There is a perception that the Construction Contracts Act 2004 (WA) (the Act) is weighted in favour of parties who are in ‘subordinate’ positions on the payment pecking order (generally contractors and subcontractors). The recent Western Australian District Court decision in Kuredale Pty Ltd v John Holland Pty Ltd  WADC 61 arguably reinforces that perception and is an example of how the courts are willing to construe the purpose and object of the Act to favour contractors and subcontractors. This decision also adds to a growing body of case law that provides guidance about the circumstances that will provide a court with ‘sufficient reason’ to decline to grant leave to enforce adjudication determinations under s 43 of the Act.
By a construction contract dated 3 August 2011, John Holland Pty Ltd (as head contractor) (John Holland)engaged Kuredale Pty Ltd, trading as Metro Lintels, (as supplier) (Metro Lintels) to supply steel in respect of works on the Gorgon NPI, Barrow Island project in Western Australia (Supply Contract).
Relevantly, Metro Lintels issued a payment claim (Payment Claim 34) under the Supply Contract seeking payment of a total amount of about $699,000 (including an amount of $498,000 for ‘workshop building’). John Holland certified Payment Claim 34, disputing that payment for workshop building.
Metro Lintels subsequently adjudicated John Holland’s assessment of Payment Claim 34.
Between the time the adjudication application was served and the adjudicator’s determination issued, John Holland received a subsequent payment claim (Payment Claim 35) from Metro Lintels. By Payment Claim 35, Metro Lintels sought a total amount of about $124K. That claim included a further claim for payment for ‘workshop building’. John Holland assessed Payment Claim 35 and paid Metro Lintels, on 15 September 2014 (before the adjudicator issued his determination), a sum of $470,000 (GST exclusive). John Holland led evidence in the enforcement proceedings that about $377,000 of this payment related to works that Metro Lintels had claimed in Payment Claim 34.
On 24 September 2014, the adjudicator determined that John Holland pay Metro Lintels an amount of $525,000, including $431,000 for ‘workshop building’.
Metro Lintels applied for leave, under s 43 of the Act, to enforce the adjudicator’s determination as a judgment of the District Court.
THE COURT’S DECISION
The central issue in the proceeding was whether Metro Lintels’ Payment Claim 35 included a claim for work that was the subject of Payment Claim 34.
Ultimately, Keen DCJ allowed Metro Lintels’ application to enforce the determination, notwithstanding a finding that John Holland had appeared to have paid for the relevant item of work twice. Having made this finding, his Honour concluded that an overpayment under the contract would not be a sufficient reason for him to exercise his discretion against granting leave. In reaching this view, his Honour considered the object and purpose of the Act and, in particular, focused on the interim nature of the adjudication regime under the Act.
Justice Keen’s closing remarks were that “[n]ot to grant leave pursuant to the [Act] would be to fly in the face of the intent and purpose of the statute and that could bring the administration of justice into disrepute.” Those comments are arguably surprising because the effect of his Honour’s orders was an overpayment down the contractual payment chain. Keeping money flowing in the contracting chain is the primary intent and purpose of the Act. Allowing subcontractors, contractors or suppliers to enforce determinations in circumstances where an overpayment under the contract will occur is arguably beyond that intent and purpose.
Keen DCJ made new law in holding that an overpayment under the contract does not constitute a ‘sufficient reason’ for a court to decline to grant leave under s 43 of the Act. This decision suggests that principals and head contractors should not attempt to pre-empt an adjudication determination by paying some or all of the disputed amount before that determination is made in an attempt to off-set any determination debt. The result also raises the question of whether the primary object and purpose of the Act (which is to keep money flowing in the contracting payment chain) will be achieved if the position on the operation of s 43 taken in this case, continues to be adopted by Western Australian courts.