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A Downer of a decision: The importance of articulating adjudication submissions

In Diona Pty Ltd v Downer EDI Works Pty Ltd [2020] NSWSC 480 (Diona), the Supreme Court considered an application to set aside an Adjudicator’s Determination for failure to consider the terms of the contract as required by s 22(2)(b) of the Building and Construction Industry Security of Payment Act 1999 (the SOP Act).

Key takeaway:

  • It is important to ensure that adjudication submissions clearly articulate all relevant arguments and contractual provisions. Unclear, poorly framed or ambiguous submissions can be costly.
  • An adjudicator’s decision will not be declared void simply because it contains what one party considers to be an error or failure by the adjudicator to expressly address all arguments made in parties’ submissions.
  • Lawyers can be useful to assist in preparing an adjudication application and response. Having prepared and responded to numerous security of payment claims, the lawyers at Bradbury Legal are experts at ensuring your arguments are clearly articulated.

 

Background

Diona Pty Ltd (Diona) entered into a subcontract with Downer EDI Works Pty Ltd (Downer), for Downer to provide works in relation to safety upgrades on the Great Western Highway, Blackheath. Downer proceeded to adjudication on a payment claim under the SOP Act. On 16 April 2020, the relevant Adjudicator determined that Downer was entitled to a progress payment of $430,990.13 (Determination).

Diona made an application to the Supreme Court, seeking a declaration that the Determination was void and an injunction preventing Downer from requesting an adjudication certificate or filing the adjudication certificate as a judgment debt. Diona contended that the Adjudicator had incorrectly awarded a set off claim by Downer, in response to Diona’s liquidated damages claim, in the amount of $30,000 on account of two extension of time claims (EOT Claims).

Diona argued that the Adjudicator had not fulfilled the requirements of s 22(2)(b) of the SOP Act because the Adjudicator had failed to give any reference to, or consideration of, Diona’s contention in its adjudication response submissions that Downer was not entitled to these extensions of time, due to the operation of a time bar in the contract.

 

Did the Adjudicator consider the time bars?

The central question was whether the Adjudicator considered the provisions of the contract. Under section 22(2)(b) SOP Act, an adjudicator must consider the provisions of the construction contract.

To determine if the Adjudicator did consider the contractual provisions, especially those containing the time bar, the Court looked at the submissions made by both parties and the Adjudicator’s determination.

The Court noted that Downer had ‘devoted a number of pages to its contentions concerning extension of time and, in particular, its asserted entitlement to EOT 18 and EOT 21’. This was contrasted with Diona’s submissions, the Court found did not properly engage with Downer’s EOT Claims. Diona’s submissions stated:

Determinations of claims for…extension of time…by Diona are final and cannot be disturbed except by raising a Claim under the Contract, see relevant clauses of the Subcontract.’

The Court highlighted a part of the Adjudicator’s reasons which stated:

The Act at section 22(2)(b) requires the adjudicator to consider the provisions of the construction contract when making the determination

Having regard to the Adjudicator’s express reference to s 22(2)(b) of the SOP Act, the Court stated that there were several reasons why the Adjudicator did not refer to the dispute clause in the Determination. Firstly, the Adjudicator may have felt that Diona did not properly articulate and develop the time bar argument. Alternatively, the Adjudicator may have misunderstood the submissions. The Court concluded that:

The Adjudicator may have come to the wrong decision about Dower’s entitlement to EOT 18 and EOT 21. But that, without more, is not a basis to set aside the set aside the determination.

The argument that Diona sought to raise, while potentially valid, was not properly articulated. Therefore, it could not be inferred that the Adjudicator had failed to consider the provisions of the subcontract as required by s 22(2)(b) of the SOP Act.

 

So what?

The significance of this case is that it shows that what appear to be errors or failures to consider an argument by an adjudicator will not always result in a basis to set aside the adjudicator’s determination. The adjudicator’s decision can be rough and ready, provided the adjudicator makes their decision in accordance with the SOP Act. Payments made under SOP Act are on account only and may be determined on a final basis at a later stage.

 

Case article – Brolton Group Pty Ltd v Hanson Construction Materials Pty Ltd

In Brolton Group Pty Ltd v Hanson Construction Materials Pty Ltd [2020] NSWCA 63 (Brolton), the NSW Court of Appeal considered the jurisdictional and procedural fairness grounds of an adjudicator’s determination.

Background

Brolton was contracted by Hanson to build a quarry processing plant at Bass Point. The parties agreed on a guaranteed maximum price of $85 million (excluding GST) in which Brolton was entitled to claim monthly progress payments on the last Tuesday of each month. Hanson claimed liquidated damages and the contract was eventually terminated on 3 October 2018. In August 2019, Brolton served a payment claim on Hanson. The payment claim claimed work up to September 2018 as well as interest on unpaid amounts to August 2019. The adjudicator determined in favour of Brolton, issuing an adjudication amount of $2,877,052.75. Hanson challenged the decision in the Supreme Court, with the Supreme Court finding in favour of Hanson. This resulted in the appeal by Brolton to the NSW Court of Appeal.

