[2012] WASAT 169

JURISDICTION : STATE ADMINISTRATIVE TRIBUNAL

STREAM : COMMERCIAL & CIVIL

ACT : CONSTRUCTION CONTRACTS ACT 2004 (WA)

CITATION : HOWARD and FARRELL [2012] WASAT 169

MEMBER : MR D AITKEN (MEMBER)

HEARD : DETERMINED ON THE DOCUMENTS

DELIVERED : 16 AUGUST 2012

FILE NO/S : CC 553 of 2012

BETWEEN : GREGORY SCOTT HOWARD Applicant

AND

JOHN RAYMOND FARRELL Respondent

Catchwords:

Construction Contracts Act 2004 (WA) - Application for review of decision by adjudicator to dismiss - Whether adjudication application made within time - When payment dispute arose - Whether a demand for payment of unpaid balance of payment claim already made gave rise to separate payment dispute

Legislation:

Construction Contracts Act 2004 (WA), s 3, s 6, s 6(a), s 10, s 15, s 16, s 17, s 18, s 26, s 26(1), s 26(2)(c), s 27, s 31, s 31(2)(a), s 31(2)(a)(ii), s 32(1)(b), s 45, s 46(1), Div 3, Div 4, Div 5, Sch 1

Result:

Application dismissed

Category: B

Representation:

Counsel:

Applicant : Self-represented

Respondent : Self-represented

Solicitors:

Applicant : N/A

Respondent : N/A

Case(s) referred to in decision(s):

Merym Pty Ltd and Methodist Ladies College [2008] WASAT 164

Perrinepod Pty Ltd v Georgiou Building Pty Ltd [2011] WASCA 217

Silent Vector Pty Ltd t/as Sizer Builders and Squarcini [2008] WASAT 39

REASONS FOR DECISION OF THE TRIBUNAL :

Summary of Tribunal's decision

1 The applicant applied under s 46(1) of the Construction Contracts Act 2004 (WA) to review a decision of an adjudicator to dismiss an adjudication application, without making a determination on the merits. The adjudicator dismissed the adjudication application on the ground that it had not been made within 28 days after the payment dispute had arisen.

2 The Tribunal concluded that the decision of the adjudicator to dismiss the adjudication application was correct, although the Tribunal arrived at that conclusion for different reasons to those given by the adjudicator. The Tribunal therefore dismissed the application and affirmed the decision of the adjudicator.

3 In arriving at that conclusion, the Tribunal considered the issue of whether a part payment of an outstanding payment claim, after the due date for payment, gave rise to a payment dispute and decided that it did not do so. The payment dispute arose when the amount of a payment claim had not been paid in full by the date on which it was due to be paid and an adjudication application had to be made within 28 days after that date.

Introduction

4 This is an application (review application) under s 46(1) of the Construction Contracts Act 2004 (WA) (CC Act) for review by the Tribunal of the decision of an adjudicator to dismiss the applicant's application for adjudication under s 31(2)(a)(ii) of the CC Act, because it was not made within 28 days after the payment dispute had arisen.

5 The issue to be determined by the Tribunal is whether the adjudicator was correct in deciding that the adjudication application was not made within 28 days after the payment dispute had arisen.

Background

6 The applicant, who trades as 'Gregory Howard Painting and Decorating', carried out painting work as a sub-contractor to the respondent, who carried out building works, described as 'new multi-purpose hall additions, toilets, kitchen and meeting rooms', at Our Lady Star of the Sea Primary School (school) in Esperance.

7 There was no formal written contract entered into between the applicant and the respondent for that painting work.

8 The applicant provided to the respondent a quote for $25,793.77 dated 5 January 2011 (quote) for the painting work described in the quote.

9 The respondent paid to the applicant the amount of $10,000 on 21 February 2011 and the further amount of $10,000 on 3 June 2011. It is not clear, from the documents which have been provided to the Tribunal, why those amounts were paid on those dates.

10 It is also not clear, from the documents which have been provided to the Tribunal, when the painting work was carried out, but it seems that the work was completed prior to 24 June 2011. There is a letter from the school's architect to the respondent, dated 8 September 2011, which states that the school paid the respondent the painting allowance under the contract between the school and the respondent on 24 June 2011.

