Mathew Stulic | Partner Construction & Projects 61 2 9291 6104 firstname.lastname@example.org
`Accepting that a valid payment claim depends upon the existence of a reference date, it would be inconvenient in the extreme if a dispute as to the existence of a reference date turned not merely on the construction of the contract (a question of law) and a finding as to the date on which the superintendent held the necessary opinion to issue a certificate, but rather on the satisfaction of a judge following a trial as to the date on which he or she considered that practical completion had been achieved. Such a conclusion would drive a horse and cart (or perhaps a B-double) through the legislative scheme.' - Abergeldie Contractors Pty Ltd v Fairfield City Council  NSWCA 113 at  (per Basten JA)
Why is a reference date important?
1. The issue of whether the existence of a `reference date' (as defined in the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act)) is a precondition to the validity of a payment claim is important because it dictates whether a dispute over a reference date can be brought before the courts on an application for judicial review. Since 21 December 2016, the law is that under the SOP Act, the existence of a reference date may be raised as a jurisdictional matter before the courts on an application for judicial review.
2. In Abergeldie, the NSW Court of Appeal appears to have attempted to place some constraints around the new judicial review landscape. In doing so however (and perhaps unintentionally), further difficult issues have arisen. The character of security of payment litigation is fundamentally changing. Using the recent decision in Abergeldie as a case study, this article attempts to identify some of the key issues and competing tensions that those in the construction industry must be aware of in this new, increasingly fluid, environment.
The reference date history in NSW
3. The jurisprudence in NSW can be viewed through several distinct phases:
a. In the period from the 2002 amendments to the SOP Act to about 2013, the conventional view in NSW was that:
i. It was clear from the new version of s 13(1) of the SOP Act, that the NSW Parliament intended that a payment claim can be validly made not only by a person who `is' entitled to a progress payment under s 8(1) but also by a person who `claims to be' so entitled.
ii. Flowing from this, the question of whether a claimed entitlement to submit a payment claim under the SOP Act exists in fact and law was said to be a matter for an adjudicator appointed under the SOP Act to decide rather than a matter for the courts on an application for judicial review. If that was not so, the words `claims to be', inserted into s 13(1) in the 2002 amendments, would be redundant.
iii. The conventional view in NSW was articulated by McDougall J in a series of cases in 2004 (Consolidated Constructions v Ettamogah Pub  NSWSC 110 at  and Kembla Coal v Select Civil  NSWSC 628 at -). Those twin decisions of McDougall J from 2004 were cited with approval by Hammerschlag J in Ampcontrol v Gujurat NRE  NSWSC 707 at ).
b. In 2014, two first instance decisions in NSW assumed (without determining) the contrary view to that expressed in 2004 by McDougall J and in 2013 by Hammerschlag J, namely that the existence of a `reference date' was a `jurisdictional fact' (see: Darke J in Omega House Pty Ltd v Khouzame  NSWSC 1837 and Ball J in Patrick Stevedores Operations No. 2 Pty Ltd v McConnell Dowell Constructors (Aust) Pty Ltd  NSWSC 1413).
c. The decision of Ball J sitting at first instance in Southern Han Breakfast Point Pty Limited v Lewence Construction Pty Limited  NSWSC 502 was handed down in May 2015. Building upon the position implicit in Omega House and Patrick Stevedores, Ball J held that whether or not a reference date has arisen under a construction contract is a `jurisdictional fact', with the consequence that such matters are ripe for contest on an application for judicial review before the Courts. Although not explicitly stating so, the practical implication of this decision was that it ran counter to the conventional view in NSW between 2003 and 2013.
d. In September 2015, in Lewence Construction Pty Limited v Southern Han Breakfast Point Pty Ltd  NSWCA 288, the NSW Court of Appeal (Ward JA, Emmett JA and Sackville AJA) unanimously restored the primacy of the conventional view in NSW prior to the first instance decision of Ball J in Southern Han and adopted the line of authorities commencing with McDougall J's decision in Kembla Coal.
