A recent decision of the South Australian Supreme Court has opened up the potential of preventing a party relying on the adjudication process by seeking the court’s intervention at an early stage.
Whilst it is somewhat common place for a party to apply to stay an adjudication decision, pending a review by the court, on the basis of invalid payment claims, this case shows the potential to seek to avoid an adjudication altogether.
Summary of Decision
The matter proceeded as follows:
- The applicant, CATCON, engaged the second respondent, Sarens, to erect 58 wind turbines for a total cost of approximately $10,193,500.00. Subsequent variations made the total claim $24,759,627.80;
- Sarens issued a number of payment claims to CATCON, however, the payment claim in question was the second payment claim utilising the same reference date;
- CATCON alleged that the payment claim was invalid on the basis that Sarens was only entitled to issue one payment claim per reference date;
- Both payment claims were for significant sums of money (in excess of $10million);
- CATCON filed an application in the Supreme Court of South Australia seeking a declaration that the second payment claim was invalid;
- However, prior to determination of CATCON’s application, Sarens applied for an adjudication of the payment claim and the matter was referred to adjudication;
- CATCON subsequently filed an interlocutory application seeking that the adjudication be stayed pending determination by the Court of the validity of the payment claim;
- Sarens argued that the adjudication would deal with the issue of jurisdiction in any event (i.e. whether the payment claim was valid) and accordingly it should proceed to adjudication;
- CATCON argued that given the quantum of the claim and the amount of documentation involved, to proceed to adjudication would be a lengthy and expensive process rather than dealing with the, in essence, simpler point of law as to the validity or otherwise of the payment claim;
- The Court considered various High Court decisions, the relevant legislation and the terms of the contract between CATCON and Sarens and determined that it was arguable that the payment claim was invalid due to the inability of a contractor to issue payment claims with the same reference date; and
- The Court ultimately held that given the quantum of the claim and the documentation that would need to be considered in an adjudication, it would be a more timely and cost-effective way to first resolve the issue regarding the validity of the payment claim, and in the circumstances and on the balance of convenience, the adjudication was stayed until such time as the validity of the payment claim had first been determined by the Court.
Whilst not necessarily key to any matters, it is important to note that although the matter was determined in the South Australian Supreme Court, it considered the Building and Construction Industry Security of Payment Act 1999 (NSW) as the contract between CATCON and Sarens provided that the laws of New South Wales would be the governing law.
Whilst such a course of action has not been seen in Queensland (albeit there has been numerous cases where adjudication decisions have been stayed until the validity of a payment claim has been determined by the Court), it would seem that a similar application may be a viable option in Queensland. The New South Wales Act is, in many respects, similar in these terms to its Queensland counter-part, the Building Industry Fairness (Security of Payment) Act 2017. To that end, for example, section 75 of the Queensland Act only permits one payment claim to be made per reference date.
Lessons to be Learnt
Whilst the usual course of action would generally see an adjudicator make a decision in relation to the validity of a payment claim, there are often times where it can be more practical to determine more simplistic legal points rather than going to the time and expense of proceeding to adjudication where the matter can effectively be summarily dismissed. Adjudication can be, particularly in large construction projects, a lengthy and expensive exercise. Accordingly, if you have a significant or factually complex payment claim which you plan on attempting to set aside an adjudication decision on the basis of an invalid payment claim, you should consider seeking that the adjudication be stayed until the validity of the payment claim has been determined in the first instance by a Court.
If you’ve been served with a payment claim that you believe to be invalid and are facing the adjudication process, please get in touch and we will advise you on your options. You can contact Bennett & Philp Lawyers by calling +61 7 3001 2999 or sending us a message via our Contact Us page.
You can read the full judgement of this case here.
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