Recent SOPA wrap up across the states

Below, we outline the key takeaways from recent Security of Payment (SOP) decisions (across New South Wales, Queensland, Victoria, and South Australia) and the practical implications for the preparation of payment claims by contractors and the assessment of those claims by principals. 

EnerMech Pty Ltd v Acciona Infrastructure Projects Australia Pty Ltd [2024] NSWCA 162

This decision provides guidance on when adjudication procedures can be used to recover the proceeds of a call on a bank guarantee.

• EnerMech Pty Ltd (EnerMech) issued a payment claim to Acciona Infrastructure Projects Australia Pty Ltd (Acciona), which included within it a claim for the repayment of an amount that had been obtained by Acciona by making a call on a bank guarantee. The adjudicator determined the amount was payable.
• Acciona applied to the New South Wales Supreme Court to have the determination quashed, alleging that the payment claim was invalid because the repayment was not a claim for payment “for construction work” but rather a claim for repayment of the cashed security. Stevenson J, agreed with Acciona and quashed the adjudication determination.
• EnerMech appealed the decision. The Court of Appeal was asked to consider two issues on appeal: (1) whether the payment claim was only for construction work and (2) whether the Court had jurisdiction to determine this question (ie whether the adjudicator’s finding that there was a valid payment claim was a jurisdictional error).
• The Court of Appeal held that the Building and Construction Industry Security of Payment Act 1999 (NSW) (NSW Act) did not expressly state that a payment claim can only be “for construction work” and no such requirement could be implied. Rather, the Court of Appeal found that the NSW Act required that a payment claim must be an amount of money for work done, goods supplied, or services rendered under a construction contract.  While a payment claim must assert an entitlement to payment for work done under a construction contract, satisfaction of that entitlement is a matter to be determined by the adjudicator, subject to limited rights of review for jurisdictional error. The finding by the adjudicator that the payment claim was valid, even if legally erroneous, was not able be challenged on judicial review for an error of law on the face of the record.
• The Court of Appeal set aside the orders of the Court below, and ordered that Acciona pay EnerMech the adjudicated amount, together with interest and costs.

Roberts Construction Group Pty Ltd v Drummond Carpentry Services Pty Ltd [2024] VSC 246

This decision reiterates that it is a matter for the adjudicator to decide whether a ‘construction contract’ exists, and the limits of the services rendered thereunder.

• Roberts Construction Group Pty Ltd (Roberts) was the head contractor and subcontracted with a related entity, Timberworks (Vic) Pty Ltd (Timberworks) to provide timber framework. Roberts also engaged with Drummond Carpentry Services Pty Ltd (Drummond) for the provision of labour hire pursuant to an informal arrangement.
• Drummond served a payment claim under Building and Construction Industry Security of Payment Act 2002 (Vic) (Vic Act) after two invoices issued to Timberworks went unpaid.
• Drummond applied for adjudication and was awarded the claimed amount. The adjudicator determined there was a construction contract between Roberts and Drummond, the payment claim was properly made, Roberts did not provide a valid payment schedule and the amount claimed was consistent with the contract.
• Roberts applied to the Supreme Court of Victoria for review arguing that it was not liable under a construction contract to make payment to Drummond. Roberts said that while it was party to a construction contract with Drummond, the relevant labour hire services the subject of the payment claim were provided under a different construction contract to which Roberts was not a party.
• Roberts argued that there was a clear line in the sand as between when the labour was supplied to Roberts (up until the end of 2022) and to Timberworks (thereafter). This, Roberts said, supported its contention that the relevant construction contract for the payment claim was the contract with Timberworks such that Timberworks ought to have been served with the payment claim.
• His Honour accepted that the existence of a construction contract between the claimant and the respondent is a jurisdictional fact (ie a fact, event or circumstance on which the jurisdiction of a decision-maker depends) which can be reviewed by the Court. However, having regard to the underlying statutory purpose of the Vic Act (to facilitate the prompt payment of progress claims) the question of whether the particular services were or were not rendered under that contract is not a jurisdictional fact. Rather, that issue is to be resolved through the statutory processes laid out by the Act and any error by the adjudicator on whether a particular service was rendered under the contract was simply a factual error within jurisdiction.

Goyder Wind Farm 1 Pty Ltd v GE Renewable Energy Australia Pty Ltd & Ors [2024] SASC 108

Claims for delay costs can be difficult to quantify and define the temporal limits to which they relate.  This decision reinforces the position that it is up to the adjudicator to determine whether or not such a claim has been determined in a previous adjudication application or not.