11 The applicant gave the respondent a statement dated 20 June 2011 (20 June 2011 statement) for the balance of $15,793.77 owing under the quote, and a tax invoice dated 20 June 2011 (20 June 2011 invoice) for the amount of $16,458.87 for the materials and labour described in that invoice. It is not clear, from the documents provided to the Tribunal, how that additional painting work came to be carried out. However, it is implicit in the information provided by the applicant in the adjudication application that the applicant and the respondent varied the contract between them to include that additional work.

12 The applicant's solicitor, Mr Khai Bui, sent a letter to the respondent dated 16 August 2011 (letter of demand) demanding payment of the balance owing under the quote and the amount of the 20 June 2011 invoice, being a total of $32,252.64.

13 The respondent paid to the applicant the amount of $5,000 on 29 August 2011. It is not clear, from the documents which have been provided to the Tribunal, why that amount was paid on that date.

14 On 20 September 2011, the applicant made an application for adjudication (adjudication application) to the National Electrical and Communications Association, a prescribed appointor under the CC Act, which appointed Mr Steve Lieblich (adjudicator) as adjudicator.

15 The adjudication application was served on the adjudicator on 23 September 2011 and a response from the respondent was served on the adjudicator on 7 October 2011.

16 By a written determination dated 20 October 2011, being adjudication No 36-11-03 (adjudicator's determination), the adjudicator dismissed the application, without making a determination of its merits, on the basis that the application for adjudication had not been made, in accordance with the requirements of s 26 of the CC Act, within 28 days after the payment dispute had arisen.

Statutory framework

17 Section 3 of the CC Act defines 'payment claim' and 'payment dispute' respectively as follows:

…

payment claim means a claim made under a construction contract -

(a) by the contractor to the principal for payment of an amount in relation to the performance by the contractor of its obligations under the contract; or

(b) by the principal to the contractor for payment of an amount in relation to the performance or non-performance by the contractor of its obligations under the contract;

payment dispute has the meaning given to that term in section 6;

…

18 Section 6 of the CC Act sets out how a payment dispute arises:

Payment dispute

For the purposes of this Act, a payment dispute arises if -

(a) by the time when the amount claimed in a payment claim is due to be paid under the contract, the amount has not been paid in full, or the claim has been rejected or wholly or partly disputed;

19 Section 26 of the CC Act governs the manner in which an application to have a payment dispute adjudicated is made:

Applying for adjudication

(1) To apply to have a payment dispute adjudicated, a party to the contract, within 28 days after the dispute arises or, if applicable, within the period provided for by section 37(2)(b), must -

(a) prepare a written application for adjudication;

(b) serve it on each other party to the contract;

(i) if the parties to the contract have appointed a registered adjudicator and that adjudicator consents, on the adjudicator;

(ii) if the parties to the contract have appointed a prescribed appointor, on that appointor;

(iii) otherwise, on a prescribed appointor chosen by the party;

and

(d) provide any deposit or security for the costs of the adjudication that the adjudicator or the prescribed appointor requires under section 44(8) or (9).

(2) The application -

(a) must be prepared in accordance with, and contain the information prescribed by, the regulations;

(b) must set out the details of, or have attached to it -

(i) the construction contract involved or relevant extracts of it;

and

(ii) any payment claim that has given rise to the payment dispute;

and

(c) must set out or have attached to it all the information, documentation and submissions on which the party making it relies in the adjudication.

(3) A prescribed appointor that is served with an application for adjudication made under subsection (1) must comply with section 28.

20 Section 31(2)(a)(ii) of the CC Act provides as follows:

(2) An appointed adjudicator must, within the prescribed time or any extension of it made under section 32(3)(a) -

(a) dismiss the application without making a determination of its merits if -

…

(ii) the application has not been prepared and served in accordance with section 26;

Adjudicator's reasoning

21 Section 6 of the adjudicator's determination sets out the reasons for dismissing the adjudication application as follows, with citation of reference documents omitted:

6 Reasons for the Determination

6.1 Contract Terms - payment claims

I wrote to the parties on 13 October 2011 in order to clarify the actual date of the payment claim that is the subject of the Application. However I received no response from either party.

