17 October 2019

Security of payment: the “pay now, argue later” attitude continues

This article was written by Scott Watson and Aisling Scott.

In the recent decision of Sandvik Mining and Construction Australia Pty Ltd v Fisher [2019] WASC 352, the Supreme Court of Western Australia considered an application to prevent the enforcement of an adjudication determination pending judicial review.  The decision provides useful guidance around overarching policy considerations of security of payment regimes, particularly in the context of a pending review application.

Key Takeaways

While the Court found that a prima facie case had been made out in this instance, the balance of convenience did not favour granting an injunction to restrain enforcement of the determination in the interim.  In so finding, the Court had regard to a number of factors, one of which was the policy rationale underpinning the security of payment regime.  In particular, the regime “discloses an intention to keep the money flowing”, even in the context of alleged jurisdictional error. 

The decision is yet another reminder of the high threshold to restrain enforcement of an adjudication determination.  It also provides a practical guide to the applicable considerations for parties when attempting to restrain or defer payment of an adjudicated sum, pending review.  

Background

Sandvik Mining and Construction Australia Pty Ltd (Sandvik) contracted with RTA Weipa Pty Ltd to design, fabricate, assemble, deliver, install, and commission certain components of the export facilities for a bauxite mine south west of Weipa in Northern Queensland, including a stacker, a reclaimer and a shiploader.  Sandvik entered into a subcontract with Civmec Construction & Engineering Pty Ltd (Civmec) for the fabrication, off-site assembly and commissioning of the stacker, reclaimer and shiploader.

Civmec issued a progress claim in the amount of $17,045,654.36 (Progress Claim 26).  In response, Sandvik certified a negative amount of -$881,380.15.  Civmec served an adjudication application in relation to “particular (not all) items in [Progress Claim 26].”  The application expressly carved out certain of the disputed items between the parties, and only sought payment of $4,938,369.60.  The adjudicator awarded the whole of the claimed $4,938,369.60 (First Determination), and Sandvik made payment of this amount to Civmec.

Civmec subsequently served a further adjudication application, in relation to other of the items within Progress Claim 26, seeking payment of a further $3,864,459.56.  The adjudicator determined that Sandvik was liable to pay Civmec the further amount of $1,664,650.29 (Second Determination).

Sandvik filed an application for judicial review of the Second Determination on the grounds of jurisdictional error.  Namely, that the adjudicator did not have the power to make the Second Determination because the First Determination had already been made in relation to Progress Claim 26 (having regard to sections 25 and 41(1)(b) of the Construction Contracts Act 2004 (WA)).  Sandvik also sought an injunction restraining Civmec from taking any steps to enforce the Second Determination until the review application was determined. 

Decision on interlocutory issue

When applying the usual test for the grant of an injunction, the Court considered:

  • Strength of prima facie case on substantive matter: The Court held that it was enough for Sandvik to show a sufficient likelihood of success to justify the preservation of the status quo pending determination of the substantive application.  Sandvik did not have to demonstrate that it was “more probable than not” that Sandvik would succeed on the substantive application.  Archer J found that Sandvik has established a prima facie case.
  • Whether the balance of convenience favours granting the injunction: On this test, the Court had to weigh the extent of damage Sandvik would likely suffer if the injunction was refused against the injury which Civmec would suffer if an injunction were granted.

As to this second factor, her Honour rejected each of Sandvik’s submissions to the effect that the balance of convenience favoured the grant of the injunction for the following reasons:

a)  First, while payment of the disputed monies into Court mitigated some prejudice to Civmec, the prejudice would not be eliminated.  “Tying up funds in court” is not consistent with the overarching policy rationale of security of payment and would, of itself, cause real prejudice to Civmec.

b)  Second, her Honour considered a line of authority (including John Holland v Chidambara [2017] WASC 179) whereby orders for restitution were made in respect of money paid pursuant to a determination that was later quashed.  Accordingly, her Honour did not consider that enforcement by Civmec of the determination in the short term would render any subsequent judicial review proceedings “nugatory”.  Should Sandvik be successful in its review application, then Sandvik could always apply for such orders for restitution.

c)  Third, as to Civmec’s capacity to re-pay the adjudicated sum should that be necessary, her Honour held that, on the evidence of Civmec’s cash and cash equivalent assets, there was “little risk” that Civmec could not repay the amounts to Sandvik should the adjudication determination be found to be invalid.  Her Honour considered that Sandvik’s submission would have been “more weighty” if Sandvik could have established “any actual risk” that Civmec would not have the funds to make such repayment in the future.

d)  Fourth, the policy underpinning security of payment is a relevant factor in the evaluation of the balance of convenience inquiry.  Her Honour cited decisions in Queensland and Western Australia, and found that the overriding policy rationale is to "keep money flowing" and to establish a "pay now, argue later system".

e)  Finally, her Honour found that it would not be unjust, oppressive or an abuse of process to allow Civmec to enforce the adjudication determination.  Her Honour considered that “the intention of the legislature was that a determination is valid and of full effect unless or until it is set aside, even if made in excess of jurisdiction.”  Accordingly, an allegedly invalid determination should be capable of enforcement until declared invalid by a Court.  



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