Major Projects & Construction 5 Minute Fix 106: enforceability of adjudication determinations, releases, Modern Slavery

Security of Payment wrap-up

Security of payment (SOP) legislation around Australia provides a relatively quick mechanism for the resolution of payment claim disputes, freeing up cashflow in the construction industry. SOP adjudications are quick but are interim and do not finally resolve the underlying disputes, meaning parties sometimes seek to challenge and set aside those determinations in the courts.

Below is a snapshot of recent judgments across various jurisdictions involving challenges to the validity of adjudication determinations.

New South Wales – misleading or deceiving the adjudicator

In YTO Construction Pty Ltd v Bhatt [2022] NSWDC 348, the New South Wales District Court found that certain submissions to an adjudicator in relation to a NSW SOP Act claim constituted misleading and deceptive conduct under section 18 of the Australian Consumer Law and, as a result, ordered that payments made in accordance with the adjudicator’s determination be refunded.

The representations related to submissions that a subcontractor had incurred additional costs for transporting loads of solid waste. Significantly, the Court was willing to find that the submissions were "in trade or commerce" and misleading because the invoices provided in support of the transportation costs were forged.

Queensland – invalid payment claim; failure to identify goods and services

In Denbrook Constructions Pty Ltd v CBO Developments Pty Ltd [2022] QDC 184, the Queensland District Court found that a purported payment claim under the Queensland SOP Act was invalid because it failed to sufficiently identify the relevant goods and services. Instead, the payment claim appeared to primarily consist of extracts from a spreadsheet.

This case is a reminder to contractors of the importance of addressing basic requirements for the submission of payment claims under the SOP legislation.

Australian Capital Territory – no construction contract; unreasonable adjudication determination

In Nova Builders Pty Ltd v Civil & Civic Corporation Pty Ltd [2022] ACTSC 209, the ACT Supreme Court declined to enforce an adjudication determination because, among other reasons, the adjudicator did not have an "intelligible basis" on which to find that there was a “construction contract” (as defined in the SOP ACT) between the parties.

A claimant’s statutory right to a progress payment will not be enlivened if certain jurisdictional preconditions are not satisfied, including the existence of a construction contract.

Australian Capital Territory – re-agitating issues in subsequent adjudication; issue estoppel

In Harlech Enterprises Pty Ltd v Beno Excavations Pty Ltd [2022] ACTCA 42, the ACT Court of Appeal upheld a finding at trial that issue estoppel does not apply to adjudication decisions under the ACT SOP Act (see our note in 5MF90). That is, parties are not precluded from re-agitating issues of fact or law determined in one adjudication in a subsequent adjudication concerning different work.

The Court of Appeal did, however, flag that principles related to abuse of process might in some circumstances be available to prevent a party from re-agitating issues.

Victoria – inconsistent reference date

In Argyle Building Services Pty Ltd v Dalanex Pty Ltd (No 2) [2022] VSC 452, the contract contained two reference dates and no mechanism to determine which one to use. In these circumstances, the adjudicator deemed the reference date to be 20 days after the previous reference date in accordance with section 9 (2)(b) of the Victorian SOP Act.

The Court found that the adjudicator had not made a jurisdictional error by proceeding with the adjudication under clause 9(2)(b) of the Victorian SOP Act.

Reading down the general words of a release: when is it unconscientious?

In Reid v Commonwealth Bank of Australia [2022] NSWCA 134, the New South Wales Court of Appeal considered the circumstances in which equity may narrow a release expressed in general terms.

The case involved Reid defaulting on his obligations to CBA, leading to CBA selling property which was the subject of a guarantee. Prior to the sale, vandals severely damaged the property, and CBA allowed the subsequent purchaser a discount of $370,000 to reflect the damage. Reid argued that CBA was liable to account for this $370,000 adjustment, however the parties had already agreed to a deed of settlement that included a release. CBA relied upon the release and sought summary dismissal of Reid’s claim.

