A recent decision of the Supreme Court of Western Australia may pave the way for an increase in principal-initiated adjudications in Western Australia. The decision reiterates that while pleading a counter claim may stop the money walking out the door, a counter-claim gives rise to a separate payment claim and an adjudicator will not have jurisdiction under the CCA to award the amount of a counter-claim unless a concurrent adjudication application has also been commenced.

In Alliance Contracting Pty Ltd v James & Anor [2014] WASC 212, the Supreme Court considered a counter-claim contained in a response to an adjudication application under the Construction Contracts Act 2004 (WA) (CCA). Justice Beech held that to recover money in respect of a counter-claim under the CCA a party will need to initiate its own adjudication proceeding.

Facts

Tenix SDR Pty Ltd (Tenix) brought an adjudication application under the CCA against Alliance Contracting Pty Ltd (Alliance). In its adjudication response Alliance pleaded a counter-claim arguing that Tenix owed Alliance money.

The adjudicator considered that there was in fact a balance owed to Alliance but that the adjudicator did not have the power to order Tenix to pay that amount to Alliance. Instead, the adjudicator determined there was a nil sum payable by Alliance to Tenix.

Alliance appealed the decision arguing that there was an improper exercise of the adjudicator’s jurisdiction because the adjudicator made a decision that an amount was not payable to Alliance, despite making a finding that an amount was in fact owing to Alliance.

Findings on Appeal

Justice Beech rejected Alliance’s submissions and upheld the adjudicator’s decision. His Honour found that the adjudicator’s power is confined to accepting or rejecting a payment claim, not awarding counter-claims. In these circumstances, the merits of the counter-claim will be considered in determining whether the respondent is liable to make a payment in respect of the payment claim but the counter-claim is not subsumed into the payment dispute arising from Alliance’s rejection of the claim. 

The counter-claim itself gives rise to a separate payment claim.  The counter-claim must be rejected, in order to give rise to a separate payment dispute, before the respondent can recover the amount of the counter-claim via the CCA process. For example:

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Significance

This decision implicitly recognises the ability of a principal to make a claim under the CCA confirming that the CCA process is available to any party to a construction contract.

The impact of this decision is that:

  • respondents are able to use their own counter-claim as a defence to rebut a claim made against them;
  • the adjudicator is required to take into account the response, including the merits of any counter-claim, in reaching a determination; and
  • the adjudicator is unable to give effect to the counter-claim referred to in the response unless the respondent has commenced a separate adjudication application in respect of the counter-claim.

Implications for you

If a principal demonstrates a valid counter-claim in an adjudication response, this will not entitle the principal to recover the amount of its counter-claim but it may still serve to rebut the applicant’s claim.