Reviewing Adjudication Determinations – what’s the risk?

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What happened in this case?

Kuatro Build Pty Ltd (Kuatro), the Head Contractor engaged Elite Formwork Group Pty Ltd (Elite Formwork) to perform concrete formwork in relation to a residential development. Pursuant to Part 3 of the SOP Act, Elite served a payment claim in the sum of $1,649,252.99.[i] Kuatro then served a payment schedule contending that Elite in fact owed $965,129.40. Elite then lodged an adjudication application. The Adjudicator determined that Elite was entitled to a progress payment in the sum of $515,290.38.

Unsatisfied with the outcome of the Adjudication Determination, Kuatro challenged the determination in the Supreme Court of NSW, arguing that the Adjudicator had failed to consider key contractual provisions, including liquidated damages and variation clauses which amounted to a jurisdictional error.[ii] Kuatro effectively sought both interlocutory and final relief in respect of the Adjudicator’s determination. In doing so Kuatro argued that that the Adjudicator had based his determination on arguments neither party had raised and to which Kuatro was not given an opportunity to respond, amounting to a failure to provide procedural fairness and as a result, a jurisdictional error arose. [iii]

 

Kuatro also sought orders in the form of interlocutory relief to effectively prevent Elite Formwork from taking any further steps to enforce the determination which was granted by the Court.

What was the outcome?

Justice Hmelnitsky dismissed Kuatro’s application, finding no jurisdictional error was established in the Adjudication Determination. The Court held that the Adjudicator had considered the relevant materials and applied the statutory framework appropriately. The Court also emphasised that adjudication under the SOP Act is intended to be a swift and interim mechanism, and that judicial review is limited to cases of clear legal overreach or failure to address the dispute as framed by the parties.[iv]

The order for interlocutory relief via a stay of enforcement was also discontinued. Justice Hmelnitsky determined that if the stay of enforcement were to continue it would do so on the assumption that Elite Formwork was insolvent,[v] which differs greatly against the submissions Elite Formwork made in relation to its own beliefs as to its financial position, which was being solvent and possessing a ‘mere risk of insolvency’.

Secondly, Kuatro submitted that if Elite Formwork in its position were to use the funds kept in possession of the Court to pay debts, it would be formally considered a creditor of a company that is formally insolvent. [vi] These submissions were rejected on the basis that Elite Formwork’s financial position was a separate matter to the Subcontract that both parties had entered into initially. Overall, if Kuatro had succeeded in this dispute, the shaky financial position of Elite Formwork, when considered with its potential to remain liable to Kuatro, is a risk imposed on all parties that bring proceedings pursuant to the SOP Act.

What do you need to keep in mind?

The decision in Kuatro provides us with many key takeaways, including the following:

Finality: Adjudication determinations are difficult to overturn unless a clear jurisdictional error can be demonstrated (where the adjudicator has acted outside the adjudicator’s powers), the courts will not intervene and reassess the merits of an adjudicator’s determination.

 

Front-Load Arguments: The SOP Act affords little room for second chances. Contractors and sub-contractors must ensure their payment claims, payment schedules, adjudication applications and responses comprehensively address all relevant entitlements, defences, and contractual arguments in the first instance.

 

Prevention is better than litigation: Disputes like Kuatro underscore the value of early legal advice, clear contractual drafting, and proactive contract administration. Minor oversights in the early stages of a project can trigger major downstream consequences.

 

However, this is much easier said than done, so if you or anyone you know requires assistance with preparing contracts or an adjudication, Bradbury Legal is a specialist building and construction law firm. Contact us on (02) 9030 7400, or at info@bradburylegal.com.au

 

[i] Kuatro Build Pty Ltd v Elite Formwork Group Pty Ltd [2025] NSWSC 372 (‘Kuatro’) [3].

[ii] Ibid [23]-[27].

[iii] Ibid [16].

[iv] Kuatro[17]; Martinus Rail Pty Ltd v Qube RE Services (No.2) Pty Ltd [2025] NSWCA 49 [57].

[v] Corporations Act 2001 s 459C.

[vi] Kuatro [83].

No claim “for construction work”? No problem

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Key takeaways from EnerMech Pty Ltd v Acciona Infrastructure Projects Australia Pty Ltd [2024] NSWCA 162

In this significant judgment, the Court of Appeal overturned the decision of Justice Stevenson and the previously accepted view that a payment claim made under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act) must specifically be “for construction work”.

