KEYWORDS: SECURITY OF PAYMENT ACT; IDENTIFYING WORKS; VALUATION PROCESS
This case confirms the contractor's obligation to ensure that work the subject of a payment claim is sufficiently identifiable to the principal. Further, it clarifies the adjudicator's burden to apply a reasonable valuation process when assessing a payment claim, and to demonstrate how this process aligns with the requirements of the Building and Construction Industry Security of Payment Act 2002 (Vic) (Act).
Simply accepting a contractor's assessment on the basis that it is not unreasonable or excessive is insufficient.
Krongold Constructions (Aust) Pty Ltd (Krongold) was engaged to construct a restaurant at a winery in Healesville. Krongold met with SR & RS Wales (Wales) to discuss civil works required for the project. The parties then executed a contract for the works (Contract) with the minutes from the pre-contractual meeting annexed to the Contract (Minutes).
The Minutes contained terms providing that payment claims were "to be submitted no later than the 25th of the month" and paid at the end of the following month. The Contract, however, provided that a payment claim served "on or after" the 25th of a month was deemed to be served on the 25th of the following month. It provided that payment would follow 30 days from the end of the month in which the claim was served.
On 25 August 2015, Wales served a payment claim on Krongold, purportedly in accordance with the Act, supported by invoices and documents (Payment Claim).
Krongold failed to serve a payment schedule in response so, on 8 October 2015, Wales notified Krongold by email that, if payment was not received within two days, the Payment Claim would be referred to adjudication (Notice). Wales argued that this email constituted notice for the purpose of section 18(2) of the Act.
On around 16 October 2015, Wales referred the Progress Claim to adjudication. The adjudicator delivered a decision on 24 November 2015, determining that Krongold was to pay Wales the entire claimed amount (Adjudication Determination).
Claims and findings
Krongold argued that the Adjudication Determination should be set aside because it was contrary to law and failed to satisfy the basic and essential elements of the Act, demonstrated an error of law on the face of the record, and was affected by jurisdictional error.
Was the Payment Claim valid?
Krongold submitted that the Payment Claim was invalid under section 14 of the Act as it was not possible to identify the construction work or related goods and services that were the subject of the Payment Claim.1
In response, Wales submitted that the description of the works required specialist evaluation by an adjudicator, as the works were difficult to describe with precision and thus were not capable of judicial review. Alternatively, it submitted that the work was sufficiently identified for different reasons, most of which related to Krongold's knowledge of the works being performed.
His Honour cited cases which confirmed that, while the requirements of the Act are not overly demanding and should not be approached in an unduly technical way, the Payment Claim must still be sufficiently detailed to enable the principal to understand the basis of the claim, and provide a considered response.2 The test is to consider what level of identification is "reasonably necessary to be comprehensible to the recipient party when considered objectively",3 according to a reasonable party in the position of the recipient, taking into account the parties' background knowledge.
Vickery J found that the Payment Claim did not identify the construction work with the clarity required under section 14 of the Act.4 According to his Honour, even a principal like Krongold, who was familiar with the work being undertaken on site, "is entitled to a payment claim which describes the work claimed for, before the advantages conferred on the contractor by the Act are invoked".5
His Honour made no comment on Wales' argument that the work was not capable of judicial review because of the difficulty in describing the work.
Was the Notice valid and was Krongold given the chance to issue a payment schedule?
Krongold claimed the adjudicator erred because Wales served the Notice prematurely. Its argument depended on the interpretation of the Minutes and Contract, which arguably conflicted.
Wales submitted that the Contract, when read with the Minutes, meant that a Payment Claim submitted on the 25th of a month was due for payment at the end of the following month.
Vickery J found that sensible business people would interpret the Contract, when read with the Minutes, to mean that the Payment Claim served on 25 August was deemed to be served on the 25 September and thus payable on 30 October 2015. Hence, the Notice served on 8 October 2015 was premature and invalid.6
Did Wales provide sufficient materials to the adjudicator?
Krongold argued that the adjudicator was not provided with all of the documents comprising the Payment Claim because some attachments dealing with variations (which comprised nearly one third of the Payment Claim) had been omitted.
Wales conceded that, in error, some documents were not given to the adjudicator. However, it argued that these documents were summaries of other documents in the possession of Krongold which had been provided to the adjudicator. Further, it submitted that the adjudicator did not request further or clarifying documents, and that the omission of the documents was not detrimental to Krongold.
Vickery J did not accept Wales' arguments: the adjudicator only had part of the Payment Claim and was therefore unable to comply with the Act, and hence fell into jurisdictional error.
Adjudicator's valuation process
In determining the Adjudicated Amount, the adjudicator accepted Wales' valuation in full, stating that, "based on the documents which I am required to consider under the Act, it does not appear to me that the Claimant's valuation is incorrect, unreasonable or excessive". Further, the adjudicator noted that Wales' claim was "undefended" as Krongold failed to issue a valid payment schedule.
Vickery J was not satisfied that this process met the requirements of the Act.7 In reliance on SSC Plenty Road v Construction Engineering (Aust) Pty Ltd, his Honour held that the adjudicator erred by not "demonstrating any process of assessment of the value of the claim other than merely adopting the amount claimed by the claimant."8 Vickery J also added that this failure was engendered by the poor identification of work in the Payment Claim. For these reasons, the adjudicator fell into jurisdictional error.
Ultimately, Vickery J held that the Adjudication Determination was made in contravention of the Act, and granted Krongold's claim for relief on the ground of jurisdictional error by the adjudicator.9
1 Relying on Protectavale Pty Ltd v
K2K  FCA 1248 (Finkelstein J)
2 Protectavale Pty Ltd v K2K  FCA 1248; Gantley Pty Ltd v Phoenix International Group Pty Ltd  VSC 106
3 Gantley Pty Ltd v Phoenix International Group Pty Ltd  VSC 106 at 
4 At 
5 At 
6 At –
7 At ; see also sections 11, 22 and 23 of the Act
8  VSC 631 at 
9 At 
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