SSC Plenty Road Pty Ltd v Construction Engineering (Aust) Pty Ltd [2016] VSCA 119

What the court decided

SSC Plenty Road engaged Construction Engineering to design and construct a shopping centre in Reservoir [2]. The contract was for a lump sum [12]. The Court described the consideration under the contract as approximately $34 million [64]. SSC sought judicial review of an adjudication determination made under the Building and Construction Industry Security of Payment Act 2002 (Vic) [1]. Construction Engineering had claimed a progress payment of $4,460,815.06 [3]. SSC's payment schedule proposed to pay $967,865.02 [3]. The adjudicator determined that SSC was to pay a further $2,172,837.57 [6].

Under the Act, an adjudicator generally cannot take into account a disputed variation to a contract whose consideration exceeds $5 million if the parties have agreed to a method of resolving disputes under the contract [9]. That consideration is measured when the contract is entered into, and a lower threshold applies once claims for disputed variations exceed 10% of it [38].

Clause 42 of the contract required a notice of dispute, a meeting of senior representatives using reasonable endeavours in good faith and then mediation [48]. If the dispute was not resolved by mediation, or otherwise within 56 days of the notice of dispute, either party could pursue its rights at law [10]. The adjudicator held that the contract did not provide such a method and took the disputed variations into account [11], [22]. He also gave some provisional sum and variation work a higher value than the price the superintendent had given it under the contract [17].

Vickery J quashed part of the determination on other grounds, but refused SSC's application for certiorari on these two issues [21], [22]. The Court of Appeal (Santamaria, Beach and McLeish JJA, in joint reasons) granted leave to appeal and dismissed the appeal [85].

On the first issue, the Court held that a "method of resolving disputes" requires a method that will result in an actual resolution of the dispute [54]. A forum for discussion that may or may not lead to resolution is not enough, and the Court observed that the word used is "resolving", not "addressing" [54]. The Court drew support from the Act's objects, which are repeatedly framed by reference to entitlement [56]. It held that the exception should be read as contemplating an alternative means of securing the certainty and finality of a binding amount [58]. A clause that does no more than require the parties to mediate does not have that effect [58].

On the extrinsic material, SSC had relied on a Minister's statement in the Legislative Council that the exemption addressed a concern that the normal contract methods of dispute resolution should continue to apply [59]. The Court said that the Minister for Planning's second reading remarks in the Legislative Assembly, which referred to a mechanism for determining entitlement, quantum and due date, reflected the purpose of the Act and the exception: to ensure the parties have a means of finally determining an entitlement to a progress payment [60], [61].

Clause 42 also recorded the parties' agreement that its process was a method for resolving disputes for the purposes of section 10A(3)(d) [48]. The Court held that this acknowledgement could be ignored, because, constructively, it amounted to an agreement to contract out of the Act and was void under section 48(2) [62]. The Court concluded that the trial judge was right that clause 42 did not answer the description in section 10A(3)(d)(ii) [63].

On the second issue, the parties agreed that the contract made no express provision for valuing the work, so section 11(1)(b) governed the valuation [71]. The Court said the adjudicator's role is strictly statutory, not contractual [71]. The obligation to "have regard" to the contract price under section 11(1)(b) does not mean the adjudicator is bound by it [71]. The Court said it was unnecessary to decide whether an adjudicator may consider matters beyond the four listed in section 11(1)(b), but thought it unlikely that the adjudicator is confined to them [72]. It added that valuations under the Act govern only statutory entitlements and are, in a sense, interim only [73].

SSC relied on Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd, which decided that, as a matter of contract, parties may provide that the price of work will be that determined by a third party such as a superintendent [75]. The Court said that in such a case, provided the superintendent has complied with the contract, the price can be said to be "final" [75]. It added that the terms of each contract must be examined, and here clause 42 allowed a dispute about a superintendent's direction [76]. Where such a dispute is possible, the certificate cannot be said to be "final" when it is made [76].

The Court agreed with the thrust of decisions in New South Wales and Queensland, including Abacus Funds Management Ltd v Davenport [78], [82], [83]. Requiring an adjudicator to adopt the superintendent's price is inconsistent with the determination that section 23 requires, and the Act prevails over the contract [83]. Otherwise section 48(2) would be rendered ineffective [83].

Why it matters

On a construction contract under the Victorian Act whose consideration exceeds the threshold, a dispute clause that ends in mediation, with recourse to the courts after that, does not on this reasoning take disputed variations outside adjudication. A clause in which the parties agree that their process is such a method does not change that result.

Where the parties accept that section 11(1)(b) governs valuation and the contract allows the superintendent's pricing to be disputed, the principal cannot hold the adjudicator to that pricing. The Court did not doubt that, as a matter of contract, parties may provide for a superintendent to determine the price of work.

The decision applied the Act in the form the Court set out, so readers should check the current text of the Act before relying on the decision.

Numbers in square brackets are paragraph numbers of the judgment. This note summarises a decided case for education and is not legal advice. See how the notes are written.