The Court’s decision

Brolton raised two main grounds of appeal. The first and most pertinent issue, concerning jurisdiction, centred predominantly on the availability of a reference date on which Brolton could make its payment claim.
Importance of jurisdiction and the trouble of jurisdictional error
Under the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act) section 22, an adjudicator is given the statutory authority to determine the amount of a progress payment, the date on which such amount became payable and the rate of interest payable on any such amount. The importance of section 22 is that it sets out the jurisdiction of an adjudicator. As the saying goes, with great power comes great responsibility. While the adjudicator is given the power to make these determinations, section 22 sets out the limited factors that the adjudicator can consider. These are the responsibility components of the adjudicator’s determination. Two of the relevant factors to consider in Brolton was the provisions of the SOP Act and the payment claim.
While adjudicators are given the power to make determinations, they can only do so in certain circumstances or if there are specified preconditions. In the legal world, this is called a ‘jurisdictional fact’. As Gleeson JA described in Brolton (at paragraph 28), the term jurisdictional fact is used to describe ‘any precondition which a statute requires to exist in order for the decision-maker to embark on the decision-making process’. Jurisdictional facts fall into two types:

1. The existence of an identified state of affairs; or
2. A state of satisfaction of the decision-maker as to an identified state of affairs.

A jurisdictional fact gives a decision-maker the power to make the decision. If it exists, then an adjudicator can make a determination. In this way, the reference date activates the adjudicators powers to make a determination under the SOP Act.
Under the SOP Act, a claimant is only able to make a payment claim when there is a reference date under the construction contract. Therefore, the existence of a reference date is a jurisdictional fact that falls into the first category. This is because the existence or non-existence of a reference date is objective and does not depend on whether the adjudicator is satisfied that a reference date exists. Where an adjudicator exercises its power, but the jurisdictional fact does not actually exist, the adjudicator has made a jurisdictional error..
Getting back to the case, in submitting its payment claim, Brolton claimed in its adjudication submissions that the reference dates for August 2018 and September 2018 were available for the payment claim. Hanson also contended that the September 2018 reference date was available for the progress payment. However, the adjudicator ‘went rogue’ and determined that the reference date was in fact 23 October 2018. There were a few issues with this. Firstly, the 23 October 2018 was not the last Tuesday of the month (which in fact was 30 October 2018). Secondly, the contract had been terminated on 3 October 2018, meaning no further reference dates arose. As the clause entitling Brolton to a progress payment did not continue beyond the termination of the contract, the adjudicator had made a jurisdictional error. The reference date the adjudicator relied on did not exist, and therefore the determination was void and the $2.8 million decision was overturned (as if it had never been made).

Although Hanson succeeded on the first issue, the Court was still minded to consider the second issue on appeal. The second issue concerned the procedural fairness of the adjudicator’s decision. Like jurisdiction, procedural fairness is a legal term that has important consequences for adjudication determinations. Procedural fairness is an aspect of natural justice, a foundational legal principal that sets the standards of how people are to exercise their authority. The concept of procedural fairness means the process in which a decision is made should be just. Procedural fairness requires that parties have the right or opportunity to have their case heard by the decision-maker. If there is a substantial denial of natural justice, the decision-maker’s determination will be void. In this case, the issue of procedural fairness arose because the adjudicator determined that the relevant reference date was a date not submitted by either party. Brolton argued that while procedural fairness was denied to the parties, it was immaterial and should not void the adjudicator’s decision. The Court found that the findings by the adjudicator were a material breach of procedural fairness and therefore there was a breach of natural justice.

Take-away points

While this article has discussed a few technical legal concepts, the main take away points from Brolton are that:
• A progress payment must be linked to a specific reference date. If an adjudicator incorrectly attributes a payment claim to a reference date which does not exist, the determination will be void.
• It is not enough that another reference date is available for the payment claim to be linked to. If the adjudicator goes rogue and determines a reference date not submitted by the parties, the decision will be void.
• Claimants should identify and make it abundantly clear the relevant reference date to which a payment claim relates and make submissions in the adjudication application as to what the relevant reference date is.
• Reference dates are essential for an adjudicator to make a determination. A failure by the adjudicator to appropriately determine a reference date can have dire consequences to claimants.
• Note: The recent amendments to the NSW SOP Act have eliminated the post-termination payment claim issue. Section 13(1C) now states that for construction contracts that have been terminated, a payment claim may be served on and from the date of termination. This change will only apply to contracts entered into after 21 October 2019.

Regulatory Overhaul and Reform Pillars: building confidence and stronger foundations for the NSW building and construction industry

Transparency, accountability and quality of work are always issues at the forefront of the building and construction industry. In the wake of many high profile instances of defects in newly built developments, these are also the big issues that the NSW Government is tackling in 2020.

Where it began: the Shergold Weir Building Confidence Report

Back tracking to early 2018, the Shergold Weir Building Confidence Report recommended the implementation of a national best practice model. The purpose of this was to enhance public trust in the building and construction industry and strengthen the effective implementation of the National Construction Code. The best practice model comprises 24 recommendations relating to:

  • registration and training of practitioners;
  • roles and responsibilities of regulators;
  • the role of fire authorities;
  • integrity of private building surveyors;
  • collecting and sharing building information and intelligence;
  • adequacy of documentation and record keeping;
  • inspection regimes;
  • post-construction information management;
  • building product safety; and
  • how the above recommendations will be implemented.