Background

In 2020 the appellant, EnerMech Pty Ltd (EnerMech), entered into a subcontract with the respondent, Acciona Infrastructure Projects Australia Pty Ltd (Acciona) for electrical installation works for the construction of the WestConnex M4-M5 link. Under the subcontract, EnerMech was required to provide security. In compliance with the subcontract, EnerMech procured a bank guarantee as security in the amount of $9,230,157.40 (security).

In May 2023, Acciona called upon the bank guarantee and was paid the security.

In June 2023, EnerMech served a payment claim on Acciona in which it sought to recover the security amount obtained by Acciona in exercise of its contractual entitlement, as well as variation works.

Acciona responded with a payment schedule in which it accepted the variation work and indicated that no amount was payable as there was no claim “for construction work”.

EnerMech lodged an adjudication application, and the adjudicator determined EnerMech was entitled to its claim under the Act.

Acciona then commenced proceedings in the Supreme Court to have the adjudication determine quashed. Acciona’s position was that the payment claim was invalid because it was not a claim for payment “for construction work”, rather it sought to recover the security amount which it had obtained in exercise of a contractual entitlement.

Key issues in dispute

Acciona claimed that EnerMech’s claim was invalid under the Act as it did not meet the definition of ‘progress claim’ as defined in section 4 of the Act, as follows (emphasis added):

progress payment means a payment to which a person is entitled under section 8, and includes (without affecting any such entitlement)—

(a)   the final payment for construction work carried out (or for related goods and services supplied) under a construction contract, or

(b)   a single or one-off payment for carrying out construction work (or for supplying related goods and services) under a construction contract, or

(c)   a payment that is based on an event or date (known in the building and construction industry as a “milestone payment”).

Further, Acciona contended EnerMech’s claim fell outside the operation of the Act, and therefore the Act was not engaged and the adjudicator did not have jurisdiction to determine the claim.

In December 2023, Justice Stevenson held that the payment claim was not ‘for construction work or related goods or services’ and therefore EnerMech’s claim did not fall within the ambit of the Act. Accordingly, the adjudication determination was set aside.

Appeal

In February 2023, EnerMech appealed the decision.

The issues to be determined on appeal were:

  • whether a payment claim can only be made ‘for construction work’ and
  • whether the Court had jurisdiction to review the adjudicator’s determination.

With respect to the first issue, the Court of Appeal determined that:

  • in accordance with section 9 of the Act, the amount of a progress payment to which a person is entitled “in respect of a construction contract’ (not “for construction work”) is to be calculated in accordance with the terms of the contract;
  • in relation to section 13(1) of the Act; it does not limit the amount or nature of a payment in which a party is entitled to under a construction contract and does not create an implied condition as to the validity of a payment claim; and
  • a payment claim must be for an amount of money which is payable for work done, goods supplied, or services rendered under a construction contract.

As the Court of Appeal had found EnerMech’s claim to be valid, it did not need to address the second ground on appeal. The Court, however noted that an adjudicator’s understanding of a construction contract, even if legally incorrect, and whether the amount claimed under the contract is payable, is a matter for the adjudicator and could not be challenged.

Outcome

The Court of Appeal dismissed the Supreme Court’s decision to set aside the adjudication determination.

The Court of Appeal’s decision has in some respects, overturned the status of quo and the previously accepted view that a claim under the Act was only valid “for construction work under a construction work”. Like EnerMech, this decision may benefit claimants and provide a means to claim for a reversal of   bank guarantees or other security under construction contracts. Careful consideration will need to be given in relation to how payment claims are formulated in instances where a claimant is claiming the contractual price of construction work that may include security.

A new year and debts still on the books? Here’s what contractors in NSW can do to get paid

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In the construction industry, contractors often face the challenge of getting paid on time and, as we all know, cash flow is king. Under the Building and Construction Industry Security of Payment Act 1999 (NSW)(SOPA), there are several options available to contractors as “claimants” to enforce their rights to payment.

  1. Recovering the debt through Court action

If a respondent (the party up the contractual chain) fails to respond to a valid payment claim with a payment schedule, the respondent becomes liable to pay the claimed amount as a debt due and payable under section 14(4) of SOPA.[1]

Section 15(2) of SOPA also allows claimants to issue a notice of intention to suspend work under the contract and either elect to commence proceedings to recover the claimed amount or proceed to adjudication under SOPA.

