Department of Construction and Infrastructure v Urban and Rural Contracting Pty Ltd and Anor

Citation: NTCS 22

Nature of case:
The Plaintiff, the Department of Construction and Infrastructure (“DCI”), successfully challenged the jurisdiction of an adjudicator to determine the merits of a payment claim notified by the First Defendant (“URC”), in circumstances where the application for adjudication had been made prior to the date the sum fell due for payment under the contract. The Supreme Court of the Northern Territory of Australia found there had been no “payment dispute”, within the meaning of Section 8(a) of the Construction Contracts (Security of Payments) Act 2004 (“The Act”), at the time the referral to adjudication had been made, so that no jurisdiction had been conferred on the adjudicator.

On the facts, URC had submitted a “payment claim” on 2 December 2011 which, on 14 December 2011, had been “rejected or wholly or partly disputed” by the contract superintendent on behalf of DCI. The sum did not fall due for payment until 11 January 2012 but URC’s application to have the matter adjudicated was made on 19 December 2011, 12 days prior to the payment due date. The adjudicator made a determination in favour of URC for $692,414.27.

DCI’s challenge, brought on the basis that there could be no payment dispute between the parties until the payment had fallen due, was opposed by URC who argued that a payment dispute arose as soon as the payment claim was rejected or wholly or partly disputed, it being unnecessary to wait until the contractual date for payment to make an application. In any event, URC contended that, as a matter of law, the adjudicator’s decision to proceed to a determination on the merits was not something that was reviewable by the courts.

Pending hearing of the challenge, the court registry had declined to register the adjudicator’s determination as a judgment (the usual procedure for enforcement). Having heard argument, Justice Barr indicated that he would reserve judgment, and made a direction the the registry immediately register the determination as a judgment, and the determination amount was duly paid by DCI.

However, when the reserved judgment was delivered, the court held in favour of DCI, finding that on the proper construction of section 8(a) a payment dispute could only arise if “on the due date for payment, the amount has not been paid in full” which could not be construed as meaning “on or before the due date for payment”. Such interpretation most accurately reflected the text of the provision and also provided the greatest clarity and certainty, particularly when it came to assessing limitation periods. The court considered that it must determine what the legislature meant by the words it used and considerations of general legislative purpose, such as the facilitation of timely payment and alleviation of cash-flow problems, should not be allowed detract from the need to give proper attention to the text of a relevant provision.

The adjudicator had erred in law in finding a payment dispute to have arisen in the circumstances and, given that the existence of a payment dispute is the foundation of an adjudicator’s jurisdiction, the adjudication was void for jurisdictional error (AJ Lucas Operations Pty Ltd v Mac-Attack Equipment Hire Pty Ltd and another [2009] NTC 4 applied).

The existence or otherwise of a payment dispute at the date of application for adjudication was a matter that was reviewable by the court, satisfying the tests stated in both AJ Lucas and K&J Burns Electrical; it was both a jurisdictional fact and an essential precondition for the existence of the power to adjudicate.

Note: The difficulty for claimants under the West Coast model of adjudication in making their applications neither too early nor too late has been the subject of some concern. In this case, DCI has not sought any repayment of its adjudication payment to URC, and following the judgment has paid URC’s legal costs. Further, section 8 of the Act has now been amended to accord with URC’s submissions.

Counsel: Robert Fenwick Elliott appeared on behalf of URC.

Counsel

Robert Fenwick Elliott

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