Our construction disputes team recently acted for a principal in the adjudication of a payment claim for approximately $5 million. The client succeeded in a series of complex legal arguments to resist the contractor's claim in its entirety.
Facts
The contractor's payment claim sought payment in respect of works alleged to have been completed on a 4-storey commercial and retail development. The payment claim was served after termination of the contract and approximately $3 million of the claim was for alleged delay costs.
Our team assisted the client to prepare its payment schedule, which provided that no amount was payable on the claim. The client held the position that the claim had failed to properly identify the alleged delay costs in accordance with section 68(1)(a) of the Building Industry Fairness (Security of Payment) Act 2017 (Qld) (‘BIFA'). The client's payment schedule also included a significant set-off for liquidated damages and defective work.
The entitlements pressed by each party in respect of delays was complicated by the fact that a recent adjudication between the parties had concluded that the contractor was entitled to compensable extensions of time, and further, that the liquidated damages clause of the contract was unenforceable as a penalty.
The contractor argued in its adjudication application that the parties and adjudicator were bound by these earlier determinations. It submitted that the doctrine of issue estoppel applied to prevent any redetermination of the issues by the subsequent adjudicator.
Our team prepared the client's adjudication response. That response argued that the doctrine of issue estoppel did not apply. One of the reasons for this was because the earlier extension of time and liquidated damages determinations were not fundamental to the previous adjudication decision.
Proceeding on the basis that the earlier determinations were not binding, the client provided instructions to brief a programming expert to provide a delay analysis report. In order to ensure that the expert had sufficient time to prepare the report, an application was made for an additional 15 business days to provide the adjudication response – the maximum extension permissible under the BIFA. The adjudicator promptly granted the requested extension.
Findings
The adjudicator agreed with the client's submission that the payment claim had failed to properly identify the alleged delay costs, as required under section 68(1)(a) of the BIFA.
The only detail that had been provided by the contractor in the payment claim ‘description of work' column for delay costs was a reference that read:
‘Reason, duration, and all costs are as outlined in the EOT submission'.
The contractor submitted that this was a reference to material provided in respect of earlier claims and that, upon being served with the payment claim, the client understood what the ‘EOT submission' referred to in the payment claim was.
The client included evidence in its adjudication response that the payment claim ‘EOT submission' reference had no meaning to it and was completely unable to be understood.
The adjudicator described the ‘EOT submission' reference as ‘unhelpful', going on to opine that the reference was ‘cryptic and vague, even when made to the respondent as an informed party'.
The contractor's failure to comply with section 68(1)(a) of the BIFA meant that there could be no determination in the contractor's favour for the delay cost claims.
The adjudicator also agreed with the client's submission that the doctrine of issue estoppel did not apply to prevent a redetermination of the extension of time and liquidated damages issues. This was because, as the client had submitted, the way in which the previous determinations had been made meant that they were not fundamental to the earlier adjudication decision.
The adjudicator proceeded to consider the extensions of time claimed by the contractor and decided that the extensions should not be awarded. The delay analysis report obtained by the client was critical in this regard. With there being no extension to the date for practical completion, the client succeeded in its liquidated damages set-off for approximately $800,000.
The client also succeeded in obtaining a significant set-off in respect of defective work. After all of the relevant set-offs had been taken into account, the reconciliation conducted by the adjudicator indicated that approximately $1.3 million was in fact owed by the contractor to the client.
The contractor was awarded $nil in respect of its claim and directed to pay the entirety of the adjudicator's costs. In his decision, the adjudicator commended the client on the ‘depth and insight' with which it addressed the ‘very large number of complex issues' involved in the dispute.
Lessons
- Claimants must exercise care when preparing payment claims to ensure that the work claimed for has been sufficiently identified.
- Upon receiving an adjudication application for a ‘complex payment claim' under the BIFA, a respondent should consider at an early stage what evidence is needed to respond and whether an extension of time may be required to prepare its adjudication response.
- Strict compliance with the procedural requirements of the BIFA will usually be necessary in order for builders and subcontractors to obtain the advantages conferred by the legislation. Respondents should not underestimate the importance of these statutory requirements when preparing adjudication responses.
When faced with a construction dispute that potentially involves complex legal issues parties should consider engaging solicitors with building and construction expertise at an early stage.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
