COORDINATED CONSTRUCTION CO V J M HARGREAVES & ORS
Court of Appeal of New South Wales – 13 July 2005
[2005] NSWCA 228
FACTS
Coordinated Construction Co (‘Coordinated’) entered into a construction contract with J M Hargreaves (‘Hargreaves’) whereby Hargreaves agreed to carry out certain work in connection with the redevelopment of the former Gazebo Hotel at Elizabeth Bay. Hargreaves 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 “recovery of overheads, plant, staff and supervision costs……. due to architectural design changes which impacted on contract programme…” and a claim for interest. The dispute was referred to Adjudication and determined in favour of Hargreaves in the sum of $737,221.51. In determining the matter the Adjudicator reasoned that the delay damages and interest were sufficiently related to “for construction work” and, therefore, payable. Co-ordinated sought to set aside the AdjudicationDetermination on the basis that, in allowing the claims arising out of EOTs, the Adjudicator failed to comply with he basic and essential requirements of the Act. The failure was said to have arisen in the following way: (1) the Act requires Payment Claims to identify the “construction work to which the progress payment relates” and requires that the claimed amount and the progress payment be “for construction work carried out”; (2) that the delay damages arising from EOTs are not amounts due “for construction work carried out”; and (3) a basic and essential requirement of the Act – that the claimed amount and the amount awarded be for construction work carried out – has not been complied with by the awarding of the determination. The Supreme Court dismissed Co-ordinated’s claim to set aside the determination, 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.
ISSUE
Whether the Adjudicator’s Determination was void because of the inclusion of delay damages and interest.
FINDING
The Court found that delay damages and interest under this contract could be claimed to be due for construction work carried out or for related goods and services supplied. The Court held that even if section 13 is construed as limiting claims to claims for payment for construction work carried out or for related goods and services supplied, it would be for the Adjudicator to determine whether or not such amounts should be included in the amount determined. Accordingly, there was no error that could invalidate the determination.
QUOTE
Hodgson JA at paragraphs 38 to 45 delivered his decision, commenting at paragraphs 40, 41 and 43:
“[40] … in the case of a construction contract that provides that progress payments include certain amounts, s.9(a) strongly suggests that such amounts are to be included in progress payments required by the Act, whether or not they are for construction work or related goods and services… [41] In my opinion, the circumstance that a particular amount may be characterised by a contract as “damages” or “interest” cannot be conclusive as to whether or not such an amount is for construction work carried out or for related goods and services supplied. Rather, any amount that a construction contract requires to be paid as part of the total price of construction work is generally, in my opinion, an amount due for that construction work, even if the contract labels it as “damages” or “interest”; while onthe other hand, any amount which is truly payable as damages for breach of contract is generally not an amount due for that construction work. [43] If in substance they represent the increased cost or price of construction work actually carried out, in my opinion they are clearly for construction work carried out. If they represent the cost or price of goods or services actually supplied in connection with the construction work under the contract, they are for related goods or services supplied, even if not for construction work carried out.”
IMPACT
Claims for delay damages and interest can be validly included in a Payment Claim and so determined by an Adjudicator, if the claims represent the increased cost or price of construction work actually carried out. However, an amount for damages for breach of contract is generally not an amount “for construction work” and is not validly claimed.