The NSW Government’s Response: Building Stronger Foundations Discussion Paper

The NSW Government welcomed the Shergold Weir Report and announced that it is committed to improving the building and construction industry through a number of new reforms. In June 2019, the NSW Government presented its Building Stronger Foundations Discussion Paper seeking input from stakeholders on its four key reforms. These reforms are:

  1. requiring practitioners defined as ‘building designers’ (e.g. architects, engineers) to declare that their building plans/specifications/solutions are compliant with building regulations, including the Building Code of Australia;
  2. introducing a registration scheme for ‘building designers’ who will be making declarations;
  3. ensuring that building practitioners owe a duty of care to owners’ corporations and subsequent residential homeowners; and
  4. appointing a Building Commissioner who is a consolidated regulator for the whole of the NSW building and construction industry.

What to expect in 2020 and beyond

It has been just over a year since the NSW Government committed to implementing regulatory reform and six months since it consulted with stakeholders to shape the direction of these reforms. So what progress has been made in that time?

In October 2019, the first tranche of reforms was introduced with the Design and Building Practitioners Bill 2019 (the “Bill”). The Bill seeks to deliver the NSW Government’s first, second and third key reforms by imposing new obligations on design and building practitioners. The Bill is currently before the NSW Upper House. Make sure to read our next newsletter as we will be providing a detailed explanation of the substance of the Bill.

In relation to fourth key reform, the NSW Government has appointed David Chandler OAM as the NSW Building Commissioner. In January 2020, Mr Chandler announced the Six Reform Pillars, which is the public’s first insight into his plans and implementation strategies for the reforms. The Six Reform Pillars are:

Pillar Actions Outcomes
Building a better regulatory framework

 

Implementing legislation and regulation and transforming the focus of the regulator

 

Ensure that NSW has a strong customer focused regulatory framework
Building rating systems

 

Work with ratings agencies, insurers and financiers to assist in better selection of industry participants

 

Move away from one-size-fits-all participant recognition and better identify risky players

 

Building skills and capabilities

 

Improve accreditation of construction related programs through improved standard modules

 

Shared minimum learning content and open source resources for all institutions

 

Building better procurement methods

 

Establish clear standards for engagement and outputs

 

Viable risk allocation and performance accountability

 

Building a digital future

 

Digitise the NSW Building Industry and move away from analogue record keeping

 

Shared industry wide platforms that build confidence

 

Building the reputation for quality research

 

Evidence based approach to accessing and closing the gap via case studies and other research

 

Baseline and measurement against our ability to improve confidence in the industry

 

 

This article provides a snapshot of the NSW Government’s plans to implement effective and wide ranging regulatory reforms of building and construction industry. This summary demonstrates that there is a significant task ahead in implementing these reforms, so watch this space for future updates.

If you or someone you know wants more information or needs help or advice in relation to this article, please contact us on (02) 9248 3450 or email info@bradburylegal.com.au.

What’s in a name?: The Supreme Court Reviews ambiguity in SoPA Payment Claims

Those who are familiar with the Building and Construction Industry Security of Payment Act 1999 (‘the Act’) will likely be aware that the provisions it contains are quite strict, and can leave parties out in the cold when they fail to comply with what are seemingly administrative oversights.

However, the overarching purpose of the Act is ultimately to keep money flowing through the construction system, aimed at ensuring those who perform building and construction works, or supply goods and services to construction projects are able to be paid.

The Supreme Court of New South Wales, in the recent decision of decision Modog Pty Ltd v ZS Constructions (Queenscliff) Pty Ltd [2019] NSWSC 1743 reminded parties of this fact when asked to turn its mind to issues of ambiguity in payment claims and whether a party could be allowed to have an adjudication determination quashed on the basis of technicalities.

The Facts

The facts of the case were reasonably clear and did not form a substantial component of the dispute between the parties. In September 2016, Modog Pty Ltd (‘Modog’) entered into a design and construct head contract with Wyndora 36 Pty Ltd (‘Wyndora’) for the development of senior living apartments at a property located along Wyndora Avenue in Freshwater. Modog then entered a sub-contract with ZS Constructions (Queenscliff) Pty Limited (ZS Queenscliff) for the demolition of the existing structure and the construction of the new seniors living complex, including apartments, basement parking and associated site works (‘the Sub-Contract’).

In March 2018, the Sub-contract was varied to engage ZS Queenscliff to provide Construction Management and procurement services, for which ZS Queenscliff would receive a project manager’s allowance, a contract administrator’s allowance and payments for subcontractors and suppliers to be made at the end of each month.

ZS Queenscliff was part of a wider group of entities, which also included ZS Constructions (Australia) Pty Ltd (‘ZS Australia’) and Zaarour Investments Pty Ltd had been engaged as the project manager for the project. Mr Christopher Zaarour was employed by ZS Queenscliff, was the director of ZS Constructions Pty Ltd and was the primary contact with Modog for the duration of the project.

The further sub-contracts on the project were administered by ZS Queenscliff, however invoices from sub-contractors had historically been issued to a mixture of Modog, Wyndora and ZS Australia, as opposed to ZS Queenscliff. During the course of the project, ZS Queenscliff and Modog adopted a progress payments process in which Mr Zaarour would, on behalf of ZS Queenscliff, prepare and email a payment summary sheet listing all amounts due for procurement and management services, as well as materials acquired, and work completed by trade contractors.

On 29 August 2019, Modog issued a Show Cause Notice to ZS Queenscliff and terminated the Sub-contract on 13 September 2019.