If the claimant chooses to pursue the debt through legal proceedings, the respondent is prohibited from raising any cross-claim against the claimant[2] or defence related to matters arising under the construction contract.[3]

However, litigation can be time-consuming and costly, involving court fees, legal representation and other associated costs. While a successful claim may allow for the recovery of some of these costs, court proceedings are typically more complex, slower (often taking months or even years) and are generally more expensive than alternative enforcement options. Legal action is usually only commenced, at this point, if there is a strategic reason to do so.

  1. Proceeding to Adjudication

Adjudication typically offers a faster, more cost-effective alternative to court proceedings. If the respondent fails to provide a payment schedule within the required time,[4] claimants can apply for adjudication under section 17(1)(b) of SOPA.

The claimant must first serve a written notice of intention to apply for adjudication (Adjudication Notice or a section 17(2) notice) on the respondent within 20 business days after the payment due date.[5] If the respondent does not respond with a payment schedule within 5 business days,[6] the claimant can lodge an Adjudication Application within 10 business days to an authorised nominating authority.[7]

Section 21(3) requires the adjudicator to decide the application as quickly as possible, and in any case, within 10 business days from the lodgement of an adjudication response by the respondent or when the adjudication response was due (unless the parties agree to further time).

The adjudication process typically takes a couple of months and results in a binding interim decision if the claimant is successful.

The adjudicator’s determination is enforceable, and if the respondent fails to pay any adjudicated amount, the claimant can request an Adjudication Certificate,[8] which can be filed as a judgment debt in court.[9]

This process ensures a quicker resolution compared to litigation, helping to prevent payment delays and improve cash flow in an industry plagued by payment issues and the constant risk of insolvencies.

  1. Issuing a Payment Withholding Request

In cases where an adjudication application has been lodged, claimants can issue a payment withholding request to the principal (usually the developer) to withhold payment from the head contractor (the respondent in this case).[10] This enables the claimant to receive payment directly from the principal, provided the conditions of SOPA are met.[11] This option can be executed relatively quickly, often within the same timeframe as the adjudication process, and therefore does not typically delay the recovery process.

Recommended Strategy: Adjudication

While each enforcement option has its merits, adjudication is typically the most efficient and cost-effective choice for preserving the lifeblood of the construction industry – cash flow. It provides a swift, binding interim decision that can be enforced. If the respondent fails to comply with the adjudicator’s determination and pay the adjudicated amount, the claimant can then take enforcement action to recover the debt.

It is important to note that determinations under SOPA are interim and do not constitute a final determination of the parties’ rights. However, in practice, most parties tend to accept the determination, as there are limited grounds for setting them aside, and often, it is not commercially viable to proceed to Court (depending on the amount claimed and the parties’ appetite for litigation).

In summary, claimants in NSW have options under SOPA to secure payment. By choosing the right enforcement option based on the circumstances, claimants can take decisive steps to secure the payments owed when payment disputes cannot be resolved.

Bradbury Legal is a specialist building and construction law firm. If you or anyone you know requires advice or assistance, reach out to us on (02) 9030 7400, or email us at info@bradburylegal.com.au to see how we can assist you.

 

[1] Assuming a valid payment claim was served in compliance with s 13(2) of the Building and Construction Industry Security of Payment Act 1999 (NSW)(SOPA), and within the time stipulated by s 13(4) of the SOPA, that is, according to the time stated in the contract, or 12 months after the relevant construction work was carried out or related goods or services were last supplied, whichever is later.

[2] See s 15(4)(b)(i) of SOPA.

[3] See s 15(4)(b)(ii) of SOPA.

[4] See s 13(4) of SOPA.

[5] See s 17(2)(a) of SOPA.

[6] See s 17(2)(b) of SOPA.

[7] See s 17(3)(e) of SOPA.

[8] See s 24(1)(a) of SOPA.

[9] See s 25(1) of SOPA.

[10] See s 26A(1) of SOPA.

[11] See s 26A of SOPA

KENNEDY CIVIL CONTRACTING PTY LTD (ADMINISTRATORS APPOINTED) v RICHARD CROOKES CONSTRUCTION PTY LTD; IN THE MATTER OF KENNEDY CIVIL CONTRACTING PTY LTD [2023] NSWSC 99

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This case concerns the issue of whether an insolvent company’s creditors are able to enter into a DOCA to recover payments that would have been lost upon entry into liquidation and, furthermore, whether this comes into a direct conflict with the Building and Construction Industry Security of Payment Act 1999 (SOP Act).

 

FACTS

On 1 November 2021 Kennedy Civil Contracting began the process of carrying out construction work on behalf of its principal Richard Crookes Construction. Following this, under the SOP Act, KCC served several payments claims to RCC. However, only some of these payment claims were responded to by RCC.

