On 3 June 2013, Justice Blue of the Supreme Court of South Australia handed down the Court’s first judgement on the Building and Construction Industry (Security of Payment) Act 2009 (SA) (SOP Act) in the case of Built Environs Pty Ltd v Tali Engineering Pty Ltd & Ors [2013] SASC 84.

The security of payment legislation in other jurisdictions in Australia has been highly litigated since its introduction in those jurisdictions. The SOP Act is almost identical to the New South Wales security of payment legislation. In its judgement the Court considered a number of decisions of the New South Wales courts, confirming our view that decisions from New South Wales would be used as guidance in South Australia.

The case related to works completed for the construction of the new Woolworths Walkerville Shopping Centre (the Project). Built Environs was the head contractor for the Project. Tali was appointed by Built Environs as the structural steel subcontractor for the Project. The subcontract between Built Environs and Tali separated the work to be completed by Tali into three separable portions and set completion dates for each portion. The subcontract provided for Built Environs to claim liquidated damages for late completion of each of the portions and for any liquidated damages to which Built Environs was entitled to be set off against progress claims by Tali.

Tali submitted nine progress claims to Built Environs under the subcontract. In its ninth progress claim, Tali claimed that the total value of work it had completed to date was $1,238,836.30. Tali deducted amounts previously certified of $656,850 and claimed a net amount of $581,986.30. Built Environs sent Tali a payment schedule in response to its ninth progress claim in which Built Environs rejected certain variations claimed by Tali and sought to set off liquidated damages of approximately one-million dollars against the amounts claimed by Tali.

Tali made an adjudication application to Nominator, an authorised nominating authority under the SOP Act, in respect of its ninth progress claim. Nominator nominated Matthew Allan as the adjudicator. Mr Allan determined that the value of the progress payment to which Tali was entitled was $579,420.90.

Built Environs commenced judicial review proceedings against Tali, Nominator and Mr Allan seeking a declaration that Mr Allan’s determination is a nullity and an order setting it aside.

Built Environs relied on six grounds for judicial review. These were:

  1. That Tali’s payment claim did not comply with section 13(2) of the SOP Act and this deprived Mr Allan of jurisdiction to undertake an adjudication. Built Environs’ contentions were based on the fact that there were arithmetical errors in the payment claim that it did not specifically identify the construction work performed since the previous payment claim.
  2. That Mr Allan exceeded his jurisdiction by entertaining a claim for unliquidated damages, assuming the jurisdiction of the subcontract superintendent to grant an extension of time to Tali to achieve substantial completion and entertaining claims not made in Tali’s payment claim.
  3. That there was a denial of natural justice because Mr Allan did not invite further submissions or evidence from the parties.
  4. That there was a denial of natural justice due to a reasonable apprehension of bias of Nominator and/or Mr Allan.
  5. That Mr Allan made errors of law invalidating his determination.
  6. That Mr Allan did not act in good faith because he did not attempt in good faith to consider the submissions put by the parties or call for further submissions and identify, understand and determine the issues in accordance with the SOP Act and the contract.

Justice Blue rejected Built Environs’ first ground of review on the basis that the payment claim allowed a reasonable principal to ascertain with sufficient certainty the basis of the claim, so as to be able to provide a meaningful payment schedule, notwithstanding the minor arithmetical errors and the fact that the claim had been prepared on a cumulative basis.

Justice Blue also rejected Built Environs’ second ground of review.

The third ground of review was upheld by Justice Blue. There were a number of points, both factual and legal, decided by Mr Allan in his adjudication application which the Court found Mr Allan did not have any or sufficient evidence before him to make a decision on or where Built Environs had not been given adequate notice that Tali was relying upon, or that Mr Allan might determine the adjudication application upon. In relation to these points, the Court found that Mr Allan should have sought further submissions from the parties or called a conference before deciding these matters. Justice Blue found that there was a denial of natural justice by Mr Allan and that this rendered the adjudication determination void.

Built Environs’ fourth ground of review, that there was a reasonable apprehension of bias by Nominator or Mr Allan, was based on fact that:

  • The manager of Nominator, Mr Sain, was also the chief executive officer of Edward Sain & Associates (ESA) that had been engaged by Tali to advise and assist it concerning contractual issues with Built Environs on the Project.
  • ESA conducts adjudication training courses on behalf of Nominator and ESA trained, on behalf of Nominator, Mr Allan.
  • Mr Allan was a former employee of Built Environs prior to the Project.

The Court found that there was a reasonable apprehension of bias on the part of Nominator in the selection of the adjudicator to adjudicate the dispute between Tali and Built Environs and that this rendered the adjudication decision void. However, the Court found that there was insufficient evidence to establish a reasonable apprehension of bias on the part of Mr Allan.

Given that the Court upheld the third and fourth grounds of review, the Court did not decide grounds five and six of review. The Court declared that Mr Allan’s adjudication determination was void and set the determination aside.

This decision shows that recipients of payment claims must be reasonable in their responses, and that minor errors in the payment claims will not invalidate the claims. However, if you are the subject of an adjudication where the adjudicator appears to go beyond the scope of the evidence before them, you may be able to challenge that adjudication on the basis of this decision.

We suggest that before embarking on any of the processes set out in the SOP Act you obtain appropriate advice. Your situation will be unique and you may not be able to rely on the information in this article alone.