Once is enough - CBP Construction... · The Building and Construction Industry Security of Payment Act 1999 (SoP Act) has been part of the Law of NSW for long enough now to be well

The Building and Construction Industry Security of Payment Act 1999 (SoP Act) has been part of the Law of NSW for long enough now to be well entrenched in the contracting culture of the construction industry in this State. Indeed, NSW was the first of the States in Australia to adopt this regime for the claiming of progress payments under construction contracts and, if the body of case law is a determinant, has developed the best understanding of how this statutory scheme for the making of progress payments should operate. Regrettably, this has also meant that the implementation of the regime has also gone down some unintended paths, and in some respects, beyond what the original architects of the legislation could have contemplated.

It has also produced a culture where progress claims are simply issued under the SoP Act regime as a matter of course. This can no longer be considered to be a prudent practice.

The objectives of the SoP ActIt is useful to remind ourselves from time to time of what the objectives of the SoP Act are. Being at the cutting edge of the adoption and implementation of this regime, it is not surprising if, from time to time, the focus on these objectives is lost and a landmark decision from

the Court arrives to provide what the financial markets would call a “correction”.

The Explanatory Notes to the SoP Act states the objectives as follows:

“The (SoP Act) has three key aims:

a) to give a party a right to progress payments under a construction contract;

b) to abolish pay when paid clauses; and

c) to provide for rapid adjudication of payment claims and payment following that adjudication.

The object of the (SoP Act) is to ensure that a person who carries out construction work is entitled to receive and recover progress payments (s.3(1)).”

The Act states its object as follows:

“3 ObjectofAct

1) The object of this Act is to ensure that any person who undertakes to carry out construction work (or who undertakes to supply related goods and services) under a construction contract is entitled to receive, and is able to recover, progress payments in relation to the carrying out of that work and the supplying of those goods and services.

Once is enough: Claimants have only one shot under the Building and Construction Industry Security Of Payment Act 1999

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Once is enough: Claimants have only one shot under the Building & Construction Industry Security Of Payments Act 1999

Colin Biggers & Paisley

2) The means by which this Act ensures that a person is entitled to receive a progress payment is by granting a statutory entitlement to such a payment regardless of whether the relevant construction contract makes provision for progress payments.

3) The means by which this Act ensures that a person is able to recover a progress payment is by establishing a procedure that involves:

a) the making of a payment claim by the person claiming payment, and

b) the provision of a payment schedule by the person by whom the payment is payable, and

c) the referral of any disputed claim to an adjudicator for determination, and

d) the payment of the progress payment so determined.

4) It is intended that this Act does not limit:

a) any other entitlement that a claimant may have under a construction contract, or

b) any other remedy that a claimant may have for recovering any such other entitlement.”

Forum shoppingWhilst the SoP Act may have cured what was perceived to be the bad behaviour of Principals and Head Contractors in not making proper and timely progress payments, it has, in some respects, tipped the balance in favour of claimants.

One development that no doubt causes annoyance to respondents under the SoP Act is the culture of re-submitting the same claims until:

the respondent fails to put on a payment schedule in a timely fashion, thereby crystallising an entitlement in the claimant for the full amount claimed;

finding an adjudicator who would make the “right decision”. Some ANAs and/or adjudicators are perceived to be “claimant friendly”.

Certainly, to some extent the practice of submitting repeated payment claims appears to be supported within the SoP Act itself. Section 13(5) and (6) of the SoP Act states as follows:

“5) A claimant cannot serve more than one payment claim in respect of each reference date under the construction contract.

6) However, subsection (5) does not prevent the claimant from including in a payment claim an amount that has been the subject of a previous claim.”

a)

b)

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Recent decisions in NSW, however, should have the effect of significantly curtailing the behaviour of constant agitation of the same claim.

