Payment Schedule – Critical to Defend Adjudication Application

02/08/2016

Recently Justice Emmett in Probuild Constructions (Aust) Pty Limited v Shade Systems Pty Limited [2016] NSWSC 770, the Supreme Court considered the Building and Construction Security of Payment Act (SOP Act) when determining whether an Adjudicator had made an error of law.

Watson & Watson, Building and Construction Solicitors were recently approached for assistance by a Subcontractor who had been served with a Payment Claim who was unsure of what restrictions if any, were applicable in relation to the SOP Act in relation to Adjudication.

While the substantive case was in relation to the whether or not the adjudicator had made an error of law in his Determination –the Court made comments in relation to Payment Schedules and their application in Adjudications.

The important background of the case is that the dispute arose out of a Payment Claim served on Probuild Constructions (Aust) Pty Limited (Probuild) on 23 December 2015 by Shade Systems Pty Ltd (Shade).  Shade stated it was owed the amount of $324,334.26.  The Payment Claim did make reference to a sum for retention in the sum of $77,317.77. However, Shade had not taken it into account when calculating the amount claimed in the Payment Claim.

On 11 January 2016 Probuild served a Payment Schedule on Shade.  In the Payment Schedule Probuild advised that it did not intend to make any payment to Shade in relation to the Payment Claim.  This was on the basis that Probuild asserted that it had an entitlement to liquidated damages from Shade in the amount of $1,089,900.00; which was an amount that was more than the amount claimed by Shade in its Payment Claim.  In the Payment Schedule Probuild did not raise any issue in relation to retention.

On 25 January 2016 Shade applied under Section 17 of the Act for an Adjudication of the Payment Claim.  In the Adjudication Application Shade made a number of concessions and reduced the amount of its claim to $214,680.88.  The amount being claimed in the Adjudication now included a reduction for the retention amount.

On 3 February 2016 Probuild lodged a Response to the Adjudication Application. In the Application Response Probuild made no substantive submissions in relation to the conceded amount nor the use of the retention amount.  The Response simply asserted that Shade had no entitlement to a Progress Claim, particularly, in light of its entitlement to the liquidated damages. 

By Determination on 15 February 2016 the Adjudicator determined that the amount of the Progress Claim to be paid by Probuild to Shade System was $277,755.03.  This amount was $63,074.15 more than the revised claim amount proposed by Shade. 

During the Adjudication process the Adjudicator did not give any notice of its intention to make a determination greater than the revised claim amount.  Nor did the Adjudicator give any opportunity to make any additional submissions in relation to the retention amount.

On 26 February 2016 Probuild wrote to the Adjudicator and made an Application under Section 22(5) of the Act for a correction of the Determination on the grounds that the Adjudicator’s decision to award Shade more than the revised claim constituted an error or an accidental slip. 

On 1 March 2016 the Adjudicator rejected the Application to Correct the Determination. Thereafter Probuild filed its application with the Supreme Court.  Probuild alleged that the Adjudicator had failed to give it a proper opportunity to respond.

The Supreme Court considered Section 20(2B) of the Act and noted that a Respondent cannot include in the Adjudication Response any reasons for withholding payment unless those reasons have been included the Payment Schedule provided to the Claimant. 

The Court found that there was no submission in the Payment Schedule by Probuild that it was entitled to a reduction in relation to retention amount.  It was therefore not open to Probuild to include the claim for reduction in relation to the retention amount in the Adjudication Response as a reason for withholding payment from Shade.

His Honour determined that the task of an Adjudicator is to resolve the disputes raised by the Payment Claim and the Payment Schedule on the grounds raised within them. 

If you have been issued with a Payment Claim you need to be aware that the SOP Act has a restriction on what a party can rely upon in the subsequent Adjudication if made by the claimant. The Respondent cannot attempt to raise a new issue at this later time.

The effect of the limitation is that when issuing a Payment Schedule you should include all of your possible reasons for non payment; do not rely on just one reason.

If you are a Proprietor, Owner, Builder, Subcontractor or associated person our experienced Lawyers at Watson & Watson can advise you as to the operation of Building and Construction Industry Security of Payment Act (SOP Act). 

Please do not hesitate to contact Richard Watson an experienced Building and Construction Accredited Specialist if you have any doubts, queries or concerns or have been served with a Payment Claim and need advice on the SOP Act.