Introduction

In this Update we look at a recent NT Supreme Court decision where a contractor did not send a “notice of dispute” in response to a claim for payment made by a subcontractor.

The Construction Contract (Security of Payments) Act (“the CCSOP Act”) was introduced to keep cash flowing in the commercial construction industry. Similar legislation now exists across Australia.

Parties

M&P Builders Pty Ltd (“M&P”) was carrying out corrosion prevention works on the RAAF Air Traffic Control Tower in Darwin. Norblast Industrial Solutions Pty Ltd (“Norblast”) entered into a subcontract with M&P to supply scaffolding and carry out blasting and painting works to the tower. The works have been proceeding since July 2013.

The works have been seriously interrupted by various issues, particularly a health issue for workers and a cyclone warning. In November 2013, Norblast issued an invoice to M&P for a stand down period. In December 2013, a further invoice was issued for the Christmas stand down period. In January 2014 Norblast commenced reconstructing the scaffold following a cyclone warning but within a short period the site was placed in stand down until further notice and Norblast’s workers left the site, leaving behind some scaffolding piping. M&P failed to pay Norblast for the invoices rendered for the stand down periods.

The requirements of the CCSOP Act

The CCSOP Act includes a Schedule of default “implied provisions” that apply in the absence of suitable agreement in the parties’ contract. One of the default provisions requires a party wishing to dispute a payment claim to send a “notice of dispute” to the other party within 14 days of receiving a payment claim.

M&P failed to send to Norblast any “notice of dispute”. Instead, the parties engaged in discussions and correspondence about the rates charged in the invoices. The parties were unable to agree as to the rates applicable for the stand down periods. In February 2014, Norblast issued a further invoice for stand down that was due to be paid by 17 March 2014.

M&P applies for adjudication

On 5 March 2014, M&P applied for adjudication under the CCSOP Act to resolve the issue as to the stand down rates. In its adjudication response, Norblast said that M&P had failed to issue a “notice of dispute” under the Act and that accordingly, the full amount claimed under the invoices was due to be paid by M&P. The adjudicator agreed and awarded Norblast the full amount claimed of $516,571. M&P applied to the Supreme Court for review of the adjudicator’s decision.

M&P argued that the adjudicator’s decision was without basis for three reasons:

  1. He had taken more than 14 days to make his decision and therefore the CCSOP Act had not been followed;
  2. He had failed to undertake a merits review of the dispute but had decided it on the failure of M&P to provide a “notice of dispute”; and
  3. He had not warned M&P that he proposed to decide the dispute entirely on their failure to issue a “notice of dispute” within the 14 day period and had therefore denied them natural justice.

The Court’s decision

The Court said that the adjudicator had obtained the approval from the Registrar (who is someone appointed by the Minister to help administer the CCSOP Act) to extend his decision making time to 28 days and although he had not communicated this to the parties, he had complied with the CCSOP Act.

The Court said that a party who fails to provide a “notice of dispute” is taken to agree to have paid the amount in full and that there was no denial of natural justice by the adjudicator failing to notify M&P of his intention to act on this failure. It is something that is clear from the CCSOP Act.

However, the Court said the last invoice was not due to be paid when the adjudicator was appointed. Therefore there was no dispute to adjudicate and he was without power to adjudicate on this invoice. The Court upheld the adjudicator’s decision on the other invoices.

Contributor:

Tom Grace