The limitation placed by s ��(4)The SoP Act itself provides a restriction in s 22(4) which states as follows:

“If, in determining an adjudication application, an adjudicator has, in accordance with section 10, determined:

a) the value of any construction work carried out under a construction contract, or

b) the value of any related goods and services supplied under a construction contract,

the adjudicator (or any other adjudicator) is, in any subsequent adjudication application that involves the determination of the value of that work or of those goods and services, to give the work (or the goods and services) the same value as that previously determined unless the claimant or respondent satisfies the adjudicator concerned that the value of the work (or the goods and services) has changed since the previous determination.”

The clear indication in s 22(4) is that once that claim has been valued by an adjudicator, that valuation is binding on any subsequent adjudications. The SoP Act does not, however, explicitly extend that language of prohibition to what can

be included in every subsequent progress claim in respect of a matter that has been adjudicated.

The obvious questions that arise from s 22(4) are:

what constitutes the valuation of any construction work?

Once adjudicated, can the same claim be included in a later payment claim, which if not responded to with a payment schedule, becomes enforceable by way of a summary judgement in court?

It is a trite observation that the valuation of any claim requires consideration of both entitlement and quantification.

If the adjudicator determines that entitlement has not been established, and therefore nothing is payable in respect of a claim, has the adjudicator valued that item of construction work?

His Honour Mr Justice McDougall addressed this thorny issue in two decisions: Rothnere v Quasar & Ors [2004] NSWSC 1151 and John Goss Projects v Leighton Contractors & Anor [2006] NSWSC 978; (2006) 66 NSWLR 707.

With respect to His Honour, I think the conclusion that His Honour reaches can be summarised as follows:

determination of a claim may involve questions of quantification and/or entitlement;

the prohibition on a subsequent adjudicator under s 22(4) would

a)

b)

a)

b)

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only apply if the previous adjudicator carried out a quantification exercise in respect of a claim;

if an adjudicator determines the question of entitlement in the negative, and thereafter does not carry out a valuation of the claim (which would be the proper thing to do following upon such determination), then there has been no valuation and s 22(4) would not prevent a subsequent adjudicator from considering a subsequent claim afresh.

This application of s 22(4) meant that the SoP Act left a respondent open to further claims in the same terms, and the perils of adjudicator shopping in instances where there had been a clear determination by an adjudicator that the claimant had failed to establish an entitlement. In other words, in circumstances where an entitlement to a claim had not been established, there was not a deemed valuation of “nil”.

This left the door open for claimants to re-submit a claim for the same matter until someone accepted their assertions of an entitlement and made a valuation.

So where did this leave the lofty objects of the SoP Act to achieve rapid adjudication and payment of claims?

DualcorpThe Court of Appeal of NSW considered this question this year and has provided a much needed “correction”.

c)

The facts in this case would be familiar to many and straight forward. Dualcorp (the claimant) served on Remo (the respondent) a payment claim which incorporated six invoices. This progress claim was made after “practical completion” or the equivalent stage had been reached. Remo responded with a payment schedule which disputed four of the invoices. Dualcorp referred those four invoices to an adjudicator who determined that Dualcorp was entitled to a considerably lesser amount than had been claimed in those invoices.

Dualcorp, clearly dissatisfied with this determination, about a month later submitted a further payment claim attaching the same six invoices. This time Remo failed to provide a payment schedule.

Dualcorp sought summary judgment in the District Court of NSW where it failed.

Dualcorp appealed to the Court of Appeal where it failed again.

On appeal, Macfarlan JA found that there are eight key features of the SoP Act which preclude the action that Dualcorp took:

first, the objects of the Act are relevant;1

second, under s 13(5), only one payment claim may be served in respect of each reference date under the construction contract;2

thirdly, in determining an adjudication application, an adjudicator is bound to value construction work consistently with a valuation made in the

a)

b)

c)