The High Court's Decision in Southern Han
4. On 21 December 2016, the High Court of Australia sitting as a bench of five (Kiefel, Bell, Gageler, Keane and Gordon JJ) handed down its decision in Southern Han Breakfast Point Pty Ltd (in liquidation) v Lewence Construction Pty Ltd  HCA 52 in which it determined unanimously that the existence of a reference date under a construction contract is a precondition to the making of a valid payment claim under the SOP Act. In doing so, the High Court overturned what had been (apart from a brief period in 2014/2015) the conventional, settled position in NSW for over a decade.
5. Absent any legislative amendments, the issue has been settled authoritatively by Australia's highest court.
6. In practical terms, the post-Southern Han era draws new battlelines for judicial review applications under the SOP Act. In light of the High Court's decision, the Courts will now be required, at an early stage, to `become enmeshed in a determination of the contractual efficacy' of payment claims made under the SOP Act on an application for judicial review (see Hammerschlag J's reference to this scenario in Ampcontrol at ). It will also require the Courts to determine the `correct construction of the contract' and in some instances determine `difficult factual questions' on an application for judicial review (Ball J acknowledged this at  in Southern Han Breakfast Point Pty Limited v Lewence Construction Pty Limited  NSWSC 502).
7. The recent NSW Court of Appeal decision in Abergeldie Contractors Pty Ltd v Fairfield City Council  NSWCA 113 (Abergeldie) provides a useful example of some of the issues at play.
8. In Abergeldie, the principal and the contractor had entered into an amended version of AS4000. The standard form had been amended so as to control and define the `reference dates' after practical completion under the Contract. Clause 44 (which was a bespoke clause) provided that there are only two further reference dates after practical completion:
a. the first date for a progress claim immediately after practical completion (which was the 28th of each month - so in effect, the 28th day of the month immediately succeeding the achievement of practical completion); and
b. the time at which the final payment claim was required to be submitted (which would be after the expiration of the defects liability period).
9. The definition of `practical completion' in the Contract was slightly amended from the standard form, however it was nevertheless what would traditionally be described as an objective test, namely it was `....that stage in the carrying out and completion of WUC [work under the Contract] when....' six defined criteria were satisfied. From an administrative perspective, the Superintendent was charged with the role and function (at least in the first instance) of certifying (in a certificate of practical completion) whether (and when) practical completion was achieved. The definition of `date of practical completion' in the Contract was fairly conventional, namely:
`a. the date evidenced in a certificate of practical completion as the date upon which practical completion was reached; or
b. where another date is determined in any arbitration or litigation as the date upon which practical completion was reached, that other date.'
10. The contractor submitted payment claims under the SOP Act on 28 October 2016 and 25 November 2016 respectively. In `real time' (before the proceedings were commenced and prior to submitting both payment claims) the contractor issued a letter to the Superintendent asserting that practical completion had been achieved on 16 September 2016. Shortly after receiving the second payment claim on 25 November 2016, the Superintendent stated that a portion of the works has reached practical completion on 1 July 2016 whilst another portion had reached practical completion on 16 September 2016 (the original date contended for by the contractor). The contractor submitted the payment claim of 25 November 2016 to an adjudication under the SOP Act and won before the adjudicator. The respondent contended that practical completion had been achieved (as certified by the Superintendent) on 16 September 2016. This being the case, it contended that (apart from the time for the final payment claim which had not accrued yet) there was only one available reference date after practical completion 28 October 2016. A payment claim had already been made on 28 October 2016 and therefore the claim of 25 November 2016 (which was submitted to adjudication) must have been the second payment claim in respect of the 28 October 2016 reference date (in violation of s 13(5) of the SOP Act). The adjudicator did not accept this argument.
