Beware the ticking adjudication clock - At least for the moment...

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9 December 2013

The recent Western Australian State Administrative Tribunal (the Tribunal) decision in The MCIC Nominees Trust trading as Capital Projects & Developments and Red Ink Homes Pty Ltd [2013] WASAT 177 has clarified how the period in s 26(1) of the Construction Contracts Act 2004 (WA) (Act) is to be computed. 

Summary

In short the time that a party has in order to make an adjudication application under s 26 of the Act commences from the moment that the dispute arises and thus the 28 day period referred to in s 26(1) of the Act includes the day on which the payment dispute arose. 

Background

The Tribunal (constituted by Member Owen-Conway) was asked to review an adjudicator’s decision to dismiss an adjudication application made by the MCIC Nominees Trust, trading as Capital Projects & Developments (MCIC) against Red Ink Homes Pty Ltd (Red Ink) without making a finding on the merits. 

There were two discrete issues before the Tribunal for review:

  1. whether or not the construction contract in question was between MCIC and Red Ink; and
  2. if so, whether or not the adjudication application had been served in time.  

Ultimately, the Tribunal found that the construction contract in question was not between MCIC and Red Ink and for that reason the Tribunal upheld the adjudicator’s determination to dismiss the adjudication application.  

However, given that the adjudicator had dismissed the adjudication application for a different reason (namely on the basis that it had been served out of time) the Tribunal reviewed that issue as well. 

The facts

The relevant construction contract was entirely oral.  Accordingly, the Tribunal found that the implied terms set out in Schedule 1 of the Act (Implied Terms) were incorporated into the contract.  In particular the term set out at clause 7(3) of the Implied Terms which provides:

Within 28 days after a party receives a payment claim, the party must do one of the following, unless the claim has been wholly rejected or wholly disputed in accordance with subclause (1) ­

(a) pay the part of the amount of the claim that is not in disputed;

(b) pay the whole of the amount of the claim.

(Tribunal’s emphasis). 

The payment claim MCIC sought to be adjudicated comprised 31 invoices dated 28 March 2013 totalling $317,941.49 plus GST.  It was uncontroversial that Red Ink received the invoices on 28 March 2013. 

Red Ink did not pay all (or any part) of the payment claim.  Nor did it reject or dispute the whole or any part of the claim. 

On that basis MCIC served its adjudication application on the nominating authority and Red Ink on 24 May 2013.  MCIC contended it did so in accordance with the period required by s 26(1) of the Act which, relevantly, provides that:

To apply to have a payment dispute adjudicated, a party to the contract, within 28 days after the payment dispute arises ... must:

(a) prepare a written application for adjudication; and

(b) serve it on each other party to the contract.

(our emphasis). 

The adjudicator dismissed the adjudication for being served out of time.  He did so by determining the date that a dispute (for the purposes of s 6 of the Act) arose.  He then used that determination to calculate whether or not the application was served within time. 

The Adjudicator determined that a dispute arose following the non-payment and non-rejection of the payment claims 28 days from and excluding 28 March 2013 which was 25 April 2013.  He further calculated that the expiration of the 28 day period by which an adjudication application must be made under s 26(1) of the Act was 23 May 2013.  Accordingly, he dismissed the application without making a finding on the merits. 

The Tribunal’s decision

The Tribunal held that to determine whether or not the application had been served within time it was critical to determine when the relevant dispute had arisen.  The member based her reasoning here on the definition of payment dispute in s 6 of the Act which, relevantly, provides:

... a payment dispute arises if —

(a) by the time when the amount claimed in a payment claim is due to be paid under the contract, the amount has not been paid in full, or the claim has been rejected or wholly or partly disputed

(Tribunal’s emphasis). 

The Member applied the rule in Edelsten v Health Insurance Commission[1] which provides that when the computation of a period of time is expressed as ‘from’ a specified event or date and ‘within’ a period of time but coupled with the word ‘when’, the day of the specified event is not to be excluded because the moment when the event occurred (or did not occur) is intended to be the starting point of the calculation of the relevant time period.  Accordingly, the Member held that:

reading s 26 and 6 of the [Act] together the adjudication must be made ‘within’ the 28 day period which is to run ‘from’ the precise moment ‘when’ the payment dispute arose. 

This part of the decision is critical because it suggests that Parliament intended the parties to adjudications to be able to identify the precise moment when a payment dispute arose.  Significant consequences flow from this decision.  A situation can easily be contemplated where in a site meeting at, say, 11:31am the principal’s representative makes it clear that the contractor’s payment claim is rejected.  On the Member’s reasoning time for the purposes of s 26 of the Act starts running from 11:31am.   Accordingly, an adjudication application served at 11:32am 28 days later will be out of time and liable to be dismissed without a finding on the merits.  There may also be consequences for the timing of later steps in the adjudication process (for example the lodgement of s 27 responses and adjudicator’s determinations). 

It will be no answer to the hypothetical scenario posited above that the rejection was oral.  As the Tribunal held in Blackadder Scaffolding Services (Aust) Pty and Mirvac Homes (WA) Pty Ltd[2] that an oral statement can be a rejection for the purposes of the Act. 

Application to the facts

The Member went on to consider when the dispute arose.  In doing so she referred to the language of the Implied Terms which states (at clause 7(3) of the Implied Terms) that a party must respond to a payment claim after receipt of the payment claim.  The Member held that that language, in particular the “within” in that term was imprecise as to timing and referred to an event rather than a moment in time.  On that basis she applied the reasoning of Windeyer J in Prowse v McIntyre[3] where his honour held that when calculating the period where an event is specified, the date of the event is to be excluded. 

On that basis, the Member concluded that the 28 day time period referred to in clause 7(3)(a) of the Implied Terms is to be calculated by excluding the day on which the payment claim (i.e., the specified event) was received.  In other words, where an event is specified time starts to run from mid-night on the date immediately following.  In this case 00:00 on 29 March 2013.  The consequence of that reasoning was that the 28 day period specified in clause 7(3) of the Implied Terms expired at 23:59 on 25 April 2013. 

In this case, because the end of the period was 25 April 2013 which is ANZAC day the Member held that it was proper to exclude the public holiday from the calculation of the end of the period for the purposes of s 7(3) of the Implied Terms so that the period ended at midnight on 26 April 2013.  Given that no payment or rejection had been made by then, the member concluded that a payment dispute arose immediately after the whole of 26 April 2013 came to an end; namely, at 00:00 hours on 27 April 2013.

On that basis she found that the 28 day period under s 26(1) of the Act expired at 23:59 on 24 May 2013 and thus the adjudication application had been served within time. 

Consequences of the decision

This decision has consequences for drafting and managing construction contracts in Western Australia. 

When drafting contracts parties would be well advised to ensure that the mechanics for notices in relation to the submission and assessment of payment claims are drafted so that it is clear (and convenient, that is not midnight) when a dispute arises for the purposes of s 6(a) of the Act.  If the mechanics are not unclear the timing of any rejection or dispute might fall to be determined by reference to the Electronic Transactions Act 2011 (WA). 

Similarly, parties to construction contracts should take care to avoid starting time running under s 26(1) of the Act by making definite statements about payment claims that are under assessment in meetings or informal correspondence. 


 [1] (1988) 24 FCR 512.

 [2] [2009] WASAT 133, [59]. 

 [3] (1961) 111 CLR 264, 277-80.


The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.


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Spencer Flay

Partner. Perth
+61 8 9460 1738

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