In brief – Supreme Court upholds decision in Hanave v Nahas
The Supreme Court of NSW has determined that a disclaimer on an expert report cannot be a reason for setting aside an adjudication determination.
Disclaimers common in reports of expert consultants
It is common for reports of quantity surveyors and other expert consultants to contain a disclaimer providing that the reports are not to be used or relied upon by third parties for any purpose.
The effect of such a disclaimer was the subject of recent consideration in the Supreme Court of NSW in the context of a disputed adjudication determination under the Building and Construction Industry Security of Payment Act 1999.
In Hanave Pty Ltd v Nahas Construction (NSW) Pty Ltd  NSWSC 1476 the court held that an adjudication determination was not subject to challenge by reason of the adjudicator's consideration of an expert report containing such a disclaimer.
Design and construction contract leads to payment claim
In May 2008 Nahas Construction (NSW) Pty Ltd entered into an agreement with Hanave Pty Ltd for Nahas to complete the design and construction of a mixed use 17-level building and associated basement car park at 61-65 Wentworth Avenue in Sydney.
On 30 September 2011 Nahas served on Hanave a payment claim in the amount of $1,469,510.87 plus GST. The correspondence accompanying the payment claim indicated that a quantity surveyor's report would be provided to Hanave the following week.
Report of quantity surveyors to support Nahas payment claim
On 4 October 2011 Nahas provided to Hanave the report of quantity surveyors JPQS Pty Ltd, dated 29 September 2011. The correspondence accompanying the JPQS report indicated that it was provided to accompany the payment claim.
On 18 October 2011 Hanave served on Nahas a payment schedule under the Security of Payment Act in which it was indicated that Hanave proposed to pay the amount of $418,831.00 exclusive of GST. No specific mention was made of the JPQS report in Hanave's payment schedule.
On 20 October 2011 Nahas lodged and served an application for adjudication of the payment claim. In the adjudication application Nahas indicated that it had relied on the JPQS report in support of the payment claim.
Report of consulting engineers in adjudication response
On 26 October 2011 Hanave lodged an adjudication response. It stated that Hanave relied on a report of Vos Group Pty Limited, consulting engineers, dated 17 October 2011. The response submitted that the adjudicator should prefer the Vos report to the JPQS report.
Hanave also submitted that the JPQS report contained a general disclaimer and that JPQS did not intend its report to be relied upon by anyone other than Nahas.
Adjudicator finds Nahas entitled to payment
On 4 November 2011 the adjudicator appointed to determine the adjudication application determined that Nahas was entitled to payment of $1,542,334.06 inclusive of GST.
In determining the adjudication application the adjudicator indicated that he was satisfied that Nahas could rely on the JPQS report and that Hanave did not contend to the contrary.
He also noted that the JPQS report was more carefully prepared than the Vos report and that a report from a quantity surveyor was likely to be more accurate than a report prepared by engineers in determining the value of work performed.
Hanave seeks to quash adjudication determination
On 16 November 2011 Hanave filed a summons in the Supreme Court seeking:
- a declaration that the adjudication determination was not made bona fide and in good faith and was void and of no effect
- an order quashing or setting aside the adjudication determination
- an injunction restraining Nahas from taking steps to recover the money determined to be payable to Nahas in the adjudication determination
On that date Hanave obtained an order restraining Nahas from taking steps to recover the money the subject of the adjudication determination pending return of the summons. Hanave paid the $1,100,471.78 unpaid amount of the adjudication determination into court.
Disclaimer in quantity surveyor report
On 30 November 2011 the summons was listed for final hearing before Hammerschlag J.
At the final hearing Hanave submitted that the adjudicator failed to make a bona fide attempt to discharge his statutory functions. Hanave also submitted that the adjudicator denied Hanave natural justice by relying on the JPQS report notwithstanding the disclaimer and by failing to provide adequate reasons for relying on the JPQS report in light of the inclusion of the disclaimer.
The disclaimer in question was in the following terms: "DISCLAIMER - This report has been prepared for the exclusive use of the NAHAS CONSTRUCTION PTY LTD and should not be relied upon by any other third party for any purposes."
Hammerschlag J considered the wording of the disclaimer and noted that, notwithstanding any intention that JPQS might have had, the disclaimer did nothing more than convey that JPQS did not accept responsibility for reliance on the report by anyone other than Nahas. The disclaimer did not affect the admissibility of the JPQS report.
Further, His Honour noted that the adjudicator did not "rely" on the JPQS Report in the sense that the word "relied" was used in the JPQS report. Only Nahas "relied" on the JPQS report. The adjudicator considered that Nahas' reliance on the JPQS report was justified and accepted it in preference to the Vos report in making his determination.
Adjudicator entitled to rely on quantity surveyor report
As for Hanave's submission that the adjudicator failed to provide adequate reasons as to why he relied on the JPQS report in light of the disclaimer, the court noted that Hanave did not submit to the adjudicator that the JPQS report could not be taken into account by the adjudicator.
Hanave’s submission merely noted that, by reason of the presence of the disclaimer, JPQS did not intend its report to be relied upon by anyone other than Nahas. The court noted that the adjudicator's reasons were entirely adequate in light of Hanave's submissions.
The court held that Hanave's submissions were unsustainable and that the proceedings must fail. The court ordered that the summons be dismissed, that the injunction be dissolved and that the $1,100,471.78 amount paid into court by Hanave be paid out to Nahas. Hanave was also ordered to pay costs.
The decision provides clarification that adjudicators are entitled to consider reports containing such disclaimers when determining an adjudication application under the Security of Payment Act.
Declaration of interest: CBP Lawyers acted for Nahas Construction (NSW) Pty Ltd.
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