• Goyder Wind Farm 1 Pty Ltd (Goyder) entered into contracts with GE Renewable Energy Australia Pty Ltd and Elecnor Australia Pty Ltd (GE-Elecnor) for the construction of a windfarm. GE-Elecnor progressively issued three separate payment claims. Two of the payment claims proceeded to adjudication determinations pursuant to the Building and Construction Industry Security of Payment Act 2009 (SA) (SA Act).
• The claims the subject of the payment claims related to certain EOTs and delay costs claimed by GE-Elecnor for delay and disruption. Specifically:
  • In the first adjudication, the adjudicator determined that GE-Elecnor was entitled to 118 days for EOT 1 and 2 and to delay costs for prolongation. The adjudicator determined that GE-Elecnor had not made out any entitlement for a “thickening of indirect resources.
  • In the second adjudication, the adjudicator determined that GE-Elecnor was entitled to an additional ~$21million for EOT 1 and EOT in respect of different delay cost impacts of those EOTs being procurement premiums. The adjudicator found that these amounts were separate and distinct to the amounts claimed and awarded in the first adjudication (despite both adjudications concerning delay costs arising out of EOT 1 and 2).
• GE-Elecnor’s third payment claim also related to thickening costs and procurement premiums for the same two EOT claims.
• Goyder sought review of the second determination and an order to prevent GE-Elecnor from progressing the third claim to adjudication. Goyder argued that, amongst other things, the adjudicator failed to adopt the earlier valuation of the work as determined in a previous adjudication, as the delay costs arising from the EOTs granted to GE-Elecnor constitute a singular claim for delay costs. Goyder argued that this failure was a jurisdictional error, and further, that the latter payment claims impermissibly sought to re-agitate a claim which was made and determined in the first adjudication which was an abuse of process.
• His Honour considered the amounts claimed across the three payment claim and was satisfied that the delay costs did not constitute a singular claim for the same construction work, and related to different amounts, such that the adjudicator was not bound in the second adjudication to apply the valuation from the first adjudication. Further, his Honour found that, in any event, the valuation issue alleged (even if it had been made out) was not a matter of jurisdiction.
• As to the subsequent contentions around abuse of process, his Honour found that neither the contract or the SA Act required the characterisation of non-overlapping delays as a singular claim or required all delay costs to be claimed in only one application such that there was no abuse of process in making the second claim. However, his Honour allowed the application insofar as it related to the third payment claim, on the basis there was impermissible re-agitation by reclaiming thickening costs in circumstances where the adjudicator had already determined the claim in the first application.

Lendlease Building Pty Ltd v BCS Airport Systems Pty Ltd & Ors [2024] QSC 164

This decision highlights the practical application of State based SOP legislation in circumstances where construction work straddles the border between States and the circumstances where one State’s regime will apply to work performed in the other State in the context of the broader work being performed.

• Lendlease Building Pty Ltd (Lendlease) was the principal contractor for terminal extension works at Gold Coast Airport. Lendlease engaged BCS Airport Systems Pty Ltd (BCS) as a subcontractor to design and construct baggage handling works. BSC applied for adjudication in relation to a disputed EOT claim and delay costs the subject of a payment claim. 
• Uniquely in this case, Gold Coast Airport (and the area for the baggage handling works) straddles the Queensland-New South Wales border. Meaning that some of the works subject to the claim were entirely in New South Wales or Queensland, and some works were across both States.  In the adjudication application, Lendlease asserted that the claim was invalid as the Building Industry Fairness (Security of Payment) Act 2017 (Qld) (Qld Act) did not apply to the works carried out in New South Wales.  The adjudicator, in finding jurisdiction, determined that the Qld Act applied despite the fact that some of the works were in New South Wales.
• On review before the Supreme Court of Queensland, it was held that while the Qld Act is limited to Queensland, provided the construction work is carried out on a building, structure or works situated partly within of Queensland (i.e. the construction work can straddle the border) it is within the ambit of the Qld Act. The Court’s view was that the primary focus of the Qld Act is the location of the ultimate building or structure being constructed, as opposed to where each individual construction activity involved in the construction of that structure was performed. Where this is the case, a payment claim does not need to identify which work is carried out in each State on a “bolt by bolt” basis.

AM Darlinghurst Investment Pty Ltd as trustee for AM Darlinghurst Investment Trust v Growthbuilt Pty Limited [2024] NSWSC 825

This decision shows the practical challenges for an adjudicator dealing with partially privileged material in arriving at their decision.

