The recent Supreme Court of New South Wales decision in The New South Wales Netball Association Ltd v Probuild Construction (Aust) Pty Ltd [2015] NSWSC 1339 highlights the often fickle strategies adopted by parties to jurisdictional disputes under the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act). The dispute concerned the construction of the “Netball Centre of Excellence” at Sydney Olympic Park.

Most jurisdictional arguments take place after an adjudication determination has been made. In those cases, the respondent asserts that an adjudicator did not have jurisdiction to make a determination and the claimant argues that the adjudicator did have jurisdiction. The respondent usually awaits the adjudication determination to assess the commercial merits of applying to the Court for relief.

The NSW Netball case was slightly different because NSW Netball (the respondent) applied to the Court before the amount determined was known (in an effort to avoid the unrecoverable costs of preparing an adjudication response).

Before the determination

Probuild (the claimant) issued payment claim #23 on 5 January 2015, which was made under cover of a document describing it as a “draft claim” (Claim 23), and payment claim # 24 on 2 March 2015 (Claim 24), both in respect of the same reference date.

NSW Netball issued a payment schedule to Probuild in response to each payment claim, on each occasion scheduling an amount payable of $Nil, stating that each claim was invalid.

Probuild lodged an adjudication application in respect of Claim 24 only. Shortly thereafter, NSW Netball commenced the proceedings seeking to restrain the adjudicator from determining the adjudication application. In that hearing before the Court:

• despite asserting in the payment schedule to Claim 23 that Claim 23 was not a valid payment claim, NSW Netball argued, as it had thereafter done in its adjudication response, that Claim 24 was the second payment claim in respect of the same reference date and, therefore, not a valid payment claim under the Act; and
• Probuild argued that Claim 24 was not the second payment claim in respect of the same reference date and was a valid payment claim under the Act. Probuild described NSW Netball’s case that Claim 24 was the second payment claim in respect of the same reference date as “very weak”.

The Court restrained Probuild from enforcing any adjudication certificate until further order of the Court, but allowed the adjudicator to determine the application. The Court considered that the balance of convenience favoured not restraining the adjudicator from making a determination because, notwithstanding that NSW Netball may incur significant costs in preparing the adjudication response, the Court is not empowered to amend the strict timetable under the SOP Act and so Probuild would be deprived of its rights under the SOP Act if a determination was not made. Probuild also provided an undertaking that it would pay all of the adjudicator’s fees if NSW Netball was successful in the proceedings.

NSW Netball amended its List Statement to take into account the interim orders made by the Court. Probuild’s defence to NSW Netball’s Amended List Statement was due the day after the adjudicator made her determination.

The effect of the determination

Crucially, the adjudicator determined that Probuild was entitled to only $124,599.23 (less than 2% of the $10,380,083.42 claimed). Suddenly, the commercial interests of both parties were reversed and the parties unashamedly altered their positions accordingly.

• In stark contrast to the adjudication application and submissions previously made to the Court, Probuild amended its List Response to ‘admit’ that Claim 24 was invalid and the adjudicator had no jurisdiction. Probuild sought orders quashing the determination.
• NSW Netball was granted leave to discontinue its claim that the determination should be quashed. By way of defence to Probuild’s claim, NSW Netball asserted that Probuild’s claim should be refused because of its approbation and reprobation, ie adoption of contradictory positions, and relief should be withheld because of Probuild’s bad faith and want of clean hands. NSW Netball also claimed damages to the extent that Probuild obtained the relief it sought.

Decision

His Honour Justice Stevenson accepted that Probuild had “certainly been opportunist” and acknowledged the principle at law that a party to litigation “cannot have it both ways”.

The Court found (and both parties agreed) that Claim 23 was a valid payment claim for the purposes of the SOP Act. As such, Claim 24 arose in respect of the same reference date and was served in contravention of s 13(5) of the SOP Act. Consequently, the Court found that the adjudicator did not have jurisdiction to make the determination, so the decision was a nullity, irrespective of whether the Court refused to grant the relief sought by NSW Netball. A relevant factor was that one further reference date under the contract was due to accrue and, the failure to grant the relief sought by Probuild would not affect the invalidity of the adjudication determination, it would only muddy the waters for the next adjudicator.

The Court quashed the adjudicator’s determination.

Damages for adjudication costs

NSW Netball sought damages for the costs that it had incurred to prepare the adjudication response in the amount of approximately $100,000. The claim was made under the Australian Consumer Law for misleading and deceptive conduct, as a result of alleged representations that Probuild’s payment claim was validly made and that NSW Netball was forced to respond to the claim or Probuild would enforce an adjudication determination as a judgment.

The Court rejected this claim, finding that Probuild had merely claimed to be entitled to the amount claimed in the payment claim and did not make representations to that effect. The Court noted established Court of Appeal authority that a bona fide belief was not required to serve a payment claim. Further, the Court did not accept that NSW Netball had incurred the damages ‘because of’ what was stated in the adjudication application, but because it did not agree with what was stated in the adjudication application and because of the requirements of the SOP Act.

Notes from this decision

1. Jurisdiction under the SOP Act is a matter of law. Parties cannot consent to jurisdiction conferred by statute. Notwithstanding, the position adopted by parties to such disputes is, naturally, determined by the commercial upside to that party of a determination being upheld or quashed. That is made crystal clear by this case.
2. The Court will not look favourably on parties that flip flop on their positions, but the paramount considerations by the Court will be whether or not the adjudicator had jurisdiction at law and the effect of relief in circumstances where a decision is made without jurisdiction and therefore a nullity.
3. It would seem unfair that a respondent can be put to significant unrecoverable cost in responding to an adjudication application that is based on an invalid payment claim or some other jurisdictional defect. That is often down to an error by the claimant, as in this case. Although Probuild agreed to pay the adjudicator’s fees, NSW Netball has still incurred $100,000 in preparing the adjudication response that it will never recover.
4. The SOP Act is a no costs jurisdiction. As the Court found in this case, a respondent is not required by an adjudication application to prepare an adjudication response. However, irrespective of the strength of a respondent’s jurisdictional arguments, it would be folly for respondents to elect not to rely on a fulsome adjudication response on the basis that they consider the application to be jurisdictionally flawed. It is inevitable that parties will expend significant sums on consultant and legal fees to prepare an adjudication response when the alternative is being liable for millions of dollars.

Invalid payment claims – respondents between a rock and a hard place

It is undeniable that a respondent who is served with, what it perceives to be, an invalid payment claim is placed in a no-win situation. The respondent must go to the expense of preparing a proper payment schedule and adjudication response to protect its position, with much of that work ultimately rendered irrelevant by the invalidity of a payment claim.

A respondent that is served with a payment claim that it considers is jurisdictionally flawed should carefully consider whether to seek injunctive relief upon receipt of the payment claim and seek an expedited hearing before the timetable for adjudication under the SOP Act advances.

While the Court may be reluctant to expedite the matter, the alternative is that the respondent is unfairly punished by incurring significant costs in preparing an adjudication response in respect of a payment claim that was never valid in the first place.