19 Jun 2014

The Proper Limits of Adjudicators’ Discretion under the Construction Contracts Act 2004

Across Australia, security of payment legislation empowers adjudicators to “determine” payment claims under construction contracts.  In WA, “payment claim” is broadly defined.  This often creates misunderstandings about the proper scope of an adjudicator’s enquiry in determining a pay dispute, especially when read with provisions such as subsection 35(2) of the Construction Contracts Act 2004 (“CCA”).


Superficially, these provisions may be misunderstood, even by experienced adjudicators, as having the effect that the adjudicator can rely upon whatever fact or method he or she thinks fit.  This misconception may be reinforced by the absence of any express statutory limit on the nature of the evidence the adjudicator is to consider when adjudicating the payment claim.


However, there are clear limits on an adjudicator’s powers, not specifically referred to in the security of payment legislation, but by reason of the contract which governs the contractor’s work and both parties’ interim rights to payment.  Indeed, before substantial or practical completion of the works under contract, the contractual payment regime is the only recourse a contractor has for payment claims because its obligations under a construction contract are presumed by the law to be entire obligations.


Security of payment legislation does not change the legal presumption that the construction contract is an entire contract.  The legislation’s only material effects on the contractual payment regime are:

(a)       to normalise the contractor’s right to progress payments and imply into the contract, a procedure for claiming such payments where the contract makes no such express provision;

(b)       to prohibit the inclusion of certain payment terms; and

(c)       to empower adjudicators to enforce interim rights to payment.


Security of payment legislation does not, in the process, change the character of interim payment rights into anything other than contractual rights. Support for this proposition and an analysis of its implications follows.  CCA provisions are referenced throughout by way of example only, as the relevant provisions have equivalents in security of payment legislation around Australia.


Under some construction contracts, a payment certificate will be conclusive of the relevant payment claim. This is so, notwithstanding CCA section 35(2)(b)  Under CCA section 35(2)(b), a payment certificate which does not “[relate] to the final amount payable under the contract and [have] the effect of finalising the contract” is said, as a matter of law, to “have such evidentiary weight as the appointed adjudicator thinks fit”, rather than “to be taken to be conclusive evidence of its contents”. 


The quoted words may be read as giving the adjudicator discretion to decide what evidentiary weight to give to a progress payment certificate.  This is a discretion with no express statutory limits.  However (and this is the crucial point), the absence of any express statutory limit on this discretion does not mean the discretion is unlimited in its operation.  For the discretion to be unlimited in its operation, the CCA would have to positively provide that there should be no fetter on the discretion.  But the statute says no such thing.  All paragraph 35(2)(b) and its equivalents mean is that the statute itself must not be read to limit the adjudicator’s discretion to decide what evidentiary weight, if any, to accord a progress payment certificate.  Respectfully, adjudicators who end the analysis at this point forget that the payment certificate derives its legal force and effect, not from the security of payment legislation, but from the contract.


If it is the contract that gives force and effect to payment certificates as evidence of the contractor’s interim rights to payment, then it must also be the contract that defines the legal and evidentiary limits of those certificates. In any given circumstance, the contract may make the certificate determinative, or merely indicative along with other evidence, of the existence and amount of a contractor’s or principal’s interim right to payment.


In AS 4000 – 1997, there are provisions which make payment certificates determinative, and provisions which make them merely indicative, of the existence and value of a party’s interim right to be paid.  An example of the former is subclause 37.2(a), whereby the principal becomes contractually bound to make a progress payment to the contractor once the superintendent has certified its “opinion” as to the amount to be paid.  An example of the latter is subclause 37.2(b), whereby the contractor will only be contractually bound to make a payment to the principal if:


(a)          that payment is due under some other provision of the contract; and


(b)          the superintendent has “assessed” the amount payable under that other provision.


