf of QCLNG that the primary difficulty was the inability to identify staff, plant and equipment for which deductions were allowed; and in particular to relate the deductions to the calculated total. The difficulty is not borne out with regard to much of the plant. [68] However, in my view, that submission adopts too stringent an approach to the requirements of s 17(2)(a) of the BCIP Act. The extensive material provided by MCJV, in my view, was plainly sufficient to enable QCLNG to understand the basis of the claim. It seems to me that the material would have conveyed to QCLNG just what was (the extent of related goods and services) for which payment was claimed. It was all of the costs of labour and staff, and plant and equipment, and costs incurred in respect of subcontractors as well as head office and other costs for the project; less costs related to resources able to be used productively. While there may have been some difficulty in specifically correlating staff in respect of whom a deduction was allowed with the staff identified in the calculation of the total costs relating to the project, that, in my view, does not mean