 

On 1 August 2022, administrators at KCC determined that they were “hopelessly insolvent”. Yet the decision was made on 29 September 2022 to pursue sections 15 and 16 of the SOP Act (which address the consequence of a failure of correct payments) in direct response to the RCC’s failure to make the correct payments, or payments at all. KCC then entered into a Deed of Company Arrangement (DOCA) as per Part 5.3 A of the Corporations Act in order to avoid liquidation.

 

In response to this action, on 9 November 2022 RCC claimed that this action by KCC was an abuse of process and sought that their DOCA be terminated. Despite this, on 10 November 2022, KCC entered into a ‘Holding DOCA’ in order to allow for the proceedings under SOP Act to continue, while simultaneously acknowledging that liquidation would occur at a later date.

ISSUE

The main issue before the Supreme Court was whether there was an abuse of process. The Supreme Court considered whether KCC’s decision to enter into the DOCA was being done in order to avoid operations of section 32B of the SOP Act which notes that the SOP Act does not apply to a construction company in liquidation (“A corporation in liquidation cannot serve a payment claim”).

HELD

The RCC argued that the entering into a DOCA for the purpose of avoiding section 32B of the SOP Act was, in fact, an improper purpose.

The Court found that the RCC’s argument was not valid as it did not draw on the correct authorities that noted DOCA’s use to circumvent the SOP Act, but rather the Corporations Act. Furthermore, Ball J considered that entering into a DOCA was to serve the purpose of giving the corporation the best chance of maximising returns. Hence, the Court found that the ‘Holding DOCA’ used by KCC remained within the scope of the SOP Act, therefore it did not need to be terminated.

 

Secondly, and relating to the first point here, it was held that no abuse of process had occurred in this matter due to the fact that KCC had appropriately used a ‘Holding DOCA’. This was critical in considering the scope of section 32B of the SOP Act in addition to preserving a company’s right to enforce payment claims.

TO CONSIDER

This case is highly significant as it considers the scope an application of section 32B of the SOP Act. Here, construction companies who are potentially facing hardship in terms of their cashflow now have a significant chance of being paid by their debtors if they enter into administration and should continue to submit valid payment claims under the SOP Act, notwithstanding that they may be entering into administration.

AMENDMENTS MADE TO THE SECURITY OF PAYMENT REGIME IN NSW – WHAT BUILDERS NEED TO KNOW

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Further reforms to the Building and Construction Industry Security for Payment Act 1999 (NSW) (the Act) have been proposed with the Building and Construction Legislation Amendment Bill 2022 (the Bill) and in the Building and Construction Legislation Amendment Regulation 2022 (the Regulation). The Bill outlines various proposed amendments in relation to the role of adjudicators, the threshold of value of projects when triggering retention funds, and regarding the process of serving payment claims.

Proposed Amendments

The following are the key proposed amendments:

  • The introduction of an ‘adjudication review model’ will allow claimants and respondents to request a review of an adjudication determination.
  • There will be a significant reduction in the threshold of the value of projects in triggering retention funds from $20 million to $10 million.
  • Payment claims which are served on owner occupiers will need to attach a Homeowners Notice information to the payment claim to ensure homeowners understand the SOPA provisions relating to payment claims and to outline the consequences of non-compliance.
  • Increasing the powers of adjudicators in engaging experts to investigate aspects relevant to the adjudication.

Adjudication Review Model

The adjudication review model will allow claimants and respondents to request a review of an adjudication determination.

However, there will be some restrictions in applying for a review of a determination. The determined amount must be:

  • Equal or greater than $100,000 of the scheduled amount; or
  • Less than $100,000 of the claimed amount.

While this amendment will allow parties to have a determination reviewed in specific circumstances, it will also add a layer of extra time and cost to the adjudication process. This is despite security of payment processes generally being considered a timely and less expensive means to resolve payment claim disputes.

Decrease in Threshold When Triggering a Retention Fund

The threshold of the value of a project which requires a retention fund will be reduced from $20 million to $10 million. This will allow for greater protection of retention funds held for the benefit of subcontractors, especially in circumstances where the head contractor becomes insolvent.

New Requirements for Payment Claims

The Bill has proposed changes with respect to the issuing of payment claims to homeowners, with the new requirement that there be a Homeowners Notice enclosed.