11. At first instance before Ball J in Fairfield City Council v Abergeldie Contractors Pty Ltd  NSWSC 166, the respondent in the adjudication (the Council) launched a jurisdictional challenge to the adjudication determination on the basis that there was no valid reference date to support the 25 November 2016 payment claim (a Southern Han-style jurisdictional challenge). This position in an application for judicial review was critically dependent upon a finding that practical completion had been achieved as at 16 September 2016 (because the terms of clause 44 detail the reference dates `after practical completion'). Though the contractor in `real time' through the course of the project contended that practical completion had been achieved on 16 September 2016, it changed tack in the judicial review proceedings and contended that practical completion did not occur on 16 September 2016 and had yet to occur as at the date of the proceedings. Though it was not apparent from the reasons given in the first instance decision, it is apparent from the Court of Appeal's decision that the respondent in the adjudication (the Council) served a significant amount of evidence shortly before the hearing before Ball J to support the conclusion that practical completion had occurred in July and September 2016. Though the details in the judgment are brief, this evidence was `not read and was rejected' at the trial. Notwithstanding this, Ball J held (at ) that since the contractor (in real time) asserted that practical completion had been achieved on 16 September 2016, the Superintendent ultimately accepted this and the Council did not take issue with this position before the Court. Therefore, there was `no dispute' that practical completion occurred on 16 September 2016. Importantly, Ball J held that this was not a case of giving primacy to the Superintendent's certificate as determinative of the achievement of practical completion but rather, `it simply means that the position taken by Abergeldie concerning practical completion was correct and that the contract should take effect on that basis.' For this reason, the Court held that there was no available reference date for the purposes of the SOP Act and quashed the adjudicator's determination on jurisdictional grounds.
12. The NSW Court of Appeal overturned the first instance decision and restored the adjudication determination. The route via which it arrived at this conclusion is intriguing.
13. At  to , Basten JA (who delivered the lead judgment in the Court of Appeal) stated that among other things the `fact finding exercise' (i.e. whether or not practical completion as defined had been achieved) had `failed' at trial. The contractor submitted that there was `no evidence' at the hearing before Ball J which would permit a factual finding to be made that practical
completion had occurred on 16 September 2016. It was open to the Court of Appeal to have allowed the appeal in Abergeldie on this basis alone. In other words, having concluded that there was no evidence at trial that permitted any conclusion to be drawn about whether practical completion had been achieved, it was open to the Court of Appeal to hold that in those circumstances, on an application for judicial review, the Court should not have disturbed the adjudicator's conclusion that there was a valid reference date for the purposes of the SOP Act.
14.Somewhat surprisingly however, the bulk of the Court of Appeal's judgment went further and was mainly focused on contractual rather than factual matters. The critical element in this part of the Court of Appeal's reasoning was that it held (as a matter of contractual interpretation) that it was the issue of the certificate of practical completion by the Superintendent which records practical completion, is the mechanism by which notice of practical completion is given and therefore provides the date on which practical completion is achieved. The Court of Appeal pointed to a number of contextual aspects of the Contract (see at  to ) which led it to this conclusion, but the nub of the reasoning is that the Court accepted that in assessing whether or not practical completion had been achieved under the Contract (which in turn was necessary to determine whether or not a reference date had arisen) the opinion of the original decision-maker (the Superintendent) was a precondition to the achievement of practical completion. This meant that the function of the Court was limited to determining whether that opinion was in fact formed by the Superintendent and if so, when. This was to be distinguished from a situation where the opinion of the original-decision maker (the Superintendent) may be relevant, but is not determinative (in which case it was for the Court itself to decide whether or not practical completion had been achieved on the evidence before it) (see ). Though two elements of the definition of `practical completion' in the contract in Abergeldie specifically refer to opinions of the Superintendent (sub-paragraph (a)(ii) and (c)), the definition of `practical completion' was described as `that stage in the carrying out and completion of WUC when' six sub-criteria were met. The Court held however that `...there is much to be said for the view that it is the opinion of the superintendent which is critical in respect of the requirements of that definition.' Much importance was placed on the date of practical completion by the NSW Court of Appeal. However, the reference date in this case was referable to `practical completion' (which is a defined term which is not connected to the certificate of practical completion), not the `date of practical completion' (which cross refers to the certificate of practical completion issued by the Superintendent).
