Kembla Coal & Coke v Select Civil [2004] NSWSC 628

What the court decided

On 1 April 2004 Select served a payment claim on Kembla for $2,554,898.25 [2]. The payment claim described itself as a "Final Payment Claim" [16]. On 28 May 2004 the adjudicator determined that Kembla should pay $1,761,886.70 exclusive of GST [6]. The contract was a construction contract under the Building and Construction Industry Security of Payment Act 1999 (NSW) [1]. Kembla's second challenge concerned the amendments made by the Building and Construction Industry Security of Payment Amendment Act 2002 (NSW) to sections 4 and 13(1) [8].

His Honour recalled his conclusion in Musico v Davenport that relief lies for jurisdictional error, including jurisdictional error of law on the face of the record [21]. The parties agreed that the existence of a reference date was a jurisdictional fact, but his Honour did not think this correct [26]. Under the amended section 13(1) a person who claims to be entitled to a progress payment may serve a payment claim, and the adjudicator considers only the matters in section 22(2) [33]. In his Honour's view the Act leaves a missing reference date to be raised by the parties and then determined by the adjudicator [39]. That analysis assumed that the transitional provision in Part 3 of Schedule 2 applied, as his Honour held it did [41]. It was accepted that the provisions as amended then governed [42].

If his primary analysis were wrong, the Superintendent's direction under clause 37 meant there was no reference date for the claim as a Final Payment Claim [70]. Including items from an earlier payment claim would not make the claim valid [71].

The adjudicator included $232,000 for preparation costs said to be payable under clause 40.5 [78]. Under section 9(a), a progress payment is in the first instance calculated in accordance with the terms of the contract [83]. His Honour agreed with the decision in Quasar Constructions v Demtech Pty Ltd but thought one paragraph of it too widely expressed [87], [93]. A progress payment may include preparation costs where the contract so provides [106]. That conclusion did not extend to entitlements assessed under section 9(b) by reference to section 10(1)(b) [107]. Even if that conclusion were wrong, relief would be refused in discretion because the challenge was not taken before the adjudicator [110].

The contractual entitlement to delay costs was the parties' bargain for compensating part of the true cost of a variation, not damages [121]. The adjudicator had not allowed delay costs as an allowance for damages [122]. Relief would in any event be refused in discretion for the same reasons [123].

In principle a claim for interest on unpaid progress payments is not itself an element of the progress payment [134]. His Honour expressed no concluded view about a contract that expressly made interest part of a progress claim [135]. The adjudicator erred and exceeded his jurisdiction in allowing compound interest, if he did [136]. Relief was refused in discretion, the point not having been put to the adjudicator and Select having a contractual entitlement to compound interest, although not as an element of a progress claim [136]. The claim for prerogative relief failed partly in principle and partly in discretion, and the summons was dismissed [137], [138].

Why it matters

The decision allows amounts that the contract makes a component of a progress payment to be included under section 9(a), but not interest on unpaid progress payments, leaving open a contract that expressly makes interest part of a progress claim. Relief may be refused where a point was not taken before the adjudicator, though his Honour said this cannot be a universal rule [110]. In Southern Han Breakfast Point Pty Ltd (in liq) v Lewence Construction Pty Ltd (2016) HCA 52 at paragraph 61 the High Court held that the existence of a reference date "is a precondition to the making of a valid payment claim", and at paragraph 47 it said that on that construction its existence is "not within the jurisdiction of the adjudicator to determine". That reasoning is inconsistent with this decision's holding that a reference date is not a jurisdictional fact but a point for the adjudicator to determine if raised, although the High Court's reasons do not discuss this decision. At paragraph 67 the High Court also relied on a passage of Barrett J in Quasar Constructions NSW Pty Ltd v Demtech Pty Ltd which this decision considered too widely expressed, but it did not consider contractual entitlements such as preparation or delay costs calculated under section 9(a). This decision applied the Musico v Davenport review framework, from which the Court of Appeal departed in Brodyn Pty Ltd v Davenport (2004) NSWCA 394 at paragraph 59, so far as it allowed certiorari against a determination that is not void, and in Transgrid v Siemens Ltd (2004) NSWCA 395 at paragraph 34, which treated an error in calculating the amount under section 9(a) as a mere error of law. In Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd (2010) NSWCA 190 at paragraph 108 the Court of Appeal later held that certiorari is available to set aside a determination made without an adjudication application complying with section 17(2)(a), and that Brodyn was to that extent in error. In Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd (2018) HCA 4 at paragraphs 2 and 35 the plurality, with Gageler and Edelman JJ concurring in separate reasons, held that the Act excludes certiorari for non-jurisdictional error of law on the face of the record. Readers should check the current text of the Act.

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.