Construction Contracts Act 2004 (WA) (Act) – application for review of decision by adjudicator to dismiss–meaning of the words 'whether any party to the payment dispute is liable to make a payment, or to return any security' in section 31(2)(b)
An adjudicator to a payment dispute can only determine whether a party is liable to make a payment or return of security which falls within the definition of 'payment dispute' in section 6 of the Act. Prior to making an application for adjudication, an applicant's legal representatives should take care to ensure that the determination sought by the applicant is such a payment or return of security. Rather than seeking the return of the security, the applicant should have made an application for adjudication of whether liquidated damages were owing and, if so, what amount.
Alliance Contracting Pty Ltd (applicant) contracted Tenix SDR Pty Ltd (respondent) to carry out earthworks for the upgrade of a wastewater treatment plant (Contract). The applicant provided bank guarantees as security for its performance (Guarantees). The respondent sent the applicant a letter alleging that the applicant had failed to achieve practical completion by the due date and the respondent had had recourse to the Guarantees to recover liquidated damages owed to it by the applicant. The applicant sent the respondent a letter arguing that the respondent had no entitlement to the Guarantees. It gave a notice of dispute to the respondent and made an application for adjudication seeking payment of the equivalent of the Guarantees or the return of the Guarantees from the respondent (application).
The adjudicator dismissed the application under section 31(2)(a) of the Act on the basis that the dispute which the applicant had applied to have adjudicated was not a payment dispute for the purposes of the WA Act.
The applicant applied to the WA State Administrative Tribunal for a review of the decision.
The tribunal found that the assertion in the respondent's letter—that the applicant was liable to pay liquidated damages—was a payment claim. The notice of dispute, which clearly disputed the claim, had given rise to a payment dispute.
The applicant submitted that under section 31(2)(b) of the Act the adjudicator is empowered to determine 'whether any party to the payment dispute is liable to make a payment, or to return any security'. It said that once the dispute had arisen in respect of the liquidated damages claim, it could apply for adjudication and the adjudicator could determine by section 31(2)(b) of the Act that the respondent pay to it the equivalent value of the Guarantees.
Member Aitken said that the applicant had misconstrued the meaning of section 31(2)(b) of the Act. That section must be construed in the context of the definition of 'payment dispute' in section 6 of the Act. An adjudicator may only determine whether a party is liable to make a payment which falls within section 6(a) or 6(b) of the Act, or to return a security which falls within section 6(c) of the Act. Neither the payment sought by the applicant, being the payment of the value of the Guarantees, nor the 'return' of the Guarantees fit within section 6 of the Act. Section 6(c) of the Act deals with a situation where a security held by a party is not returned by the time it is due. However, here, the Respondent had had recourse to the Guarantees before the release date. Therefore, neither the payment sought by the applicant, nor the return of the Guarantees could be a subject of determination under section 31(2)(b) of the Act.