1 Dualcorp Pty Ltd v Remo Constructions Pty Ltd [2009] NSWCA 69, 52.


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course of a previous adjudication application (s 22(4), unless he or she is satisfied that the value of the work has changed since the previous determination;3

fourthly, under s 23(2) a respondent is required to pay any amount determined by the adjudicator;4

fifthly, under s 24, failure to pay an adjudicated amount may have the consequence that construction work is suspended;5

sixthly, s 25 provides that an adjudication certificate signed by the adjudicator may be filed as “a judgment for a debt in any court of competent jurisdiction and is enforceable accordingly”;6

seventhly, whilst s 26 permits a new application for adjudication to be made, it narrowly defines the circumstances in which it may be made;7 and

eighthly, the argument in favour of inferring that adjudication determinations were intended to be conclusive is strengthened when one has regard to the fact that they determine rights in relation to progress claims only and, by reason of s 32 of the Act, do not affect contractual rights.8

In the main judgment, which was delivered by His Honour Macfarlan JA and with whom the other two Judges concurred, the Court of Appeal has significantly broadened the matters that will be binding on subsequent adjudicators and on subsequent payment claims.

d)

e)

f)

g)

h)

Whilst the Court of Appeal accepted the limitation that was placed on subsequent adjudicators under section 22(4), their Honours disagreed with His Honour McDougall J that section 22(4) was the only limitation that would operate on subsequent adjudicators.

Rather, the Court of Appeal held that in addition to the express words of the SoP Act, common law principles in the nature of “issue estoppel” or “res judicata” would also operate to place limitations on subsequent adjudicators. In other words, not only would the valuation of an adjudicator be binding in respect of the same claim made in the future on subsequent adjudicators, but also other findings or determinations on issues made by an adjudicator in the context of a payment claim could similarly operate as a limitation on subsequent adjudicators as the following observations of His Honour Mr Justice Macfarlan JA demonstrates:

“[67] I do not consider however that section 22(4) should be regarded as an exhaustive statement of the matters determined by an earlier adjudication which are binding on a subsequent adjudicator. For reasons I have given, I consider that theActwhenreadasawholemanifestsanintentiontoprecludere-agitationofthesameissues. Thus, if questions of entitlement have been resolved by an adjudication







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determination, those findings may not, in my view, be reopened upon a subsequent adjudication.

“...

“[69] ... if a progress claim were rejected because it was not made in accordance with express requirements of the contract, that determination would be binding on a subsequent adjudicator before whom the same issue arose.

“...

“[70] I thus disagree with the view ultimately arrived at by McDougall J in JohnGossProjectsthat section 22(4) defines the extent to which an adjudicator is bound by an earlier adjudication. The view that the claimant once disappointed by an adjudicator can seek a different determination from another, or indeed from a succession of others, until a favourable decision is reached would in my view conflict with the policy of the Act to render adjudicators’ determinations final onissues which they resolved, subject only to provisions of the Act conferring limited rights of correction of determinations.” [emphasis added]

That their Honours thought the principle of finality of issues extended to payment claims is apparent from this observation by His Honour Mr Justice Macfarlan JA at [60]:

“When a claim is made, a dispute arises and an adjudication determination resolves that dispute. I consider that determination to be final and binding between the parties as to theissuesdetermined, except to the extent that the Act allows the determination to be revisited.” [emphasis added]

His Honour Allsop P, with respect, perhaps addressed the limitation on subsequent payment claims in clearer terms as follows:

“[14]... The terms of s 13(5) are a prohibition. The words “cannot serve more than one payment claim” are a sufficiently clear statutory indication that a document purporting to be a payment claim that is in respect of the same reference date as the previous claim is not a payment claim under the Act and does not attract the statutory regime of the Act.”

Perhaps the policy that was driving the Court of Appeal in this case was best put by His Honour Allsop P in his concurring judgment as follows:

“[2] I agree with Macfarlan JA that the Act was not intended to permit repetitious use of the adjudication process to require an adjudicator or successive adjudicators to execute the same statutory task in respect of the same claim on successive occasions.”

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Consequently, the Court makes it very clear that the purpose of the SoP Act is to give the person one chance, and one chance only, to obtain an adjudication determination in respect of a progress payment. Once that determination has been obtained, that determination (both as to valuation and as to determinations of any contractual principles pertaining to that progress payment and consequently future progress payments) would have a binding effect on any subsequent progress claims and/or adjudication applications. This would be so even if a claim were rejected because insufficient evidence and or substantiation was presented for that claim [71].

