Does the ‘Blackadder’ view need reconsideration?

Abstract

This article discusses the main provisions of the Construction Contracts Act 2004 (WA), focuses on the adjudication process provided under this legislation and the view of the State Administrative Tribunal in the Blackadder Scaffolding v Mirvac.

Introduction

The Construction Contracts Act 2004 (the Act) aims at improving cash flow for contractors in the construction industry in Western Australia (WA). To achieve this aim the Act provides for security of payment through the use of an adjudication process to determine payment disputes. The Act applies to written and oral contracts, and provides for implied terms in situations where these contracts are silent on terms relating to payment for construction work. The Act also prohibits parties from including certain clauses relating to payment and payment periods in construction contracts.

When advising a client on a construction contract, lawyers may often be confronted with the question as to the time when a payment dispute has arisen for either party to initiate the adjudication process under the Act. The WA State Administrative Tribunal (the Tribunal), in Blackadder Scaffolding v Mirvac (Blackadder Case), interpreted the relevant provisions of the Act. The legal fraternity seems to be divided on whether the Tribunal’s interpretation aligns with the aim of the Act.

The Northern Territory Supreme Court has recently declined to follow the Tribunal’s view when interpreting similar Northern Territory legislation, which is very similar to the Act. This decision is likely to reignite the argument that the Tribunal needs to reconsider its view relating to the time when a payment disputes arises under the Act.

Objectives of the Act

The objectives of the Act are stated to be:

  • to prohibit or modify certain provisions in construction contracts;
  • to imply provisions in construction contracts about certain matters if there are no written provisions about the matters in these contracts; and
  • to provide a means for adjudicating payment disputes arising under construction contracts.

Scope and Definitions

The Act defines a construction contract to mean a contract under which a person carries out any one or more of the listed obligations, which can be construction work, supplying goods, providing professional services and on-site services that are related to the construction work. This definition applies to written and oral contracts.

Construction work is very broadly defined in the Act to include all activities associated with civil works such as roads, railways and marine facilities, and pipelines for electricity, gas, water and sanitation. It also includes activities such as repairing, restoring, demolishing, cleaning, painting, landscaping and other works associated with construction. The Act excludes a number of activities which would normally be understood as construction work. In particular it excludes:

  • drilling for the purposes of discovering or extracting oil or natural gas;
  • constructing a shaft, pit or quarry, or drilling, for the purposes of discovering or extracting any mineral bearing or other substance; and
  • constructing any plant for the purposes of extracting or processing oil, natural gas or any derivative of natural gas, or any mineral bearing or other substance.

In Conneq Infrastructure Services (Australia) Pty Ltd v Sino Iron Pty Ltd, the Tribunal considered the issue of whether or not a construction contract for constructing pipes for a desalination plant came within the exclusion clause of the Act. The purpose of the plant was to produce desalinated water which was used to process iron ore. The Tribunal found that this process required the extraction of salt which it held was a “mineral bearing substance” for the purposes of the Act. The Tribunal stated that the exclusion clause is concerned with the purpose of the plant in question and not the use that might be made of the product created by the plant. The Tribunal held that:

Consequently, the Tribunal considers that the adjudicator erred by applying the section according to the use made of the desalinated water in the processing of iron ore mined as part of the project.”

Prohibited and Implied provisions of the Act

Part 2 Division 1 of the Act deals with prohibited provisions in relation to construction contracts. The Act prohibits the parties from including the following provisions in any construction contract:

  • Making the liability of a party to pay money under the contract to the other party contingent on the first party being paid by another person. For example, a provision stating that a subcontractor will be paid when the contractor is paid by the principal or the owner will be prohibited by the Act.
  • A provision that purports to require a payment to be made more than 50 days after the payment is claimed. In such a circumstance, it will be read as a requirement for the payment to be made within 50 days after it is claimed.

Part 2 Division 2 read with Schedule 1 of the Act sets out implied provisions in construction contracts in circumstances where construction contracts are silent with respect to matters such as variations, payment entitlements, progress payments or the mode and manner of making payment claims. In these situations, the implied provisions in the Act will be read into the construction contracts.