The Homeowners Notice will include information regarding the reason that the payment claim is being issued, the correct procedure in responding to the payment claim, and the consequences of disregarding the payment claim.

The Homeowners Notice has been proposed due to the level of uncertainty among homeowners who are unfamiliar with the security of payment regime. It is inferred that issuing a Homeowners Notice will allow homeowners to adequately understand the procedure under the security of payment regime and respond appropriately.

Strengthening the Powers of Adjudicators

The Bill endeavours to afford adjudicators further power in settling disputes. In brief, the powers will extend to adjudicators engaging an independent expert to investigate the relevant works and provide a report indicating their findings.

To Consider

In light of the proposed amendments to the security of payment regime, it is crucial that those who are involved in the construction industry are aware of the proposed changes and, if implemented, take note of the date the legislation will be in effect.

Please click the following link to access the Bill and Regulation:

Regulations link

Bill link

WESTERN AUSTRALIA LEGISLATIVE REFORMS FOR SECURITY OF PAYMENT- THE BUILDING AND CONSTRUCTION INDUSTRY (SECURITY OF PAYMENT) ACT 2021 (WA)

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OVERVIEW

The Building and Construction Industry (Security of Payment) Act 2021 (WA) (the “new Act”) will introduce new security of payment laws that aim to provide a higher level of protection for contractors in recovering payments.

The first stage of reforms will take effect on 1 August 2022 and the following stages will be effective from 1 February 2023 (Stage 2) and 1 February 2024 (Stage 3). It is important to note that all construction contracts entered into prior to 1 August 2022 will continue to be subject to the Construction Contracts Act 2004 which, as of the date of enforcement, will be referred to as the Construction Contracts (Former Provisions) Act 2004.

CHANGES TO BE IMPLEMENTED

The new Act introduces additional rights to payment under construction contracts and further avenues to recover payments owed to contractors.

The changes to be implemented include but are not limited to:

New Security of Payment Laws

  • Payment timeframes where a payment claim is made will be shortened to 20 business days for the head contractor on a project, 25 business days for subcontractors, and 10 business days for certain types of home building works;
  • If no payment schedule is provided, the respondent is required to pay the amount claimed and will be unable to respond to any application for adjudication;
  • A rapid adjudication process will be implemented with the time period for bringing an adjudication application being reduced from 90 to 20 business days;
  • There will be a prohibition of certain contract terms including “pay when paid” and unfair time bars; and
  • There will be a right to suspend work for reasons of non-payment of progress claims.

Retention Trust Scheme

A retention trust scheme will now apply to construction contracts valued over $1 million and the minimum contract value for the scheme to be applicable will be lowered to contracts over $20,000 (by regulations).

To protect retention money in the event of insolvency, the money held or withheld under a construction contract will be held in trust for the benefit of the party who provided the money.

Expanding the Powers of Building Industry Regulators

Building industry regulators will now have the authority to exclude persons with a history of financial failure from the registered building contractor market. This is to prevent persons from contracting with incompetent or predatory businesses.

Further, persons who exercise intimidation or threatening behaviour to prevent another from exercising their rights under the new Act may be prosecuted.

 

TO CONSIDER

With the introduction of legislative reforms with regards to security of payment in Western Australia, it is essential for contractors to become familiar with the additional rights that arise under the new Act, and for principals to be aware of the importance of providing a valid payment schedule when served a payment claim and managing their finances accordingly.

If you require further information, please see the Action Plan for Reform dated September 2021 and issued by the Department of Mines, Industry Regulation and Safety, or contact our office to speak to one of our lawyers to discuss how the new Act will apply to your construction contract.

 

The Importance of Distinguishing Domestic Works in Construction Contracts- Applying the Victorian Security of Payment Act to Contracts for Mixed-Use Developments

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Overview

The application of the Building and Construction Industry Security of Payment Act 2002 (SOP Act) and the Domestic Building Contracts Act 1995 (DBC Act) were considered in the recent decision in Piastrino v Seascape Constructions Pty Ltd [2022] VSC 20, which emphasises the importance of avoiding ambiguity when drafting contracts, particularly when it involves domestic building work or mixed-use development projects. Clear drafting can protect builders under the SOP Act and limit the likelihood of the contract being excluded under the Act as “domestic building” works.

The Facts

A construction contract was entered into between Seascape Constructions (Builder) and Mr and Mrs Piastrino (Owners). It was agreed that the following works were to be completed:

  1. The construction of four apartments;
  2. Modifications to be made to a hair salon; and
  • The installation of a car stacker.