15.Superintendents carry out a number of functions in a construction contract. The traditional certification functions of a Superintendent include: certifying entitlements to extensions of time to the date for practical completion; certifying increases in the contract sum; certifying monthly progress claims for payment; certifying whether (and if so, when) practical completion has been achieved and issuing a final certificate (which sets out the final reconciliation under the Contract). There is a considerable body of jurisprudence in Australia and the UK in relation to the status of certifications of a superintendent. These authorities were usefully summarised by McDougall J at  to  in Walton v Illawarra  NSWSC 1188. In those passages the Court referred to the Australian line of cases in Atlantic Civil Pty Ltd v Water Administration Ministerial Corporation (1992) 39 NSWLR 468 and Hawker Noyes Pty Ltd v New South Wales Egg Corporation (11 November 1998, unreported; BC 8801337) and compared and contrasted these cases with the English authorities in Northern Regional Health Authority v Derek Crouch Construction Co Limited  1 QB 644 and Beaufort Developments (NI) Ltd v Gilbert-Ash NI Ltd  AC 266. These cases may also be compared with the position arising out of WMC Resources Ltd v Leighton Contractors Pty Ltd  WASCA 10. The Australian line of cases referred to above have long been considered to generally
stand for the proposition that where the certification function of a superintendent involves the exercise of a discretion on the part of the Superintendent (for example the default valuation function in WMC Resources involved the valuation of an entitlement `in the sole discretion' of the Superintendent) this militates towards a view that the parties did not contractually intend for such certifications to be opened up and reviewed by an arbitral tribunal or the courts (and substituted with the assessment of the arbitral tribunal or the courts). This is to be contrasted with particular classes of certification by the Superintendent which involve the application of facts to be assessed objectively this suggests that a Superintendent's certification on that issue is not final and binding under the Contract without very clear words to that effect. In those circumstances, it has generally been considered (based on the authorities referred to above) that such certifications may be opened up and reviewed in subsequent proceedings. These matters (based on the line of cases referred to above) have been well established in Australia for some time and provide a fundamental framework within which the risk allocation model in construction contracts is developed and administered. The NSW Court of Appeal's reasoning in Abergeldie suggests that the pendulum has swung back towards the primacy of a Superintendent's certificate even in circumstances where the relevant certification function appears to involve the application of facts to an objective test. If that aspect of the reasoning in Abergeldie is correct, it is a very significant development in the law which will have major consequences for industry participants away from the security of payment arena.
16. The NSW Court of Appeal could have allowed the appeal in Abergeldie without wading into contractual matters, by simply relying upon the 5 paragraphs at  to  and thereby reached the same result. Perhaps wary of the risk of first instance judges in the Supreme Court of NSW being flooded with a larger number of more complex challenges to adjudication determinations in light of the High Court's decision in Southern Han, the NSW Court of Appeal went further in Abergeldie in what might have been a pragmatic attempt to stop the metaphorical `B-double' in the security of payment context. In doing so however, Abergeldie throws up a host of significant new issues for the industry in particular how one reconciles what the Court of Appeal has said in Abergeldie about the nature of a superintendent's certification under a contract with cases such as Walton v Illawarra, Atlantic Civil Pty Ltd v Water Administration Ministerial Corporation and Hawker Noyes Pty Ltd v New South Wales Egg Corporation.
What does the future look like?
