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Construction and Infrastructure case note: Victorian Supreme Court quashes adjudication where Adjudicator fails to value defective work

Aug 9, 2018

Earlier this week, the Supreme Court of Victoria handed down its decision in Vanguard Development Group v Promax Building Developments [2018] VSC 386 concerning a judicial review of an adjudication determination under the Building and Construction Industry Security of Payment Act 2002 (Act).

The Court quashed the adjudication determination on the grounds that:

  1. there was no valid reference date for the purported final claim rendered by the builder (Promax); and
  2. the adjudicator failed to consider the value of defective work raised by Vanguard in its adjudication response.

KCL Law legally represented the successful party.

No valid reference date

Promax purported to terminate the contract and Vanguard accepted that purported termination as a repudiation, bringing the contract to an end. Promax subsequently issued what purported to be a final payment claim for $339,647.34.

The general conditions of the contract dictated when a final claim could be made and included a special condition providing that the reference date for a final payment claim was “notwithstanding any other term of the Contract and/or its termination … the date the Contractor last undertook any works on the site” (Special Condition).

The Court found that the Special Condition did not create a stand-alone right to make final claim where the other terms of the contract did not provide for the making of a final claim following Promax’s repudiation. On that basis the Court found that the adjudicator erred in finding that a reference date existed.

Adjudicator’s failure to value defects

In addition, the Court found that the adjudicator erred when he relied on an issue estoppel and section 23(4) of the Act to determine that “it was not open to [Vanguard] to claim for alleged defects that existed at the time of a previous adjudication but have only subsequently been identified”.

That was despite Vanguard submitting expert reports in its adjudication response which described defective work with a value in excess of $660,000.

The Court noted that for the purpose of determining whether section 23(4) of the Act applied, the adjudicator was obliged to turn his mind to the value of the defective work claimed for the purpose of determining whether that value had changed, which the adjudicator had failed to do.

On the question of issue estoppel, the Court noted that, “even if estoppel applies in this context, which is doubtful, it will be subject to any qualification by statute. Given the statute (in s 23(4)) clearly provided for the matter to be reargued in certain circumstances, the issue estoppel could not be determinative in this case”.

In summary

The case provides guidance for drafting contract terms for the making of final progress claims, requiring that such drafting must be consistent with the other provisions of the contract and commercially sensible.

The Court’s comments on estoppel and s 23(4) of the Act are insightful and they make clear that where arguments concerning the application of section 23(4) of the Act are raised, Adjudicators are required to turn their mind to the value of work or defective work in order to determine whether the value has changed since previously determined.

More information

To discuss this case or any other security of payment issue, please contact Darren Cain, Principal Lawyer and Head of Construction and Infrastructure, on (03) 8600 8835 or dcain@kcllaw.com.au.

KCL Law is a leading firm in the area of security of payment adjudications and judicial review of adjudications, having been involved in many of the leading Victorian cases.

Note: This update is a guide only and is not intended to constitute legal advice.