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

Chris Hey  |  Michael Lo  |  Jasmine Reilly

Key takeout

A respondent under the Building and Construction Industry Security of Payment Act 2002 (Vic) (Act) should carefully follow the contractual process for the recovery of defect rectification costs to avoid a purported deduction of those costs being construed as a claim for damages. 

Where an adjudicator’s determination takes into consideration an ‘excluded amount’ within the meaning of section 10B of the Act, the adjudicator’s determination is quashed only to the extent it took into account an ‘excluded amount’ and the adjudicator’s determination can be remitted back.

Facts

Hanson Construction Materials Pty Ltd (subcontractor) sought judicial review of an adjudication determination, contending that the adjudicator’s determination took into account an ‘excluded amount’ under the Act.

The critical issue before the court was whether the costs incurred by Decmil Australia Pty Ltd (contractor) in rectifying a foundation was a claim for damages, or a debt due under clause 30.3 of the subcontract.  It was accepted by both parties that the contractor’s entitlement to a debt under clause 30.3 of the subcontract only arose where the contractor had arranged for the defect to be remedied and demanded payment of those costs from the subcontractor. 

The contractor contended that its Payment Schedule constituted both its valuation of, and demand for the rectification costs in the amount $2,633,235.

If the contractor’s claim for rectification costs was not a debt due under clause 30.3, then both parties agreed that the claim was a claim for damages, being an ‘excluded amount’ under s. 10B of the Act.

Decision  

The subcontractor’s Payment Schedule did not constitute a demand under clause 30.3.  The Payment Schedule did not use the word ‘demand’ and nor did it refer to clause 30.3 of the subcontract.  As such, the contractor’s claim for rectification costs was a claim for damages and an ‘excluded amount’ for the purposes of the Act.

The court then considered whether remittal back to the adjudicator was available in respect of the adjudicator’s determination.  The court considered a number of decisions where the court had ordered an adjudication application to be remitted back to the adjudicator, the objective of the Act, and s. 23(2B) of the Act, which provides that if an adjudicator’s determination takes into account an excluded amount, it is void to that extent. 

The court determined that the adjudicator’s determination was quashed only to the extent it took into account the rectification costs and remitted the adjudication application to the adjudicator.  This was the appropriate course to give effect to the objective and s. 23(2B) of the Act because a remitter:

• allows the adjudicator to amend their determination in accordance with the court’s decision, without impacting the valid portion of the determination; and
• facilitated prompt interim payment on account in favour of the subcontractor pending final determination of any disputes – more so than if the adjudication determination was quashed without remitter.