Tag Archive for: adjudication application

The Importance of Distinguishing Domestic Works in Construction Contracts- Applying the Victorian Security of Payment Act to Contracts for Mixed-Use Developments

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Overview

The application of the Building and Construction Industry Security of Payment Act 2002 (SOP Act) and the Domestic Building Contracts Act 1995 (DBC Act) were considered in the recent decision in Piastrino v Seascape Constructions Pty Ltd [2022] VSC 20, which emphasises the importance of avoiding ambiguity when drafting contracts, particularly when it involves domestic building work or mixed-use development projects. Clear drafting can protect builders under the SOP Act and limit the likelihood of the contract being excluded under the Act as “domestic building” works.

The Facts

A construction contract was entered into between Seascape Constructions (Builder) and Mr and Mrs Piastrino (Owners). It was agreed that the following works were to be completed:

  1. The construction of four apartments;
  2. Modifications to be made to a hair salon; and
  • The installation of a car stacker.

Following a dispute between the Builder and the Owners, the Builder issued an Adjudication Application under the SOP Act.

The Owners disputed this application on the basis that the SOP Act excludes domestic building contracts as per section 7(2)(b) which provides that the Act does not apply to:

a construction contract which is a domestic building contract within the meaning of the Domestic Building Contracts Act 1995 between a builder and a building owner (within the meaning of that Act), for the carrying out of domestic building work (within the meaning of that Act), other than a contract where the building owner is in the business of building residences and the contract is entered into in the course of, or in connection with, that business.

The determination concluded that the SOP Act did in fact apply and that the adjudicator therefore had jurisdiction to issue a determination under the SOP Act.  The adjudicator’s reasoning included consideration that the Owners were in the business of building residences and that the above exception applied.  The Owners applied to the Court for a certiorari to override the adjudicator’s determination.

Proceedings

Three questions arose when the Court considered whether the exclusion in section 7(2)(b) applied in the above-mentioned circumstances.

Mixed-Used Developments and Domestic Building Work

The first question was whether the exception under section 7(2)(b) regarding mixed-use developments applied. Namely, if there was domestic building work in addition to work of a different nature that had been distinguished in the contract.

Under section 12(2) of the DBC Act, a builder is only entitled to payment for carrying out domestic building work if the builder clearly identifies and distinguishes:

(a) the domestic building work from the other work or reason; and

(b) the amount of money the builder is to receive under the contract as a result of carrying out the     domestic building work from the amount of money the builder is to receive under the contract as a result of carrying out the other work or for the other reason.

It was found that the Contract did not distinguish the domestic building work from any other kind of work.

As a result, the Court applied the “dominant character” test in determining whether the construction works under the Contract were considered domestic building work, upon which the SOP Act would apply to the entirety of the contract. As the Contract involved the construction of apartments, the Court held that the dominant character of work was that of domestic building work, meaning that the exclusion under section 7(2)(b) could potentially be applicable to the contract as a whole.

The Business of Building Residences

Although the Owners had a minor victory in relation to the first question with the Court concluding that the building works were not considered “mixed-use developments”, it was held that despite this, the Owners were in the business of building residences and that the construction contract was entered into in connection with that business. Though the Owners had not previously engaged in the business of building residences, their initial intention of entering into the Contract for the purposes of contracting and leasing the apartments for profit in the future was found to be in the course of business. It was further found that the commercial scale and nature of the project to redevelop the property and the long-term objective of holding the property as an investment aligned with the scope in relation of business of building residences.

Accordingly, the section 7(2)(b) exclusion of the SOP Act did not operate in the favour of the Owners and the application for certiorari to quash the adjudication determination was denied.

 

To Consider

As highlighted in this matter, it is crucial that builders distinguish “domestic building work” as required under the DBC Act. This is to avoid a potential fine under the act, in addition to preventing pecuniary losses in circumstances where the “dominant character” of the work is found to be domestic building work, the consequences of which would potentially lead to the construction contract, as a whole, being excluded from section 7(2)(b) of the SOP Act. Likewise, even when carrying out domestic building work, it is important for principals to consider the nature of the construction contract at hand and be aware that the SOP Act could potentially apply to the project.

