Navigating payment claims under a construction contract

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There is an open question of whether a party can make an application under the Construction Contracts Act 2004 (WA) (CCA) based on alternative formulations of a ‘construction contract’.

The CCA provides an expedited procedure by which a party to a construction contract may obtain payment for ‘construction work’ in the event of a dispute. Generally, the adjudication process is completed in a matter of 2 months from the date of lodgment. However, the applicant must show that the dispute is one to which the Act applies by meeting a number of strict jurisdictional requirements. In particular, the applicant must show that:

  1. the contract is a ‘construction contract’.
  2. the applicant made a ‘payment claim’ arising ‘under’ the ‘construction contract’;
  3. the dispute to be adjudicated is a ‘payment dispute’;
  4. the application is made within 90 business days after the ‘payment dispute’ arises; and
  5. the matter is not too complex to be determined by the adjudicator. 

These jurisdictional requirements are critical and if not satisfied, the CCA does not apply and an adjudication application cannot be made.

In this article we will consider 1. and 2. A contract must be a ‘construction contract’ and the ‘payment claim’ must arise ‘under’ the ‘construction contract’.

The precise construction contract under which a payment claim is made is usually clear. In some circumstances, however, the circumstances may justify alternative submissions as to what constituted the relevant construction contract. For instance, where the parties have (either verbally, in writing or by conduct) modified the contract at a later date, the question arises as to what is the relevant ‘construction contract’ and can the circumstances support alternative submissions?

There are a number of cases which explain the requirement for a ‘payment claim’ under ‘a construction contract’ e.g. Bocol Constructions Pty Ltd v Kelsake Group Pty Ltd, Delmere Holdings Pty Ltd v Green and Laing O’Rourke Australia Construction Pty Ltd v Samsung C & T Corporation.

In Bocol, the applicant’s alleged ‘payment claim’ was made ‘under’ certain terms (relating to proper care and skill) which the applicant sought to have implied into the relevant construction contract. In short, upon finding that no such terms could be implied, it was held that the payment claim the subject of the application could not have been made ‘under’ the construction contract.

In Delmere Holdings Pty Ltd v Green the Court considered a challenge to an adjudicator’s decision on grounds that he wrongly proceeded on the basis that a ‘payment claim’ under the construction contract could include a claim for unjust enrichment or in equity. The applicant argued that the adjudicator had accepted the implication of a term that reasonable remuneration would be paid to the applicant, and the payment claim was therefore ‘under’ the contract. The Court rejected such an implied term, and held that claims in quantum meruit are outside the contract, not ‘under’ it.

In Laing O’Rourke Australia Construction Pty Ltd v Samsung C & T Corporation, the Court considered whether a ‘payment dispute’ can arise before the payment is actually due under the terms of the construction contract. It was held that to be ‘under’ a construction contract, the payment claim must be made in accordance with the terms of the relevant construction contract.

These cases highlight that it is critical in an application under the CCA to carefully identify the construction contract and ensure that the ‘payment’ claim is framed to be ‘under’ that contract.

However, they do not address the question of whether the requirement for there to be a ‘construction contract’ precludes a party from submitting alternative formulations of the relevant construction contract. That is, if the payment claim was not ‘under’ one formulation, then it was ‘under’ the other. In my view, there are compelling reasons why a party should not be precluded from doing so. For it to be otherwise, the applicant would need to “elect” between valid alternatives as to the applicable construction contract. This would mean the applicant needs to abandon one valid alternative in order to be able to pursue the other.

While I have run this argument successfully in the past, it has not yet been determined by the Supreme Court and therefore remains an open question.

An understanding of the nuances of the CCA and its application can have a significant effect on the contractual dynamics of those in the construction industry and should not be ignored.

Don’t hesitate to contact Grondal Bruining for advice about your situation or assistance with your construction contracts.