The perils of adjudication – the Victorian Court of Appeal rejects an appeal disputing the validity of an adjudication determination in 1155 Nepean Highway Pty Ltd v Promax Building Pty Ltd  VSCA 253 ||| MTECC News Edition 20.18
The perils of adjudication – the Victorian Court of Appeal rejects an appeal disputing the validity of an adjudication determination in 1155 Nepean Highway Pty Ltd v Promax Building Pty Ltd  VSCA 253
Under s 16(2) of the Building and Construction Industry Security of Payment Act 2002 (the Act), if a respondent fails to provide a payment schedule in response to a payment claim, and fails to pay the amount claimed by the due date for payment, the claimant is faced with a choice. It can either (a) recover the unpaid portion of the claimed amount from the respondent as a debt due to the claimant or (b) make an adjudication application under section 18(1)(b) of the Act in relation to the payment claim.
In most cases, the claimant elects to recover the unpaid portion of the claim as a debt. This is not only more efficient – it avoids the need for an adjudication entirely – but applying for adjudication introduces additional risk. Section 18(2)(b) of the Act requires the claimant to give the respondent a second opportunity to provide a payment schedule before making any adjudication application, raising the possibility that the respondent may realize its error and cure it by providing a payment schedule. Alternatively, the adjudicator may stray into error, giving rise to an application to set aside the determination entirely.
The Court of Appeal’s decision in 1155 Nepean Highway Pty Ltd v Promax Building Pty Ltd  VSCA 253 highlights these risks. The plaintiff, Promax Building Pty Ltd (Promax), was engaged to build 26 apartments for a lump sum price of $8,595,000. On 15 July 2019, it submitted a claim under s 14 the Act for a progress payment of $2,017,382.15. No payment schedule was issued by the respondent.
Promax then notified the respondent of its intention to apply for adjudication and gave the respondent a further two business days in which to provide a payment schedule in accordance with s 18(2) of the Act. Again, no payment schedule was provided. Consequently, s 21(2A) of the Act prevented the respondent from filing an adjudication response, meaning that the only material before the adjudicator was Promax’s adjudication application.
Unsurprisingly, the adjudicator issued a determination in favour of Promax, finding that it was entitled to the full amount claimed, plus adjudicator’s fees and interest.
Notwithstanding that it had failed to file a payment schedule, the respondent vigorously challenged the adjudicator’s determination in subsequent judicial review proceedings. It argued, among other things, that the adjudicator had erred in inferring from its failure to provide a payment schedule that no credible challenge could be made to the value of Promax’s claim; failed to properly value the works; and improperly relied on photos of the works without comparing those works to the contract drawings.
None of these arguments were accepted by the Court, either at first instance or on appeal. Promax was, by that measure, entirely successful at every stage of the proceeding. The fact that Promax had to obtain a determination, defend it at trial, and then again on appeal, however, highlights the risks introduced by Promax’s decision to apply for adjudication. In contrast to proceedings brought to recover a debt – where s 16(4)(b) of the Act would have narrowed the grounds on which a determination could be challenged – the adjudicator’s determination provided an additional source of potential error that was beyond Promax’s control. Given that, the case is a useful reminder of the perils of applying for adjudication where alternative options are available.