16 Sep 2009

A closer look at the Victorian Security of Payment legislation

by Lee Carroll

The Court determined when an adjudication application procedure will be valid, and when it can be challenged.

In the recent case of Hickory Developments Pty Ltd v Schiavello (Vic) Pty Ltd [2009] VSC 156, the Supreme Court of Victoria considered the Victorian security of payment legislation (the Building and Construction Industry Security of Payment Act 2002. The decision represents only the sixth time in its seven-year history that the Victorian Act has been considered by the Court. The decision provides an insight into the extent to which the interpretation by the New South Wales courts of the NSW security of payment legislation is being followed in Victoria.

Justice Vickery, who is the head of the Building Cases List in the Victorian Supreme Court, considered two important issues:

  • first, when will an adjudication application procedure be valid; and
  • secondly, the bases on which an adjudication can be challenged.

Justice Vickery also gave a useful overview of the Act, its purpose and its operation.

A valid adjudication application

The case relates to a major subcontract for the TAC headquarters in Geelong. FKP Lifestyle Pty Ltd engaged Hickory Developments Pty Ltd as the main contractor to design and construct the base building works and fit out the property. Hickory engaged Schiavello (Vic) Pty Ltd to carry out these works.

On 3 February 2009, Hickory received a payment claim from Schiavello for an amount of over $2 million. Hickory denied liability to pay the payment claim and on 9 February 2009 served on Schiavello a payment schedule stating that the amount payable to Schiavello was $Nil.

Schiavello referred the dispute over the payment claim to Adjudicate Today, an authorised nominating authority under the Act, for determination under section 18(1)(a)(i) of the Act (where the scheduled amount is less than the claimed amount). At 4:01 pm on 23 February 2009, Schiavello's in-house lawyer sent, by email, a copy of the completed adjudication application and submissions to Adjudicate Today. Later the same day supporting documents referred to in the submissions were sent at 9.50 pm and 9.59 pm. Hickory received all documents by courier on 24 February 2009.

Within the prescribed time

Hickory submitted that the adjudication application was not commenced within the time prescribed by the Act and therefore, was not valid.

Under section 18(3)(c) of the Act, the adjudication application was required to be made within 10 business days after Schiavello received the payment schedule. Accordingly, 23 February 2009 was the tenth and final day within which Schiavello could make its application. The question was whether the sending of the emails late in the day on 23 February 2009 constituted the making of an adjudication application on that day.

Applications sent by email

Not unsurprisingly, it was held that an adjudication application can be commenced by the filing of the appropriate documents electronically. The Court rejected Hickory's submission that actual physical receipt within the 10 business day period was a basic requirement of the Act. The Court found that an adjudication application lodged by email is made at the time when it arrives at the recipient's server. This is notwithstanding the server may be located at a place different from the premises from which the recipient conducts its business.

Accordingly, the Court found that Schiavello's adjudication application was made to Adjudicate Today within the 10 business day time period prescribed by the Act and Hickory's claim was dismissed by the Court.

Bases on which to challenge an adjudication

In considering challenges to the determination of an adjudicator, Justice Vickery accepted and applied the approach taken in the NSW case of Brodyn Pty Ltd t/as Time Cost and Quality v Davenport: the determination of an adjudicator is void if the "basic requirements" of the Act are not complied with. That is, the requirements which were intended by the legislature to be essential pre-conditions for the existence of an adjudicator's determination. Brodyn has become entrenched in NSW as describing the key criteria for deciding whether a determination can be challenged. Those "basic and essential requirements of the Act" include:

  • the existence of a construction contract between the claimant and the respondent to which the Act applies;
  • the service by the claimant on the respondent of a payment claim;
  • the making of an adjudication application by the claimant to an authorised nominating authority;
  • the reference of the application to an eligible adjudicator who accepts the application;
  • the determination by the adjudicator of the application, by determining the amount of the progress payment, the date on which it becomes or became due and the rate of interest payable and the issue of a determination in writing.

What relief is available when an adjudicator's determination is void?

Justice Vickery parts company with the NSW Court in Brodyn on the issue of what relief is available if an adjudicator's determination is found to be void. In Brodyn, the Court held that the writ of certiorari, which operates to quash the legal effect or the legal consequences of the decision or order under review, is not available to quash an adjudicator's determination. Despite desiring consistency in the regimes for payment under construction contracts in both NSW and Victoria, Justice Vickery said that certiorari is available to quash an adjudication determination under the Victorian Act.

Justice Vickery has however subsequently reconsidered this view. In Grocon Constructors Pty Ltd v Planit Cocciardi Joint Venture, which involved an application for an interlocutory (interim) injunction seeking to restrain the defendant from taking action to challenge an adjudicator's decision, Justice Vickery said that "it may well be that my determination in Hickory was incorrect". The issue has yet to be heard and is listed for trial. It may be that there will be consistency in interpretation after all.

Minimal technical challenges

The Court also made some interesting general comments discouraging excessively technical objections under the Act. It was not the intention of the Act that precise compliance with all of the more detailed requirements of the Act is essential to the existence of a valid adjudication. The legislative intention in the Act is that adjudications should be made and given effect to with minimum delay and should be approached with minimal technicality and court involvement.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.