17. In light of Abergeldie, the approach which the courts take to the reference date question in the post-Southern Han era in a termination context or a milestone date context will be interesting. In theory, if a contract provides for milestone payments and the accrual of a reference date is dependent upon the milestone being achieved, then an adjudicator's determination on this question is ripe for challenge on an application for judicial review. That could potentially be a multiple day case with extensive expert and lay evidence required to determine whether or not the milestone had been achieved. In Southern Han, the respondent (on an application for judicial review) contended that it had validly taken out work from the contractor's hands under an express contractual provision dealing with substantial breaches of contract, in circumstances where the builder contended (conversely) that the respondent had no right to take the balance of the contractual scope out of the contractor's hands. In Southern Han, the respondent made a tactical decision not to lead any evidence on these matters and instead took on the burden of arguing that on either scenario (whether or not its `take out' was valid), no reference date arose. It was ultimately successful on both hypotheses before the High Court. One could conceive of a situation however where, say for example, a principal considered that the builder was in substantial breach of contract, issued a notice of default, attempted to terminate the contract by reason of the said default and argued that no reference date thereafter arose upon which to make a payment claim under the SOP Act. If the builder elected to affirm the contract in that scenario, submit a payment claim under the SOP Act and succeed in an adjudication, the respondent (in light of the principles arising out of Southern Han) could make an application for judicial review in which whether or not it had a right to terminate the Contract would be centre-stage for the court to determine in order to assess whether a reference date accrued. This precise scenario has not been before the courts yet but there is a high probability that it will in due course. That type of case could involve a multiple-week trial, significant lay and expert evidence, documentary disclosure and the like. In effect, it will involve the courts determining (in the context of a judicial review application from an interim determination under the SOP Act) whether or not a contract has been validly terminated. It is difficult to see how such a metaphorical B-double can be stopped if the reasoning in Southern Han is applied.
18. The effect of the High Court's decision in Southern Han was clear absent legislative intervention, on an application for judicial review, the law in NSW is that whether or not a `reference date' has arisen is a matter that is ripe for ultimate determination by the Supreme Court of NSW on an application for judicial review. Anecdotally, this has seen
principals (vis-a-vis head contractors) and head contractors (vis-a-vis subcontractors) move towards strengthening contractual preconditions to the accrual of a `reference date' for the purposes of the SOP Act. Where the section 34 `anti-avoidance' line will be drawn by the courts in this new generation of contracts will no doubt be one of the emerging battlegrounds in security of payment litigation. The other issue in the post-Southern Han era is that, in theory, the nature of jurisdictional challenges to determinations made under the SOP Act based on `reference dates' will be far more complex as the courts are called on to effectively determine matters of finality (as an intermediate step to work out the reference date) in the context of jurisdictional challenges to an interim cashflow process. How parties can possibly know their statutory rights prospectively and with certainty in these circumstances is challenging as the Court of Appeal grappled with in Abergeldie. Abergeldie gives an insight into the NSW Court of Appeal's concerns about the `Southern Han effect' on its specialist construction list and its quest for pragmatic methods for putting some parameters around the judicial review landscape going forward. The method by which this occurred in Abergeldie was broader than it needed to be in order to arrive at the same result in that particular case. The result in the NSW Court of Appeal in Abergeldie was correct for the reasons expressed at  to  by the Court of Appeal. The reasoning in the balance of the decision however does not sit easily with the longstanding jurisprudence in cases such as Walton v Illawarra, Atlantic Civil Pty Ltd v Water Administration Ministerial Corporation and Hawker Noyes Pty Ltd v New South Wales Egg Corporation. What that means for risk allocation models in construction contracts and their conventional administration is a significant chapter to be shortly written. For example does the reasoning in Abergeldie open the door to an argument that a Superintendent's certification of an extension of time claim under the Australian Standard suite of contracts is presumptively unimpeachable?
19. How the legislature responds is a key space to watch. Any expectation on the part of the legislature in NSW, that in the post-Southern Han era, the judiciary can do all of the heavy lifting to stop the potential B-double being driven through the SOP Act which Basten JA adverted to in Abergeldie is unrealistic. As well as being unrealistic, it is also potentially dangerous for the industry more broadly, because following the High Court's decision in Southern Han, courts will search for pragmatic ways to draw boundaries around the new judicial review landscape under the SOP Act and in doing so, the tentacles of unintended consequences for construction contracts and their administration will progressively work their way through the system.