In Babicka v ASD Corporation Aust Pty Ltd [2024] VSC 587, the Supreme Court of Victoria considered, amongst other issues, whether it should set aside adjudication determinations under the Building and Construction Industry Security of Payment Act 2002 (Vic) on jurisdictional grounds in respect of payment claims that were made before the contractor had satisfied the contractual requirements for doing so.

Mr Babicka, Ms Babicka and MAZS Investment Group Pty Ltd each engaged the contractor, ASD Corporation Aust Pty Ltd, under similar but separate contracts to build warehouses on their lots. Each contract provided for ASD to claim milestone payments on completion of specified stages. In order to claim payment for completion of the “Structure” Stage, the relevant structural works must be approved by a building surveyor. ASD issued a “Structure” Stage payment claim to MAZS and two “Lock Up” Stage payment claims to the Babickas, which were disputed. At adjudication, ASD was awarded the amount of its three claims plus interest, and the County Court of Victoria entered judgment for those amounts.

The Babickas and MAZS commenced judicial review proceedings to set aside the adjudication determinations. The Supreme Court set aside the adjudication determinations, finding that ASD had not made the relevant payment claims on and from a ‘reference date’ as required by the Victorian Act because the works had not reached the relevant Stages at the time the payment claims for those Stages were made. As such, the adjudicator did not have jurisdiction to make the awards that he did.

The Court reasoned that:

• the critical issue and jurisdictional fact that ASD did not obtain building surveyor approval in order to meet the “Structural” Stage, and therefore also the subsequent “Lock Up” Stage under the three contracts, was neither identified nor articulated before the adjudicator;
• if the adjudicator had been aware of this critical issue, the outcome of the determinations would have been different;
• there was a clear commercial purpose to the provisions requiring inspection and approval by a building surveyor, being to ensure the works are completed to the required standard and provide assurance to the owners and their financiers; and
• it would be unfair to the owners to require them to pay ASD before ASD obtained the requisite approval, in circumstances where the parties agreed that was a prerequisite of the “Structure” Stage progress payment.

All these factors necessitated the setting aside of the adjudication determinations.

It is notable that in Victoria, the Act continues to defer to the parties’ contract for the timing of payment claims, and permits parties to agree approaches to payment such as milestone payments. Further, in this case, the relevant contractual precondition to payment (the building surveyor approval) went directly to the question of whether the milestone had been achieved. While not discussed in the judgment, it is likely the Court would have approached the jurisdictional challenge differently if the contractual precondition to claiming payment had not been so closely connected with the work itself. A different result may also be likely in other jurisdictions where the Security of Payment regimes take a different approach to the timing of payment claims.

On 17 October 2024, the Victorian Government expressed its support for recommended reforms to the Act including to remove the concept of ‘reference dates’ and align with the NSW model as to the timing of payment claims. It remains to be seen whether this will occur, and the impact on cases like those above. Our update on these reforms is published here.

The full decision can be found here.