The NSW Court of Appeal has recently handed down two decisions which establish that delay costs and interest may, in certain cases, be included in payment claims made under the Building and Construction Industry Security of Payment Act 1999 (NSW) (Act). The Court also made clear that any amount which is truly payable as damages for breach of contract is generally not an amount that can be included in a payment claim.
The importance of getting a payment claim correct will affect the amount you might be able to recover in front of an adjudicator.
Significantly, in obiter remarks by Basten JA, the Court cast doubt over the principles relating to the scope of the Court’s supervisory jurisdiction as set out in Brodyn Pty Ltd v Davenport [2004] NSWCA 394 and leaves open a possible challenge to the NSW Court of Appeal’s decision in Brodyn.
Background to Coordinated No. 1
In Coordinated Construction Co. Pty Ltd v J.M. Hargreaves (NSW) Pty Ltd & Ors [2005] NSWCA 228 (Coordinated No. 1), Hargreaves entered into a subcontract with Coordinated to de-sign and construct works for Coordinated in connection with the re-development of the former Gazebo Hotel at Elizabeth Bay, NSW.
Coordinated sought a declaration that certain adjudication applications (by the 2nd and 3rd respondents) were void, or alternatively an order quashing these determinations, and also sought consequential relief against Hargreaves and the 4th defendant.
The point of law raised was whether a payment claim can be made under the Act for expenses incurred which were not directly attributable to the carrying out of construction work (as that term is used in the Act). Namely, expenses such as delay costs and interest recoverable under the contract.
The primary judge refused to grant the relief sought, dismissed Coordinated’s summons and ordered it to pay the respondent’s costs. Coordinated appealed from the decision of the primary judge.
Background to Coordinated No. 2
In Coordinated Construction Co. Pty Ltd v Climatech (Canberra) Pty Ltd & Ors [2005] NSWCA 229 (Coordinated No. 2), Climatech entered into a sub-contract with Coordinated to provide air conditioning and mechanical services in connection with the re-development of the former Gazebo Hotel at Elizabeth Bay.
Coordinated sought relief in the nature of prohibition and certiorari in relation to an adjudicator’s determination under the Act on the basis that there had been a failure to comply with the basic and essential requirements of the Act. In particular, sections 13(2)(a) and (b).
Coordinated argued that Climatech’s claim for damages for delay, which was compensable under the contract, did constitute a claim for payment “for” construction work in accordance with the Act.
The primary judge refused the relief sought and dismissed Coordinated’s summons. As in Coordinated No. 1, Coordinated appealed from the decision of the primary judge.
Decisions
The object of the Act is to ensure that any person who undertakes to carry out construction work (or to supply related goods and services under a construction contract), is entitled to receive, and is able to recover, progress payments.
Hodgson JA, in both cases, held that while the Act requires that a payment claim must indicate the amount claimed for construction, work carried out or for related goods and services supplied, the words “carried out” and “supplied” should not be given a narrow interpretation. His Honour went on to say that section 9(a) of the Act strongly suggests that such certain amounts may be included “whether or not they are for construction work or related goods and services.”
Hodgson JA also held that, regardless of whether a particular amount is characterised under a contract as damages or interest, any amount that a construction contract requires to be paid, is generally an amount due for that construction work carried out or related goods and services supplied. However, His Honour commented that it is possible that some delay damages might possibly not be construction work carried within the requirements of the Act.
Hodgson JA also held that any amount which is truly payable as damages for breach of contract is generally not an amount due for that construction work. If an amount is for off-site costs (such as office overheads) or other on-site costs it may be a question of fact and degree as to whether they are for construction work carried out or for related goods and services supplied.
His Honour held that it follows that there was no error of law on the face of the record, much less an error of the kind that could invalidate the adjudicator’s determination
Challenge to Brodyn
Coordinated also sought leave to re-argue Brodyn. In particular, that certiorari be not merely available where determinations are invalid but may extend to cases where determinations are not invalid but may be quashed, for example, for error of law on the face of the record.
Whilst Hodgson JA (Ipp JA agreeing) expressed the view that he was not persuaded that there were grounds to give leave to reargue Brodyn, Basten JA was of the view that there were factors which appear to weigh in favour of reconsideration of Brodyn. Those factors include that aspects of the reasoning in Brodyn appear to be wrong and are inconsistent with subsequent decisions of the High Court of Australia.
Basten JA went on to say that if Brodyn stands for the proposition that a determination may be challenged only if invalid (in the sense that it is attended by jurisdictional error), but may not be quashed for error on the face of the record, there is an arguable case for reconsideration.
Implications
These cases are a reminder of the significant implications of the Act for participants in the construction industry. When acting for principals or contractors who receive a payment claim or adjudication application under the Act, parties should take care and ensure that their payment schedule or adjudication response satisfies the requirements of the Act, and that they comply with the required timeframes.
When acting for contractors or sub-contractors who are seeking to serve a payment claim or an adjudication application, while parties may include delay costs or interest in a payment claim, they should take care and ensure that they properly identify the basis of claim under the contract in a payment claim. It should be remembered how-ever that the Court in these cases held that damages strictly for breach of contract will not generally constitute construction work under the Act.
After some 75 reported decisions in relation to the Act (in NSW alone), participants in the construction industry, including their lawyers and advisers, as well as adjudicators, can expect further judicial decision making in relation to the scope of the Court’s supervisory jurisdiction of adjudicator’s determinations.
For more information please contact:
Andrew Wallis, Partner
Environment and Planning
Tel: +61 2 8266 6671
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Ian Taylor, Senior Associate
Environment and Planning
Tel: +61 2 8266 6643
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