The case is relevant to Western Australian construction principals and contractors because:

• the Building and Construction Industry (Security of Payment) Act 2021 (WA) (BCI Act) is being progressively introduced in Western Australia, and consequentially new construction contracts will also soon become subject to similar provisions;
• the case highlights:
  • how vital it is to properly respond to a contractor’s progress payment claim in a carefully drawn payment certificate; and
  • the difficulty of raising fresh defensive arguments to a contractor’s progress payment claim in the context of the adjudication process.

Background

Aniko was constructing an apartment building and engaged Total to supply and install windows and doors to the building.

Total issued several payment claims pursuant to the terms of the contract. When Aniko failed to make payments, Total brought an adjudication application under the BIF Act.  The application was adjudicated in favour of Aniko, that no sum was owed to Total.

However, Total successfully challenged the validity of the adjudication decision in the Queensland Supreme Court on the basis of legal error.

The Court sent the application back to the adjudicator for re-determination.  In the second determination, the adjudicator again decided in favour of Aniko, finding that no sum was owed to Total. In reaching that conclusion, the adjudicator appeared to have regard to evidential material that was not included in Aniko’s initial response to Total’s payment claim. Total again challenged the adjudicator’s findings before the Court.

Decision

The Court agreed that the adjudicator had again erred (in the second decision).

What was the adjudicator’s error?

Section 88(3) of the BIF Act prohibited the adjudicator from considering a reason for withholding payment given in Aniko’s adjudication response that Aniko had not included in its payment schedule (in response to Total’s original payment claim).

In the adjudicator’s second decision, the adjudicator had had regard to evidence in Aniko’s adjudication response that went beyond Aniko’s payment schedule.  This happened in this way:

• When Aniko had initially issued its payment certificate, Aniko admitted that (at that point in time) Total’s works had been validly suspended under the BIF Act by reason of non-payment of two payment claims. 
• After that payment certificate was issued, Aniko proceeded to remove works from Total and give them to an alternative contractor.
• In its adjudication response, Aniko sought to put up evidence to demonstrate the date on which it engaged the alternative contractor, apparently to avoid a finding that it had done so unlawfully during the suspension period (which would have given Total a statutory right to recover loss and expense under the BIF Act).
• The adjudicator had regard to that evidence from Aniko in reaching a conclusion that Total had failed to prove when the works were removed from the contract by Aniko.
• Aniko’s payment certificate did not contain that evidence, nor did it contain an argument that Aniko had validly taken work off Total outside the statutory suspension period.

The Court accepted that in having regard to Aniko’s “fresh” evidence, the adjudicator had erred in having regard to a reason for withholding payment that had not been included in the original payment certificate.  That rendered the adjudicator’s decision void (at least in part).   

Lavan's Comment

• Western Australia has enacted the BCI Act and whilst it has yet to come into full effect, it will continue to ratchet up in application from August 2022. Section 38 of the BCI Act mirrors that of section 88 in the BIF Act. Therefore, Queensland cases such as Total Lifestyle indicate how WA courts will approach the same issues.
• As such, in time, companies carrying out construction work in WA will not be able to rely on reasons for disputing payment claims in adjudications, that were not first raised in the assessment of the payment claim being adjudicated.
• As full application of the BCI Act draws nearer, companies involved in assessing payment claims (whether principals or main contractors) should look to bolster their contractor payment claim assessment processes.  Particularly, companies should look to ensure that:
  • they have payment claim assessment policies in place that, amongst other critical requirements (such as responding to payment claims within time), include a requirement that all relevant reasons for disputing a payment claim (or any part of a claim) be set out in the response; and
  • where the company wishes to dispute a payment claim, that the company considers taking urgent legal advice to ensure that any payment certificate is sufficiently broad to provide a reasonable platform for running a defence in any subsequent adjudication process.
• Failing to take such diligent steps may result in an adjudicator lawfully determining that the entirety of a contractor’s payment claim shall be paid out, despite there being credible and legitimate reasons to dispute that claim. 
• Such an error could have significant financial ramifications for companies.  For example, where required to undertake rectification of faulty subcontractor workmanship (to comply with head contract obligations), a company may still have to pay the subcontractor for those faulty works, should it fail to raise these potential offsetting claims in the requisite payment schedule.