The “opinion” certified under subclause 37.2(a), if formed in good faith, will not be susceptible to review by an adjudicator and will therefore render the certificate determinative of the certified payment claim.  In that case, despite CCA subsection 35(2), the certificate must “be taken to be conclusive evidence of its contents”  unless it is invalid under the contract.  For example, if the superintendent has exceeded his or her contractual powers when issuing a payment certificate under that clause, then in determining the payment claim, the adjudicator will be empowered – indeed, required – to rely on other evidence as to the value of the works. Such circumstances may arise where there is evidence that, for example:


(a)              the superintendent holds no genuine opinion that the amount so certified reflects the value of the contractor’s works;


(b)              the superintendent takes no account of a relevant consideration or gives weight to an irrelevant consideration when assessing the value of those works; or


(c)              the superintendent’s payment certificate is so manifestly unreasonable on its face that no reasonable superintendent, acting in good faith, could possibly have so certified.


In such cases, the adjudicator would be charged by the Act merely to correct the superintendent’s error by determining the contractor’s payment claim in accordance with the contract. Thus conceived, the adjudicator’s role involves nothing more than administrative review of decisions made in the actual or purported exercise of contractual power with respect to contractual payment claims, that is, all interim or progress payment claims made up to, but excluding, the final payment claim.  The final payment claim is excluded because it is it the first and only claim for payment of the lump sum contract price, as a debt which finally accrues to the contractor upon substantial performance of its entire obligation to complete the works under the contract .


Otherwise, a payment certificate issued under a construction contract and based on the superintendent’s genuinely held belief as to the existence and value of the contractor’s right to a progress payment has contractual force.  If the contract also gives it conclusive force, that is what it will have. The adjudicator is in that case bound by statute to give effect to it as conclusive evidence of its contents.  Section 35 of the CCA does not change this position, despite words which may, on a superficial reading, and taken out of context, appear to say the opposite.


Contrast a claim by the principal for payment under AS 4000 – 1997, subclause 37.2(b), of the cost “incurred” in rectifying defective works under subclause 29.3. In determining a claim by the principal for payment of rectification costs assessed and certified by the superintendent, an adjudicator may well take into account, in addition to the payment certificate, evidence that, for example:


(a)  the certified costs were not actually incurred;


(b)  the certified costs were incurred in performing works under the contract, but those works do not actually constitute rectification works for the purposes of subclause 29.3; or


(c)  those works comprise rectification works but as a whole, exceed, either in cost or in scope, what was necessary to restore the defective works to the standard required under the contract.


These exemplify the circumstances which subsection 35(2) contemplates in allowing adjudicators to take more than just payment certificates into account when determining progress payment claims. 


The foregoing analysis derives authoritative support from Beech J.’s observations in O’Donnell Griffin Pty Ltd v John Holland Pty Ltd [2008] WASC 58.  First, consider his Honour’s observations at [59]:


“It was not part of the adjudicator’s function to determine the merits of the substantive dispute between the parties. In the context of an adjudication of a payment dispute, the merits means no more than whether, in the events that had happened, one party to a construction contract was liable to make a payment to the other party”.


This quoted passage follows a recital, at [51], of the operative provisions of subclauses 37.1 and 37.2 of the contract. In that case, the clauses were contained in the subcontractor’s equivalent of AS4000 – 1997.   In this context, what else could His Honour have meant by “liable to make a payment to the other party” than liable to make that payment under the construction contract?  Remember that the Act itself provides no independent source of liability to pay for incomplete works.  It goes no further than to imply, by the provisions of Part 2, Division 2, certain terms into the construction contract where no relevant term otherwise exists.


Now consider the following passage from the second reading speech of the Construction Contracts Bill (WA), as quoted by Beech J. at [38]:


When a party to a construction contract believes it has not been paid in accordance with the contract, the Bill provides a rapid adjudication process that operates in parallel to any other legal or contractual remedy. The rapid adjudication process allows an experienced and independent adjudicator to review the claim and, when satisfied that some payment is due, make a binding determination for money to be paid. The rapid adjudication process is a trade-off between speed and efficiency on the one hand, and contractual and legal precision on the other. Its primary aim is to keep the money flowing in the contracting chain by enforcing timely payment and sidelining protracted or complex disputes. The process is kept simple, and therefore cheap and accessible, even for small claims. In most cases the parties will be satisfied by an independent determination and will get on with the job. If a party is not satisfied, it retains its full rights to go to court or use any other dispute resolution mechanism available under the contract. In the meantime, the determination stands, and any payments ordered must be made on account pending an award under the more formal and precise process(emphasis added).