Following a dispute between the Builder and the Owners, the Builder issued an Adjudication Application under the SOP Act.

The Owners disputed this application on the basis that the SOP Act excludes domestic building contracts as per section 7(2)(b) which provides that the Act does not apply to:

a construction contract which is a domestic building contract within the meaning of the Domestic Building Contracts Act 1995 between a builder and a building owner (within the meaning of that Act), for the carrying out of domestic building work (within the meaning of that Act), other than a contract where the building owner is in the business of building residences and the contract is entered into in the course of, or in connection with, that business.

The determination concluded that the SOP Act did in fact apply and that the adjudicator therefore had jurisdiction to issue a determination under the SOP Act.  The adjudicator’s reasoning included consideration that the Owners were in the business of building residences and that the above exception applied.  The Owners applied to the Court for a certiorari to override the adjudicator’s determination.

Proceedings

Three questions arose when the Court considered whether the exclusion in section 7(2)(b) applied in the above-mentioned circumstances.

Mixed-Used Developments and Domestic Building Work

The first question was whether the exception under section 7(2)(b) regarding mixed-use developments applied. Namely, if there was domestic building work in addition to work of a different nature that had been distinguished in the contract.

Under section 12(2) of the DBC Act, a builder is only entitled to payment for carrying out domestic building work if the builder clearly identifies and distinguishes:

(a) the domestic building work from the other work or reason; and

(b) the amount of money the builder is to receive under the contract as a result of carrying out the     domestic building work from the amount of money the builder is to receive under the contract as a result of carrying out the other work or for the other reason.

It was found that the Contract did not distinguish the domestic building work from any other kind of work.

As a result, the Court applied the “dominant character” test in determining whether the construction works under the Contract were considered domestic building work, upon which the SOP Act would apply to the entirety of the contract. As the Contract involved the construction of apartments, the Court held that the dominant character of work was that of domestic building work, meaning that the exclusion under section 7(2)(b) could potentially be applicable to the contract as a whole.

The Business of Building Residences

Although the Owners had a minor victory in relation to the first question with the Court concluding that the building works were not considered “mixed-use developments”, it was held that despite this, the Owners were in the business of building residences and that the construction contract was entered into in connection with that business. Though the Owners had not previously engaged in the business of building residences, their initial intention of entering into the Contract for the purposes of contracting and leasing the apartments for profit in the future was found to be in the course of business. It was further found that the commercial scale and nature of the project to redevelop the property and the long-term objective of holding the property as an investment aligned with the scope in relation of business of building residences.

Accordingly, the section 7(2)(b) exclusion of the SOP Act did not operate in the favour of the Owners and the application for certiorari to quash the adjudication determination was denied.

 

To Consider

As highlighted in this matter, it is crucial that builders distinguish “domestic building work” as required under the DBC Act. This is to avoid a potential fine under the act, in addition to preventing pecuniary losses in circumstances where the “dominant character” of the work is found to be domestic building work, the consequences of which would potentially lead to the construction contract, as a whole, being excluded from section 7(2)(b) of the SOP Act. Likewise, even when carrying out domestic building work, it is important for principals to consider the nature of the construction contract at hand and be aware that the SOP Act could potentially apply to the project.

Jurisdictional argument derails application for summary judgment under security of payment legislation

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The District Court recently considered whether a defendant was able to claim works the subject of a payment claim under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act) were performed under more than one contract, despite this reason not being included in any payment schedule issued by the defendant.

In Cosmo Cranes & Rigging Pty Ltd v EQ Constructions Pty Ltd [2022] NSWDC 6, the plaintiff issued two payment claims which included amounts for works completed the subject of variations which had been previously rejected by the defendant.  The defendant did not issue a payment schedule in response to either payment claim.

In seeking summary judgment, the plaintiff submitted that the defendant was unable to dispute the amount payable in respect of these variations as no payment schedule had been issued (see section 15(4) of the Act).  However, the court preferred the submission of the defendant that because it was arguable that the variations were in fact different contracts, there was a question as to whether a valid payment claim under the Act had been served. The court relevantly stated:

Although section 15(4)(b) of the Act places a limitation upon matters which a respondent may raise in opposition to a proceeding to recover a debt sourced in the Act, in order to obtain a judgment, it still remains necessary for a claimant to establish that the respondent was liable to pay the debt (ss 15(4)(a) and 15(1)).  Such liability in the respondent will only arise if, in fact, a valid payment claim has been issued (under s 14(4)(a)).  A payment claim cannot be valid if it claims for work performed under two or more contracts.