The Payment Claim and Adjudication

On 11 September 2019, ZS Queenscliff served a payment claim on Modog which was comprised of seven emails, from Mr Zaarour using an email signature from Zaarour Sleiman and containing a reference to ZS Australia in fine print at the bottom of the email.

The emails attached supporting invoices from suppliers, and followed the process adopted in earlier progress payments, where sub-contractors and suppliers had addressed their invoices to a mixture of the entities involved with the project, and not to ZS Queenscliff, who were issuing the payment claim.

The payment claim served on Modog was, as highlighted by the Court, unclear in the following respects:

  • It did not specifically assert that it was a progress payment claim under the Act;
  • It did not specify the reference date or refer to the clause within the contract upon which the progress payment was based;
  • It failed to ask Modog to pay ZS Queenscliff;
  • It did not include a total for the sum claimed, only determinable by a thorough review of the claims

Modog, in turn responded to the payment claim with payment schedules which certified the amount payable in respect of the Claim was nil.

The matter proceeded to an adjudication, where, on 23 October 2019, the adjudicator found in favour of ZS Queenscliff in the sum of $89,111.89 (GST incl.).

Modog challenged the decision of the adjudicator before the Supreme Court of Sydney, seeking orders that the Adjudication Determination of be deemed void, that the determination be quashed, and ancillary relief.

The Disputed Issues

At the hearing, Modog challenged the decision of the adjudicator on 3 primary grounds:

  • Whether the 11 September 2019 emails constituted a payment claim within the meaning of s13(1) of the Act;
  • If the emails did constitute a payment claim, whether the claim was sent by ZS Queenscliff as a person who was entitled to seek a determination for the purposes of s17 of the Act; and
  • Whether the Adjudicator has committed a jurisdictional error by allowing multiple payment claims in respect of a single reference date?

The Arguments, Decision and Reasoning

Issue 1: Was there a Payment Claim:

The argument advanced by Modog was effectively, ZS Queenscliff had not submitted a valid payment claim as they did not specifically demand payment from Modog (i.e.: did not say, Modog must pay ZS Queenscliff the sum of $X.). Modog relied on the fact that the invoices provided in support of the payment claim, were addressed to various entities, not ZS Queenscliff, and that ZS Queenscliff could not establish they were actually entitled to the money claimed for.

Modog argued that ZS Queenscliff had indicated invoices would be sent at a later time, which Modog was to pay as directed and that, pursuant to the Court’s decision in Quickway Constructions Pty Ltd v Electrical Energy Pty Ltd, ZS Queenscliff had not served a payment claim pursuant to clause 13(1) of the Act.

The counter argument raised by ZS Queenscliff relied upon the case of Icon Co NSW Pty Ltd v Australia Avenue Developments Pty Ltd [2018] to support their position that Modog had simply misunderstood the payment claim, and that this could not be a basis for quashing the adjudicator’s decision. ZS Queenscliff argued the fact that the invoices were addressed to other parties did not invalidate the payment claim as they were simply disbursements to be paid to suppliers.

Ultimately, the Court favoured the position raised by ZS Queenscliff, noting there is nothing within the Act that requires a payment claim to state the total of the sum claimed. The Court stated and that even if the invoices in support of the payment did require Modog to direct payment elsewhere, as long as ZS Queenscliff had an entitlement to the sum under the contract, this did not invalidate the payment claim itself.

Issue 2: Was the Payment Claim Sent by ZS Queenscliff?

Modog then raised the issue that, as the 11 September 2019 email enclosing the payment claim was sent by Mr. Zaarour, using an email signature that did not belong to ZS Queenscliff, and the only legal entity named in the email was ZS Australia, the payment claim had not been served by the appropriate entity for the purposes of s17 of the Act.

The counter argument raised by ZS Queenscliff was that these errors were irrelevant in light of the fact that the previous correspondence between the parties had been exchanged in much the same way, including when detailing the terms of the caries contract agreements, and the point was not taken at the contract negotiation stage.

The Court ultimately agreed again with ZS Queenscliff, making the point that not was not actually disputed that ZS Queenscliff was entitled to make the payment claim and made the determination that the email payment claim had simply been sent by Mr Zaarrour in his capacity as the project manager, on behalf of ZS Queenscliff.

Issue 3: Was there an issue with multiple emails being used to comprise the payment claim?

Finally, Modog sought to raise the point that multiple invoices had been served on them in the emails from ZS Queenscliff and that it was not open for ZS Queenscliff to seek to have all invoices adjudicated.

Relying on the decision of the court in Rail Corporations of NSW v Nebax Constructions [2012] NSWSC6, this point ultimately failed as well, on the basis that, when viewed in the context of the previous conduct between the parties, and the nature of the invoices supplied, Modog had been more accurately provided with one payment claim, and a number of invoices in support of the claim.

What does this decision mean?

This decision serves as a timely reminder to parties that the Building and Construction Industry Security of Payment Act 1999 (‘the Act’) is intended to allow money to flow through to sub-contractors. Parties should be mindful of this purpose when considering whether to attempt to argue a payment claim on the basis of a minor technicality or ambiguity.

If you or someone you know wants more information or needs help or advice in relation to NSW’s security of payment legislation (or any other state’s or territory’s equivalent), please contact us on (02) 9248 3450 or email info@bradburylegal.com.au.

