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Court dismisses rigorous legal analysis and excessive formality for SOP adjudications

19 September 2022

6 min read

#Construction, Infrastructure & Projects

Published by:

Nicola Voss

Court dismisses rigorous legal analysis and excessive formality for SOP adjudications

The purpose of Security of Payment (SOP) adjudication is to promptly hear and determine payment claim disputes, and to provide certainty for the parties about their rights under a construction contract.

A recent case in the Supreme Court of Victoria has demonstrated that adjudication determinations are often made by adjudicators who are not legally trained, and requiring a legal analysis at every point of an adjudication would result in an expensive and time-consuming process – the exact opposite of what the Building and Construction Industry Security Payment Act 2002 Act (SOP Act) intends to do.

This article looks at the Court’s decision in Argyle Building Services Pty Ltd v Dalanex Pty Ltd (No 2) VSC 452, in which the judge highlights:

  1. in circumstances where a construction contract fails to provide express provisions to calculate a reference date, or where there are express provisions but these are conflicting, section 9(2)(b) of the SOP Act will apply. It is not for an adjudicator to find and construe implied terms in a construction contract where these terms are either non-existent or conflicting
  2. absent agreement between the parties, section 14 of the SOP Act does not allow unilateral withdrawal or abandonment of a payment claim and resubmission of a fresh claim for the same reference date. Any resubmission of a new claim without consent of the other party will result in the resubmission becoming a nullity
  3. a flexible approach is to be adopted when determining how an adjudicator is to ‘set out’ its reasons under section 21(2B)(a) of the SOP Act. An adjudicator is not required to identify its reasons with judicial levels of specificity. This would cause too great a burden and is inconsistent with the purposes of the SOP Act
  4. whether submissions are ‘duly made’ by a party is a matter for an adjudicator during the relevant adjudication and not for the court. A mistake in an adjudicator’s decision under a specific source of its power will not necessarily result in a jurisdictional error where an alternative source of power can be found to support the decision.

We examine these points below.

Ground 1(a) and 1(b) – reference dates and multiple progress claims

Ground 1(a): Calculation of reference dates

There are two provisions in the SOP Act that can be used to determine a reference date:

  • section 9 (2)(a) – where the contract itself specifies a reference date (or a manner of determining such a date), then that date shall be the reference date for the purposes of the SOP Act
  • section 9 (2)(b) – if the contract does not provide an express provision, then the date occurring 20 business days after the previous reference date or (in the case of the first reference date) the date occurring 20 business days after when the construction work was first carried out under the contract or when goods and services were first supplied.

In this case, the construction contract provided for two reference dates, one in the formal instrument of agreement and one in the scope of works. 

Argyle Building Services Pty Ltd (Argyle) submitted that the adjudicator should have assessed the reference date using section 9(2)(a) and not section 9(2)(b) of the SOP Act, as the reference dates were able to be determined from the contractual documents. In failing to do so, the adjudicator committed a jurisdictional error.

The important consideration for the Court was that the contract failed to indicate a hierarchy for interpreting the contractual documents. As a result, Justice Delany ruled that the two express terms in the contract were inconsistent and it was open to the adjudicator to use the method in section 9(2)(b) when interpreting the reference dates.

The Court also noted that section 9(2) should be read as a whole when determining how the section operates. Section 9(2)(b) uses the wording “where there is no express provision”, confining the operation of section 9(2)(a) to where there is an express provision and not where an implied reference date may be found.

Justice Delany noted that it was unnecessary to alter the language of the construction contract to find a reference date when section 9(2)(b) was available to fill the void in these cases.

Ground 1(b): Multiple progress payments

The subcontractor Dalanex Pty Ltd (Dalanex) submitted a progress payment claim to Argyle on 21 June 2021 for payment of claim 8. Argyle responded to this claim noting that Dalanex had failed to provide proper information surrounding its claim and rejected payment. Dalanex then notified Argyle that it withdrew claim 8 and several weeks later resubmitted a new claim 8.1 for the same reference date.

The Court found that Dalanex did not serve multiple payment claims under the same reference date because claim 8 could not be unilaterally withdrawn under section 14(8) of the SOP Act. Claim 8.1 submitted by Dalanex was therefore a nullity, and claim 8 stood as Dalanex’s claim for the month of June.

Ground 2 – taking into account submissions that were not ‘duly made’ under section 23(2)(c) of the SOP Act

Argyle submitted that Dalanex did not have a formal right to make submissions and, as a result, were not ‘duly made’ because the adjudicator’s notice requesting the submissions was issued in contravention of section 21(2B) of the SOP Act.

Justice Delany held that the requirement for an adjudicator to ‘set out’ certain reasons under section 21(2B) can be satisfied in a number of ways, including providing a detailed explanation in the notice itself, or by ‘setting out’ information contained in documents incorporated into the notice by reference. Section 21(2B) must be interpreted in a practical and common sense manner, consistent with the language and purpose of the SOP Act as a whole.

The Court therefore held that because the section 21(2B) notice was valid, the submissions received by Dalanex were ‘duly made’ for the purposes of section 23(2)(c).

While the Court acknowledged that it was for an adjudicator to consider whether submissions by a party were ‘duly made’, it held that even if the adjudicator’s section 21(2B) notice did not have a proper foundation, another part of the SOP Act provided for a separate head of power. In this case, it was section 21(2B) that allowed the adjudicator to request further written submissions from either party and a further right of reply to comment on those submissions.

As Argyle failed to convince the Court on the above grounds, its application to quash the adjudication determination was rejected.

Key takeaways

  1. The purpose of the SOP Act is to provide an effective dispute resolution process, one that is free from excessive formality and does not require an adjudicator to re-write a construction contract or concern itself with complex legal arguments.
  2. Parties should ensure that there are express provisions dealing with reference dates in their construction contracts and that these are consistent with one another (in instances where there are multiple clauses dealing with reference dates). Further, a clause needs to be included in a construction contract to determine a hierarchy when interpreting contractual documents.

If you have any questions about security of payment matters or need assistance with construction contracts please contact us below or send in your enquiry here.

Authors: Kyle Siebel & Nicola Voss

The information in this article is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Nicola Voss

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