Summary
The Supreme Court of Victoria’s decision in Babicka v ASD Corporation Aust Pty Ltd [2024] VSC 587 (Babicka) reinforces the importance of understanding reference date requirements in Victorian construction contracts and how they relate to milestone payments. The Court confirmed that an adjudication application would fail as there is no “reference date” where a claimant does not achieve milestone conditions necessary under the Contract to entitle it to payment.
The Supreme Court judgment set aside three separate adjudication determinations made under the Building and Construction Industry Security of Payment Act 2002 (Vic) (SOP Act) on jurisdictional grounds where payment claims had been made prior to the claimant achieving the contractual payment milestones.
Background
Alois Babicka, Nadia Babicka and Mazs Investment Group Pty Ltd (the Plaintiffs) engaged ASD Corporation Australia Pty Ltd (ASD) to construct warehouses under three separate contracts relating to different lots of the same development.
Each contract provided for the work to be completed in stages, and ASD was entitled to milestone payments for the completion of each stage according to a schedule in the special conditions of the respective contracts. This included milestone payments due upon achieving the ‘Structure’ stage for each contract.
ASD made three adjudication applications in respect of three disputed payment claims. The payment claims were for:
- the ‘Structure’ stage of Lots 11-14 for $629,615.27 (one payment claim); and
- the ‘Lock Up’ stage of works for Lots 3-5 in the amounts of $235,068.37 and $115,633.05 respectively (two payment claims).
The three adjudication determinations were all in favour of ASD and found that, despite the Plaintiffs’ arguments that the milestones had not been completed, the respective stages to which each payment claim related had been achieved.
The Adjudication review application
The Plaintiffs applied to the Supreme Court of Victoria for judicial review of the adjudication determinations. They requested that the determinations be set aside on the basis that there were no valid reference dates to which the payment claims could have related.
The issue in contention was whether the ‘Structures’ stage had been completed for any of the contracts, and therefore, whether any valid reference date had arisen. (The Court noted that the two claims relating to ‘Lock Up’ could only be claimed following the achievement of the ‘Structures’ stage.)
Garde J found in favour of the Plaintiffs that:
- the ‘Structure’ payment claim was invalid as ASD had not obtain building surveyor approval, which was required under the contract to achieve this milestone;
- in order for the subsequent milestones to be achieved (‘Lock Up’), the earlier ‘Structure’ milestone must be achieved, under the sequential milestone provision in the contracts;
- it would be unfair to require the Plaintiffs to pay ASD in the circumstances where the parties had agreed to milestones being achieved as a precondition to payment (such milestones determining the reference date); and
- this issue had not been adequately articulated to the adjudicator, who if aware of this issue, would have determined the outcome of the adjudications differently.
Accordingly, the three adjudication determinations were set aside.
Key takeaways
This decision reinforces basic principles which claimants and respondents should apply when addressing payment claims and adjudication applications, including:
- A claimant bringing an adjudication application must take care to ensure it has clearly achieved each of the necessary preconditions to bringing its payment claim.
- Failing to achieve requirements for an individual milestone (where this determines the appropriate reference date) will prevent a claimant from successfully adjudicating its claim for payment. Further, in a sequentially structured contract where prior milestones are preconditions for subsequent milestones, the failure to achieve one milestone will prevent a reference date arising under subsequent claims for payment.
- A respondent should check to see if each precondition is met prior to responding to a payment claim or an adjudication application, to determine if there has been any jurisdictional error by a claimant.
In Victoria, reference dates may soon be removed from the SOP Act (see our article on the upcoming Victorian SOP Act changes). However, until they are removed from the SOP Act, parties should consider the appropriate model for the timing of payment claims in construction contracts. In any case, even if reference dates are abolished, a claimant’s failure to meet contractual preconditions to payment may invalidate any subsequent adjudication application.
This article was written by Matthew Bliem, Partner and Nick Jarrett, Solicitor