Australia: Security Of Payment Act: How ‘Mandatory’ Are The Mandatory Requirements?

The recent Queensland Supreme Court case of Nebmas Pty Ltd v Sub Divide Pty Ltd [2009] QSC 92 has reaffirmed the New South Wales position that noncompliance with some of the 'mandatory' requirements under the Building and Construction Industry Payments Act 2004 (QLD) (the Act) will not be fatal to a party seeking relief under the Act. The case also confirms an adjudicator's power to determine factual compliance with procedural provisions under the Act, and that errors made by the adjudicator in making their determination will not affect the final outcome.

Facts

Sub Divide, the first respondent in this case, is a subcontractor who made a claim for payment under the Act against the applicant, Nebmas, for building work carried out. Nebmas, failed to serve a payment schedule and failed to pay the whole or any part of the claim by the payment due date. Sub Divide gave notice (second chance notice) to Nebmas that it would apply for adjudication of the claim. The matter proceeded to adjudication, where it was held by the adjudicator that the second chance notice was given within 20 business days after the payment due date as required under the Act. The matter was decided in favour of Sub Divide.

Nebmas appealed the decision to the Queensland Supreme Court and argued that the notice of adjudication given by Sub Divide was not made within the legislative requirements. Nebmas argued that the result was that the adjudication application, and the adjudication decision, was of no legal effect due to noncompliance with the process for adjudication under the Act. The Court determined that the adjudicator had been wrong in determining that the notice had been given in time, and that in fact the Sub Divide's notice to apply for adjudication was given outside the 20 business days.

Adjudication Aplications Under The Act

Section 21 of the Act states that:

Accordingly, noncompliance with section 21(2) prevents a party from applying for adjudication if it has not complied with the notice requirement. This was the argument put forward by Nedmas. Nebmas' argument had judicial support for the equivalent section under the Building and Construction Industry Security of Payment Act 1999 (NSW) (NSW SOP Act). In the case of Kell & Rigby Pty Ltd v Guardian International Properties Pty Ltd [2007] NSWSC 554, it was held that the adjudication application was a nullity due to the applicant's failure to comply with the 'mandatory condition' that notice be given within the time required.

Section 21(2) An 'Essential Requirement'?

The argument put forward by Sub Divide was that noncompliance with the notice provision under section 21(2) of the Act was not fatal to an adjudication determination. Sub Divide relied on Justice Hodgson's judgment in Brodyn Pty Ltd v Davenport [2004] NSWCA 394. In this case, Justice Hodgson distinguished between essential and non essential requirements for a valid adjudication determination under the NSW SOP Act. Justice Hodgson held that the legislature did not intend exact compliance with all the more detailed requirements of the NSW SOP Act as a precondition to a valid determination.

Decision

In Nebmas, Justice McMurdo held that the question of whether the requirement under section 21(2) of the Act was complied with was a factual one, and one to be decided by the adjudicator. Justice McMurdo applied the decision of Brodyn and held that the notice requirement is 'not an essential requirement, in the sense that it was an essential precondition of the existence of the adjudicator's decision.' His Honour distinguished Brodyn from Kell & Rigby in that in Kell & Rigby, noncompliance with the notice requirement for an adjudication application was decided at the adjudication, and the adjudicator determined that the noncompliance was fatal to the application.

This decision supports the overall purpose of the legislation to allow matters to be decided speedily and without undue formality. The legislature did not intend exact compliance with all the more detailed requirements under the Act for the existence of an adjudicator's determination. The fact that the adjudicator had incorrectly determined that notice under section 21(2) had been complied with was not enough to make the adjudicator's decision void.

Significance

The Nebmas decision highlights the adjudicator's powers to determine factual matters in the claim process without recourse to judicial review of the determination for mistake of fact by the adjudicator. The case should act as a reminder to parties who receive a payment claim under the Act to always submit a payment schedule, and to ensure that they are aware of all the time frames and dates for payment under the contract. If there has been a failure to comply with relevant time requirements, the recipient of a payment claim/adjudication application should expressly refer such failures to the adjudicator for determination. Failure to do so could leave the party with limited avenues to appeal an adverse decision under the Act.

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