The two recent decisions of Diploma Construction (WA) Pty Ltd v KPA Architects Pty Ltd [2014] WASCA 91 and Kellogg Brown & Root Pty Ltd v Doric Contractors Pty Ltd [2014] WASC 206 have provided important guidance on the ability to enforce an adjudication under the Construction Contracts Act 2004 (WA) (CCA). In summary:

  1. The intention of the CCA is to provide a process for the quick resolution of payment disputes, in order to keep money flowing to contractors.
  2. Where an adjudicator makes a determination in respect of a payment dispute, that determination may be entered as a judgment of the District Court. It may then be enforced as a judgment, or be the subject of a statutory demand. The determination cannot, however, be the subject of a statutory demand unless it has first been enforced as a judgment.
  3. To the extent it is the subject of a statutory demand, the principal will not be able to set aside the demand merely on the basis that it disputes the determination. Rather, the determination – albeit interim and subject to reconsideration in later proceedings – gives rise to a debt that is due and payable.

Diploma Constructions

KPA (contractor) and Diploma (principal) were party to a contract for the provision of architectural services related to the Kwinana Hub Shopping Centre. A number of disputes arose under the contract.

KPA referred 2 payment disputes to an adjudicator for determination under the CCA. The adjudicator determined that Diploma was liable to pay KPA AUD136,145.70 and AUD368,399.59. Diploma did not make payment in respect of either determination. In turn, KPA applied for, and was granted, leave to enter judgment in the District Court in terms of the determinations under s 43 of the CCA. When Diploma did not pay those judgments, KPA issued a statutory demand for the entire amount.

Diploma applied to set aside the statutory declaration on various grounds. Relevantly, Diploma claimed that there was a ‘genuine dispute’ as to the outstanding amount, because it did not accept the correctness of the adjudicator’s determination.

The Court of Appeal held that the ‘dispute’ as to the determination was not a ‘genuine dispute’, sufficient to set aside the statutory demand.

The CCA provides that, where a payment dispute arises, the contractor may seek a determination from an adjudicator as to the amount payable (if any) by the principal. The Court confirmed that the broad purpose of this process is to institute a ‘pay now, argue later’ system that ensures money keeps flowing between the parties. This ensures that progress claims are paid on time, and that principals are not able to unilaterally make decisions regarding their own payment obligations.

Consistent with this intention, a determination by an adjudicator gives rise to debt presently due and payable by the principal. That determination may then be registered as a judgment (and therefore enforced under the Civil Judgments Enforcement Act 2004 (WA)) and may also be the subject of a statutory demand under the Corporations Act 2001 (Cth). This is the case notwithstanding that the adjudicator’s determination is only interim, and may be challenged in later proceedings.

In so finding, the Court of Appeal refused to follow a number of single judge decisions from other Australian states that had considered this question in relation to equivalent security for payment legislation.

Doric

Doric Contractors Pty Ltd was the head contractor for the construction of certain buildings at the Jimblebar iron ore project in the Pilbara region of Western Australia. In mid December 2011 Doric entered into a contract with Kellogg Brown & Root Pty Ltd, pursuant to which Kellogg provided engineering services to Doric in relation to the construction of the two buildings (Contract).

In October 2013, Doric issued Kellogg with two invoices in relation to the Contract. Kellogg did not pay the invoices and disputed any liability to pay the invoices. It asserted that the invoices did not arise in relation to goods or services provided by Doric to Kellogg under the Contract, but rather were in the nature of a claim for damages for poor performance.

In December 2013 Doric made an application for adjudication under the CCA in relation to the failure to pay each invoice. On 24 January 2014 the adjudicator made a determination in each adjudication in favour of Doric. Accordingly, this is an unusual case, as (and as the Court noted) the CCA is primarily designed to provide an opportunity for contractors to recover disputed payments.

On 4 February 2014 Kellogg filed an application in the Supreme Court seeking judicial review of the Determinations. These were set down for hearing ‘as soon as possible after 4 June 2014’. On 18 February 2014 Doric served a statutory demand on Kellogg for the amounts set out in the determinations. It had not previously sought the leave of a court to enforce the determinations as a judgment.

In a detailed judgment, Acting Master Gething held as follows:

  1. A statutory demand can only be issued in respect of an adjudication that has been enforced as a judgment of the Court.
  2. When considering whether to enforce a determination as a judgment, the general rule is that a party who has the benefit of a determination is entitled to enforce it. Whether there is sufficient reason to refuse leave to enforce will depend on each situation, but the existence of an arguable case in respect of judicial review would be such a reason.
  3. If a statutory demand was used in respect of a determination that had not been enforced as a judgment, then that would remove the opportunity for either the other party or the court to explore whether the determination should be set aside. This would be an abuse of process.
  4. A disagreement as to the merits of the determination (as opposed to judicial review) will not constitute a ‘genuine dispute’ sufficient to set aside a statutory demand.