The defendant also argued a set-off applied in respect of late and defective works, which had the effect of reducing the plaintiff’s claim.  However, on this point the court decided the set-off should have been properly raised in a payment schedule as a defence arising under the construction contract (see section 15(4)(b)(ii) of the Act).

The court ultimately decided not to order summary judgment.  This decision is a timely reminder that when considering applying for summary judgment, a payment claim must comply with the requirements of the Act.  If a jurisdictional issue is raised by the defendant which submits that the payment claim does not comply with the Act, even when this reason is not included in a payment schedule, courts are generally reluctant to award summary judgment.  The matter will proceed to hearing whether these jurisdictional issues can be properly considered by the court.

This is undoubtedly frustrating to plaintiffs who may not be aware that their payment claim does not comply, particularly if the plaintiff properly considered the works to be variation works and not pursuant to another construction contract.  Given the nuances of the Act, if a project seems to be becoming contentious, it may be valuable to engage a lawyer to minimise the risk of jurisdictional issues associated with payment claims and enforcement options under the Act.

How security of payment mistakes can turn the tables in a negotiation

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We recently assisted a contractor client on a major infrastructure project in Queensland who was engaged in the early stages of dispute with the principal.  The contractor claimed to be entitled to significant additional time and costs under the contract, yet was facing a principal who:

  1. was generally unwilling to engage and properly consider the contractor’s claims; and
  2. had routinely failed to correctly apply contractual provisions.

Some of our client’s claims had been under consideration or assessment for several months and when decisions were ultimately made, reasons for those decisions were scarce or demonstrated the principal’s failure to properly consider the claims and apply the contract.

Strategy

We developed a without prejudice paper for the contractor to submit to the principal.  This paper set out in detail the contractual and evidentiary basis for the contractor’s claims and included the provision of expert reports where necessary.  The claims were ultimately put to the principal by contractual notices and open letters, which were then being discussed and negotiated between the parties.

One of the strategies we recommended was submitting these claims for assessment as part of a payment claim made under the Building Industry Fairness (Security of Payment) Act 2017 (Qld) (BIFA).  On previous occasions, the principal had failed to state or properly explain why the amount proposed to be paid in relation to certain claims was less, including their reasons for withholding any payment, as required by section 69(c) of the BIFA.

Accordingly, our view was that the principal may again slip-up by giving inadequate reasons in respect of certain claims, meaning that the contractor would be in a good position to run an adjudication.  This is because section 82(4) of the BIFA would operate to prohibit the principal from including reasons for withholding in any adjudication response that were not included in the payment schedule.

We assisted the contractor in formulating and submitting the payment claim, which claimed the significant additional costs that had been put to the principal via the without prejudice paper and contractual notices.

The principal’s mistake

As it transpired, the principal failed to serve a payment schedule within the time required under the BIFA.  The principal was only one business day late.  Nevertheless, this meant that the principal would become liable to pay the full claimed amount on the due date for payment under the BIFA[1].

The scheduled amount given by the principal was markedly less than the claimed amount.  While the principal had given some reasons in respect of some additional costs claims, the payment schedule ultimately served (and the arguments made within it) could not be relied upon by the principal for the purposes of the BIFA.

Our client was free to recover the full claimed amount as a debt due and owing in the Supreme Court of Queensland[2].  The principal would not be entitled to bring any counterclaim in those proceedings, nor raise any contractual defence to the action[3].

Letter of demand and engaging with the principal

We drafted an open letter of demand from the contractor to the principal, highlighting the mistake and advising that if payment of the full claimed amount was not received on or before the due date for payment under the BIFA, the contractor would take necessary steps to recover[4].

The next letter we assisted with was a without prejudice letter which set out why the principal’s position as put in the payment schedule was incorrect and demonstrated a failure to properly apply the contract.  This is important because the principal would be liable to pay the full claimed amount under the BIFA, however the BIFA provides the parties with interim rights only.  It would be open to the principal in future to exercise contractual rights to engage in dispute resolution and ultimately litigation.

Progress of negotiation

The principal’s level of engagement with the contractor increased noticeably once there was recognition that they were now liable to the contractor for the full amount claimed and could soon be the listed defendant in judgment debt proceedings for the full amount.  It was now in the principal’s best interests to try to cut a deal with the contractor to avoid the embarrassment and adverse financial impact of court proceedings.

