The owner, Vanguard, entered into a building contract with Promax as builder in 2016. The building contract contained a number of special conditions including one which provided for the reference date for the purposes of a final claim for payment under the Building and Construction Industry Security of Payment Act 2002 (“Act”) was that a final claim could only be made in certain circumstances after all defects liability periods had ended and the works were completed.

 

In December 2017, Promax, the builder, issued a progress claim and performed no further work on the site afterwards. Vanguard retaliated by issuing a payment schedule proposing to pay nothing due to alleged building defects. Promax issued an adjudication application in respect of which it was successful. In February 2018, Promax suspended the building contract relying upon Vanguard’s failure to pay the December 2017 progress claim and adjudication determination and then issued a notice of termination. Vanguard, the owner, argued that Promax had repudiated the building contract by serving Notice of Suspension and then a Notice of Termination. Vanguard accepted Promax’s repudiation and terminated the building contract.

 

Vanguard subsequently paid the amount due under the December 2017 adjudication.

 

Promax then made a second claim for adjudication in February 2018 based upon a claim for final payment. That claim was made under the Act rather than in accordance with the special condition of the building contract which stated that such a claim could only be made when all works were completed. Promax was again successful in the second security of payment adjudication.

 

 

Vanguard then applied to the Supreme Court of Victoria for judicial review of the adjudicator’s second determination upon the basis that the adjudicator had made legal errors amounting to jurisdictional error upon that basis that:

 

Whether the adjudicator had made a legal jurisdictional error depended upon whether or not the building contract made it clear that the right in the builder to make a final payment claim survived contractual termination and in fact could be made on the last day of performance on site even when the contract still had not been completed. Justice Kennedy rejected that interpretation. Her Honour concluded that the building contract only allowed Promax as builder to make a final claim when the entire Contract had been completed and the builder and owner were making a final balancing of account. The builder argued that it was entitled to seek a final payment under the second adjudication even though the totality of the works had not been completed. Justice Kennedy decided that the contractual processes for the making of a final claim by the builder had not been either initiated or complied with and could not have been due to the early termination by the builder and the acceptance of the repudiation by the owner.

 

 The consequence of the Court’s finding was that if there was no final claim for payment within the meaning of the building contract, there could be no reference date and therefore lacked the essential pre-condition to making a valid payment claim under the Act. Accordingly, the adjudicator made a jurisdictional error.

 

In relation to the second argument concerning the adjudicator’s jurisdictional error, the adjudicator had decided that the owner could not refer to defects that may have exited at the date of the earlier December 2017 adjudication but had only been identified in the February 2018 adjudication. The builder attempted to argue that the adjudicator had considered the recently identified defects but had decided that they had no value and therefore should be rejected in reducing the builder’s final progress claim.

 

Justice Kennedy rejected the builder’s submission. The court decided that the adjudicator had wrongly decided that defects that had only been identified after an adjudication, even though they existed at the date of the earlier adjudication, must be disregarded in determining the value of the builder’s claim. Justice Kennedy regarded the adjudicator’s approach as legally wrong. The adjudicator should have asked the question whether or not the value of the works in respect of which the builder was seeking the progress claim had altered by reason of the existence of the recently discovered alleged defects. The adjudicator had not asked that question and had ignored relevant material provided by the owner and had thereby committed a jurisdictional legal error.

 

Builders and contractors embraced the passing of the Act in 2002 as heralding a simpler way of enforcing progress claims. For perhaps a decade, this may have been true. However, the increasing complexity of security of payment claims are making the traditional process of suing owners for breach of building contracts and outstanding progress claims as debts more attractive. Both the Supreme Court of Victoria and the County Court of Victoria now have specialised Building Lists with expedited processes and procedures and dedicated judges. Litigation is judicially managed. The likelihood of reversing any resulting judgement is minuscule in comparison to the likelihood of an adjudicator making jurisdictional errors. Increasingly, claims under the Act may be a false economy. The current judge in charge of the Supreme Court’s Technology and Building List, Justice Digby, is also likely to take a less “user-friendly” approach to the Act than did his predecessor, Justice Vickery.

 

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