PerformDualcorp received its first consideration in the NSW Supreme Court in May, some three weeks later, in Perform (NSW) Pty Limited v Mev-Aus Pty Limited t/as Novatec Construction Systems [2009] NSWSC 416.

In this case, the claimant (Mev), having obtained an unfavourable adjudication determination, submitted a further payment claim in which it had made minor alterations to the amounts claimed and presented the claim on an alternative basis, even though the claim was about the same subject matter of the previous claim. The further payment claim did not include any claims for new work.

In other words, all the claimant had done in this case was to submit, in the subsequent payment claim, the rejected claim “... framed in a different way” [42].

On these facts, the decision of His Honour Rein J was to reject the subsequent claim since “... it ventilates issues which have already been decided” [42].

A further reason adopted by His Honour for rejecting the claim was that “... the Act permits only one payment claim to be made in respect of the same work, services or goods supplied” [42].

In doing so, His Honour sought to give some teeth to section 13(5) of the SoP Act (as had Allsop P in Dualcorp) which states that:

“A claimant cannot serve more than one payment claim in respect of each reference date under the construction contract.”

Certainly on this view, if this view of the SoP Act is correct, it would seem that issue estoppel would occur even before an adjudication determination had been obtained in respect of a claim. In other words, when a claimant has made a payment claim in respect of an item of work, it is not able to re-submit that claim on some other basis even if that claim has not proceeded to adjudication.

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CadenceThe Supreme Court of NSW had another opportunity to consider Dualcorp in July 2009 in University of Sydney v Cadence Australia Pty Limited & Anor [2009] NSWSC 635.

Whilst Dualcorp and Perform were about cases in which an adjudicated claim was being re-agitated, in Cadence the previous claim was subsumed in an expanded and new claims.

The previous claim (for delay costs) had been rejected by the adjudicator because it had not been established on the evidence [40]. The claimant in the subsequent claim provided the information which the adjudicator had found to be missing from the earlier claim. In the second claim, however, also included new claims for delay costs and variations. To give one a sense of perspective about the second claim, whilst it totalled $515,317, $468,470 were for delay costs. The claim for delay costs included an amount of $266,390 for delay costs claimed in the previous claim. So approximately 50% of the amount being claimed had been claimed previously.

The way in which His Honour Mr Justice Hammerschlag decided against the claimant in this case is interesting, in that His Honour arrives at that conclusion without having to consider issue estoppel.

Instead, His Honour relied upon the reasons given by Allsop P in Dualcorp which was that the combined effects of sections 13(5), (6) and 22(4) inhibited the repetitious use of the SoP Act in

respect of the same claim. His Honour considered that section 13(1) should also be included in that list [38, 39].

In keeping with Dualcorp, His Honour considered that this prohibition applied outside the scope of s 22(4) of the SoP Act

- which did not apply in this case because the adjudicator had not determined the value of the delay costs claimed in the previous claim since it had not been substantiated.

On this basis, His Honour concluded that having submitted the first progress claim and having proceeded to adjudication with it, the claimant had been afforded “... only one such opportunity and when it is availed of and completed, the statutory entitlement has been exhausted” [39].

Hence His Honour concludes:

“In my view the first defendant has exhausted its statutory entitlement to claim delay costs which were the subject of the first claim” [51].

Moreover, His Honour went on to decide that the entirety of the second payment claim could not be referred to the adjudicator because the application, as constituted, would have required “... the adjudicator to re-perform a statutory function which he has already discharged” [56].

Although His Honour does not decide that in this case, in His Honour’s view, the re-submission of an earlier claim in a new claim

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may render the new claim not a payment claim within the meaning of the SoP Act. As His Honour observes:

“It may be that where there is duplication of a part but not the whole of an earlier claim, whether there is sufficient duplication to fairly take a second claim outside the definition of payment claim is a matter of fact and degree. If it is, that requirement is clearly satisfied here by reason of the significant degree of overlap” [56].

