Is the Security of Payment Act truly a ‘pay now, argue later’ regime?

The Building and Construction Industry Security of Payment Act 2002 (Vic) (the Act) has revolutionised dispute resolution processes in the civil, construction and engineering industries.

It was intended to provide a fast and inexpensive mechanism for getting progress payments paid under a construction contract to maintain the cash flow between contracting parties.

The Act operates in parallel to the construction contract allowing contractors/subcontractors to claim payment from their principal/head contractor through the adjudication process. The adjudication determination gives contractors/subcontractors the ability to recover the amount adjudicated as a debt due.

Many judges have acknowledged the inherent limitation in the adjudication process, where highly complex matters may have to be determined within a stop clock timeframe, by an adjudicator with limited training and no opportunity to test the evidence being relied upon. To use the terminology of Justice Vickery in Hickory Developments Pty Ltd v Schiavello (Vic) Pty Ltd & Anor [2009] VSC 156, the Act ensures that a respondent to a payment claim for a progress payment “pays now and argues later”, rather than guaranteeing a just outcome.

The objective of the Act is to maintain the cashflow; a party can find its justice through litigation or other dispute resolution processes separately to the Act.

However, the recent Supreme Court of Victoria decision in Milburn Lake Pty Ltd v Andritz Pty Ltd [2016] VSC 3 may have undermined the ‘pay now, argue later’ purpose of the Act, as the court granted an injunction in favour of a Principal restraining the Contractor from converting an adjudication certificate into a judgment, in order to allow the Principal to seek judicial review of the adjudication determination.

In that case, the Court held that the balance of convenience favoured the granting of an injunction to prevent the enforcement of the adjudication determination, even though the Court acknowledged that granting the injunction would frustrate the purposes of the Act. The Court held that there was a real issue to be tried in the Principal’s judicial review proceedings in which the Principal argued that there was an error of law on the face of the adjudication determination.

Although it has been settled law for some time that a party is entitled to seek judicial review of an adjudication determination containing an error of law on the face of the determination, in another recent Supreme Court case, the Court determined that a party wishing to seek judicial review has a limited period of time within which to do so.

In the Supreme Court decision of Amasya Enterprises Pty Ltd v Asta Development (Aust) Pty Ltd [2015] VSC 233, the Court held that once judgment has been entered on an adjudication certificate under section 28R of the Act, section 28R(5) prohibits a respondent from seeking judicial review for error of law on the face of the record.

This means that a party wishing to seek judicial review of an adjudication determination must do so before the adjudication determination has been entered as a judgment.

Conclusion

The recent decisions create a situation where an unsuccessful respondent to an adjudication determination can avoid paying the successful claimant by bringing judicial review proceedings (by pointing to an alleged error of law on the face of the determination before the entry of judgment), and then seek injunctive relief to restrain the successful claimant from acting upon the adjudication certificate.

While the respondent in the Milburn Lake case was required to pay the amount of the adjudication determination into Court, the respondent did avoid paying the claimant until its judicial review proceedings were determined. In effect, the respondent was allowed to argue first and pay later.

These cases have now confirmed the impediments to the enforcement of adjudication determinations. They leave open that whenever a party to an adjudication determination claims that there has been an error of law made on the face of the determination which amounts to a serious question to be tried, the court is likely to grant injunctive relief preventing the enforcement of the determination on the condition that the monies are paid into Court.

The problem is that the payment of monies into court will not assist the cash starved applicant which may be said to undermine the objective of the Act.

How we can help:

The Construction & Projects group can assist and advise on all aspects of the Act including:

• Strategies for using the regime to get paid or to defend claims
• Advising on and assisting with the preparation of payment claims and payment schedules
• Preparing adjudication applications and responses
• Advising on the validity of adjudication determinations, including basis for setting aside
• Advising on the enforcement of adjudication determinations.