Earlier this month, the Supreme Court of Victoria handed down its decision in Krongold Constructions (Aust) Pty Ltd v SR & RS Wales Pty Ltd [2016] VSC 94.  The decision serves as a reminder that payment claims under the Building and Construction Industry Security of Payment Act 2002 (Vic) (SOP Act) must identify the construction work to which a payment claim relates with sufficient clarity.  The decision also imposes a more onerous burden on adjudicators in the valuation of construction work. 

Facts

Krongold was engaged as head contractor to design and construct a cellar door restaurant facility at a winery and Wales was engaged by Krongold to undertake the civil works for the project. 

On 25 August 2015, Wales submitted a payment claim which included Invoice 2682, Invoice 2683 and eight pages of supporting documentation (Payment Claim).Krongold did not respond to the Payment Claim with a payment schedule, and the Payment Claim was subsequently referred to adjudication.

The adjudicator determined that:

  1. the matter was undefended because Krongold failed to provide a valid payment schedule to Wales;
  2. based on the documents which the adjudicator was required to consider under the SOP Act, Wales' valuation did not appear to be "incorrect, unreasonable or excessive"; and
  3. in the absence of any alternative valuation provided by Krongold for consideration, it accepted Wales' valuation in full.  

It was common ground between the parties that some of the documents associated with the Payment Claim had not been provided to the adjudicator. 

Judgment

The Court found that the Payment Claim was invalid because it failed to identify the construction work with sufficient clarity, as required under the SOP Act.  The Court also commented that even if a principal is with familiar with the work being undertaken on the site, it is entitled to a payment claim which describes the work claimed for, before the benefits conferred on a contractor under the SOP Act are invoked.

The Court also found that the adjudicator fell into jurisdictional error because the adjudicator failed to adopt a valuation process which satisfied the requirements of the SOP Act.  The Court was of the view that the lack of definition of the construction work which was the subject of the Payment Claim rendered the task of valuation at best problematic and, at worst impossible. 

The Court also held that the adjudicator's determination was invalid because the adjudicator could not have complied with the mandatory requirements of section 23(2)(c) of the SOP Act when it had not been provided with a complete copy of the Payment Claim.

Implications

The decision suggests that where an adjudicator does not value the work in accordance with the valuation method in the contract or where the contract does not have a method of valuation, the provisions of the SOP Act, the adjudicator will have fallen into jurisdictional error. 

The decision also makes it clear that payment claims under the SOP Act will need to identify the construction work to which the payment claim relates with sufficient clarity to comply with the Act (including with sufficient clarity to allow an adjudicator to be able to value the work to which the payment claim relates) as a failure to do so may result in the payment claim being invalid.