Security Of Payment Reminder: Christmas Is Coming, But Adjudicator Shopping Is Not Permitted

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The Building and Construction Industry Security of Payment Act (NSW) (‘SOPA’) is touted as establishing a scheme of “pay now, argue later” which promotes the speedy payment of progress claims and resolution of disputes. While these objects do not prevent parties from serving multiple payment claims in respect of the same amount,[1] they do dictate that parties will not be permitted to reagitate the same issues at multiple adjudications. It is necessary to examine the circumstances in which a previous adjudicator’s finding will be binding in a subsequent adjudication.

 

Section 22(4) of SOPA

Section 22(4) of the SOPA provides a helpful starting point for this analysis. This section provides that where one adjudicator has determined the value of any construction work or of any related goods or services under a construction contract, an adjudicator in a subsequent adjudication must give the work (or goods or services) the same value as previously determined, unless satisfied that the value has since changed.

 

Back in 2009, the New South Wales Court of Appeal considered the effect of section 22(4) of the SOPA in the decision of Dualcorp Pty Ltd v Remo Constructions Pty Ltd.[2] Macfarlan JA held that section 22(4) is not an exhaustive statement of the matters determined by an earlier adjudication which are binding on a subsequent adjudicator. His Honour held that the Act as a whole “manifests an intention to preclude reagitation of the same issues”.[3]

 

Objects of SOPA

Section 3 of the SOPA sets out the objects of the Act: promoting the prompt making and payment of progress claims and speedy resolution of disputes. In Dualcorp, the court held that it would be inconsistent with this objective to allow a claimant who was dissatisfied with the outcome of an adjudication to obtain a fresh reconsideration of its claim by simply serving an identical payment claim. If this were possible, there would be no limit to the number of times a claimant could seek to reagitate the same issues at adjudication.[4] Clearly, such abuse would be inconsistent with the object of the legislation.

 

Did the previous adjudicator determine the merits of the issue?

A claimant will only be barred from reagitating an issue addressed in a previous adjudication where the adjudicator decided the merits of the issue. This point was emphasised by the New South Wales Supreme Court in Arconic Australia Rolled Products Pty Ltd v McMahon Services Australia Pty Ltd.[5] In that case, McMahon made three contentious payment claims describing costs for delay and variations. In a fourth adjudication between the parties, Arconic argued that McMahon was not entitled to reagitate its claim since it had been determined by the previous adjudicator.[6]

 

The Court followed the approach in Dualcorp[7] but clarified that the objects of the SOPA would only be frustrated where the first adjudicator had heard and decided the merits of the claim.[8] Here, the adjudicator had rejected the relevant payment claim as it was made prematurely by McMahon. Given that the adjudicator did not consider the merits of the claim, McMahon was entitled to reagitate the issues raised in that payment claim in a subsequent adjudication.[9]

 

Take home tips

Parties should be wary that they are not entitled to raise the same issues at multiple adjudications.

If you are claimant considering whether to proceed with a second adjudication application, you should carefully consider whether the merits of your claim has been determined by a previous adjudicator.

We can assist with advice regarding a previous adjudication determination and the prospects of seeking a further determination.

[1] SOPA s 13(6).

[2] [2009] NSWCA 69 (‘Dualcorp’).

[3] At [67].

[4] At [52].

[5] [2017] NSWSC 1114.

[6] At [3]–[9].

[7] At [13]–[15].

[8] At [29].

[9] At [31]–[32].

Case Study – Architect’s Adjudication

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In December, Bradbury Legal acted for a Queensland architecture firm in preparing an adjudication application against a builder for unpaid payment claims and variations claims. The architect was engaged to design an aged care facility in the New South Wales area. The builder sought to withhold over $200,000 from our client’s payment claim, citing back charges, defects, and unapproved variations.