The subject Payment Claim is apparently comprised of either one or both of the Tax Invoices, both dated 20 June 2011, for $15,793.77 and $16,458.87 respectively (a total of $32,252.64).

In the alternative, the Application refers to the "Letter of Demand" and thus in [sic] may be inferred that the Applicant contends that the Payment Claim is the letter from his Barrister and Solicitor, dated 16 August 2011.

In relation to Contract terms, the Application refers to the "Our Lady Star of the Sea School, Esperence [sic], BER #7560269E", to a "Quote dated 5/1/2011" and to the "Tax Invoice for materials dated 20/6/2011".

However the Applicant provides no evidence of a written agreement in relation to the required form of payment of claims.

I therefore determine that the form of a payment claim shall be in accordance with s 16 and the Implied provisions (Schedule 1, Division 4, s 5(2) of the Act).

I note that the Tax Invoices are in accordance with the above-mentioned form of payment claim, while the Letter of Demand omits the requirements of Schedule 1, Division 4, s 5(2)(f) and (h).

I further note that the Letter of Demand specifically refers to claims previously made for the originally-quoted sum of $25,793.77 (less $10,000.00 already paid) and the amount previously claimed "per invoice dated 20/6/2011". It does not provide any new or additional information about the obligations the Contractor has performed and to which the claim relates.

I therefore determine that the Letter of Demand is not a Payment Claim, rather it is a further demand for a payment or payments previously claimed .

Thus the payment claim that is the subject of the Application is either one or both of the Tax Invoices, both dated 20 June 2011, for the $15,793.77 and $16,458.87 respectively, and therefore the date of the Payment Claim is 20 June 2011.

6.2 Contract Terms - time for payment

However the Applicant provides no evidence of a written agreement in relation to the time for payment of claims.

In the absence of a written agreement, the time for payment of claims is 28 days from the date of the payment claim, in accordance with s 18 and the Implied provisions (Schedule 1, Division 2, s 7(3) of the Act).

In the alternative, if there is a written agreement in relation to the time for payment of claims, and that time exceeds 50 days after the payment claim, "it shall be read as being amended to being 50 days after it is claimed" in accordance with s 10 of the Act.

Thus the due date for the payment must be less than 50 days after the date of the payment claim.

6.3 Date of Payment Dispute Arising and of the Application

Further to section 6.1 and 6.2 above:

• the date of the Payment Claim is 20 June 2011,

• the payment was due less than 50 days from the date of the payment claim, being on or before 9 August 2011,

• the amount claimed had not been paid in full on 9 August 2011, and so the dispute arose on or before that date, in accordance with s 6,

• the Application for Adjudication was made on 20 September 2011, which IS NOT within 28 days of the payment dispute arising, in accordance with s 26(1).

Thus the Application for Adjudication was made "out of time", that is: beyond the date that a party to a Construction Contract may apply to have a payment dispute adjudicated.

Applicant's contentions

22 In the review application, the applicant states the following grounds:

• The adjudicator did not inform the applicant that his decision may be reviewed (ground 1).

• The adjudicator ignored the fact that part payments were made by the respondent to the applicant on 29 August 2011 and 20 September 2011 (ground 2).

• The adjudicator incorrectly applied s 10 of the CC Act (ground 3).

• The adjudicator did not have regard to s 32(1)(b) of the CC Act (ground 4).

• Disputes arose, in series, each time the respondent did not pay in full after the work was done (ground 5).

• The adjudicator arbitrarily chose 9 August 2011 as the date of the dispute (ground 6).

• The adjudicator applied the law incorrectly to the facts (ground 7).

• There was strict interpretation of when the dispute arose, but the adjudicator 'appeared to be flexible about the mistake he made with the incorrect email address for the [applicant] - just so he could uphold his incorrect decision' (ground 8).

