Insite Construction Services Pty Ltd v Daniels Civil Pty Ltd & Anor [2023] QSC 33

Sarah Ferrett  |  Luke Trimarchi  |  Joey Henthorn

Key takeout

• This decision is a reminder that under the Building Industry Fairness (Security of Payment) Act 2017 (Qld) (BIF Act) a respondent must always give clear and comprehensive reasons within a payment schedule as to why it is withholding payment of any amount and provide alternative assessments in the event that their reasons are not accepted.
• An adjudicator has no obligation to ‘inquire’ or undertake his or her own valuation exercise.

Facts

On 15 December 2021, Insite Construction Services Pty Ltd (Insite) and Daniels Civil Pty Ltd (Daniels) entered into a subcontract, for construction works at a school (subcontract).

On 6 June 2022, Daniels publicly announced that it would cease trading and wind down its business. On 9 June 2022, Daniels sent an email to Insite’s project manager with the subject heading  ‘Notification of Contract Termination’. The email stated that ‘[Daniels] has made the difficult decision to terminate our current contracts’ and that ‘On this particular project, Daniels …will complete our earthworks under block P, and all other works will need to be completed by a third party’.

Insite believed this email constituted termination of the subcontract by Daniels, and so Insite purportedly accepted termination on the same day. Daniels believed the email simply varied the subcontract, in that Daniels was only to perform the earthworks under block P, and that the actual termination date for the subcontract was 26 August 2022.

Payment claim and adjudication

On 2 August 2022, Daniels delivered a payment claim to Insite seeking payment of $138,387.16, in respect of works apparently completed by it, with a reference date of 28 July 2022.

Insite delivered a payment schedule, asserting that $NIL was payable to Daniels. Insite did not include reasons in the payment schedule for withholding payment.  It only made reference to looking for a subcontractor to take over the balance of the work left by Daniels. However, separate correspondence had been exchanged which referred to Insite’s right to set off the costs associated with engaging a new subcontractor.

Daniels applied for adjudication of the payment claim under the BIF Act. The adjudicator determined that Daniels was entitled to the full amount of its payment claim.  The adjudicator came to the conclusion that as Insite had not given any reasons in the payment schedule as to why the amount claimed was not payable, it had not issued a valid payment schedule under the BIF Act.

Insite applied to the Supreme Court of Queensland seeking to have adjudicator’s decision declared void for jurisdictional error on grounds including that the adjudicator had misapprehended his function under the BIF Act when he accepted the value of the payment claim.

Decision

The court dismissed the application. Crowley J determined that the adjudicator fully and appropriately carried out his obligations under the BIF Act and relied on the evidence and submissions made available to him.

The court observed that it was open to the adjudicator to accept Daniels’ uncontested valuation, as Insite’s payment schedule did not challenge either the fact that the work was done, or Daniels’ valuation of the work. Therefore, having no reasons to assess why the claimed amount should not be paid, the adjudicator came to the conclusion that the full amount was payable. 

There was no obligation on the adjudicator to ‘inquire’ or undertake his own valuation exercise. Further, under the BIF Act, in the absence of a payment schedule containing reasons for not paying the amount claimed, the adjudicator was not permitted to consider any new reasons for withholding payment of the payment claim.  The fact that Insite gave reasons in a previous payment schedule or in separate correspondence, that had not been referenced in the payment schedule, was insufficient and those ‘reasons’ could not be applied to the payment schedule in question.