The ACT Supreme Court’s first Security of Payment Decision

The security of payment legislation has now been in force in the ACT since July 2010.

In August this year the ACT Supreme Court delivered its first decision regarding a respondent’s appeal from a decision by an adjudicator under the Building and Construction Industry (Security of Payment) Act 2009 (ACT).

This eBrief examines the court’s decision in Pines Living Pty Ltd v John O’Brien & Walton Construction Pty Ltd[1] and provides some practical pointers for respondents.

What was the case about?

Pines Living Pty Ltd (Pines) engaged Walton Construction Pty Ltd (Walton) to construct a retirement village in Farrer. Walton submitted two payment claims to Pines. The first, in October 2012, was ignored. The second, in January 2013, incorporated the amount claimed in the October 2012 claim. Pines responded to the January 2013 claim with a payment schedule. Walton took the second claim to adjudication and, on 22 March 2013, the adjudicator determined that Pines should pay Walton $239,005.86.

Walton then notified Pines it was suspending work under section 26 of the Act, as Pines had failed to respond to the October 2012 payment claim. It registered the adjudicator’s decision as a judgment in the ACT Supreme Court and obtained an order from the NSW Supreme Court requiring the Commonwealth Bank to pay money held in Pines’ bank account to Walton to satisfy the judgment. On 28 May 2013 the Commonwealth Bank transferred $258,296.96 (the full amount of the judgment plus legal costs and further interest) from Pines’ bank account to Walton.

Pines then:

  • Filed an appeal in the ACT Supreme Court under section 43 of the Act, and also sought common law judicial review of the adjudicator’s decision; and
  • Sought an order from the ACT Supreme Court that Walton pay the money it had received from the bank into court to be held pending the outcome of the appeal/review.

Who got to keep the money pending the appeal?

Pines application to have the money taken from its bank account paid into court was heard urgently on 7 June 2013. It was unsuccessful.[2] The court found that in light of the ‘pay now, argue later’ policy behind the legislation, and the long line of NSW cases stating that the mere risk of a claimant’s insolvency is not enough to shut it out of its money pending an appeal, Walton ought to be allowed the benefit of the funds pending the final hearing. The court said ‘[o]ne of the features of the Act is that it assigns the risk of insolvency to parties in the position of Pines rather than parties in the position of Walton.’

What is the difference between a ‘section 43 appeal’ and ‘common law judicial review’?

The ACT Act is unique in that it is the only security of payment legislation that expressly allows a respondent to appeal on ‘any question of law arising out of the adjudicator’s decision’. However, successful challenges to adjudicator’s decisions are frequently made in other jurisdictions on the basis of common law judicial review.[3]

The grounds for a section 43 appeal and a judicial review application are, broadly speaking, very similar. There are technical differences, including that any application for judicial review can be filed within 60 days of the date of the decision (or, arguably, the date the decision is served) but under the Act, the respondent has to obtain the court’s leave to file the section 43 appeal, and the court rules state that any application for leave must be lodged within 28 days of the date of the decision.[4]

In this case, Pines took a ‘belts and braces’ approach and filed both.

Section 43 says that ‘a court does not have jurisdiction to set aside or remit an adjudication decision on the ground of error of fact or law on the face of the decision’ other than under section 43. However it is arguable that ACT legislation cannot constrain the inherent powers of a Supreme Court in this way.[5] The court decided it was unnecessary to define with any precision the interaction between section 43 and common law judicial review. We suspect that most challenges to an adjudicator’s decision in the ACT in the future will allege both.

What were the questions of law?

Pines alleged four errors of law. All of them were rejected by the Court, as follows:

  1. Pines alleged that the second payment claim included the amount claimed in the first payment claim, which is not permitted. The court relied on a number of cases in NSW and Qld[6] and determined that claimants can include a previously claimed amount in a subsequent claim, as long as the previous claim has not been adjudicated.
  2. Pines alleged that Walton’s ‘enforcement’ of the October 2012 claim (by suspending work) precluded it from enforcing it again by claiming and applying for adjudication of that amount in the January 2013 claim. The court said suspending the works based on a failure to issue a payment schedule does not prevent a claimant from issuing a new claim including the previously claimed amount, or adjudicating that claim.
  3. Pines alleged that the adjudicator had ignored the claim for an offset for liquidated damages, however there was a dispute between the parties as to who was responsible for the delays. The court held that resolution of the dispute involved the adjudicator’s assessment of the evidence, and was therefore a factual rather than legal question.
  4. Pines alleged that the adjudicator ignored its $92,000 set off for defective work. Pines had, in its payment schedule, simply stated ‘the Claimant is in breach of its obligations under the Contract to correct defects (clause 9.6)’. The adjudicator had found that the work was not defective and, even if it was, those defects could be rectified during the defects liability period. These were factual issues and not legal errors. Interestingly, the court found that if Pines had rephrased its allegations of defective work as being a valuation issue under section 12(1) of the Act (rather than a breach of contract issue), it may have been successful. That is, section 12(1) says the value of the construction work must be determined having regard to, ‘if any of the work is defective, the estimated cost of rectifying the defect’.

The court found that there were no errors of law so leave could not be granted and it therefore did not need to consider whether it should give an extension of time to appeal. Pines was ordered to pay Walton’s costs.

What practical points can you take from this decision?

  • The court decisions applying security of payment legislation in other jurisdictions are likely to have strong influence over any decision in the ACT.
  • If you are alleging a set off in your payment schedule, you must do more than simply allege that the claimant has not complied with the contract. Although you certainly do not need legal assistance for every payment schedule, if you have any suspicion that a claim might be adjudicated it is well worth seeking legal advice before you submit the schedule.
  • Although it is possible to appeal from an adjudicator’s decision and we have used this process to put pressure on claimants and negotiate good outcomes for our respondent clients in the past, the process is technical and success is by no means guaranteed. You should seek advice early so that you take steps to protect yourself before a judgment is being enforced against you!
  • Timing is vital. You should file any appeal before any enforcement orders are made, and before the 28 day timeframe under the court rules expires. Although it is possible to get an extension, it makes an uphill battle even more difficult.

Security of payment disputes are often complex, and can be overwhelming when they consider a number of issues in dispute between the parties.

The Construction Dispute Resolution team at Meyer Vandenberg can provide specialist advice on the Act and what avenues are available to you to recover or withhold payment.

More information:

Alisa Taylor — Partner — Construction Litigation Team