Consideration of “Recycled Claims” and the timing of “Payment Disputes” under the Construction Contracts Act 2004 (WA)

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In NRW Pty Ltd as Trustee for NRW Unit Trust v Samsung C & T Corporation[1] (Decision), the Supreme Court of Western Australia enforced an adjudication determination under the Construction Contracts Act 2004 (WA) (Act) as an order of the Court.  Importantly, it held that a payment dispute arises at the time of dispute, irrespective of whether the payment claim falls due. The Court further discussed some of the concepts around ‘recycled claims’, clarifying the position of when those claims constitute a ‘Payment Claim’.

Key findings

  • This decision clarifies and restates what was said in Laing O’Rourke Australian Construction Pty Ltd v Samsung C & T Corporation[2]: that a payment dispute arises under s 6(a) of the Act when a payment claim is wholly or partly disputed, not at the time the payment is due.
  • Recycled claims may be prevented under the construction contract. If there is no payment claim, and therefore no payment dispute under the contract, the adjudicator has no power to make a determination under the Act.  However, if a recycled claim has not previously been disputed or contains different bases for payment, it may be determined by the adjudicator.
  • An adjudication cannot be quashed merely where a determination of the merits of a payment dispute by reference to the terms of the construction contract are misconstrued. In those circumstances, it was held that the adjudicator did not exceed his jurisdiction and there was no jurisdictional error.

The relevant Facts

In September 2013, Samsung C & T Corporation (Samsung) – a Roy Hill construction contractor – and NRW Pty Ltd as trustee for NRW Unit Trust (NRW) entered into a subcontract under which NRW agreed to undertake earthworks and associated drainage works for 320 km of railway between Port Headland and the mine (Contract).

The Contract was performed by NRW issuing Progress Claims and Samsung issuing Progress Certificates certifying the completion of the work, up to and including March 2015.  On 30 April 2015 NRW issued Progress Claim No. 21.  On 10 May 2015, Samsung issued a Progress Certificate for the value of work undertaken.  It was for zero dollars, offsetting some flights and accommodation.  The issue of the Progress Certificate gave rise to a dispute.

On 27 May 2015, NRW made an adjudication application under the Act for the determination of the dispute.

The Primary Issues

  1. Was there a payment dispute and, if so, whether the adjudication application was made within 28 days after the dispute arose (the ‘recycled claims’ submission); and
  2. Whether the adjudicator committed jurisdictional error by determining the merits of the payment dispute other than by reference to the terms of the construction contract that were before him.

The Decision

Recycled Claims

Whether or not there was a payment dispute was considered by reference to Samsung’s ‘recycled claims’ submission.  Samsung contended the claims were for work that had been completed over the previous months, and as such, had been subject to previous Progress Claims.

What are ‘recycled’ claims?

The concept of ‘recycled claims’ was considered by Mitchell J in detail, making reference to the cases that have previously considered the concept.[3]

The first concept is that if the contract doesn’t provide for the re-issue of a Progress Claim, it is not a claim then ‘made under’ the contract.  It follows therefore, that it is not a payment claim, no payment dispute can arise and the adjudicator has no power under s 31(2)(b) of the Act to determine it.

The second concept is that if the recycled claim is disputed when it was first made and that dispute occurs more than 28 days before the adjudication application, the adjudicator may dismiss the application under s 31(2)(a) of the Act.

The third concept is that if a payment claim has already been received and paid in full, the adjudicator may decide no further payment is due and exercise their jurisdiction to determine the dispute on the merits.

In the case, NRW accepted that most of the work had been completed in previous months. However, it submitted that the work had not been subject of a previous payment dispute, was not the subject of a previous Payment Claim,[4] and consequently NRW was entitled to deliver a Progress Claim specifying the value of the work up to the date of the claim.[5]

Payment dispute and s 26 of the Act – made within 28 days?

It was further argued by Samsung that the payment dispute was brought outside the 28 days allowed for under the Act. However, the Court found that the adjudication application was prepared and served within the 28 days after the payment dispute arose. This was due to the payment dispute being determined to have occurred at the date when the Contractor’s Representative issued a Progress Certificate for $0.00 on 10 May 2015.[6]

The alternative argument Samsung brought was that no payment dispute has arisen at the time the adjudication application was prepared and served on 27 May 2015.  This was submitted on the basis that under s 6(a) of the Act, a payment dispute cannot arise until the payment claim is due to be paid under the construction contract, even in circumstance where the claim is disputed at an earlier date.  However, this argument was rejected by the Court, as it was inLaing O’Rourke, on the basis that a payment dispute for the purposes of that section arises when a payment claim is wholly or partly disputed, irrespective of when payment is due.[7]

Extent of Adjudicator’s Authority – jurisdictional error?

The Court found that the adjudicator did determine the merits of the payment dispute by reference to the terms of the contract that were before him.  Samsung failed to include in its response to the adjudication application the submission it relied upon in the proceedings that the contract did not provide for progress payments to be issued in a month other than the month the work was completed.  As a result, the Court found that the adjudicator applied the relevant parts of the contract when making his determination of the issues advanced by the parties and did no more than misconstrue the subcontract.[8]

Other grounds

The other grounds relied upon by Samsung were also rejected by Mitchell J.

Result

Samsung’s application for judicial review was dismissed and leave was granted to enforce the determination as an order of the Court.  The decision has made it clear when ‘recycled claims’ can be considered and the timing of when a ‘Payment Dispute’ arises.

Written by Nick Malone (Paralegal) and Tina McAulay (Special Counsel).

FOR FURTHER INFORMATION, PLEASE CONTACT;

Tina McAulay
Special Counsel
Pragma Legal
tina.mcaulay@pragmalegal.com.au
D: +61 (8) 6188 3339
W: +61 (8) 6188 3340
M: +61 (0) 428 521 255
F: +61 (8) 9388 7726
www.pragmalegal.com.au

[1] [2015] WASC 369.
[2] [2015] WASC 237.
[3] NRW Pty Ltd as Trustee for NRW Unit Trust v Samsung C & T Corporation [2015] WASC 369, [29]-[34]. See Georgiou Group Pty Ltd v MCC Mining (Western Australia) Pty Ltd [2011] WASAT 120; (2011) 77 SR (WA) 112 [47] – [82]; Thiess Pty Ltd v MCC Mining (Western Australia) Pty Ltd [2011] WASC 80 [109]; DPD Pty Ltd v McHenry [2012] WASC 140 [42] – [49]; A J Lucas Operations Pty Ltd v Mac-Attack Equipment Hire Pty Ltd (2009) NTCA 4; (2009) 25 NTLR 14; (2009) 234 FLR 328; K & J Burns Electrical Pty Ltd v GRD Group (NT) Pty Ltd [2011] NTCA 1; (2011) 29 NTLR 1; (2011) 246 FLR 285.
[4] NRW Pty Ltd as Trustee for NRW Unit Trust v Samsung C & T Corporation [2015] WASC 369, [61].
[5] Ibid [40]-[41].
[6] Ibid [56].
[7] Ibid [59].
[8] Ibid [74].

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