In ALE Heavylift the Victorian Supreme Court refused to quash an adjudicator’s determination that a payment claim issued by a subcontractor was for work done rather than an attempt to ‘recoup’ an excluded amount.

The decision casts significant doubt on the reasoning set out in the court’s previous decision in Shape and a respondent’s ability to rely on previously deducted amounts to resist payment under the the Building and Construction Industry Security of Payment Act 2002 (Vic) (the SOP Act).

Shape

The plaintiff, Shape, submitted a payment claim under the Act for $1,285,579.62. The defendant, Nuance, scheduled an amount of $Nil in response. Nuance asserted that it was not liable to Shape as the payment claim impermissibly sought to recover an excluded amount, being amounts previously deducted by Nuance on account of liquidated damages.

The adjudicator upheld that argument. In doing so he stated that Nuance’s payment schedule “did not seek to set off the amount in response to a payment claim but relied on the adjusted contract sum to withhold payment to the claimant”. As a consequence he reasoned that “in seeking to recoup the liquidated damages that had been deducted from the adjusted contract sum prior to the issue of Payment Claim 14, part of the claimed amount was an excluded amount” for the purposes of the SOP Act.

Digby J determined the judicial review application on other grounds. His Honour nevertheless went on to consider whether the payment claim sought to recover an excluded amount. He concluded that the adjudicator was “correct to exclude the entirety of PC-14 as an amount calculated to recover earlier Superintendent effected adjustments to the Contract Sum on the basis of Shape’s liability to pay or allow liquidated damages”.

ALE Heavylift

The plaintiff, Goldwind, purported to apply a ‘delay deduction’ of $484,100.92 in response to a payment claim (not made under the SOP Act) from the defendant, ALE. ALE disputed the deduction, and subsequently submitted another payment claim (this time under the SOP Act), which did not account for the deduction. Applying Shape, Goldwind asserted that ALE was attempting to ‘recoup’ an excluded amount.

The adjudicator determined that ALE was entitled to the amount claimed without accounting for the deduction. The respondent sought judicial review, on the basis that the adjudicator’s determination was inconsistent with Shape and ss 10(3) 10B of the SOP Act.

Stynes J rejected that argument. Her Honour stated that:

The practical effect of the Head Contractor’s submission and reliance on Shape is that if a claimant fails to challenge an excluded amount in a payment schedule, it will not be able to recoup that amount in a subsequent payment claim. To put it another way, and as submitted by the Head Contractor, if a claimant does not refer the dispute about a deduction to adjudication, then the payment schedule creates a baseline against which the next payment claim will be assessed.

I am not bound by the obiter in Shape and I do not propose to apply it. In my view, the application of it to the facts of this case would operate to preclude the Subcontractor from recovering progress payments in relation to work performed in a manner contrary to the text and purpose of the legislation.

Conclusion

The court’s acknowledgment that following Shape – at least in the circumstances before the court – “would operate to preclude the Subcontractor from recovering progress payments in relation to work performed in a manner contrary to the text and purpose of the legislation” suggests that the reasoning in Shape may be plainly wrong. Even if it is not, however, the court’s observation that it “is not bound by the obiter in Shape” raises significant doubt as to the circumstances in which it can be relied on as authority to resist payment to a claimant.

Bill Stephenson

Liability limited by a scheme approved under Professional Standards Legislation.

Note: the author acted as junior counsel for the the defendant in ALE Heavylift.