23 In the applicant's written submissions, he repeats ground 5 and makes a number of further contentions, which can be summarised as follows:

• The respondent declared by statutory declaration that he had paid all invoices received from the applicant, and yet he made a further payment to the applicant after that, which still left an outstanding balance of $6,752.64 from invoices given to the respondent (ground 9).

• The respondent was paid $66,000 under the building contract between the respondent and the school, and the respondent profited from that contract because the amount claimed by the applicant from the respondent was $23,747.36 less than the amount which the respondent was paid, and the respondent profited by another $6,752.64 by not paying the full amount which the applicant claimed to be entitled to be paid (ground 10).

• The respondent has had many opportunities to pay the amount owed and, therefore, 'it is not unreasonable for the [applicant] to recover some of his costs in pursuing this debt' (ground 11).

Consideration

24 The purpose of the CC Act is to provide for a quick, interim determination of liability in respect of a payment dispute arising under a 'construction contract', as defined in the CC Act. Adjudication under the CC Act operates in parallel to other legal remedies. Section 45 of the CC Act contemplates that the rights and liabilities of the parties are, ultimately, to be determined by either arbitration or litigation in the courts, and any amount required to be paid under an adjudication determination is merely 'on account' and is to be taken into consideration and, if necessary, adjusted when a final determination is made by an arbitrator or a court.

25 Consistent with that purpose, the time periods in the adjudication process are both tight and critical. Section 26 of the CC Act provides that an application for adjudication must be made within 28 days of a payment dispute arising and must set out, or have attached to it, all of the details of the contract, the payment claim, and all information, documents and submissions on which the applicant relies. Section 27 of the CC Act provides that the respondent must provide a written response to the application within 14 days of being served with it. Section 31 of the CC Act provides that the adjudicator must dismiss the application if any of the grounds in s 31(2)(a) apply, or otherwise make a determination within 14 days of the service of the response or, if a response is not served, within 14 days of the last date on which a response is required to be served.

26 In this case, the adjudicator decided that the ground referred to in s 31(2)(a)(ii) applied, namely that the application had not been made within 28 days after the payment dispute arose and, therefore, dismissed the adjudication application.

27 The issue raised for determination by the Tribunal is whether the adjudicator was correct in making that decision.

28 Some of the applicant's contentions are not relevant to the issue to be determined and do not need to be considered; in particular, the contentions in grounds 1, 4, 9, 10 and 11. Implicit in those grounds seems to be the view by the applicant that the review application is an opportunity to pursue the respondent for the balance which the applicant says is owed under the contract between them. The balance of $6,752.64 referred to in grounds 9 and 10 of the applicant's contentions reflects that the respondent paid the further amount of $10,500 to the applicant on 20 September 2011, after the applicant had made the adjudication application.

29 As has been stated above, the adjudication process is not the final determination of the rights an liabilities of the parties under their contract; that determination must be made by an arbitrator or a court. The purpose of the CC Act is simply to ensure that a party entitled to payment during the course of performing work under a construction contract is not kept out of his money, while still being required to comply with his contractual obligations to perform the work: see Silent Vector Pty Ltd t/as Sizer Builders and Squarcini [2008] WASAT 39 ( Silent Vector ) at [57].

30 The applicant contends, in ground 5, that '[d]isputes arose, in series, each time the [respondent] did not pay in full after the work was done'. The applicant contends that a payment dispute arose each time the respondent made a payment to the applicant which did not fully satisfy the outstanding amount claimed by the applicant to be owing to him. In grounds 2 and 6, the applicant refers to part payments made by the respondent to the applicant on 29 August 2011 and 20 September 2011. The implication is that payment disputes arose on both of those dates and that the adjudication application, which was made on 20 September 2011, was made within the requisite 28 day period after those dates.

31 To determine whether the adjudication application was made within 28 days after the payment dispute arose, the Tribunal must answer the following questions:

• On what date did the payment dispute, or disputes, arise?

• Was the adjudication application made within 28 days after the date on which the payment dispute or disputes arose?

On what date did the payment dispute, or disputes, arise?

32 Under s 6(a) of the CC Act, a payment dispute arises when a payment claim is not paid in full by the time when it was due for payment.

