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Halkat Electrical Contractors v Holmwood Holdings

HALKAT ELECTRICAL CONTRACTORS P/L V HOLMWOOD HOLDINGS P/L [2007] NSWCA 32

Court of Appeal of New South Wales – 28 February 2007

FACTS

Halkat Electrical Contractors Pty Ltd (“Halkat”) was retained by Holmwood Holdings Pty Ltd (“Holmwood”) as the electrical contractor for a building project. A Payment Claim made by Halkat was referred to adjudication under the Building and Construction Industry Security of Payment Act 1999 (NSW) (“the Act”). The Adjudicator determined that Halkat was entitled to a progress payment from Holmwood of $116,598.35. In determining Halkat’s entitlement, the Adjudicator admitted that he did not have evidence on which he could arrive at a value, but preferred Halkat’s valuation because Holmwood had made unmeritorious submissions elsewhere in its Adjudication Response which reflected on its credibility.

Holmwood brought an application in the Supreme Court to have the determination set aside. The Court found in favour of Holmwood, declaring the determination void on the basis that in preferring one assessment over the other simply because he was more inclined to believe that party, the Adjudicator had acted capriciously and his determination was not made in good faith.

Halkat appealed this decision to the Court of Appeal.

ISSUES

Was the Adjudicator’s determination void on the grounds of lack of good faith?

FINDING

The Court of Appeal upheld the decision of the trial judge, but found that rather than being void on the basis of a lack of good faith, the determination was void because the Adjudicator, in valuing the claim simply on the basis of which party was more believable, had considered matters which were outside the scope of section 22 of the Act.

QUOTE

Giles JA held [at 26 – 27] that:

“Section 22 of the Act required that the adjudicator determine an adjudicated amount (s 22(1)) by considering particular matters (s 22(2)). The adjudicator had to make a determination, and he did not make a determination if he arrived at an adjudicated amount by a process wholly unrelated to a consideration of those matters. But that is what the adjudicator did. He stated expressly in his reasons that he did not have evidence on which he could independently arrive at the value of the completed work, and that he adopted the appellant’s valuation in preference to that of the respondent because of the respondent’s unmeritorious challenges to the validity of the payment claim.

On the face of the determination, the adjudicator simply did not perform the task required by the Act, and his purported determination was not given greater respectability by the reference to his inclination “to believe the claimant rather than the respondent”: the unmeritorious challenges were not a basis for belief or disbelief, and in any event it was not correct to speak of believing a corporate body. The adjudicator did not comply with an essential precondition to the existence of a valid determination.”

IMPACT

In making a determination, an Adjudicator should confine their consideration to the following matters set out in section 22 of the Act:

(a) the Act,

(b) the construction contract,

(c) the payment claim, together with all submissions (including relevant documentation),

(d) the payment schedule (if any), together with all submissions (including relevant documentation),

(e) the results of any inspection.

And parties should present their claims accordingly.

Co-Ordinated Construction Co v Climatech

CO-ORDINATED CONSTRUCTION CO V CLIMATECH (CANBERRA) PTY LTD

[2005] NSWCA 229

Court of Appeal of New South Wales – 13 July 2005

FACTS

Co-ordinated Construction Co Pty Limited (‘Co-ordinated’), as contractor, retained Climatech (Canberra) Pty Ltd (‘Climatech’), as subcontractor, to provide air conditioning and mechanical services for the refurbishment project of the Gazebo Hotel in Elizabeth Bay, Sydney. Climatech submitted Payment Claims under the Building and Construction Industry Security of Payment Act 1999 (NSW) (‘the Act’). The Payment Claims contained claims for delay damages or delay costs arising from EOTs, that is, for “site supervision costs” and “office overheads” as a result of a delay. These Payment Claims were not paid, Climatech submitted an Adjudication Application and the matter was determined in favour of Climatech in the sum of $588,275.15. In determining the matter the Adjudicator concluded that the claims were variation claims and therefore payable. Co-ordinated sought to set aside the Adjudication Determination on the basis that, in allowing claims for delay damages and interest, the Adjudicator failed to comply with the basic and essential requirements of the Act. The Supreme Court dismissed Co-ordinated’s claim that the adjudication was void, holding that delay damages can be the subject of Payment Claims under the Act, if provided for by the terms of the particular Contract between the parties. Co-ordinated appealed to the Court of Appeal primarily on the grounds that a claim for delay damages and interest could not be validly made under the Act. This was dealt with in the decision of Co-ordinated Construction Co Pty Ltd v J.M. Hargreaves (NSW) Pty Limited [2005] NSWCA 228, which held that these claims could be valid. Co-ordinated also appealed on the grounds that the payment claim was invalid as it did not adequately identify the construction work or related goods or services in accordance with section 13(2) of the Act.

ISSUE

Whether the payment claim adequately identified the construction work undertaken.

FINDING

The Court found that the claim had been adequately identified.