ADR Processes

 

ADR Processes: What are they and how do they work?

 

In many construction contracts, it is common to have a clause that deals with the process the parties will go through if a dispute arises. These clauses attempt to provide an alternative dispute resolution (ADR) process to litigating over every dispute that arises. While there are some disputes that are suited to being litigated (such as where a specific legal remedy is needed, the subject matter involves the legal rights of the parties or the issues are legally complex), many can be resolved through an ADR processes. ADR processes, if effective, can reduce the time and cost of disputes for parties.

 

This article discusses the different types of ADR processes and Part II will address some of the common pitfalls of ADR clauses that render these clauses unenforceable.

 

Types of ADR processes:

 

When it comes to construction disputes, there are several standard types of ADR processes. These include:

 

  • Negotiations between senior executives or authorised representatives;
  • Mediation;
  • Arbitration; and
  • Expert determination and appraisal.

 

Negotiations

 

Negotiation between senior executives is the most simple and informal dispute resolution process. The senior executives or authorised representatives meet and discuss the dispute that has arisen. Using their best endeavours, the authorised representatives can talk about how the dispute may be resolved and attempt and find any potential compromises. While the discussions may not necessarily resolve the dispute, it gives the parties a chance to hear the other side and understand the issues faced by the other party. This can help narrow the issues that are in dispute between the parties, saving significant time and money if the dispute escalates to litigation.

 

Mediation

 

The next step in the ADR ladder is mediation. Mediation is slightly more formal than negotiations between the parties’ authorised or senior representatives. This is because mediation involves appointing a third party (the mediator) to meet with the parties and work to resolve the dispute. The mediator will discuss the positions and interests of each party and try to find common ground on which the parties can agree and tries to help facilitate a resolution of the dispute.

 

One of the biggest benefits of mediation is the fact that it is so flexible in the resolutions that can be generated in response to a dispute. For instance, parties can find creative or unorthodox solutions to their problems which would not be available if the dispute were to be litigated. At mediation, the parties have the control over the resolution of the dispute and can work together to create a solution that is potentially more appropriate than a court order.

Arbitration

 

Arbitration is a common dispute resolution process in the building industry. Between commercial parties, arbitration can be an effective alternative to court because it operates much like a Court. The Commercial Arbitration Act 2010 (NSW) sets out the various matters relating to domestic commercial arbitrations including the arbitrator’s powers and the appeal process. The decisions of arbitrators are binding and the resulting awards can be enforced by the Courts.

 

Arbitrations can sometimes be as expensive and time consuming as litigation. This is because of several factors such as the cost of hiring an arbitrator and decisions are often appealed. However, some of the benefits of choosing arbitration include that it can be confidential and allows the parties to have more control over the rules and procedures that resolve the dispute. Subject to any overriding arbitration legislation or rules, the parties can essentially decide how they want the determination to run, how many arbitrators they want involved or any grounds of appeal.

 

Expert Determination

 

Another ADR process discussed in this article is expert determination. Expert determination can be binding, or non-binding (dependent on the rules of the particular expert agreement or contract that sends the parties in dispute into that forum). Unlike arbitration, there is no statutory framework for expert determination or appraisal. Therefore, it is the contract that will guide the expert and their decision. Using an expert to make a final and binding decision is useful, as the majority (if not all) building disputes will rely on expert evidence to determine issues such as program, defects or rectification costs.

 

Using non-binding expert determination can prevent or reduce the need for a court to consider these technical issues and can simplify the litigation process. A potential drawback for expert determination is that it can be very difficult to challenge. Provided the expert has understood the scope of their obligations and the issues they need to review, it often will not matter if the expert made a mistake, a gross over or under valuing or if irrelevant considerations were considered. As stated by the NSW Supreme Court in TX Australia Pty Limited v Broadcast Australia Pty Limited [2012], the fundamental question is whether the exercise performed by the expert in fact satisfies the terms of the contract.

 

It is not uncommon for a dispute resolution clause to have multiple different ADR processes available to the parties. For example, parties may be required to enter negotiations with each other and then must proceed to mediation or arbitration. Therefore, it is important to understand the aspects of each different ADR process so that you can choose the one most appropriate for your business. Each ADR process has its benefits and its drawbacks and will be more effective for certain types of disputes. In the Part II of this article, we will look at dome of the common pitfalls of ADR clauses. Particularly, how you ensure that the clause is enforceable, the key aspects of the ADR clause, and what are the common issues that arise when negotiating an ADR clause.

Expertly building evidence: Lessons learned from White Constructions

Case note: White Constructions Pty Ltd v PBS Holdings Pty Ltd [2019] NSWSC 1166

In White Constructions, Hammerschlag J considered the issue of delay damages. White Constructions was the property developer of a site in Kiama NSW. The development involved the development and subdivision of 100 lots and required design and installation of sewer infrastructure. These works required a s 73 Certificate issued by Sydney Water before subdivision could occur. White Constructions appointed the Defendants to assist with the design and approval works needed as part of the development and resulting subdivision. A substantial part of the judgment was devoted to the preparing and designing of the sewer designs and the approval of Sydney Water, including the different types of sewage systems, Sydney Water’s preference in relation to these systems, preparation of option reports and correspondence between the Superintendent, the Defendants and Sydney Water.

