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Failure to challenge an adjudicator’s jurisdiction over a building payment claim

Justice Rees dismisses an application by an unsuccessful party to an adjudication for interim relief to restrain the registration of an adjudication certificate under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the BCISP Act).

In January 2020, Pheonix Builders Pty Ltd (Pheonix), a principal, entered into a building contract with Deca Australia Pty Ltd (Deca), a sub-contractor.

Pheonix contended that at a September 2020 site meeting, it was agreed that the contract would terminate and that Deca would be paid 65% of the contract price on a final basis, and that any further work would be undertaken under a new contract.

In March 2021, Deca issued Pheonix with a payment claim under the BCISP Act that included invoices for work done after the September site meeting. Pheonix then issued a payment schedule under the BCISP Act referring to the agreement that Deca be paid 65% of the contract price for completed works, but did not say that the payment was on a final basis.

Deca then filed an adjudication application under the BCISP Act. In response, Pheonix submitted a statutory declaration by its site foreman who described the September site meeting, but in a manner inconsistent with Pheonix’s contention about the contractual consequence of that meeting. Pheonix also made, but then withdrew, a challenge to the adjudicator’s jurisdiction. The adjudicator decided that Pheonix was to pay Deca $240,806.50.

In Pheonix’s application in the Supreme Court, Justice Rees accepted that given its contention about the September site meeting, there was a serious question to be tried as to whether a construction contract existed when Deca issued its payment claim. If Pheonix proved that contention, then the adjudicator’s decision could be quashed for jurisdictional error.

However, her Honour said (at [16]):

… the strength of [Pheonix’s] case is undermined by the manner in which that issue was put to the adjudicator – being inconsistent with the manner in which it is now put – and then withdrawn. It may undermine the operation of the Act – which is to ensure prompt payment to contractors through clear, quick procedures – for a party to an adjudication to challenge jurisdiction, withdraw the challenge, only to contend in this Court that the adjudicator has made a jurisdictional error by reason of the same issue abandoned before the adjudicator.

Her Honour rejected Pheonix’s submission that because Deca was experiencing cash flow problems, there was a chance that if Deca was paid in accordance with a registered adjudication certificate, the monies might not be recoverable. Indeed, the purpose of the BCISP Act was to ensure that contractors such as Deca did not suffer cash flow problems. Her Honour concluded that the balance of convenience weighed against granting the relief.

This case demonstrates that courts will strive to uphold the “pay now, argue later” policy underlying the BCISP Act by refusing injunctions that would undermine it. So if a respondent to a payment claim needs to argue a jurisdictional matter, they should raise it clearly and consistently in a payment schedule, and before an adjudicator.

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