Coordinated Construction Co Pty Ltd v J M Hargreaves (NSW) Pty Ltd [2005] NSWCA 228

What the court decided

Coordinated Construction Co Pty Ltd engaged J M Hargreaves (NSW) Pty Ltd under a subcontract to carry out design and construction works in the redevelopment of the former Gazebo Hotel at Elizabeth Bay [2]. The subcontract provided in clause 34.9 for "delay damages": for each day of an extension of time for a compensable cause, damages certified by the Subcontract Superintendent were due and payable to Hargreaves if it had claimed them under subclause 41.1 [5]. Payment of those delay damages was to be the subcontractor's sole remedy for the events causing the delay [5]. Hargreaves served claims seeking extensions of time with associated costs [8], [9]. It later served claims for amounts for further periods of delay [13], [16], [18], [23]. It also served claims for interest on overdue payments under clause 37.5 [11].

Hargreaves served a payment claim under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act) [15]. Mr Parnell was nominated to adjudicate it [19], [20]. He determined a progress payment of $737,221.51 plus GST [22]. Hargreaves then served a second payment claim, which Mr Sarlos adjudicated [24], [25], [26]. Mr Sarlos determined that $199,384.53 including GST was payable [27]. Coordinated sought declarations that the determinations were void, or orders quashing them [1]. McDougall J assumed, without deciding, that the adjudicators could not include the delay damages and interest, but held, on the basis of Brodyn Pty Ltd v Davenport, that the determinations were not void for that reason [31], [32]. Relief was refused and Coordinated's summons dismissed with costs [1].

Coordinated appealed, contending among other things that the amounts were not "for construction work" and that certiorari was available [33]. It argued that delay damages under this subcontract compensated the subcontractor for the head contractor's wrong [37]. The appeal was dismissed with costs, each judge giving separate reasons [54], [56], [80].

Hodgson JA observed that the entitlement in section 8 and the amount fixed by section 9 were not confined to payment for construction work or related goods and services [38]. The definition of "claimed amount", read with section 13, gave some support to Coordinated's argument, but in his view section 13(3) told against it [39]. He regarded section 9(a) as strongly suggesting that amounts a contract made part of its progress payments were to be included in the payments the Act required, whether or not they were for construction work or related goods and services, so that "for" should not be construed narrowly [40]. A contractual label of "damages" or "interest" did not decide the point: what the contract required as part of the total price of the work was generally due for that work, while an amount truly payable as damages for breach of contract generally was not [41].

Delay damages under this subcontract were payable only where an extension of time was for a compensable cause, but in Hodgson JA's view they were not of their nature damages for breach [42]. They were additional sums that could fall due under clause 34.9 and that clause 37.1 then brought into progress payments, so they were prima facie within section 9(a) [42]. He said it was not necessary in this case to exclude altogether the possibility that some delay damages "might possibly not be" for construction work or related goods and services, but that this was certainly not obvious for any claim in this case [44].

Hodgson JA concluded that delay damages and interest under this subcontract could be claimed as due for construction work or related goods and services [45]. Even if section 13 limited claims in that way, it would be for the adjudicator to decide whether to include such amounts, and this appeared to be what each adjudicator had done [45]. It followed that there was no error of the kind that could invalidate a determination according to Brodyn, nor, on the approach in Project Blue Sky, an unlawful act by an adjudicator that could justify an injunction [46]. He would not give leave to re-argue Brodyn, saying that certiorari, even if available for error of law on the face of the record, would not be granted in this case [49].

Hodgson JA also noted what he believed may be an important error in the primary judge's reasons, though one not bearing on the outcome [50]. His tentative view was that an adjudicator did not automatically determine a claim at the amount claimed merely because the respondent raised no relevant grounds [51]. In his opinion the adjudicator had to determine, on the material available, the amount properly payable [52]. He also expressed the tentative view that determining a claim at the amount claimed simply because the adjudicator rejected the relevance of the respondent's material could be a failure to address the statutory task that rendered the determination void [53].

Ipp JA agreed with Hodgson JA, for the reasons Hodgson JA gave on the construction issue, that "delay damages" could amount to payments "for construction work" [55]. He regarded that as sufficient to dispose of the appeal and did not comment on the other issues [56], [57].

Basten JA framed the point of law as whether a progress claim could be made for expenses not directly attributable to carrying out the construction works, and said in his view it could, agreeing with Hodgson JA's reasoning and conclusions on that point [58]. In his own comments he said that work or expenses not directly related to a particular part of the physical construction might be related indirectly to the overall work or a segment of it, and section 13(2)(a) would then require that part, or the whole, to be identified [62].

Basten JA said he differed in part from Hodgson JA's comments about Brodyn and about section 22(2) [58]. On the adjudicator's task, Basten JA saw merit in the primary judge's conclusion that, given the limit in section 20(2B) on the reasons a respondent can put in its adjudication response, the adjudicator was not entitled to go beyond the response in rejecting a claim [66]. He also identified factors militating against that conclusion and said it was neither necessary nor his wish to resolve the difference [67]. He was not persuaded that the reasoning in The Minister for Commerce v Contrax Plumbing (NSW) Pty Ltd relied on by Hodgson JA was correct, though a similar conclusion might be reached by a different course [68].

Basten JA said it was apparent that leave to re-argue Brodyn should not be granted, because the issue did not arise [69]. In his view parts of its reasoning could require further consideration [72]. If Brodyn allowed a challenge to an invalid determination but not quashing for error of law on the face of the record, he thought there was an arguable case for reconsideration [78]. Basten JA found nothing put in the appeal showing a basis to reconsider Brodyn if, properly understood, it gave an adjudicator power to decide a payment claim, so long as the adjudicator took into account the legal parameters set by the Act and the contract, whether or not the decision reflected a correct understanding of the law [78]. He did not resolve a further argument that prerogative relief was not available against an adjudicator's determination [79].

Why it matters

The common ground among the three judges was confined: contractual delay damages of this kind could amount to payments for construction work under the Building and Construction Industry Security of Payment Act 1999 (NSW) as it stood in 2005. Ipp JA confined his reasons to that point and regarded it as enough to dispose of the appeal. Basten JA adopted Hodgson JA's reasoning and conclusions on the construction issue, which also covered interest under the subcontract. Hodgson JA and Basten JA each considered that leave to re-argue Brodyn should not be given; Ipp JA did not comment on that issue.

Hodgson JA's remarks on the adjudicator's task where a respondent raised no relevant grounds, expressed partly as tentative views, did not bear on the outcome; Basten JA left that question unresolved. The questions Basten JA raised about Brodyn, the Court of Appeal decision on review of determinations that Hodgson JA applied, did not need deciding. On whether Brodyn, properly understood, left questions of law within the adjudicator's power, Basten JA found nothing put in the appeal showing a basis to reconsider it.

The decision concerns the New South Wales Act as it stood in 2005, and its passages on review of determinations applied, and in Basten JA's case questioned, Brodyn as it then stood, so readers should confirm the present form of that Act and any later authority before relying on it. Victorian readers should check the Building and Construction Industry Security of Payment Act 2002 (Vic) first.

Numbers in square brackets are paragraph numbers of the judgment. This note summarises a decided case for education and is not legal advice. See how the notes are written.