The discussions between Sydney Water, the Superintendent and the Defendants took considerable time. As a result, White Constructions alleged that the delay in coming to the approved sewage design caused White Constructions to be liable to their building contractor for delay damages. In arguing the substance of the dispute, the parties tendered complex expert evidence. As a result, the Court appointed an expert to assist in interpreting and assessing the expert evidence presented.

With the expert’s assistance, Hammerschlag J criticised the experts’ approach to determining the delays attributable to the sewage works. Both experts used methods derived from the United Kingdom Society of Construction Law, the Delay and Disruption Protocol (the Protocol) in analysing the delay. The Protocol identifies six different methods of delay analysis, but Hammerschlag J held that the inclusion of a delay analysis method in the Protocol does not necessarily mean it should be used. While the Protocol methods have been endorsed in other cases, the analysis of delay must pay close attention to the actual evidence of what was happening on the ground of the project. The delay analysis must show and prove that, on the balance of probabilities, the delay:
• played a role in delaying the project;
• how it delayed the project; and
• how much it delayed the project.

This approach is in line with the common law common-sense approach to causation which the High Court referred to in March v E&MH Stramare Pty Ltd (1991) 171 CLR 506.

A lot of value in White Constructions comes from Hammerschlag J’s analysis of what evidence is needed in cases where delay is alleged in construction matters. Firstly, the Court stated that close attention must be paid to the facts of the matter, rather than the opinion of experts. This evidence should not be general in nature, but specific in that it is able to precisely identify delays in the project. This evidence should be a contemporaneous record of the project. A classic example of this kind of evidence is a site diary which records the day to day of the project, as well as specific cause and effect of each delay.
• what works were undertaken/completed;
• the instructions received from the client;
• the delays/any complaints of delays and how they have affected other activities;
• which personnel were onsite; and
• any other relevant details

The Court found that it was important that the contemporaneous record identified which activities were adversely affected by the delays. For example, if the works of one contractor were delayed and, as a result, caused delay for another contractor, the site diary should record these details. Failing to record these details means that it is harder, if not near impossible, for parties to establish that there was in fact a causal link and adverse effect.

How does White Constructions impact a project?

White Constructions shows the importance of proper project documentation. Most importantly, the site diary, or similar contemporaneous document, should be the primary record of the specific of what is happening on site and how specific events affect different contractors. Proper record keeping, while it may be administratively burdensome, allows the Court to analyse and determine the proper entitlements of the parties if the project ever comes into dispute. While other evidence can be adduced in pursuit of proving delay, it runs the risk of being generalist in nature and not enough to prove the causal link of the delays.

The lessons learned in White Constructions may also have some application in respect of other delay related mechanisms under construction contracts. For example, a comprehensive site diary would also be useful in determining any claim for an EOT claim. However, it is important to note that these types of claims are largely determined by the contract and its processes for determining what is in fact an EOT. Nevertheless, contemporaneous records of what has happened and how this has affected the project is useful in establishing a claim by a party as to their entitlements.
Another important point that comes from White Constructions is ensuring experts are given the proper lay evidence to ensure that they can properly opine on the project. While it does not displace the role of lay evidence such as site diaries, it can assist in assisting the Court in considering and making appropriate decisions on what the parties are entitled to.

If you or someone you know wants more information or needs help or advice, please contact us on +61 2 9248 3450 or email info@bradburylegal.com.au.

What’s in a name?: The Supreme Court Reviews ambiguity in SoPA Payment Claims

Those who are familiar with the Building and Construction Industry Security of Payment Act 1999 (‘the Act’) will likely be aware that the provisions it contains are quite strict, and can leave parties out in the cold when they fail to comply with what are seemingly administrative oversights.

However, the overarching purpose of the Act is ultimately to keep money flowing through the construction system, aimed at ensuring those who perform building and construction works, or supply goods and services to construction projects are able to be paid.

The Supreme Court of New South Wales, in the recent decision of decision Modog Pty Ltd v ZS Constructions (Queenscliff) Pty Ltd [2019] NSWSC 1743 reminded parties of this fact when asked to turn its mind to issues of ambiguity in payment claims and whether a party could be allowed to have an adjudication determination quashed on the basis of technicalities.

The Facts

The facts of the case were reasonably clear and did not form a substantial component of the dispute between the parties. In September 2016, Modog Pty Ltd (‘Modog’) entered into a design and construct head contract with Wyndora 36 Pty Ltd (‘Wyndora’) for the development of senior living apartments at a property located along Wyndora Avenue in Freshwater. Modog then entered a sub-contract with ZS Constructions (Queenscliff) Pty Limited (ZS Queenscliff) for the demolition of the existing structure and the construction of the new seniors living complex, including apartments, basement parking and associated site works (‘the Sub-Contract’).

In March 2018, the Sub-contract was varied to engage ZS Queenscliff to provide Construction Management and procurement services, for which ZS Queenscliff would receive a project manager’s allowance, a contract administrator’s allowance and payments for subcontractors and suppliers to be made at the end of each month.

ZS Queenscliff was part of a wider group of entities, which also included ZS Constructions (Australia) Pty Ltd (‘ZS Australia’) and Zaarour Investments Pty Ltd had been engaged as the project manager for the project. Mr Christopher Zaarour was employed by ZS Queenscliff, was the director of ZS Constructions Pty Ltd and was the primary contact with Modog for the duration of the project.

