The Supreme Court of Western Australia has recently decided that a failure by a contractor to dispute a payment claim within 14 days of that claim being submitted, as required by the default provisions contained in Division 5 of the Schedule to the Construction Contracts Act 2004 (WA) (Act), did not prevent the contractor from raising a defence to that payment claim at adjudication.
Implied terms
As with its other West Coast model counterpart, the Construction Contracts (Security of Payments) Act (NT), the Act contains a number of default provisions which are implied into construction contracts that do not contain written provisions about particular matters. The decision of the Supreme Court of Western Australia concerned the default provisions contained in Division 5 of the Schedule to the Act, which are implied into construction contracts that do not have a written provision about when and how a party is to respond to a payment claim made by another party, and/or the time by when payment must be made. In summary, those default provisions require a party to:
- dispute a payment claim within 14 days of receiving the claim; and
- within 28 days of receiving a payment claim, unless the payment claim has been wholly rejected or disputed, pay either the whole amount of the payment claim or the undisputed part of the claim.
Based on those provisions, a common argument made by claimants in adjudication under the West Coast model has been that, where the default provisions apply and a respondent does not dispute a claim within 14 days, the respondent cannot dispute the claim in an adjudication, and must pay the claim in full (regardless of its merits).
The Decision
ECA and Total Eden were parties to a subcontract, pursuant to which ECA was to carry out electrical contracting work. The subcontract stated the date by which Total Eden was required to make payment of payment claims submitted by ECA, however it did not contain any provisions about how and when Total Eden was to respond to payment claims made by ECA.
ECA submitted a payment claim to Total Eden for $80,640. Total Eden did not respond to that claim for over two months, by which time ECA had already submitted an adjudication application under the Act. In its response, Total Eden contended that no amount was owed to ECA because it was entitled to set off approximately $134,000.
The Adjudicator determined that, because the subcontract did not contain a provision about how and when Total Eden was to respond to payment claims made by ECA, the default provisions contained in Division 5 of the Schedule to the Act were implied into the subcontract. The adjudicator further determined that, because Total Eden had failed to dispute the payment claim within 14 days as required by the default provisions, Total Eden was required to pay the entire amount claimed by ECA, and was not allowed to raise any defence at adjudication.
Total Eden commenced proceedings in the Supreme Court of Western Australia seeking to set aside the adjudicator’s determination. The Court first held that the adjudicator had committed an error by determining that the default provisions contained in Division 5 of the Schedule to the Act were implied into the subcontract in their entirety. The Court held that, because the subcontract contained a provision about when payment was to be made by Total Eden, only those provisions contained in Division 5 which dealt with when and how Total Eden was to respond to payment claims were implied into the subcontract.
The Court also held that the adjudicator had committed an error by determining that, due to its failure to dispute ECA’s payment claim within 14 days as required by the default provisions, Total Eden was not entitled to raise any defence at adjudication, and was required to pay the full amount of that claim. The Court held that, notwithstanding Total Eden’s failure to dispute the payment claim within 14 days, the adjudicator was required to consider the merits of Total Eden’s set off.
The Court held that each of the above errors committed by the adjudicator was a jurisdictional error, and therefore set aside the adjudicator’s determination.
Implications
This decision is important for all principals and contractors who carry out construction work in Western Australia or the Northern Territory.
The Court’s decision makes clear that, if the default provisions under the Act apply, a contractor will still be able to dispute the merits of a claim at adjudication, even if it does not dispute the claim within 14 days of receiving it.
The Court’s decision also reinforces the conclusion that, where an adjudicator erroneously determines that default provisions in the Act are implied into a construction contract, which leads the adjudicator to wrongly interpret the contract when determining the merits of an adjudication application, the adjudicator’s determination may be set aside by the Court.
This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader’s specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.
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