02 April 2007
Key Points:
Court restrains the making of an adjudication application under the Act. Orders justified by potentially very serious and probably irremediable prejudice arising by operation of section 22(4) of the Act. Court still expresses general reluctance to interfere in the workings of the statutory scheme created by the Act.
It is well understood that the adjudication process established by the Building and Construction Security of Payment Act 1999 is a central component for the quick resolution of payment disputes governed by that Act. A refrain often repeated by the court on a number of occasions where a party has sought orders to affect or restrain the statutory process established by the Act is that the court "should be slow to intervene in the working of the statutory scheme or to interfere with the exercise of statutory rights".
Even though this refrain was stated by Justice McDougall in Veolia Water Solutions & Technologies v Kruger Engineering Australia Pty Limited [2006] NSWSC 1406, he made orders restraining – albeit on an interim basis – an adjudication application from being made.
The circumstances surrounding the making of these orders are as follows.
Facts
Kruger had made a Payment Claim which was ultimately the subject of an adjudication application and a determination under the Act. Following the making of the determination Veolia challenged it on the basis that it failed to comply with one or more of the Brodyn prescribed "basic and essential requirements". The details of this failure were not set out in the judgment.
Prior to the hearing of Veolia’s challenge to the adjudication determination, and apparently to preserve its rights under the contract, Kruger served a further Payment Claim which included the work claimed in the previous Payment Claim which proceeded to adjudication and now being challenged by Veolia.
There is nothing irregular about a subsequent Payment Claim replicating amounts claimed in a previous Payment Claim under the Act. In fact, section 13(6) of the Act expressly authorises such a course of action, provided that the two Payment Claims are served in respect of different "reference dates" as defined by the Act.
Veolia filed a Notice of Motion seeking orders restraining Kruger from lodging an adjudication application or taking any further step under the Act in respect of the subsequent Payment Claim until Veolia’s challenge to the adjudication determination in respect of the earlier Payment Claim had been determined. Veolia asserted that it would likely suffer prejudice by the operation of section 22(4) of the Act if an adjudication proceeded before its challenge to the earlier determination had been resolved. Section 22(4) requires a subsequent adjudicator to give work the same value as that determined by a previous adjudicator unless either of the parties satisfies the subsequent adjudicator that the value of the work has changed.
Thus, in respect of the overlapping items claimed in both Payment Claims, Veolia argued that a subsequent adjudicator would be required to give that work the same value as in the determination being challenged. Veolia submitted that this would expose it to an injustice in the event that its challenge to the determination succeeded. That is, the subsequent adjudicator would potentially value work in accordance with a determination that may be subsequently found to be void. The potential consequence of this is that Veolia may be required to pay for work despite the determination upon which the obligation to make that payment is founded is declared void.
Decision
Notwithstanding that Kruger has a statutory right to make further Payment Claims and, indeed, faced an impending time constraint under section 13(4) of the Act from making further Payment Claims, Justice McDougall held that Veolia "has made out a prima facie case for some form of relief" and stated that:
"In the context of the present case, I think there would be a potentially very serious, and probably irremediable, prejudice to Veolia if an adjudication were permitted to proceed on the basis of the [subsequent Payment Claim] in circumstance where, as to at least part of the payment claim, the outcome would be dictated by what [the previous adjudicator] has already determined, and where it has a bona fide challenge on foot to that determination."
In weighing the potential injustice to Veolia against allowing Kruger’s statutory rights under the Act to be exercised, Justice McDougall favoured making orders restraining Kruger from proceeding further with its rights under the Act. Importantly for Kruger, however, the order was fashioned so that Veolia’s challenge to the determination would be dealt with before the last date Kruger became time-barred from lodging a further Payment Claim.
Comment
In justifying the orders made in this case, Justice McDougall was of the view that, left unrestrained, the continuation of the processes under the Act would likely cause prejudice which was "potentially very serious and "probably irremediable". Indeed, if a test were to be formulated – based on this decision – as to when a court would intervene to restrain the adjudication process under the Act, then that test could be expressed along these lines: Would a party suffer a very serious and probably irremediable prejudice if the adjudication process under the Act is not restrained?
However, the present decision does not shed much light on why the prejudice to Veolia was probably irremediable. Indeed, Justice McDougall tentatively expressed a view – without deciding – that Veolia’s predicament was not as gloomy as it submitted. That is, even if the adjudication proceeded and the Court subsequently determined that the earlier adjudication determination was void, then any subsequent adjudication that purported to be founded upon that earlier determination – because of the operation of section 22(4) of the Act – would also be void. Therefore, Justice McDougall was not entirely convinced that the prejudice suffered by Veolia was probably irremediable. On one view, unless there is a real and genuine risk that a party will become insolvent before final rights under a construction contract are worked out, then it is unlikely that – given that the Act only confers interim binding rights and expressly preserves rights the parties otherwise have – any prejudice is irremediable.
This, of course, does not detract from the importance of this decision from the perspective of practice under the Act. It shows that an application to restrain a central aspect of the Act can be successful where potential serious prejudice is demonstrated.
For further information, please contact Bill Ilkovski .
