Trident was a subcontractor engaged by Lahey to carry out earth works at the North Beach Pavilion in Woolongong. Clause 40 of the subcontract concerned variation claims, placing an onus on the subcontractor to make a variation claim within 2 days of a direction by Lahey to vary works. Lahey gave Trident an instruction (which Lahey denied was a variation) concerning the earthworks, and Trident alleged that this was a variation in a payment claim made 14 months after the work was completed. There was no variation claim made by Trident under the contract.
Particularity of payment schedules
Lahey issued a payment schedule (under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act) broadly denying liability for the variation, stating: 'and as such we refer you to the Variation & Notice clauses within the contract'. Stevenson J noted that the Act states that a payment schedule 'must indicate why' the amount in the payment schedule is less than the amount claimed as well as 'reasons' for withholding payment (note: the equivalent Victorian act sets out this requirement in s15(3)). Stevenson J held that although particularity is required to 'a degree reasonably sufficient to apprise the parties of the real issues in dispute', sometimes the issue 'has been so expansively agitated in prior correspondence that the briefest reference in the payment schedule will suffice to identify it clearly' (at [30]:
[28] A payment schedule need not articulate the response to the payment claim as precisely as would be required in a pleading. However, "cryptic or vague" statements in a payment schedule as to the reasons for withholding payment are not sufficient. Particularity is required "to a degree reasonably sufficient to apprise the parties of the real issues in dispute" and "to enable the claimant to make a decision whether or not to pursue the claim and to understand the nature of the case it will have to meet in an adjudication". Sometimes, however, the issue "has been so expansively agitated in prior correspondence that the briefest reference in the payment schedule will suffice to identify it clearly": Multiplex Constructions Pty Ltd v Luikens [2003] NSWSC 1140 at [77] per Palmer J; cited with approval in Clarence Street Pty Ltd v Isis Projects Pty Ltd [2005] NSWCA 391; (2005) 64 NSWLR 448 at [27] per Mason P, with whom Giles and Santow JJA agreed; see also Nepean Engineering Pty Ltd v Total Process Services Pty Ltd [2005] NSWCA 409; (2005) 64 NSWLR 462 at [24] per Hodgson JA.Here, there was a previous application under the Act in relation to an earlier dispute, and the previous determination dealt with these contentions. Stevenson J held that the issue the subject of the adjudication had been 'expansively agitated' between the parties and the brief reference to that issue in the payment schedule was sufficient for the purposes of the Act.
Jurisdictional error
Lahey submitted to the Adjudicator that Trident was barred from claiming a variation as it had not complied with the contract. In ordering that Lahey pay Trident the amount claimed in Trident's payment claim, the Adjudicator held as follows:
"[Lahey] submits that the conditions of contract provide a bar on any variation made other than in accordance with the contract conditions. The Act provides at section 3 that a person who undertakes to carry out construction work under a construction contract is entitled to receive and is able to recover progress payments in relation to the carrying out of that work. I determine that where [Trident] has undertaken construction work it is entitled to payment for that work and the conditions of contract do not provide a bar to the payment for that work".Lahey submitted that the Adjudicator 'misapprehended the effect of the Act; that he thereby failed to discharge his statutory function under the Act and failed to consider something that the statute required him to consider, namely the terms of the contract between the parties.' Stevenson J agreed, and held that the Adjudicator committed jurisdictional error and failed to provide the parties natural justice by deciding a contractual issue on a basis not advocated by the parties.
Lahey submitted that the jurisdictional error was 'Proceeding in the absence of a jurisdictional fact; disregarding something that the relevant statute requires to be considered as a condition of jurisdiction, or considering something required to be ignored; and misconstruction of the statute leading to misconception of functions' [Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd [2010] NSWSCA 190; (2010) 78 NSWLR 393, and Kirk v Industrial Court of New South Wales (2010) 239 CLR 531] That is, the Adjudicator misapprehended the nature of his powers by disregarding something that the Act required to be considered as a condition of jurisdiction, leading to a misconception by him of his functions. Stevenson J held that the Adjudicator's reasons showed that the Adjudicator felt entitled to reject the bar to variation point by reference to the Act, and in doing so the Adjudicator fell into error.
Stevenson J, referring to the objects of the Act in s3 (also s3 in the equivalent Victorian Act), held that a fundamental matter for consideration by the Adjudicator is the terms of the contract between the parties, and that the Adjudicator had no basis to simply ignore the terms of the subcontract. As such, Stevenson J held that the misapprehension of the role played by s3 of the Act and the Adjudicator's failure to have regard to the terms of the subcontract was jurisdictional error.
Denial of natural justice by deciding a point not agitated
Stevenson J also noted that neither party submitted to the adjudicator that the Adjudicator should decide the bar to variation issue with reference to s3 of the Act. Stevenson J referred to McDougall J in Musico v Davenport [2003] NSWSC 977 at [107]-[108]: "'It follows, in my opinion, that where an adjudicator determines an adjudication application upon a basis that neither party has notified to the other or contended for, and that the adjudicator has not notified to the parties, there is a breach of the fundamental requirement of natural justice that a party to a dispute have 'a reasonable opportunity of learning what is alleged against him and of putting forward his own case in answer to it'". Stevenson J held that the Adjudicator acted in breach of the requirements of natural justice. Stevenson J also noted that had the Adjudicator alerted the parties to the intention to decide the bar to variation point by reference to s3 of the Act, it is obvious that submissions could have been put to change the Adjudicator's mind on the point (referring to Watpac Constructions v Austin Corporation [2010] NSWSC 168 at [144]-[147]).
Lahey Constructions Pty Ltd v Trident Civil Contracting Pty Ltd [2013] NSWSC 176 is an important case. It decides 3 critical issues which commonly occur in the context of security of payment claims, that is, adequacy of particulars in a payment schedule, the necessity for the adjudicator to consider the terms of the contract and the necessity for the adjudicator to decide the matter on the arguments raised by the parties.
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