1155 Nepean Highway Pty Ltd v Promax Buildings Pty Ltd [2020] VSCA 253

What the court decided

The case concerned an adjudication determination made under the Building and Construction Industry Security of Payment Act 2002 (Vic) [1]. By a contract dated 2 January 2019, 1155 Nepean Highway Pty Ltd (Nepean Highway) engaged Promax Buildings Pty Ltd (Promax) to build a residential development in Highett for a lump sum price of $8,595,000 [2]. On 15 July 2019 Promax made a payment claim for $2,017,382.15 [3]. Nepean Highway did not provide a payment schedule, either in response to the claim or after Promax gave notice of its intention to apply for adjudication [3], [4]. Because of section 21(2A), it could not lodge an adjudication response [5]. The adjudicator awarded Promax the full amount of its claim [6].

Nepean Highway sought judicial review in the Trial Division to quash the determination, relevantly, as to the items of work numbered 18.1 to 18.9, and the proceeding was dismissed [7]. The Court of Appeal (Beach, Kyrou and McLeish JJA, in joint reasons) considered three proposed grounds of appeal [8]. It granted leave to appeal, because the grounds raised "questions of some difficulty", and dismissed the appeal [67].

The first proposed ground challenged the trial judge's holding that the adjudicator was entitled to infer, from the absence of contradictory material, that Promax's valuation of its claims could not credibly be challenged [24]. Because Nepean Highway had not provided a payment schedule, and the adjudicator had not sought further submissions from it under section 22(5), its silence in the adjudication showed nothing about how strong its case was [32]. An inference based on the absence of an adjudication response would at least have been illogical and, in the Court's words, "would have raised the question whether it disclosed jurisdictional error" [32]. Because section 23(2) requires the adjudicator to consider "the payment schedule (if any)", the adjudicator must also consider the fact that none was provided [33]. The Court held that an adjudicator may infer from such a failure that the recipient "was not in a position to contest the claim" [34]. Such an inference is open even though the Act prevents the recipient from explaining to the adjudicator why no payment schedule was provided [34].

The adjudicator did not state that he had drawn any such inference [36]. His repeated statement that there was "no material from the [applicant] to dispute" the claim followed his summary of Promax's submission that Nepean Highway had not disputed the claim, a reference to the missing payment schedule [37]. At its highest, the adjudicator could be seen to have drawn an inference from that failure, and it could not be concluded that he based any inference on the absence of an adjudication response [37]. The Court held that the first proposed ground failed [38].

The second proposed ground was that the trial judge overlooked affidavits said to explain why no payment schedule had been provided [39], [40]. The Court held that this material was not before the adjudicator and was irrelevant, because the question on judicial review was whether the adjudicator had drawn the inference and, if so, whether that was jurisdictional error [40]. The Act does not require the adjudicator to ask for an explanation or to disregard the absence of a payment schedule [41]. There was no substance in the second ground [42].

The third proposed ground alleged that the adjudicator failed to value the work under sections 11 and 23 and uncritically adopted Promax's claim [43]. The trial judge held that the adjudicator was entitled to have regard to Promax's trade summary in evaluating its entitlement [45]. The Court of Appeal agreed, because the parties regarded the trade summary as essential to making a payment claim [48]. Reliance on it did not show a failure to assess the claim independently, because the adjudicator still formed an opinion on whether the work had been completed to the extent claimed [49]. Although his conclusions were brief, the Court found that the adjudicator had considered the substance of each aspect of the claim [50]. Brevity in explaining the assessment does not necessarily mean that it was not made, and the contrary had not been shown [51].

In oral argument, Nepean Highway contended that the contract drawings were part of the "construction contract" in section 23(2)(b), so that failing to consider them made the determination void under section 23(2B) [52]. Although this was not a separate ground of appeal, the Court considered it [52]. The Court accepted that the drawings, as contract documents incorporated by reference, formed part of the construction contract as defined in section 4 [56]. The question was whether they were "provisions" of that contract [57]. The Court held that the words "from which the application arose" identify the construction contract as a whole, not particular provisions [58], [59].

It then held that the provisions of a construction contract are found in the contract the parties executed, not in documents it incorporates by reference [60], [61], [65]. On that construction, section 23(2)(b) requires the adjudicator to consider the provisions of the contract document itself but not, unless the parties provide them or the adjudicator requires them, documents incorporated into it by reference [64]. The drawings were therefore not "provisions of the construction contract" that had to be considered [65]. The Court observed that, in any event, a relevance test would not have assisted Nepean Highway, because the Court had not seen the drawings [66].

Why it matters

A respondent that fails to provide a payment schedule risks the adjudicator inferring that it could not contest the claim. Evidence explaining that failure which was not before the adjudicator is irrelevant on judicial review to whether the inference was drawn or was open. By contrast, the Court said that where the bar on an adjudication response applies and the adjudicator has not sought further submissions, the respondent's silence indicates nothing about its case, so an inference from the absence of an adjudication response would at least be illogical; it left open whether drawing that inference would be jurisdictional error.

Brief adjudication reasons that rely on a trade breakdown the contract requires will not, on that account alone, show a failure to assess the claim independently.

Under section 23(2)(b), the adjudicator must consider the provisions of the contract the parties executed, but not drawings or other documents incorporated into it by reference unless the parties provide them or the adjudicator requires them.

The decision applied the Act in the form the Court set out, so readers should check the current text of the Act before relying on the decision.

Numbers in square brackets are paragraph numbers of the judgment. This note summarises a decided case for education and is not legal advice. See how the notes are written.