The further sub-contracts on the project were administered by ZS Queenscliff, however invoices from sub-contractors had historically been issued to a mixture of Modog, Wyndora and ZS Australia, as opposed to ZS Queenscliff. During the course of the project, ZS Queenscliff and Modog adopted a progress payments process in which Mr Zaarour would, on behalf of ZS Queenscliff, prepare and email a payment summary sheet listing all amounts due for procurement and management services, as well as materials acquired, and work completed by trade contractors.

On 29 August 2019, Modog issued a Show Cause Notice to ZS Queenscliff and terminated the Sub-contract on 13 September 2019.

The Payment Claim and Adjudication

On 11 September 2019, ZS Queenscliff served a payment claim on Modog which was comprised of seven emails, from Mr Zaarour using an email signature from Zaarour Sleiman and containing a reference to ZS Australia in fine print at the bottom of the email.

The emails attached supporting invoices from suppliers, and followed the process adopted in earlier progress payments, where sub-contractors and suppliers had addressed their invoices to a mixture of the entities involved with the project, and not to ZS Queenscliff, who were issuing the payment claim.

The payment claim served on Modog was, as highlighted by the Court, unclear in the following respects:

  • It did not specifically assert that it was a progress payment claim under the Act;
  • It did not specify the reference date or refer to the clause within the contract upon which the progress payment was based;
  • It failed to ask Modog to pay ZS Queenscliff;
  • It did not include a total for the sum claimed, only determinable by a thorough review of the claims

Modog, in turn responded to the payment claim with payment schedules which certified the amount payable in respect of the Claim was nil.

The matter proceeded to an adjudication, where, on 23 October 2019, the adjudicator found in favour of ZS Queenscliff in the sum of $89,111.89 (GST incl.).

Modog challenged the decision of the adjudicator before the Supreme Court of Sydney, seeking orders that the Adjudication Determination of be deemed void, that the determination be quashed, and ancillary relief.

The Disputed Issues

At the hearing, Modog challenged the decision of the adjudicator on 3 primary grounds:

  • Whether the 11 September 2019 emails constituted a payment claim within the meaning of s13(1) of the Act;
  • If the emails did constitute a payment claim, whether the claim was sent by ZS Queenscliff as a person who was entitled to seek a determination for the purposes of s17 of the Act; and
  • Whether the Adjudicator has committed a jurisdictional error by allowing multiple payment claims in respect of a single reference date?

The Arguments, Decision and Reasoning

Issue 1: Was there a Payment Claim:

The argument advanced by Modog was effectively, ZS Queenscliff had not submitted a valid payment claim as they did not specifically demand payment from Modog (i.e.: did not say, Modog must pay ZS Queenscliff the sum of $X.). Modog relied on the fact that the invoices provided in support of the payment claim, were addressed to various entities, not ZS Queenscliff, and that ZS Queenscliff could not establish they were actually entitled to the money claimed for.

Modog argued that ZS Queenscliff had indicated invoices would be sent at a later time, which Modog was to pay as directed and that, pursuant to the Court’s decision in Quickway Constructions Pty Ltd v Electrical Energy Pty Ltd, ZS Queenscliff had not served a payment claim pursuant to clause 13(1) of the Act.

The counter argument raised by ZS Queenscliff relied upon the case of Icon Co NSW Pty Ltd v Australia Avenue Developments Pty Ltd [2018] to support their position that Modog had simply misunderstood the payment claim, and that this could not be a basis for quashing the adjudicator’s decision. ZS Queenscliff argued the fact that the invoices were addressed to other parties did not invalidate the payment claim as they were simply disbursements to be paid to suppliers.

Ultimately, the Court favoured the position raised by ZS Queenscliff, noting there is nothing within the Act that requires a payment claim to state the total of the sum claimed. The Court stated and that even if the invoices in support of the payment did require Modog to direct payment elsewhere, as long as ZS Queenscliff had an entitlement to the sum under the contract, this did not invalidate the payment claim itself.

Issue 2: Was the Payment Claim Sent by ZS Queenscliff?

Modog then raised the issue that, as the 11 September 2019 email enclosing the payment claim was sent by Mr. Zaarour, using an email signature that did not belong to ZS Queenscliff, and the only legal entity named in the email was ZS Australia, the payment claim had not been served by the appropriate entity for the purposes of s17 of the Act.

The counter argument raised by ZS Queenscliff was that these errors were irrelevant in light of the fact that the previous correspondence between the parties had been exchanged in much the same way, including when detailing the terms of the caries contract agreements, and the point was not taken at the contract negotiation stage.

The Court ultimately agreed again with ZS Queenscliff, making the point that not was not actually disputed that ZS Queenscliff was entitled to make the payment claim and made the determination that the email payment claim had simply been sent by Mr Zaarrour in his capacity as the project manager, on behalf of ZS Queenscliff.

Issue 3: Was there an issue with multiple emails being used to comprise the payment claim?

Finally, Modog sought to raise the point that multiple invoices had been served on them in the emails from ZS Queenscliff and that it was not open for ZS Queenscliff to seek to have all invoices adjudicated.

Relying on the decision of the court in Rail Corporations of NSW v Nebax Constructions [2012] NSWSC6, this point ultimately failed as well, on the basis that, when viewed in the context of the previous conduct between the parties, and the nature of the invoices supplied, Modog had been more accurately provided with one payment claim, and a number of invoices in support of the claim.

