Executive summary
In the decision of Hanson Construction Materials Pty Ltd v Decmil Australia Pty Ltd [2024] VSC 361 the Court determined that Decmil Australia Pty Ltd (Contractor) had not followed the contractual process for recovering defect rectification costs.
Consequently, the Court quashed the adjudicator’s determination to the extent that it took into account the Contractor’s claim for damages, being an ‘excluded amount’ under the Building and Construction Industry Security of Payment Act 2002 (Vic) (Act).
Relevant facts
Hanson Construction Materials Pty Ltd (the Subcontractor) sought judicial review of an adjudication determination on the grounds that the adjudicator took into account the Contractor’s claim for damages, which is an ‘excluded amount’ within the meaning of section 10B of the Act.
The Court had to consider:
- whether the costs incurred by the Contractor to rectify the foundation of a wind turbine generator was a claim for damages or a debt due and payable under clause 30.3 of the subcontract; and
- whether the adjudicator’s determination was wholly or partially quashed to the extent it was affected by this error.
The parties agreed that clause 30.2 of the subcontract provided that where the Subcontractor failed to remedy a defect in accordance with the Contractor’s instructions, the Contractor had a the right to arrange for the defect to be remedied by itself or others, with the costs of doing so to be: (i) valued under clause 22.9 of the subcontract; and (ii) a debt due and payable under clause 30.2 of the subcontract by the Subcontractor to the Contractor ‘upon demand‘.
The Contractor relied on its payment schedule to constitute a demand for the rectification costs in the sum of $2,633,235.61 within the meaning of clause 30.3 of the subcontract.
The parties also agreed that if the Contractor’s claim for the rectification costs was not a debt due under clause 30.3, it would be an excluded amount for the purposes of the Act.
Decision
The Court held that the payment schedule did not constitute a demand under clause 30.2 because:
- there was no reference at all in the payment schedule to clause 30.3 of the subcontract nor did it use the term “demand” or the expression “debt due and payable”; and
- the attachment to the payment schedule, (being the Contractor’s variation proposal it submitted to the Principal seeking payment of the rectification costs from the Principal), was not a demand to the Subcontractor.
In the absence of any demand under clause 30.3 of the subcontract, the Contractor’s claim was not for a debt due and payable under the subcontract but a claim for an excluded amount for the purposes of the Act.
The Court then had to consider whether the adjudication decision could be remitted back to the adjudicator.
After considering previous decisions and the wording in section 23(2B) of the Act, the Court determined that the matter could be remitted back to the adjudicator to allow the adjudicator to:
- put a line through those portions of the adjudication decision where he had taken into account the excluded amounts;
- leave the valid portion of the adjudication without any material change; and
- then recalculate the adjudicated amount in accordance with his decision.
Key takeaways
When preparing a payment schedule ensure to:
- check and comply with the contractual provisions;
- refer to the contractual provisions in the payment schedule on which you seek to rely to set-off amounts; and
- attach the relevant documentation i.e. notices to the relevant party directing them to rectify defects.
This article was written by written by Paul Graham, Partner, Tara Nelson, Senior Associate and Nick Jarrett, Solicitor.