QUOTE

Hodgson JA commented at paragraph 25:

“In my opinion, the relevant construction work or related goods and services must be identified sufficiently to enable the respondent to understand the basis of the claim; and in the case of “delay damages” of the kind involved in this case, it is generally sufficient (assuming that the contract itself is sufficiently identified) that the basis of contractual entitlement be shown. In my opinion, that would generally be enough to ground identification, at least by way of inference, of the construction work or related goods or services to which the payment relates.”

Hodgson JA continued at paragraph 26:

“In my opinion, failure adequately to set out in a payment claim the basis of the claim could be a ground on which an adjudicator could exclude a relevant amount from the determination. Further, even if in such a case a claimant adequately set out the basis of the claim in submissions put to the adjudicator, the adjudicator could take the view that, because the respondent was unable adequately to respond to this subsequent material (because of the provisions of s.20(2B) and s.22(2)(c) of the Act), he or she is not appropriately satisfied of the claimant’s entitlement. Generally however, in my opinion, it is for the adjudicator to determine if the basis of the claim is adequately set out in the payment claim, and if not, whether on this ground a relevant amount claim should be excluded from the amount of the progress payment determined under s.22(1).”

IMPACT

This case confirms the proposition that a payment claim must be reasonably comprehensible to the other party: that is, the payment claim should be supported by supporting documentation, where necessary, and should identify the basis of the contractual entitlement to the claim. Further, if the payment claim fails to adequately set out the basis of the claim an

Adjudicator may exclude that claim or determine that the claimant is not entitled to payment.

This publication is intended to be a topical report on recent cases in the construction, development and engineering industries. This publication is not intended to be a substitute for professional advice, and no liability is accepted. This publication may be reproduced with full acknowledgement.

Jim Doyle

Tel.: 1800 888 783

jdoyle@doylesconstructionlawyers.com
www.doylesconstructionlawyers.com

Britannia & ANOR v Parkline Constructions

BITANNIA PTY LTD & ANOR V PARKLINE CONSTRUCTIONS PTY LTD [2006] NSWCA 238

Court of Appeal of New South Wales – 28 August 2006

FACTS

Parkline Constructions Pty Ltd (“Parkline”) entered into a contract with a partnership between Bitannia Pty Ltd and Rossfield Nominees (ACT) Pty Ltd (“Bitannia”) for the construction of “The Ettalong Hotel”. Parkline had been, in accordance with the contract, submitting Payment Claims under the Building and Construction Industry Security of Payment Act 1999 (NSW)(“the Act”) to Bitannia’s architect, who had responded by providing Parkline with Payment Schedules.

The final claim by Parkline was sent to Mr Michael Brown, who administered the contract for Bitannia. The Payment Claim indicated that it had been copied to the architect. The claim had not in fact been sent to the architect, and as a consequence, Bitannia failed to respond with a Payment Schedule within the time allowed by section 14 of the Act. Parkline then proceeded to seek judgment in the District Court for the amount claimed pursuant to section 15 of the Act.

Bitannia sought to resist the claim on the basis that Parkline had engaged in misleading and deceptive conduct. The District Court held in favour of Parkline and awarded it the amount claimed.

Bitannia appealed the decision of the District Court to the Court of Appeal.

ISSUES

Does section 15(4)(b) of the Act prevent a Respondent from raising misleading or deceptive conduct under the Trade Practices Act 1974 (Cth) as a defence in proceedings for summary judgment brought under section 15(2)(a)(i) of the Act?

FINDING

The Court held that raising a contention that service was not effective because it involved misleading and deceptive conduct was not inconsistent with either of 15(4)(b)(i), which prohibits a Respondent from bringing a cross claim, or 15(4)(b)(ii), which prohibits the Respondent from raising any defence in relation to matters arising under the construction contract.

The Court held in favour of Bitannia, and set aside the judgment of the District Court.

QUOTE

Hodgson JA held at paragraph [8] and [9] that:

“[8] … it would not be in accordance that a corporation should be permitted to obtain a judgment against a defendant on a cause of action one essential element of which has been created by that corporation’s misleading conduct against that defendant…”

“[9] That kind of relief under the Trade Practices Act would not be appropriate to be sought in a cross-claim, because a cross-claim in substance accepts that the plaintiff is entitled to a judgment on its claim, and seekssomething to be set against that judgment; whereas the relief I have mentioned would altogether deny the plaintiff’s entitlement to a judgment, and so would be appropriate to be sought in a defence or possibly in an interlocutory application”.

Basten JA held at paragraph [96] that:

“Section 15(4)(b)(ii) precludes a respondent from raising “any defence in relation to matters arising under the construction contract”. But in truth, the defence raised did not arise under the contract, nor was it in relation to amatter arising under the contract: rather it was in relation to misleading or deceptive conduct on the part of the claimant”.

 IMPACT

Contractors should ensure that Payment Claims, and their service, are carefully executed and not misleading to ensure that their rights to judgment under the Act are not affected.

This publication is intended to be a topical report on recent cases in the construction, development and engineering industries. This publication is not intended to be a substitute for professional advice, and no liability is accepted. This publication may be reproduced with full acknowledgement.

Jim Doyle

Tel.: 1800 888 783

jdoyle@doylesconstructionlawyers.com
www.doylesconstructionlawyers.com