The release was in the following terms:

"Mr Reid … release[s] and discharge[s] the Bank from all liability for damages or loss and from all sums of money, accounts, actions, proceedings, claims, demands, costs and expenses whatever which Mr Reid … has or had or at any time in the future may have against the Bank for or by reason or in respect of any act, cause, matter or thing arising out of or in connection with or incidental to the Loans, the Loan Agreement, the Property, the Sale, the Mortgage, the Guarantee, the Bank Proceedings, the Family Court Proceedings, the Companies’ Proceedings, or in any way relating to the matters referred to in the recitals."

At first instance CBA was successful and the claim was summarily dismissed. On appeal, the Court of Appeal considered whether High Court authority in Grant v John Grant & Sons Pty Ltd (1954) 91 CLR 112 provided an available exception to the enforceability of a release in general terms. This exception provides that a plaintiff, against whom a release is pleaded by way of defence, can possess an equity to restrain unconscientious reliance on general words in a release by the defendant.

Unconscientious reliance on the general words of a release can occur when the releasee uses the general words of a release as a means of escaping the fulfilment of obligations falling outside the true purpose of the transaction. This may, for instance, restrict the general words to things which are in the contemplation of the parties when they signed the agreement. In assessing whether taking advantage of the release is unconscientious, the court may consider the surrounding circumstances including the state of knowledge of the respective parties concerning the existence, character and the extent of the liability in question.

In this instance it was found that the drafting did not displace the exception, and the summary dismissal of the claim was set aside and the matter remitted to trial. The case serves as an important reminder for releases to not only be expressed in general terms.

Insufficient consideration leads to invalid contract

The recent case of Jin Resources (Aus) Pty Ltd v Nicols [2022] QSC 158 demonstrates the importance of ensuring consideration is present when entering into contracts for ongoing events.

A dispute arose between parties concerning the sale and subsequent transfer of mining tenements. At completion, the seller (Nicols) received an initial payment of $2.5 million and provided the buyer (Jin Resources’ parent company) with executed transfer forms in respect of the tenements but did not register the transfer. The seller then lodged caveats over the tenements after realising it would have no security for the subsequent agreed milestone payments.

The seller pressed for Jin Resources to enter into a General Security Agreement (GSA) in respect of an outstanding payment of $1.5 million. Jin Resources entered into the GSA but subsequently contended that it was invalid on the grounds that the seller had provided no consideration for the GSA.

The Court found that the GSA was invalid because of a lack of consideration. Relevantly, the GSA did not mention the removal of the caveats lodged by the seller and otherwise did not expressly identify any consideration moving from the seller to Jin Resources. The Court determined that:

• the parties had not intended for the removal of the caveats to be consideration for the GSA. Extrinsic evidence showed that there was a considerable time delay between execution of the GSA in August 2020 and the caveat removal in February 2021; and
• withdrawing the caveats was not the performance of a promise that the seller had made under the Sale Agreement and did not constitute consideration.

Calderbank offers: silence is not always golden

The recent case of Jang v Trustees of the Property of Lee (bankrupt) (No 2) [2022] FCA 941 demonstrates the risks of ignoring a Calderbank >offer.

In this case, the respondent (Jang) failed to respond to a Calderbank offer made by the applicant (Trustees) and the Court held that this silence amounted to an implicit rejection of the offer.

Given the principle that “it is necessary to consider whether the offeree’s rejection of the offer was unreasonable in the circumstances”, the Court then found the rejection was neither explained nor supported by any submissions and it was in fact unreasonable for Jang not to have accepted the offer. Costs were therefore ordered on an indemnity basis from the date of the Calderbank offer.

Public consultation on adequacy of Modern Slavery Act

The Australian Modern Slavery Act (2018) (MSA) has received some criticism since its commencement on 1 January 2019. One criticism is that it does not contain a penalty regime or effectual enforcement mechanisms.

A statutory review of the MSA began on 31 March 2022, to consider the MSA’s operation “over the first three years and whether any additional measures are necessary or desirable to improve compliance with the Act and the operation of the Act” (see the Australian Government’s Terms of Reference). As part of that review, the Government has now released an "Issues Paper” for public consultation. Input from reporting entities, interested organisations and bodies and the public generally is sought via online survey or written submission.

Among other things, views are invited on:

• the appropriateness of the $100 million consolidated annual revenue threshold;
• whether “operations and supply chains” is adequately defined; and
• the mandatory reporting criteria.

The period for consultation closes on 22 November 2022.