07 Aug 2014

Getting paid on a counterclaim needs a separate adjudication under the WA Construction Contracts Act

by Clive Luck, Kevin Zhou

To recover an amount by reason of a counterclaim in an adjudication under WA's Construction Contract Act, the respondent must initiate a separate adjudication.

A recent decision by Justice Beech of the Western Australian Supreme Court in Alliance Contracting Pty Ltd v James [2014] WASC 212 has clarified the operation of section 31(2)(b) of the Construction Contract Act 2004 (WA) (CCA). Under that section, the adjudicator has the power to determine whether "any party" to a payment dispute is liable to make a payment.

The Court was asked to clarify whether the adjudicator had the power to determine a net payment in favour of the respondent where the respondent had not commenced a separate adjudication to advance its counterclaim.

Facts: power of adjudicator to make a determination?

Tenix and Alliance were the parties to a subcontract, under which Tenix engaged Alliance to undertake construction work of the Karratha waste water treatment plant.

Pursuant to the contract, Alliance issued a final claim after Tenix certified practical completion. Tenix rejected Alliance's final claim by issuing a final certificate. That certificate certified a net amount due from Alliance to Tenix.

Alliance did not file an application for adjudication in relation to Tenix's rejection of its claim. Instead, it rejected Tenix's final certificate by giving Tenix a notice of dispute and refusing to make a payment. Tenix subsequently submitted an adjudication application, seeking payment by Alliance of the full amount claimed in the final certificate.

The adjudicator considered the parties' submissions, including Alliance's counter claims. Despite finding that Tenix owed Alliance a net sum of money, the adjudicator concluded that, in his construction of s 31(2)(b) of the CCA, he did not have jurisdiction to order a payment from Tenix to Alliance, and that the adjudication amount was nil since no balance was otherwise found in favour of Tenix.

Alliance applied for judicial review of the determination on the ground of jurisdictional error, and for an order to force Tenix to make a payment to it for the amount the adjudicator found in its favour.

Decision: meaning of "any party"

Justice Beech found that:

  • The determination by an adjudicator of whether "any party" to a payment dispute is liable to make a payment, is limited to determining whether the recipient of the payment claim is liable to make a payment in respect of that payment claim.
  • While the merits of the counter claim from the recipient of a payment claim will be considered in determining whether the recipient of the payment claim is liable to make a payment, the counter claim itself is a separate payment claim the objection of which constitutes a separate payment dispute (although the two claims are factually overlapping and intertwined).
  • Neither party applied for an adjudication of the payment claim constituted by Tenix's rejection of Alliance's final claim.

Accordingly, he dismissed Alliance's application.

Implications: initiate a separate adjudication

This judgment confirms that while a respondent is entitled to submit a counterclaim as a defence in a CCA payment dispute, a net outcome in its favour does not make the respondent entitled to a payment from the applicant in the same proceeding. In order to recover an amount by reason of the counterclaim, the respondent must initiate a separate adjudication.

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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.