In the emphasised portions of this passage, the Hon. Minister makes it clear that:


(a)       the Bill (which is now the CCA and has equivalents in every State) is concerned only with liability for payment under a construction contract (as defined in the Act); and


(b)       the effect of the rapid pay dispute provisions is not to confer any separate statutory right to payment on either party, but merely to “enforce” (to use the Hon Minister’s own language) the rights contractors already have under a construction contract.




It is regrettably common for parties, lawyers and adjudicators to read too much into CCA subsection 35(2) and its equivalents.  Superficially, and divorced from its context, CCA subsection 35(2) appears to mean that an adjudicator has an unlimited discretion to take into account any evidence whatsoever and to disregard or minimise the contractual effect of the superintendent’s payment certificate if it seems right to do so.  However this interpretation fails to appreciate that it is the contract which determines the basis on which an interim payment is due, from which party and in what amount. This conclusion flows from the following fundamental principles:


(a)          the presumption at law that a contractor is not entitled to payment until completion of the entire contract;


(b)          the language of CCA, section 40, which characterises progress payments as interim payments on account only;


(c)          the general structure of the CCA as an Act governing the content and administration of construction contracts rather than establishing a regime which either supersedes or operates independently alongside the contractual payment regime;


(d)          the fact that adjudications are regulated by one part of a single Act concerned solely, as even its name suggests, with regulating the content, administration and performance of construction contracts;


(e)          the language of CCA, section 25, whereby the adjudicator’s discretion is enlivened only “if a payment dispute arises under a construction contract” (emphasis added);


(f)           Beech J.’s judgment in O’Donnell Griffin Pty Ltd v John Holland Pty Ltd [2008] WASC 58; and


(g)          The second reading speech in relation to the Construction Contracts Bill.


This is general information only, and does not constitute specific legal advice. Murray Thornhill is the Director at HHG Legal Group with the Litigation/Commercial Law team. Daniel Morris is a Senior Associate with the Litigation/Commercial Law team at HHG Legal Group. If you would like further details in relation to this information, please contact HHG Legal Group on 1800 609 945 or email our office.


100 years of Supporting West Australians

"My family law experience with Mary Roubos has restored my faith in solicitors in general. She not only demonstrated her legal expertise and flair, but also showed a compassionate and understanding nature during the lengthy process. I felt that Mary went above and beyond her obligations as my solicitor, and really listened to me. I would highly recommend Mary and her assistant Debra Wilson, who also demonstrated professionalism and excellence on all levels."

Renee Frangiosa

"Always fast and thorough service. Thank you"

Sitka Pil

"I found Ben most helpful and always prompt to let me know where things were at. Will definately use Ben again and will recommend to others."

Gerrit and Mary Van Bralal

"We wish to express our thanks for your help in attending to our mother/ wife's will - Mrs Grace Margaret Vessey. Aimee was extremely helpful and easy to deal with. We are greatful for your help with our affairs."

Ms Rosalyn Norman, Mr Stephen Vessey

"Thank you ever so much for all your hard work on my case Nicole, I really appreciate everything you did for me."

Workers Compensation Client

"Thank you for such great assistance with the transaction of Flying Domestics on behalf of Lorna Good. It has been such such a pleasure to work with the HHG Legal Group and I look forward to working with you in the future."

Jim Goodwin

"Simon Creek and his team were at all times empathic, professional and confident.  My matter needed to be addressed within a pressing time frame, and their availability at short notice and contact after hours was much appreciated.  It caused me considerable stress, but having such a thoroughly reliable and competent team to call on helped me to feel in control. Although I hope not to need their services again in future, I would be confident in doing so!"

Dr Lana Bell

"A good outcome is what we can expect.  A great outcome is a sign of a company which does the very best for their clients. A very big thank you to Daniel Morris for showing empathy towards my small and much needed legal action.

To HHG Legal Group, thank you for a great outcome.  I would recommend your company to anyone seeking legal services."