The contractor was now in a position where it all but literally had the disputed sums in its pocket in the ensuing negotiations and discussions.  It was now up to the principal to work through the various claims and supporting documentation that the contractor had provided and come to the contractor with a reasonable settlement offer to avoid proceedings.

Furthermore, the principal was effectively forced to step into the shoes of a plaintiff should it wish to commence a contractual dispute that the contractor had been overpaid to overturn or circumvent the outcome of the BIFA.  Running this dispute would take a great deal of time and effort for the principal.

The contractor advised that the principal’s engagement on the issues had drastically increased in without prejudice discussions.  The principal had now given indications when it would revert to the contractor with assessments and offers on claims.

We recommended that any agreement reached in discussions be formally documented by a succinctly drafted deed of settlement and release.

We regularly assist construction industry participants Australia-wide in contractual disputes and security of payment processes.  Please feel free to get in touch if you would like assistance with these issues.

[1] Section 77(2) of the BIFA.

[2] Section 78(1) of the BIFA.

[3] Section 100(3) of the BIFA.

[4] The first step would be serving of a “warning notice” as required by section 99 of the BIFA.

Security Of Payment Reminder: Christmas Is Coming, But Adjudicator Shopping Is Not Permitted

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The Building and Construction Industry Security of Payment Act (NSW) (‘SOPA’) is touted as establishing a scheme of “pay now, argue later” which promotes the speedy payment of progress claims and resolution of disputes. While these objects do not prevent parties from serving multiple payment claims in respect of the same amount,[1] they do dictate that parties will not be permitted to reagitate the same issues at multiple adjudications. It is necessary to examine the circumstances in which a previous adjudicator’s finding will be binding in a subsequent adjudication.

 

Section 22(4) of SOPA

Section 22(4) of the SOPA provides a helpful starting point for this analysis. This section provides that where one adjudicator has determined the value of any construction work or of any related goods or services under a construction contract, an adjudicator in a subsequent adjudication must give the work (or goods or services) the same value as previously determined, unless satisfied that the value has since changed.

 

Back in 2009, the New South Wales Court of Appeal considered the effect of section 22(4) of the SOPA in the decision of Dualcorp Pty Ltd v Remo Constructions Pty Ltd.[2] Macfarlan JA held that section 22(4) is not an exhaustive statement of the matters determined by an earlier adjudication which are binding on a subsequent adjudicator. His Honour held that the Act as a whole “manifests an intention to preclude reagitation of the same issues”.[3]

 

Objects of SOPA

Section 3 of the SOPA sets out the objects of the Act: promoting the prompt making and payment of progress claims and speedy resolution of disputes. In Dualcorp, the court held that it would be inconsistent with this objective to allow a claimant who was dissatisfied with the outcome of an adjudication to obtain a fresh reconsideration of its claim by simply serving an identical payment claim. If this were possible, there would be no limit to the number of times a claimant could seek to reagitate the same issues at adjudication.[4] Clearly, such abuse would be inconsistent with the object of the legislation.

 

Did the previous adjudicator determine the merits of the issue?

A claimant will only be barred from reagitating an issue addressed in a previous adjudication where the adjudicator decided the merits of the issue. This point was emphasised by the New South Wales Supreme Court in Arconic Australia Rolled Products Pty Ltd v McMahon Services Australia Pty Ltd.[5] In that case, McMahon made three contentious payment claims describing costs for delay and variations. In a fourth adjudication between the parties, Arconic argued that McMahon was not entitled to reagitate its claim since it had been determined by the previous adjudicator.[6]

 

The Court followed the approach in Dualcorp[7] but clarified that the objects of the SOPA would only be frustrated where the first adjudicator had heard and decided the merits of the claim.[8] Here, the adjudicator had rejected the relevant payment claim as it was made prematurely by McMahon. Given that the adjudicator did not consider the merits of the claim, McMahon was entitled to reagitate the issues raised in that payment claim in a subsequent adjudication.[9]

 

Take home tips

Parties should be wary that they are not entitled to raise the same issues at multiple adjudications.

If you are claimant considering whether to proceed with a second adjudication application, you should carefully consider whether the merits of your claim has been determined by a previous adjudicator.

We can assist with advice regarding a previous adjudication determination and the prospects of seeking a further determination.

[1] SOPA s 13(6).

[2] [2009] NSWCA 69 (‘Dualcorp’).

[3] At [67].

[4] At [52].

[5] [2017] NSWSC 1114.

[6] At [3]–[9].

[7] At [13]–[15].

[8] At [29].

[9] At [31]–[32].