33 There is only one correct date on which a payment claim is due under a construction contract. A payment dispute arises when the amount of the claim has not been paid in full by that date. Once that payment dispute has arisen, it can only be adjudicated if an application is made within 28 days after the dispute arises: see Silent Vector at [55].

34 The mere repetition of a claim cannot give rise to a new payment dispute amenable to adjudication: see Merym Pty Ltd and Methodist Ladies College [2008] WASAT 164 ( Merym ) at [36].

35 Therefore, a request or demand for payment of the unpaid balance of a payment claim already made does not give rise to a payment dispute for the purposes of the CC Act. Similarly, a part payment of a payment claim, after the date on which the payment claim was due to be paid, does not give rise to a payment dispute for the purposes of the CC Act. The payment dispute will have arisen when the full amount of the payment claim was not paid by the date on which it was due to be paid.

36 To determine the date on which a payment claim is due for payment, the starting point is to consider the written provisions of the contract. If the contract does not contain any written provision regarding how and when a payment claim may be made and the time by when a payment claim must be paid, then the CC Act contains provisions which are implied in the contract dealing with those matters: see s 15, s 16, s 17 and s 18 and cl 3, cl 4, cl 5, cl 6 and cl 7 in Div 3, Div 4 and Div 5 of Sch 1 of the CC Act.

37 The only written provisions in the contract between the applicant and the respondent were those set out in the quote. The quote does not contain any written provision regarding how and when a payment claim may be made and the time by when a payment claim must be paid. Therefore, the provisions in the CC Act are implied in the contract between the applicant and the respondent.

38 To decide the date on which the payment dispute arose, it is necessary to:

• identify the payment claim by the applicant; and

• ascertain the date on which that payment claim was due for payment.

What was the payment claim?

39 In the adjudicator's determination, he states that the applicant's payment claim is 'apparently comprised of either one or both of the Tax Invoices, both dated 20 June 2011, for $15,793.77 and $16,458.87 respectively' or, in the alternative, '[it] may be inferred that the [applicant] contends that the [payment claim] is the letter from his Barrister and Solicitor, dated 16 August 2011'.

40 The adjudicator goes on to say that the applicant has not provided any evidence of a written agreement in relation to the required form of payment of claims, and the adjudicator therefore determines that the form of a payment claim under the contract must be in accordance with the provisions in Sch 1, Div 4, cl 5(2) of the CC Act, which are implied into the contract by s 16 of the CC Act. The adjudicator then goes on to say that the 'Tax Invoices' (by which he is referring to the 20 June 2011 statement and the 20 June 2011 invoice) are in accordance with the implied provisions in Sch 1, Div 4, cl 5(2) of the CC Act.

41 The adjudicator then refers to the letter of demand and determines that it is not a payment claim, because it is a further demand for payments previously claimed. The adjudicator was correct in deciding that the letter of demand was not a payment claim: see Merym at [36].

42 The adjudicator then states that the payment claim that is the subject of the adjudication application is either one or both of the 20 June 2011 statement and the 20 June 2011 invoice, and therefore the date of the payment claim is 20 June 2011.

43 In the adjudication application, the applicant states that the payment claim is an outstanding balance of $17,252.64 plus costs of a letter of demand and the adjudication.

44 The outstanding balance of $17,252.64 was arrived at by adding the amount of the quote ($25,793.77) and the amount of the 20 June 2011 invoice ($16,458.87), which is a total of $42,252.64, and then by crediting payments received on 21 February 2011 ($10,000), on 3 June 2011 ($10,000) and on 29 August 2011 ($5,000).

45 In my opinion, the amount claimed by the applicant in the adjudication application is the aggregate of the balance owing in respect of two payment claims, namely the balance of the amount of the quote (claimed in the 20 June 2011 statement) and the balance of the amount claimed in the 20 June 2011 invoice. Each of those payment claims gave rise to a separate payment dispute, and those payment disputes must be considered separately in deciding whether the adjudication application has been made within 28 days after the payment dispute arose, for the purposes of s 26(1) and s 31(2)(a)(ii) of the CC Act: see Silent Vector at [63] and [64]. Both of the payment claims were made on 20 June 2011.

