Downer EDI Works Pty Ltd v Steensma [2022] WASC 396

Tom French | Charlie Clifton | Penny Bond

Key takeout

• A set-off claim will only form part of a payment dispute for adjudication when it has been raised to reject or dispute the payment claim.
  
• An adjudicator will fall into jurisdictional error by considering matters other than the payment dispute.

Facts

Downer EDI Works Pty Ltd (Downer) and RCA Civil Group Pty Ltd (RCA) were parties to an equipment hire agreement (contract) for RCA to supply equipment to Downer.

Downer issued a notice of overclaim and set-off to RCA in the amount of $116,975 (Downer set-off claim).

Subsequently, RCA claimed payment in the amount of $148,973 (RCA payment claim), which Downer rejected on the basis that RCA had not provided new evidence. Downer’s rejection did not refer to the Downer set-off claim.

RCA applied for adjudication under the Construction Contracts (Former Provisions) Act 2004 (WA) (Act). RCA claimed $265,948, being the sum of the RCA payment claim and the Downer set-off claim. In its adjudication response, Downer did not rely on its set-off claim.

In his determination, the adjudicator:

• Rejected the RCA payment claim on the basis of inadequate substantiation.
• Rejected the Downer set-off claim on the basis that no evidence had been presented.

Downer’s application for judicial review

Downer applied for judicial review of the determination.

Downer’s central ground for review was that the adjudicator was not entitled to determine the Downer set-off claim because it did not form part of the payment dispute the subject of the adjudication.

Downer contended that its set-off claim was not a component of the payment dispute because it pre-dated the RCA payment claim and was not raised in its rejection of the RCA’s payment claim.

Decision

The court allowed Downer’s application. The court held the adjudicator did not have jurisdiction to determine the Downer set-off claim and had fallen into jurisdictional error by doing so.

In reaching its conclusion, the court considered the statutory regime for adjudications.

The court noted that, by section 31(2)(b) of the Act, the adjudicator was required to determine (on the balance of probabilities) whether any party to the payment dispute was liable to make a payment and if so, determine the amount to be paid and any interest payable.

The payment dispute relevantly arose when Downer rejected the RCA payment claim. The statutory definition of payment dispute required the adjudicator to consider the relevant payment claim and the rejection.

The Downer set-off claim preceded the RCA payment claim and was not referenced in Downer’s rejection of the RCA payment claim. Further, Downer had not relied on its set-off claim in its adjudication response.

For this reason, the court concluded that the Downer set-off claim did not form part of the payment dispute for determination by the adjudicator.

The adjudicator was confined to determining the RCA payment claim in the amount of $148,973.40. The adjudicator was not entitled to determine the Downer set-off claim.

This case provides a reminder that applicants should be cautious of claiming amounts in adjudication that are not the subject of the payment claim and did not form part of the respondent’s reasons for rejecting the payment claim. A set-off issued prior to a payment claim will not form part of a payment dispute unless it informed the rejection of the payment claim.