• AM Darlinghurst Investment Pty Ltd (AM Darlinghurst) entered into a contract with Growthbuilt Pty Ltd (Growthbuilt) to design and construct the redevelopment of the three adjacent buildings in Oxford Street, Darlinghurst. Growthbuilt served a payment claim regarding certain variation works. AM Darlinghurst served a payment schedule in response certifying a negative amount (by making a deduction pursuant to its right of set off for liquidated damages).
• Growthbuilt subsequently commenced adjudication proceedings. Through that process, the adjudicator determined that Growthbuilt was entitled to various amounts, and assessed AM Darlinghurst’s liquidated damages claim at $nil.  AM Darlinghurst unsuccessfully sought to review the determination in the Supreme Court of New South Wales. 
• The principal arguments raised by AM Darlinghurst were the following jurisdictional errors:
  • that the adjudicator had considered an expert report that was based on without prejudice communications or alternatively that the adjudicator had failed to consider certain material; and
  • the adjudicator wrongly treated the claim for an EOT as a complete defence to the claim for liquidated damages which was not an argument addressed by either party.
• The Court rejected all of these arguments. Briefly:
• As to the expert report, Ball J found that the adjudicator had considered the report, and concluded that it was not practical in the time available to separate the impugned portions of the report from those that were not. Ball J highlighted that the SOP process is ‘brutally fast’, and that adjudicators have a vast amount of information to get through with issues that may not be clearly identified. Practically this means that an adjudicator’s reasons will not necessarily be expressed with the degree of ‘rigour’ that might be expected of a court. The adjudicator had considered the material, and the adjudicator’s decision to give the report no weight in the circumstances was open to her and within jurisdiction, and could not properly be classed as a jurisdictional error.
• As to the EOT / liquidated damages issue, which was allegedly not advanced by either party, the Court disagreed and found that Growthbuilt did advance that argument by submitting that AM Darlinghurst was not entitled to any liquidated damages where the adjudicator accepted Growthbuilt’s claims for EOTs. It was a submission made by Growthbuilt, which was not directly addressed by AM Darlinghurst. The adjudicator had accepted the submission and there was no jurisdictional error in her doing so.

MWB Everton Park Pty Ltd as trustee for MWB Everton Park Unit Trust v Devcon Building Co Pty Ltd [2024] QCA 94

This decision considers what form of words might amount to a request for payment, suffice to meet the requirements of a payment claim under the Qld Act.

• Devcon Building Co Pty Ltd (Devcon) entered into a contract with MWB Everton Park Pty Ltd as trustee for MWB Everton Park Unit Trust (MWB) for the design and construction of a row of townhouses.
• Devcon emailed MWB stating, “Please see attached claim 17” with two attachments. The first was a spreadsheet headed with the builder’s name, the title “Project Summary” and the words “Progress Claim” and the second was a statutory declaration by a director of Devcon stating, “I am making this statutory declaration in connection with the payment of Progress Claim No 17”.
• Devcon later sent another email stating, “Please find attached Tax Invoices for Progress Claim 17 … If you could please organise payment at your earliest convenience.” Attached were five invoices.  At the foot of each invoice was the request “Please settle the full amount within five business days and the statement “This claim is made under the Building Industry Fairness (Security of Payment) Act 2017”.
• MWB treated the receipt of those invoices as a payment claim under the QLD Act and responded with a payment schedule. Devcon claimed that the documents attached to the earlier email constituted the payment claim such that MWB’s payment schedule was issued out of time.
• The Court held that the earlier email, and its attachments, did not request payment of the claimed amount. The words “amount due this claim” included in the attachments were not found to be a request for payment. The Court held that the request for payment needs to be either express in the document (as was the case with the attachments to the second email) or necessarily, and clearly, implied by the document (e.g. by including the words “Tax Invoice” on the face of the document).

Hanson Construction Materials Pty Ltd v Decmil Australia Pty Ltd [2024] VSC 361

This decision reminds users in Victoria of the difficulties having regard to excluded amounts in the course of exercising set-off rights.

• Hanson Construction Materials Pty Ltd (Hanson) entered into a contract with Decmil Australia Pty Ltd (Decmil) to supply and deliver concrete and associated mixing, testing and pouring services to Decmil for the construction of 52 wind turbines. Hanson issued a payment claim to Decmil for $1,811,247.65. In responding, Decmil certified a $nil amount on the basis that the works undertaken by Hanson were defective and Decmil was entitled to set off the estimated cost of rectifying the defective work against the payment claim.
• The adjudicator determined that Decmil was required to pay Hanson $704,028, but also concluded that the foundation works were defective, that Hanson was liable to Decmil for the costs of rectifying the foundation, and that these rectification costs were to be set-off against the payment claim.
• Hanson sought review of the adjudication determination on the basis that the adjudicator wrongly took into account the rectification costs which was an “excluded amount” within the meaning of s 10B of the VIC Act (which includes “any amount claimed for damages for breach of the construction contract or for any other claim for damages arising under or in connection with the contract”.)
• The contract between Decmil and Hanson stated that the cost of any rectification work undertaken by Decmil would become a debt due and payable upon demand if Hanson failed to rectify the defect. The critical issue for the Court was whether Decmil’s claim for the rectification costs was a claim for damages or a debt due under the contract. If it was the former, it was common ground that it would be an excluded amount. If it was the latter, however, it would not be an excluded amount.
• The Court concluded that Decmil’s payment schedule did not constitute a demand for the debt that Decmil claimed was due and payable. The payment schedule did not reference the clause under which a demand could be made, nor did the payment schedule include the word “demand” or the expression “due and payable”.
• In the absence of any demand under the relevant clause, the Court found that Decmil’s claim was not for a debt due and payable and was a claim for an excluded amount. The Adjudicator therefore wrongly took that amount into account in determining the adjudication and the determination was void to that extent.