In late October, our client submitted its payment claim for approximately $335,000. After issuing the section 17(2) notice, the builder certified just under $103,000, a difference of over $200,000. The Adjudication Application involved numerous late nights (including an all-nighter by Vinesh, Frankie, and Lachy), reviewing various documents, and drafting submissions and statutory declarations so that the Adjudication Application would be served before the Christmas shutdown period. In the end, the Adjudication Application totaled six folders worth of documents substantiating our client’s right to payment. This was a phenomenal effort by the Bradbury Legal team given the quantity of documents involved, the complexity of the issues, and the strict timeframes under the Security of Payment Act.

The Adjudicator awarded an Adjudication Amount of over $240,000 in favour of our client, representing an incredible result which the client was incredibly thankful for. The Adjudication Amount represented more than double the scheduled amount by the builder, promoting greater cashflow for the architecture firm.

Bradbury Legal is highly experienced in preparing and responding to adjudication applications. If you or anyone you know is struggling to be paid from a head contractor or developer or you have received an adjudication application, please contact Bradbury Legal.

Attention residential builders in NSW – big changes ahead from 1 March 2021 you will be able to use the Building and Construction Industry Security of Payment Act to recover money owed by homeowners

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On 1 September 2020, the NSW Government released the Building and Construction Industry Security of Payment Regulation 2020 (2020 Regulation) which radically changes the way residential builders and homeowners resolve disputes in relation to outstanding progress claims after 1 March 2021.

Currently, section 7(5) of the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act) and section 4(1) of the Act provide that the Act does not apply to owner occupier construction contracts, that is, contracts where the homeowners intend to live in the premises.  In these instances, residential builders cannot use the Act to recover outstanding progress claims due from homeowners.

This will all change on 1 March 2021 when the 2020 Regulation commences which will remove owner occupier construction contracts as a prescribed class to which the Act does not apply.

This means come 1 March 2021, residential builders will have a statutory right to payment and be able to serve payment claims on homeowners under the Act and apply for adjudication in relation to any outstanding progress claims.

This is a big game changer for residential builders as it will improve cash flow and mean that residential builders will be able to claim outstanding progress claims from homeowners without having to get involved in expensive and lengthy Tribunal and Court proceedings in order to get paid.

Whilst homeowners will still be entitled to bring a building claim in the Tribunal or Court for defective work and the like, such a claim will not defeat or delay residential builder’s entitlements under the Act.  This means that homeowners will be required to pay any amount awarded pursuant to an Adjudication Determination prior to the determination of any Tribunal or Court proceedings which will (in most cases) reduce in the issues in dispute in any Tribunal or Court proceedings.

What residential builders need to know now

The NSW Government has given residential builders and homeowners a transition period to adjust to these major reforms.  We suggest during this period residential builders should familiarise themselves with the Act and their contracts in relation to:

  • the requirements of valid payment claims including serving supporting statements with all payment claims where builders contract directly with homeowners;
  • the dates from and methods of service of valid payment claims;
  • identification of a valid payment schedules by homeowners;
  • review of your standard contracts to ensure that they comply with the minimum contracting requirements and minimum variation requirements under the Home Building Act 1989 NSW (HBA), as this may effect how an adjudicator assesses amounts payable under the contract so your paperwork has to be in order;
  • review your practices and procedures to ensure that you have the necessary resources to utilise the adjudication process and respond within the strict time frames. The benefit of this is that it will reduce the time and cost (in most cases) of litigation as an Adjudication Determination will usually be received within 21 days of lodging the Adjudication Application; and
  • get legal advice to set yourself up so you can utilise the Act and put yourself in the best position to get paid.

