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"Adjudication" in favour of unlicensed contractor is void

On 27 February 2015 Justice Blue of the Supreme Court of South Australia handed down his decision in Tagara Builders Pty Ltd v AP & L Services Pty Ltd & Ors [2015] SASC 30

This decision has significant consequences for builders who may be the subject of adjudications under the Building and Construction Industry Security of Payment Act 2009 (SA) (“Security of Payment Act”). The Court’s reasoning may also apply in relation to similar legislative schemes in other states.

Effect of the Decision

An unlicensed contractor generaly cannot make a claim under the Security of Payment Act and if an adjudication has been made already in favour of an unlicensed contractor there may be good grounds for setting it aside.

Background

Tagara Builders Pty Ltd (“Tagara”) entered into a contract with a contractor, AP & L Services Pty Ltd (“APL”), to supply and install ceilings and linings.

APL sought an adjudication of its August and September 2014 monthly progress claims under section 17 of the Security of Payment Act. The adjudicator determined that APL was entitled to payment of $42,963.74 by Tagara in relation to the August progress claim. A different adjudicator was then appointed to adjudicate upon the September progress claim.

Tagara subsequently learnt that APL did not hold a license pursuant to the Building Work Contractors Act 1995 (“BWC Act”). Section 6(2) of the BWC Act disentitles a contractor to any “fee, other consideration or compensation under or in relation to a contract”, unless the contractor is licensed or a court is satisfied its failure to be licensed resulted from inadvertence only.

Accordingly, APL sought an order quashing the adjudication of the August 2014 progress claim and prohibiting the determination of the September 2014 progress claim.

Findings

Blue J ordered that the August 2014 adjudication determination was void and made orders prohibiting further consideration and determination of the September 2014 progress claim.

It was held that an adjudicator does not have jurisdiction under the Security of Payment Act if the claimant is disentitled to the consideration under the contract by section 6 of the BWC Act.

The entitlement of the contractor to make a progress claim under the Security of Payment Act is derived from the contractor’s ultimate right to payment under the contract and general law. If a contractor is unlicensed, however, it will be disentitled to payment by reason of section 6(2) of the BWC Act.

APL was at all material times not entitled to payment of the contract price. It was therefore not entitled to receive any progress payments under section 13 of the Security of Payment Act and there was no jurisdiction allowing an adjudicator to make an adjudication determination under sections 17 and 22 of the Security of Payment Act.

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