Jan Atkinson

"Your support this morning was amazingly kind, not to mention your totally reassuring competence, knowledge and wisdom that you used on my behalf.  It was extremely reassuring to have your knowledgeable support, and I particularly appreciated your real and obvious kindness to me. It means so much at a very difficult time. I'm so grateful to you."

Family Law Client

"I highly recommend the services of HHG Legal Group for both personal and business needs. HHG is very up to date with legal advice and are in tune with the evolution of business."

Robert Forgione

"Sue and myself would like to thank HHG for the way in which our dispute was resolved. It is good to know that people who do not have an understanding of the legal system can rely on people like yourself and the company you represent. Without the assistance of HHG we could not have resolved the problems we were facing, not only have we resolved the issue but the outcome was more favourable then we would have thought possible. Thank-you and please pass on our thanks to all those who worked behind the scenes to achieve this outcome."

Rick and Sue Ashton

"Janene was very professional and we established a good rapport quickly. The subject of death and wills can be quite confronting to deal with, however Janene's approach was soft and accommodating."

Lynette Livesey

"A big thank you to HHG for their professional service, continued support, and wide range of legal knowledge. Our clients have given us nothing but kind words regarding HHG Legal Group and so we have no hesitation in referring and recommending Simon Creek and HHG Legal Group for their outstanding services and legal expertise."

Nigel Plowman, Director at McKinley Plowman & Associates

"Simon is a friendly and practical legal advisor. I have received great feedback from the clients I have referred to him and his team at HHG Legal Group."

Richard Beal, Director at BDO

"Over the last few years, I have been impressed by Simon’s legal ability, management skills, entrepreneurial spirit, personal integrity and people skills. He appears to be that rare breed of lawyer – both knowledgeable and commercial."

Michael Malone, Founder of iiNet

"Our family has been a client of HHG Legal Group over many years and most recently in 2013 and February 2014.  Business has included drawing up of wills for three generations and preparing of probate for my father in law.

I would have no hesitation in recommending HHG Legal Group to anyone requiring such services."

Bernice Climie

"You should be congratulated for the manner in which your staff address clients and we found our dealings with your company, once again a very pleasant experience and we would like to truly thank you for your efforts."

Steve Harvey and Jane Powell

"HHG Legal were absolutely fantastic. Extremely responsive and brought calm to our chaotic family situation through their knowledge and caring attitude. Extremely professional from our very first contact with them and they expertly guided our family though the required legal process over almost a 12 month period."

Amanda Williamson

"Fantastic team! They really care about their client. Tim Colcutt is a 'go that extra mile' guy who gives his client his all. I can't recommend HHG and Tim enough."

Kerry Samson

"Anne Hurley has been such a valuable resource of information and advice, her wealth of knowledge is truly impressive and her ability to explain things in a way that makes them easily understood is very much appreciated. Anne and the wider HHG Legal Group are always a pleasure to work with."

Giorgia Parham

"I had a fantastic lawyer in Anne Hurley. She helped me out a great deal with good, sound advice in a friendly , professional manner. First class, thanks Anne"

Graeme Hammond

"Marine Plant Systems has been working with HHG Legal Group for a few years now and they continually provide first class service. Their professional advice has been invaluable to our company."

Carolin Grimm

"We were kept up to date at all times. Pricing was always updated over the time period so we remained "in budget". Personal access to someone whenever I had questions. All in all a great experience without too much fuss."

Rosslyn Tasker - COO AltusQ Pty Ltd

"Good service you can count on."

Miles Lee

"HHG Legal Group have provided outstanding support as I have taken the journey of buying a business, their professionalism is beyound reproach. Their assistance throughout the Due Diligernce process have been invaluable, I would fully recommend them."

Mark Armitage

"I have experienced how good the HHG Legal Group team are over the last 6 years and highly recommend them."

Lyn Hawkins

"Very friendly and efficient service - what a pleasure working with Anne."

Jacques Taylor

"I highly recommend Daniel from HHG Legal Mandurah. When dealing with a complicated legal property matter recently I was extremely impressed by Daniel's honesty and integrity and the legal advice I received. I am very happy with the service from HHG Legal."

Tony Walker