16 June 2022

Security of Payment: NSW Court of Appeal Limits Jurisdictional Challenges

Tony Mylne
Tony Mylne Litigation Lawyer

In an article we published in October 2021 Court of Appeal Warning to Payment Claim Respondents , we warned of the impact of not including jurisdictional arguments within payment schedules. If they were not included, respondents would risk these issues not being considered by any adjudicator or court – relegating what might otherwise be important jurisdictional arguments.

The Queensland Court of Appeal decision discussed in our October article involved a lack of payment schedule and a challenge to whether there was a valid payment claim. It was alleged the claim was invalid on jurisdictional grounds because it related to more than one construction contract. This was said to be non-compliant with the Queensland legislation. Morrison JA stated: ‘Where a payment claim purports to be made under one contract, it is not rendered invalid simply because at a later time (either during the adjudication or otherwise) it is determined that part of the claim was, in fact, a claim under a different contract’.

Shortly after that Queensland decision, this position was challenged by a single judge of the Supreme Court of New South Wales in Ventia Australia v BSA Advanced Property Solutions. That New South Wales judge (Justice Reece) considered the Queensland decision was ‘plainly wrong’ with respect to the issue of whether a claim referring to more than one contract could be valid, indicating that the decision should not be followed in New South Wales.

Justice Reece’s decision was appealed to the New South Wales Court of Appeal and the resulting judgment was delivered on 3 June 2022 – a joint judgment by five judges, suggesting an authoritative decision. It effectively reaffirmed the Queensland Court of Appeal decision, but in addition by way of strong comment, confirmed that:

  • The ‘one contract’ rule has doubtful application.
  • A payment claim should not be treated as a nullity unless its failure to comply with the requirements of the legislation is patent on its face.
  • If jurisdictional arguments are to be raised, they should be raised within the payment schedule (and otherwise should not be addressed by the adjudicator).

There was considerable support to re-emphasise the original purpose of the legislation and its fundamental objective of maintaining cash flow and relieving subcontractors from undue financial pressures. There was much criticism of the delay to the processes caused by courts exercising supervisory jurisdiction based on jurisdictional error. In those circumstances there was no support from the five judges for imposing an additional jurisdictional condition (the one contract rule) where, on examination of the authorities, there was actually little justification.

While the issue of when a jurisdictional issue can be raised is a very important one it may not have been raised squarely on this appeal. This New South Wales Court of Appeal decision does though add weight to the trend of requiring jurisdictional issues be included in any payment schedule – or risk their exclusion from argument.

You can read the full decision here.

If you would like to discuss this article in more detail, please contact Tony Mylne.

Individual liability is limited by a scheme approved under professional standards legislation (personal injury work exempted).

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