Adjudication of disputes

Part 3 of the Act provides for an adjudication process for payment disputes, with either party to the contract having a right to apply to have the dispute adjudicated unless:

  • an application for adjudication has already been made by a party, whether or not a determination has been made; or
  • the dispute is the subject of an order, judgment or other finding by an arbitrator or other person or a court or other body dealing with a matter arising under a construction contract.

An application for adjudication of a payment dispute must be made by a party to the contract within 28 days after the dispute arises.

The adjudication process under the Act therefore revolves around the question of whether and when a payment dispute arises under a construction contract. Therefore, before venturing into any further discussion, we consider that issue:

Payment dispute

Section 6 – For the purposes of this Act, a payment dispute arises if –

  • by the time when the amount claimed in a payment claim is due to be paid under the contract, the amount has not been paid in full, or the claim has been rejected or wholly or partly disputed;
  • by the time when any money retained by a party under the contract is due to be paid under the contract, the money has not been paid; or
  • by the time when any security held by a party under the contract is due to be returned under the contract, the security has not been returned.”

One interpretation of clause (a) in the definition of a payment dispute is that a payment dispute can only arise at the time when an amount claimed in a payment claim is due to be paid under a contract and not before. If a contract does not provide for when a payment claim is due, or how and when a payment claim is to be responded to, the implied provisions of the Act relating to the manner of making payment claims will be read into the construction contract. However, the Tribunal’s decision in the Blackadder Case disagreed with this interpretation.

Blackadder Case

Blackadder Scaffolding and Mirvac were parties to a construction contract under the Act. On 18 December 2008, Blackadder submitted a payment claim for completed works. The contract provided that a payment claim submitted before the 25th of any month fell due at the end of the following month, i.e. in this case 31 January 2009. Ten days before the claim was due to be paid (i.e. on 21 January 2009), Mirvac disputed part of the payment claim. The contract did not provide for the manner in which a payment claim was to be rejected or disputed.

The adjudicator found that the phrase ‘by the time when the amount claimed in a payment claim is due to be paid under the contract’ in clause (a) qualifies the words which subsequently follow i.e. ‘the amount has not been paid in full’. Therefore, he held that a payment dispute also arises at the time a payment claim is rejected or disputed in whole or part.

Blackadder Scaffolding made an application to the Tribunal to review the adjudicator’s decision. The Tribunal agreed with the adjudicator’s view on the construction of clause (a) and held that a payment dispute will be triggered in two situations:

  • when the payment of a claim is not made when it falls due under the contract, or
  • at the time a payment claim is rejected wholly or in part.

The Tribunal expressed the view that the words and punctuation of clause (a) creates an ambiguity requiring it to refer to extrinsic material, i.e. the second reading speech. The Tribunal observed that the primary purpose of the Act was to keep the money flowing in the contracting chain by enforcing timely payment and, therefore, its interpretation of clause (a) most effectively enforced timely payment and aligned with the primary purpose of the Act. Subsequently, there have been a string of cases where the Tribunal has decided in favour of a multiple trigger construction as to when a payment dispute will have arisen under a construction contract.

The Blackadder case has caused some practical difficulties in determining when a payment dispute arises, and therefore when the strict time limit implied by the Act to commence an adjudication application expires.

The Northern Territory decision

In Department of Construction and Infrastructure v Urban and Rural Contracting Pty Ltd (DCI case) the Supreme Court of the Northern Territory (NT Supreme Court) declined to follow the precedent set by the Tribunal as to the interpretation of section 8(a) of the Construction Contracts (Security of Payments) Act (NT), which is in very similar terms to Section 6(a) of the Construction Contracts Act 2004 (WA).

Section 8(a) of the Construction Contracts (Security of Payments) Act (NT) provides that a “payment dispute” arises if:

when the amount claimed in a payment claim is due to be paid under the contract, the amount has not been paid in full or the claim has been rejected or wholly or partly disputed.”

Urban and Rural Contracting Pty Ltd (URC) relied on the Western Australian cases and argued that section 8(a) should be interpreted such that there would be two possible dates when a payment dispute arises:

  • the due date for payment under the contract, if payment has not been made by that date, and
  • the earlier date on which the claim has been rejected or disputed (if it has).

