This short paper has just been published in Australian Construction Law Newsletter:

Three Early Security of Payment Cases in South Australia

 Robert Fenwick Elliott[i]

The Building and Construction Industry Security of Payment Act 2009 (SA) (closely modelled on the NSW Act) was enacted in December 2009, but challenges under it have only just started reaching the courts.  In part, this is because the Act does not apply to contracts entered into before 10th December 2011, and in part because it has taken a while for potential cases to work their way through the system.  But there have now been three cases which provide an early indication of the reception that the Act has received from the courts.

The Adelaide Interior Linings case first came before the District Court as Romaldi Constructions v Adelaide Interior Linings [2013] SADC 39 (3 April 2013).  Judge Barrett granted an injunction restraining the enforcement of the determination for $51,219.83, saying:

 I find that there is a real risk of the defendant’s inability to repay the adjudication sum if the injunction is not granted. I find that the balance of convenience favours the granting of the injunction.

The decision was remarkable, because there had been no challenge to the determination itself in the sense of any claim that it was without jurisdiction, or in breach of natural justice, or subject to judicial review – the application by the losing respondent was simply on the basis that the claimant had not demonstrated that it would have the financial resources to repay the sum awarded at the conclusion of full court proceedings to recover it. The order for an injunction was conditional on the respondent paying the determined amount into court.

It is not unheard of for a court to stay enforcement of a determination pending the hearing of a challenge or exceptionally where there is a high level risk of insolvency, but there was no challenge here and the decision was based on much looser evidence of financial means and would – if followed – have had the effect of undermining the very purpose of the legislation: it is very frequently the case that a claimant under the legislation would be unable to prove its ability to afford full-scale proceedings, either in the courts or by way of arbitration. And that was the principal basis on which the decision was reversed on appeal as Adelaide Interior Linings Pty Ltd v Romaldi Constructions Pty Ltd [2013] SASC 110. Justice Anderson said:

The respondent, having elected not to challenge the validity of the adjudication, cannot be permitted to circumvent the objects of the Act by taking its own action to prevent the adjudication certificate from being issued.

Further, on the evidence, the Supreme Court was dismissive of District Court’s relaxation of the usual insolvency test, finding that “the information does not approach a high level of likelihood of insolvency using that as the test”.

It is understood that Romaldi has sought permission to appeal the case further to the Full Court.

The second case to come before the Supreme Court was Built Environs Pty Ltd V Tali Engineering Pty Ltd & Ors [2013] SASC 84 (3 June 2013), in which a determination for $579,420.90 plus GST and costs was challenged on multiple grounds, of which two succeeded.

The first concerned an issue that arises not infrequently, and exposes an inherent weakness in the approach of many adjudicators who are trained not to call for conferences and not to invite further submissions.  It arises in this way:

1. A claimant puts in a payment claim.
2. The respondent puts in a payment schedule. In this case, the payment claim asserted a right to deduct liquidated damages.
3. The claimant puts in an adjudication application with submissions. Under the legislation, there is no express prohibition on the submissions including new matters that were not included in the payment claim. In this case, they included a submission that the respondent had prevented completion, so as to negative its entitlement to the liquidated damages that would otherwise be deductable.
4. The respondent puts in an adjudication response that must be limited to matters raised in the payment schedule. The payment schedule in this case did not refer to the prevention issues (and indeed could not possibly have done so, because the issue had not then been raised). The adjudication response does not therefore deal with the new matters.

Thus, unless an adjudicator in these circumstances allows the respondent to respond to the new matters by way of conference and/or further submissions, the determination will be made without the respondent having had any opportunity at all to rebut the new matters. In this case, the adjudicator declined to allow further submissions on the new matters, and accordingly his determination was found to be in breach of natural justice, and set aside on that basis.

It was also set aside on another basis.  The manager of the nominating authority, Mr Sain, was also the chief executive officer of Edward Sain Associates, which had been advising the claimant as to its claim. Justice Blue found that the test of reasonable apprehension of bias applies not only to the adjudicator, but also to the ANA:

For the reasons given above, a fair‑minded lay observer would regard the identity of the person selecting the decision‑maker to be as important as the identity of the decision‑maker himself or herself.

The determination was also thus nullified on that basis. The judge thus found it unnecessary to decide on the judicial review challenges based on error of law alleged by the respondent, and preferred not to do so since they “may arise in the determination by arbitration or litigation of the ultimate rights of the parties”.

This last consideration arose again in Kennett v Janssen (Supreme Court of South Australia 30th July 2013). The adjudicator, Adrian Ashman (D4), had been appointed by Adjudicate Today (D3), and made a determination in favour of J & S Janssen Bricklayers Pty Ltd (D2). The respondent asserted that its contract was not with D2, but with Mr Janssen personally (D1), and challenged the determination on multiple grounds, including the absence of any construction contract with D2. D3 and D4 put in limited appearances, agreeing to be bound by the outcome, and D1 and D2 indicated that they did not wish to be heard on the respondent’s claims that the determination be declared void or quashed.

Since the issue of the identity of the contracting party (D1 or D2) was a live issue in the underlying dispute, the respondent, as plaintiff in the Supreme Court proceedings, elected to pursue its challenge to the determination by way of summary judgment application on just one of its other grounds, namely that D4 was not an eligible person within the meaning of regulation 6 of the Building and Construction Industry Security of Payment Regulations 2011 (SA). Since D4 did not hold either a relevant degree or a supervisor’s license, his only possible eligibility arose under regulation 6(b)(ii):

(ii)         is, or is eligible to be, a member (other than a student member) of any 1 or more of the following professional bodies:

…

(D)         The Institute of Arbitrators and Mediators Australia;

…

D4 was not a member of IAMA, but asserted that he was eligible to be at least an associate member of IAMA. Justice Blue found otherwise; article 8 of AIMA’s Constitution imposes a requirement for candidates for associateship that (as found by the court):

the Council has to deem that they have such knowledge of, and interest in, the subject of arbitration, mediation and/or adjudication as the Council deems sufficient to qualify him or her for admission as an associate. It seems to me that that imposes a subjective test; that is, that it is a matter for the Council to determine what is sufficient to qualify a person for admission as an associate and it is not possible for the Court to identify objectively what those requirements are.

There is also a requirement that the candidate be elected. For these reasons, the court found D4 to be ineligible, and declared the purported determination invalid and void.

These early cases suggest that the courts in South Australia are not taking an uncritical approach to the legislation. The state’s courts have a history of taking a relatively jealous view of their jurisdiction, and there is no sign that they will be minded to turn a blind eye to relevant shortcomings in adjudicators’ determinations.