Andrew Hales | Tom Kearney | Isobel Carmody
The requirement that a payment claim be made in respect of one construction contract only is a jurisdictional fact, meaning that a payment claim offending that requirement cannot support a valid adjudication application and determination under the Building and Construction Industry Security of Payment Act 1999 (NSW).
The New South Wales Supreme Court rejected the obiter dicta (part of the judgment not essential to the decision in the case) of the Queensland Court of Appeal in Ausipile v Bothar Boring  QCA 223 that suggested that a jurisdictional argument based on the above principle must first be raised in a payment schedule because that obiter was ‘plainly wrong‘.
BSA Advanced Property Solutions (Fire) Pty Ltd (subcontractor) and Ventia Australia Pty Ltd (head contractor) were parties to a fire asset maintenance subcontract which enabled the head contractor to issue ‘work orders’ to the subcontractor for particular works. The fire asset maintenance subcontract provided that where a ‘work order’ was issued, that would result in the formation of a separate and fresh agreement between the parties for the carrying out of the relevant work.
The subcontractor made a payment claim claiming for works carried out under more than one ‘work order’, and then made an adjudication application under the Act based on that payment claim. The adjudicator made an adjudication determination in the subcontractor’s favour.
The head contractor challenged the adjudication determination on the basis that the underlying payment claim was not a valid payment claim because it claimed payment under more than one construction contract.
The court allowed the application for judicial review and quashed the adjudication determination because:
- the requirement that a payment claim be made in respect of one construction contract only is a jurisdictional fact, the existence of which is necessary to the existence of an adjudicator’s jurisdiction to make an adjudication determination under the Act; and
- the payment claim claimed for work under more than one construction contract.
The court rejected an argument from the subcontractor that the fire asset maintenance subcontract was an overarching ‘arrangement’ within the meaning of the definition of ‘construction contract’ in the Act, so the payment claims spanning multiple work orders were all submitted under one ‘construction contract’. The court considered that the concept of an ‘arrangement’ is used where there is a lack of precision about the parties’ agreement to carry out construction works so the law of contract might not capture it. Here, the parties had agreed to the formation of fresh contracts with each ‘work order’, and the Court could not overlook the express contractual regime and search for something that might meet the definition of an ‘arrangement’.
The court also rejected an argument from the subcontractor that the clauses providing for each ‘work order’ to result in a fresh contract were contracting out of the Act and therefore void. The court considered that the provisions did not detract from the subcontractor’s ability to exercise its rights under the Act. It was not sufficient that the subcontractor might incur more adjudicators’ or lawyers’ fees in exercising its rights under the Act because of the multiple agreements and therefore the need for multiple payment claims.
The court rejected the obiter dicta in Ausipile v Bothar Boring, which suggested that a jurisdictional argument based on the requirement that a payment claim be made only under one construction contract must first be raised in a payment schedule and cannot be raised for the first time in an adjudication response. See our previous case update on that decision here. The court stated that the obiter was ‘plainly wrong‘