ConclusionIn light of this, the prominent question for every claimant now has to be: should I be making this progress claim under the SoP Act?

What appears to be emerging from these recent decisions, beginning with Dualcorp, is a clear and unambiguous assertion of the following:

that the policy of the SoP Act “... was not intended to permit the repetitious use of the adjudication process to require an adjudicator or successive adjudicators to execute the same statutory task in respect of the same claim on successive occasions.” Per Allsop P Dualcorp [2]. Rather, it gives the claimant one shot and one shot only and that s 13(5) and (6) do not provide an invitation to claimants to endlessly re-submit the same claim, even if the substantiation were changed;

a)

that a constant re-agitation of the same claim may be struck down for being an abuse of process;

that common law principles such as issue estoppel may be available to confine a claimant to the basis upon which a claim is once articulated and to not depart from it in any subsequent incarnation of that claim to the extent it is permissible under the SoP Act;

that re-agitation of a claim may render the entirety of the subsequent claim invalid, even if it has new elements. This is a matter of judgment as to degree and extent.

Certainly, if this line of authority persists, it ought to sound a death knell for the practice popular in some quarters of a constant resubmission of claims and some barely disguised adjudicator-shopping until a desirable outcome is obtained.

They establish the principle that one is entitled to make only one claim in respect of work in a reference period. If so, this would prevent a claimant from re-submitting that claim in a subsequent progress claim on some alternative basis, and would be confined to including this claim upon the limited basis permitted under s 13(6). Indeed, s 13(6) may not permit a claimant to re-issue a previous payment claim if there is no new work to claim.

b)

c)

d)

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Level 42, 2 Park StreetSydney NSW 2000 Australia

Colin Biggers & PaisleyABN 38 941 300 979

LAWYERS

T 61 2 8281 4555F 61 2 8281 4567E [email protected] I www.cbp.com.au

DX 280 SydneyAdvoc Asia member

So where does this leave situations under s 22(4) in which a subsequent adjudicator can justifiably reconsider the valuation carried out by a previous adjudicator? In other words, when will situations arise where “... the claimant or respondent satisfies the adjudicator concerned that the value of the work (or the goods and services) has changed since the previous determination”? On one view of the matter, the reasoning of the cases considered precludes a claimant from submitting new material regarding the work that has been previously valued notwithstanding the quoted words from s 22(4). One hopes that this uncertainty will cleared up soon.

All of this should operate as a caution to anyone preparing and submitting progress claims and proceeding to adjudication.

It means that:

progress claims must be prepared with great care, thought and with thoroughness;

claimants should not blithely submit every progress claim under the SoP Act. There may be situations when a progress claim should be made under the contract only, and not under the SoP Act;

if the matter is referred to adjudication, the submissions to the adjudicator should be thoroughly articulated;

a)

b)

c)

even with the requisite level of care and diligence in the preparation of payment claims and submissions to the adjudicator, a claimant would not be protected from an adverse finding by an adjudicator even if the adverse finding is misconceived. These findings may operate beyond the mere assessment of claims but could also apply to "issues" determined under a construction contract which would have the effect of limiting the basis upon which any subsequent claim may be submitted.

It is important to bear in mind that these implications apply to claims that are made under the SoP Act only and do not operate upon progress claims that can be made under the contract. It is the scheme of the SoP Act that the SoP Act does not affect the right of the parties under the contract.

All this could simply mean a re-focus on the role of the contract in determining a party's right to progress payments rather than a heavy reliance on the SoP Act.

Avendra SinghPartner T: 02 8281 4461 E: [email protected]

(with acknowledgement to Christie Mead for her assistance)

d)

Documents

Once is enough - CBP Construction... · The Building and Construction Industry Security of Payment Act 1999 (SoP Act) has been part of the Law of NSW for long enough now to be well