What does this decision mean?

This decision serves as a timely reminder to parties that the Building and Construction Industry Security of Payment Act 1999 (‘the Act’) is intended to allow money to flow through to sub-contractors. Parties should be mindful of this purpose when considering whether to attempt to argue a payment claim on the basis of a minor technicality or ambiguity.

If you or someone you know wants more information or needs help or advice in relation to NSW’s security of payment legislation (or any other state’s or territory’s equivalent), please contact us on (02) 9248 3450 or email info@bradburylegal.com.au.

The role of an expert witness in a building dispute

If you are involved in a domestic building dispute, whether as a building professional or homeowner, it will often be beneficial or necessary to retain an expert witness.

The role of an expert witness in a building dispute is to provide objective, qualified and documented evidence relevant to the facts in dispute.

Engaging an expert witness is usually a complex and expensive exercise. Further, the expert’s role as an impartial observer, and not as an advocate for the instructing party, is often misunderstood. Parties to a dispute can become anxious when it appears that the expert they have retained is not “on their side” or that the other party’s expert is an “opponent” in disputed proceedings.

It is therefore helpful to understand the role of expert witnesses, their obligations to a tribunal or court and how they can assist in determining a building dispute.

What is an expert witness?

An expert witness is a qualified professional with both specialised technical knowledge in a particular area or industry, and the necessary skills to provide an opinion, in writing and verbally. This opinion may be used as evidence in negotiations, dispute resolution processes or during tribunal or court proceedings.

When and why is an expert used?

The role of the expert is to assist the parties in negotiating a settlement, or if the matter proceeds to a tribunal or court, guide the decision-maker towards a reasonable determination.

A residential building dispute does not typically concern the interpretation of a contractual term, which, in a court or tribunal, would be a matter for lawyers to argue.

Rather, a residential building dispute typically concerns claims of incomplete and/or defective construction work the nature of which is highly technical and industry specific. The subject matter of the dispute may be a single dwelling or a multi-storey residential complex.

A layperson is not qualified to provide evidence of a technical nature which, in court or tribunal proceedings, could be considered an opinion or hearsay. Similarly, a lawyer is not qualified to assess the costs of rectification of a building.

In such matters evidence should be given by a person with specialised knowledge in the subject matter that is based on his or her training, study or experience. One example of an expert is a quantity surveyor.

Retaining an expert witness

The selection of an expert witness is typically made by the lawyer representing a party to the dispute, who will identify a professional with the necessary expertise required for the particular case and the ability to provide written, and oral evidence, if required.

Written instructions should be provided to the expert which will include an overview of the matter, the issues in dispute, the matters to be addressed, and additional information that will assist in compiling the report, such as building contracts, plans and specifications, and invoices for building materials.

Most unresolved domestic building disputes are heard in a tribunal with specific rules and codes of conduct regarding the use of an expert witness and the required format for expert reports. This is generally to ensure consistency and uniformity. A copy of the relevant expert evidence guidelines and reporting requirements from the tribunal should always be attached to the instructions given to the expert.

It may also be necessary to engage an additional expert with specialist knowledge, such as a structural engineer, to provide a supplementary report for specific issues like a retaining wall claimed to be defective.

A quantity surveyor may be engaged to assess the cost of rectification works for more complex matters. For relatively simple matters, retaining an expert may not be necessary, as obtaining quotes from building professionals and tradespersons may be sufficient.

The expert report

An expert will draw upon his or her construction knowledge to provide a qualified opinion in response to the issues raised in the instructions. A report will typically include:

  • the expert’s formal qualifications, experience and field of expertise in which the evidence is being provided;
  • a summary of the issues upon which the expert is required to report;
  • any facts or assumptions upon which the expert has relied (i.e. the letter of instruction);
  • the identification (and categorisation) of incomplete, non-compliant and/or defective building work;
  • an opinion as to why the building work is incomplete, non-compliant and/or defective, qualified with reference to relevant standards, construction codes and tolerances, and the building contract, plans and specifications;
  • any examinations, investigations or tests used to form the opinion;
  • an assessment of the cause of a defect;
  • recommendations for the rectification of incomplete, non-compliant and/or defective building work including reasons for the recommendation;
  • suggested methods for rectifying the incomplete, non-compliant and/or defective building work including any reasonable alternative remedies;
  • the estimated cost of the recommended rectification work.

The duty of impartiality

Tribunal and court rules, practice notes and directions require that an expert witness is impartial and not an advocate for a party to a proceeding. He or she has an overriding duty to assist a tribunal or court on the matter relevant to the expert’s expertise.

Independence is paramount and any hint of bias towards the instructing party by the expert can be detrimental to that party’s case and may initiate a request by the opposing side for the tribunal to disregard that expert’s evidence.

The expert’s reputation and credibility in such circumstances will also be at stake.

Conclusion

An expert witness may be retained to provide an impartial qualified opinion to assist in determining a matter in dispute.

Choosing an expert with the requisite qualifications, knowledge and experience to provide an objective opinion is essential for many building disputes. When retaining an expert, it is also important to bear in mind that the expert is not an advocate for the instructing party.

If you or someone you know wants more information or needs help or advice, please contact us on +61 2 9248 3450 or email info@bradburylegal.com.au