Veolia Water Solutions v Kruger Engineering [2007] NSWSC 46

What the court decided

It was common ground that the subcontract was a construction contract under the Building and Construction Industry Security of Payment Act 1999 [1]. Veolia alleged denial of natural justice and want of good faith as explained in Brodyn Pty Ltd v Davenport [5]. Its counsel did not suggest the good faith ground could succeed if natural justice failed [6].

On defective or incomplete work, the adjudication response and the statutory declaration of Mr Fenton, Veolia's project manager, were not matters the adjudicator was required to consider unless and to the extent that they could reasonably be regarded as submissions supporting the payment schedule [12], [22]. Even then, they could not supplement its deficiencies of particularity or proof [22]. The adjudicator considered the relevant parts of the payment schedule and did not deny natural justice [25], [26]. In any event, with that material treated at most as submissions, her factual conclusion on incomplete or defective work could not ground reviewable error [27].

On delay costs, Kruger alleged a failure to give timely site access and a suspension of the works [32]. Veolia submitted that its case in the payment schedule and before the adjudicator was that clause P47 defeated the claim however based [36]. On the better reading of the relevant parts of the payment schedule, taken in context, Veolia relied on clause P47 only against the clause P27.1 access basis [52]. General passages introduced confusion but, applying by analogy the maxim generalia specialibus non derogant, did not dispel the clear impression given by the specific responses, and Veolia could not exploit confusion of its own making [53]. If the adjudication response raised that clause as a separate reason, section 20(2B) forbade it [55]. Upholding the claim on the other basis, she had no need to consider the clause P27.1 basis [63]. She was not bound to refer to clause P47, because Veolia's material did not put a reasonable reader on notice that it relied on it against the suspension basis [64]. She therefore did not deny natural justice or otherwise relevantly err [65].

On valuation, the adjudicator held that clause P40.2(f) did not apply and that Kruger could at least rely on clause P40.2(c) reasonable rates [68]. Veolia submitted that this valuation went outside the payment claim [69]. Its written submissions relied not on natural justice but on Einstein J's analysis in John Holland Pty Limited v Cardno MBK (NSW) Pty Limited [70]. As Einstein J recognised there, natural justice was also involved [74]. McDougall J had held in Musico v Davenport that an adjudicator minded to decide on a basis neither party contended for must give notice [75], [76]. Particularly given Veolia's response, she could treat the dispute as one about clause P40.2 generally [83]. A dispute about the applicable valuation method in clause P40.2 was within the parameters of the payment claim [82]. Each challenge failed, the amended summons was dismissed and costs were reserved [87], [88].

Why it matters

In this ex tempore first instance decision, an adjudication response and statutory declaration counted under section 22(2) only as submissions supporting the payment schedule and could not repair its deficiencies [21], [22]. On his Honour's approach, a payment schedule is read in context and its specific responses may prevail over general passages; an adjudicator need not address a reason not fairly put against the basis decided, and section 20(2B) bars adding it later. 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.