A Downer of a decision: The importance of articulating adjudication submissions

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In Diona Pty Ltd v Downer EDI Works Pty Ltd [2020] NSWSC 480 (Diona), the Supreme Court considered an application to set aside an Adjudicator’s Determination for failure to consider the terms of the contract as required by s 22(2)(b) of the Building and Construction Industry Security of Payment Act 1999 (the SOP Act).

Key takeaway:

  • It is important to ensure that adjudication submissions clearly articulate all relevant arguments and contractual provisions. Unclear, poorly framed or ambiguous submissions can be costly.
  • An adjudicator’s decision will not be declared void simply because it contains what one party considers to be an error or failure by the adjudicator to expressly address all arguments made in parties’ submissions.
  • Lawyers can be useful to assist in preparing an adjudication application and response. Having prepared and responded to numerous security of payment claims, the lawyers at Bradbury Legal are experts at ensuring your arguments are clearly articulated.

 

Background

Diona Pty Ltd (Diona) entered into a subcontract with Downer EDI Works Pty Ltd (Downer), for Downer to provide works in relation to safety upgrades on the Great Western Highway, Blackheath. Downer proceeded to adjudication on a payment claim under the SOP Act. On 16 April 2020, the relevant Adjudicator determined that Downer was entitled to a progress payment of $430,990.13 (Determination).

Diona made an application to the Supreme Court, seeking a declaration that the Determination was void and an injunction preventing Downer from requesting an adjudication certificate or filing the adjudication certificate as a judgment debt. Diona contended that the Adjudicator had incorrectly awarded a set off claim by Downer, in response to Diona’s liquidated damages claim, in the amount of $30,000 on account of two extension of time claims (EOT Claims).

Diona argued that the Adjudicator had not fulfilled the requirements of s 22(2)(b) of the SOP Act because the Adjudicator had failed to give any reference to, or consideration of, Diona’s contention in its adjudication response submissions that Downer was not entitled to these extensions of time, due to the operation of a time bar in the contract.

 

Did the Adjudicator consider the time bars?

The central question was whether the Adjudicator considered the provisions of the contract. Under section 22(2)(b) SOP Act, an adjudicator must consider the provisions of the construction contract.

To determine if the Adjudicator did consider the contractual provisions, especially those containing the time bar, the Court looked at the submissions made by both parties and the Adjudicator’s determination.

The Court noted that Downer had ‘devoted a number of pages to its contentions concerning extension of time and, in particular, its asserted entitlement to EOT 18 and EOT 21’. This was contrasted with Diona’s submissions, the Court found did not properly engage with Downer’s EOT Claims. Diona’s submissions stated:

‘Determinations of claims for…extension of time…by Diona are final and cannot be disturbed except by raising a Claim under the Contract, see relevant clauses of the Subcontract.’

The Court highlighted a part of the Adjudicator’s reasons which stated:

‘The Act at section 22(2)(b) requires the adjudicator to consider the provisions of the construction contract when making the determination’

Having regard to the Adjudicator’s express reference to s 22(2)(b) of the SOP Act, the Court stated that there were several reasons why the Adjudicator did not refer to the dispute clause in the Determination. Firstly, the Adjudicator may have felt that Diona did not properly articulate and develop the time bar argument. Alternatively, the Adjudicator may have misunderstood the submissions. The Court concluded that:

‘The Adjudicator may have come to the wrong decision about Dower’s entitlement to EOT 18 and EOT 21. But that, without more, is not a basis to set aside the set aside the determination.’

The argument that Diona sought to raise, while potentially valid, was not properly articulated. Therefore, it could not be inferred that the Adjudicator had failed to consider the provisions of the subcontract as required by s 22(2)(b) of the SOP Act.

 

So what?

The significance of this case is that it shows that what appear to be errors or failures to consider an argument by an adjudicator will not always result in a basis to set aside the adjudicator’s determination. The adjudicator’s decision can be rough and ready, provided the adjudicator makes their decision in accordance with the SOP Act. Payments made under SOP Act are on account only and may be determined on a final basis at a later stage.