On what date were the payment claims due for payment?

46 The adjudicator stated that there was no evidence of a written agreement in relation to the time for payment of claims, and determined that the time for payment of claims under the contract is 28 days from the date of the payment claim, in accordance with the provisions of cl 7(3) in Sch 1, Div 5 of the CC Act, which are implied into the contract by s 18 of the CC Act.

47 The adjudicator then stated that, in the alternative, if there is a written agreement in relation to the time for payment of claims, and that time exceeds 50 days after the payment claim, then that provision would be read as being amended to require payment 50 days after the payment is claimed, in accordance with s 10 of the CC Act. The adjudicator then went on to conclude that the due date for payment must be less than 50 days after the date of the payment claim, being on or before 9 August 2011. That determination of the due date for payment, 'in the alternative', was not necessary, nor warranted, because there was no documentation presented to the adjudicator to suggest that there was any written provision in the contract requiring that a payment of a claim under the contract is to be made more than 50 days after the claim is made and, therefore, s 10 of the CC Act was not applicable. The adjudicator should have simply determined that the due date for payment of a claim under the contract is 28 days after the claim is made, in accordance with the provisions of cl 7(3) in Sch 1, Div 5 of the CC Act, which are implied into the contract by s 18 of the CC Act.

48 In his response to the adjudication application, the respondent contended that he only received the 20 June 2011 invoice on 30 September 2011. After receiving that response, the adjudicator sent, by email, a letter dated 13 October 2011 (adjudicator's letter) to the applicant and the respondent seeking further information, including information from the applicant regarding when the payment claim had been made. The adjudicator's letter was not received by the applicant due to an error by the adjudicator regarding the spelling of the email address for the applicant.

49 Whilst it is unfortunate that the applicant did not receive the adjudicator's letter, there was no requirement for the adjudicator to undertake that exercise because, under s 26(2)(c) of the CC Act, the adjudication application is required to provide all the information, documentation and submissions on which the applicant relies in the adjudication. In the adjudicator's determination, he accepts the assertion, which is implicit in the details provided in the adjudication application and in the letter of demand (which is referred to in the adjudication application), that both the 20 June 2011 statement and the 20 June 2011 invoice were given to the respondent by the applicant on that date. The adjudicator therefore determined that the payment claims were made on 20 June 2011. It was open for the adjudicator to make that finding.

50 Both payment claims having been made on 20 June 2011, the time by when they were required to be paid, pursuant to the implied provisions set out in Sch 1, Div 5, cl 7(3) of the CC Act, was within 28 days after that date, which was 18 July 2011.

Was the adjudication application made within 28 days after the date on which the payment disputes arose?

51 Under s 26(1) of the CC Act, the adjudication application had to be made within 28 days after the date on which the payment disputes arose. The payment disputes arose on 18 July 2011 because the payment claims had not been paid in full by that date, as required by the implied provisions referred to above: see s 6(a) of the CC Act. The adjudication application had to be made by no later than 28 days after that date, which was 15 August 2011. The adjudication application was not made until 20 September 2011, which was, therefore, out of time.

Conclusion

52 Section 31(2)(a) of the CC Act provides that the adjudicator ' must ' (emphasis added) dismiss the adjudication application if it has not been made in time; the adjudicator does not have any discretion: see Perrinepod Pty Ltd v Georgiou Building Pty Ltd [2011] WASCA 217 at [115].

53 The decision of the adjudicator to dismiss the adjudication application because it was made out of time is correct, although I have arrived at that conclusion for different reasons. The review application must therefore be dismissed and the decision of the adjudicator affirmed.

Orders

54 The Tribunal will make the following orders:

1. The application to review the decision of the adjudicator in adjudication No 36-11-03 is dismissed.

2. The decision of the adjudicator in adjudication No 36-11-03 is affirmed.

I certify that this and the preceding [54] paragraphs comprise the reasons for decision of the State Administrative Tribunal.

MR D AITKEN, MEMBER