| Focus: | McNab NQ Pty Ltd v Walkrete Pty Ltd & Ors [2013] QSC 128 |
| Services: | Property & Projects |
| Industry Focus: | Property |
In Walton Construction (Qld) Pty Ltd v Corrosion Control Technology Pty Ltd & Ors [2011] QSC 67 (Walton v CCT), DibbsBarker acted for a contractor in setting aside an adjudication decision made in favour of a subcontractor. The case identified an important constraint on the operation of the Building and Construction Industry Payments Act 2004 (Qld) (BCIPA), being that upon a contract being terminated, no further "reference dates" arise for the purposes of BCIPA.
The recent case of McNab NQ Pty Ltd v Walkrete Pty Ltd & Ors [2013] QSC 128 (McNab case) makes it clear that the benefit of the decision in Walton v CCT is available to other contractors. To that end, if a contract permits, a contractor's valid termination of a subcontract will have the effect of extinguishing a subcontractor's ability to successfully use BCIPA to recover payment. Contractors should review their subcontracts to ensure they do not contain any provisions which jeopardise this benefit.
Background
Under BCIPA, from each reference date under a construction contract, a person is entitled to a progress payment. A reference date is the date stated in, or worked out under the contract, as the date on which a claim for a progress payment may be made. If no date is provided, it is the last date of the named month (and the last day of each month thereafter).
Generally, a claimant has a statutory right under BCIPA to serve a payment claim within 12 months after the construction work to which the claim relates was last carried out, or the related goods and services were last supplied.
Despite this statutory right under BCIPA, in Walton v CCT, the Supreme Court construed clause 44.10 of AS2545-1993 (being the form of Australian Standard contract used by the parties in Walton) to mean that no further reference dates arise after the termination of a contract for the purposes of BCIPA. Clause 44.10 of AS2545 provides that:
Such an interpretation has the effect of disentitling a claimant from serving a payment claim under BCIPA after the termination of the contract.
The case
Walkrete was a subcontractor to McNab. In November 2012, Walkrete delivered a payment claim which progressed to adjudication. The adjudicator awarded the bulk of the claim.
McNab's primary challenge was that it had terminated its subcontract with Walkrete in September 2012, which it contended excluded the operation of BCIPA based on the decision in Walton v CCT.
Under the subcontract, McNab was entitled to terminate the subcontract if Walkrete defaulted "in the performance or observance of any serious condition". McNab terminated the subcontract citing a failure to comply with provisions relating to safety and protection of people/property.
The adjudicator formed the view that McNab's termination was not valid and proceeded to decide the adjudication largely in Walkrete's favour.
The appeal
McNab applied to the Supreme Court to set aside the adjudicator's decision. His Honour Chief Justice De Jersey considered it necessary to decide whether McNab had validly terminated the subcontract. If the contract had been terminated, then no reference dates could arise thereafter to support Walkrete's payment claim so that the adjudication decision must be void.
De Jersey CJ concluded that, on the evidence before the adjudicator, the adjudicator should have found that Walkrete's actions constituted a breach of a "serious" condition with the consequence that McNab was entitled to terminate the contract as it had purported to do. Therefore, the adjudication decision was made without jurisdiction, as prior to making the payment claim, the subcontract was validly terminated.
The outcome
The McNab case has entrenched the decision in Walton v CCT. The outcome of the case has also made it apparent that Courts are willing to embark upon a detailed review to determine the validity of the termination and thereby ascertain whether further reference dates arise. In the McNab case, De Jersey CJ conducted an oral hearing of witnesses from McNab and Walkrete in connection with the circumstances of the termination.
In short, the current law is that upon a construction contract being validly terminated, there are no further reference dates for the purposes of BCIPA (even if the other party disputes the termination).
The net effect
A party liable to become a respondent under BCIPA has a strong incentive to terminate the contract if there are grounds for doing so. However, the Court will undertake a robust review of the termination to ascertain its validity. As such, contractors should obtain legal assistance when terminating. The opportunity to constrain BCIPA as offered by the McNab case may be squandered by improper termination.
Contractors should also ensure that their subcontracts do not contain any provisions which jeopardise their ability to rely upon the McNab case.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.