In rejecting URC’s argument the NT Supreme Court held that the payment dispute will arise only on the due date for payment under the construction contract. The NT Supreme Court further held that:

  • its interpretation gives a clear and certain date in relation to the limitation period specified by the legislation for making an application for adjudication; and
  • it avoids any mischief that a payment dispute may have arisen without a party being aware, as a result of the rejection or partial dispute before the due date for payment under the contract.

The NT Supreme Court acknowledged that its interpretation may mean that parties will have hold off applying for adjudication till the due date for payment under the contract. However, these durations will not be too long, and cannot exceed the maximum permissible time limit laid down by the legislation.

In coming to this decision, the NT Supreme Court referred to the Act and observed that the introductory phase “by the time when” in section 6 clause (a) of the Act may invite consideration of the period up to the due date for payment under the contract, as distinct from the Northern Territory legislation.

Reconsidering the view taken in Blackadder:

Whilst the Northern Territory legislation is to some extent distinct from the Western Australian legislation, arguably the NT Supreme Court interpretation achieves the objective of a security of payment legislation more effectively than the Tribunal’s interpretation in Blackadder.

Firstly, as noted above, the Tribunal’s view raises some practical difficulties in determining when in fact a payment dispute may have arisen between parties to a construction contract. It creates uncertainty for the parties to contract as to when a payment dispute has actually arisen.

After receiving a payment claim, parties may choose to negotiate the claim before the expiry of time for payment under the contract, without realising that any communication as part of these ­negotiations could amount to a payment dispute. Then either party subsequently may argue that a payment dispute arose on a specific date and the date for the making of an adjudication application has passed.

This uncertainty surrounding the question as to when the payment dispute has arisen may lead to a new stream of cases dealing with jurisdictional errors by adjudicators, where parties have been more likely to seek a review of an adjudicator’s decision on this ground.

The second reading speech described the primary purpose of the adjudication process is “to keep the money flowing in the contracting chain by enforcing timely payment and sidelining protracted or complex disputes”.

In a decision subsequent to Blackadder the Tribunal referred to the proposition laid down in Project Blue Sky Inc v Australian Broadcasting Authority that a court construing a statutory provision must strive to give meaning to every word of the provision. Nevertheless, the courts have recognised that there may be occasions on which that cannot be done, and clause (a) may well fit within the exceptions recognised by the Courts. In CIC Insurance Limited v Bankstown Football Club Limited  the Court, at paragraph 408, held that:

“[T]he modern approach to statutory interpretation (a) insists that the context be considered in the first instance, not merely at some later stage when ambiguity might be thought to arise, and (b) uses ‘context’ in its widest sense to include such things as the existing state of the law and the mischief which, by legitimate means such as those just mentioned, one may discern the statute was intended to remedy. Instances of general words in a statute being so constrained by their context are numerous. In particular as McHugh JA pointed out in Isherwood v Butler Pollnow Pty Ltd [(1986) 6 NSWLR 363 at 388], if the apparently plain words of a provision are read in the light of the mischief which the statute was designed to overcome and of the objects of the legislation, they may wear a very different appearance. Further, inconvenience or improbability of result may assist the court in preferring to the literal meaning an alternative construction which, by the steps identified above, is reasonably open and more closely conforms to the legislative intent.”

Further in Ganter v Whalland the Court, at paragraph 35, 36, held:

“35 A legitimate check for a court to use, in deciding whether an interpretation of a statute arrived at by grammatical analysis is indeed the correct interpretation, is to consider whether that interpretation produces practical results which are sensible, rather than:

‘… ‘absurd’, ‘extraordinary’, ‘capricious’, ‘irrational’ or ‘obscure’” (Cooper Brookes (Wollongong) Pty Ltd v Federal Commission of Taxation [1981] HCA 26; (1981) 147 CLR 297 at 321 per Mason and Wilson JJ.’

Is the Tribunal’s interpretation of clause (a) one such instance where a literal interpretation of the words arrived at by grammatical analysis has produced impractical results?