Challenging Adjudication Decisions

Challenging Adjudication Decisions

Parties to a commercial building dispute may utilise Security of Payment (SOP) legislation in their jurisdiction, involving adjudication, to resolve payment claims and recover money owing under a construction contract. The relevant legislation for NSW is the Building and Construction Industry Security of Payment Act 1999.

Disputes are resolved quickly by an adjudicator and any amount determined as owing must be paid within the statutory timeframe. The determination is enforceable but without prejudice to the common law rights of either party. Due to the limited time in which an adjudicator must determine a payment dispute, it is not surprising that a determination may come before the Court for judicial review.

The grounds for review have been visited by various Courts with the following cases providing insight as to what might (and might not) justify having an adjudication determination quashed.

No review avenues for non-jurisdictional error

The High Court in Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd [2018] HCA 4 confirmed that parties to an adjudication determination under the Building and Construction Security of Payment Act 1999 (NSW) may not seek judicial review for non-jurisdictional error of law.

The Court reiterated the nature of the (NSW) Act which, amongst other things, was intended to ‘reform payment behaviour in the construction industry’ by ensuring prompt recovery of payment for work carried out under a construction contract. The legislation is ‘coherent, expeditious and self-contained’ and ‘not concerned with finally and conclusively determining the entitlements of parties to a construction contract’.

Accordingly, an adjudicator is sanctioned to make a determination and a Court is not empowered to quash that decision for non-jurisdictional error, even if based on an incorrect interpretation of the subject contract.

An adjudication determination may only be set aside on grounds of jurisdictional error – an error going to the authority or power of the adjudicator, such as non-compliance with procedural requirements under SOP legislation.

Minimum standards required when assessing an adjudication determination

Nuance Group (Australia) Pty Limited (Nuance) v Shape Australia Pty Limited (Shape) [2018] VSC 362 provides guidance as to when a Court might quash an adjudication determination.

Shape served a payment claim on Nuance for over $3.5 million for demolition and associated works at Melbourne International Airport. Nuance responded with a payment schedule stating the amount payable as nil. Shape applied for adjudication for the sum of $2,243,105.55. An amount of $1,400,007.12 was determined payable, which after an adjudication review instigated by Nuance, was reduced to $1,216,715.72.

Nuance challenged the validity of both the original and reviewed determination in the Supreme Court of Victoria.

Nuance submitted that the adjudicator had not determined the amount of the progress claim as required by SOP legislation, which as a minimum necessitated a finding of whether the work identified in the relevant claim had in fact been performed and the value of that work. Rather, the adjudicator had deducted what he considered were excluded amounts from Shape’s claim to arrive at the revised figure and, in doing so, failed to comply with ‘basic and essential requirements’ of the Act.

Nuance was successful, and the adjudication determination was quashed.

Whilst acknowledging the tight time frames under which adjudicators are required to operate, Justice Digby nonetheless conceded that the adjudicator had:

‘…failed to undertake the required task of addressing the payment claim and payment schedule and, consider those parameters of the dispute between the claimant and the respondent as to what claimed work … had been carried out under the Contract and what the value of that work … was.’

The adjudicator had merely worked back from the original claim in a manner that did not constitute a ‘fair and reasonable consideration’ of the determination providing ‘no sufficiently comprehensible reasons and basis for the amount determined’.

An adjudicator’s reasons must be considered in context

Southern Cross Electrical Engineering (Southern Cross) v Steve Magill Earthmoving (Magill) [2018] NSWSC 1027 considered another appeal of an adjudication decision.

Essentially, Southern Cross disputed Magill’s payment claim, which comprised additional amounts for excavation work based on trenching some areas of the subject site that were wider than stipulated in the contract. Southern Cross submitted that the adjudicator had erred by requiring it to prove that there had been no variation to the contract and that the earthmoving works had been over-claimed.

Relying on Justice Vickery’s lengthy series of matters to consider in Plenty Road Pty Ltd v Construction Engineering (Aust) Pty Ltd [2015] VSC 631, Southern Cross claimed that the adjudicator was required to ‘examine all the material for himself, and to come to a conclusion, based on that material as to what amount (if any) is payable.’

Justice McDougall acknowledged the processes set out by Justice Vickery were applicable to a determination however rejected any requirement for them to be ‘applied serially and mechanically in every case.’ Rather, the adjudicator’s reasons must be considered in context which included ‘the content of the dispute as established by the payment claim and the payment schedule, and the parties’ elaboration of that dispute.’

Further, the reasoning must be assessed considering the interim nature of an adjudicator’s determination under SOP legislation, the voluminous material to be dealt with, the strict timeframe and the fact that adjudicators are not usually lawyers.

Cross Engineering’s appeal was dismissed, Justice McDougall concluding that:

‘Factually, the adjudicator’s approach may have been (and probably was) incorrect. It is no doubt something that could have been improved upon if the adjudicator had “world enough and time”. But looking at his approach … I am far from persuaded that it was unreasonable to the extent that it must be taken to invalidate his determination’.

Conclusion

An adjudication determination is not subject to judicial review for non-jurisdictional error.

An adjudicator must apply certain minimum standards when assessing an adjudication application, however his or her reasoning will be considered in the context of the purpose and intent of the legislation, that being for the timely resolution of payment disputes under a construction contract. A decision that emanates from an error of law not associated with a jurisdictional error, will generally not entitle the Court to intervene.

Security of Payments legislation across Australia has been the subject of review and proposed reform. The recent release of the Murray Report recommends the national harmonisation of SOP laws and the implementation of review rights for parties (by a review adjudicator) for determinations concerning amounts of $100,000 or more.

If implemented, construction industry participants should have greater clarity regarding the circumstances under which an aggrieved party can challenge an adjudication determination.

If you or someone you know wants more information or needs help or advice, please contact us on (02) 9963 9800 or via the contact form here.

Building Commissioner for NSW

Mr David Chandler OAM began his position as the NSW Building Commissioner on 14 August 2019. The Premier of NSW, Gladys Berejiklian, has stated that the appointment of a Building Commissioner is a critical part of the NSW Government’s plan to completely reform the building regulations and conduct in NSW.

What is the Role of the Building Commissioner?

The Building Commissioner will administer a variety of different functions regulating the building industry, namely, driving legislative reforms, investigating misconduct and initiating disciplinary action for misconduct.

Legislative Reforms:

This will include regulations requiring building practitioners to be registered, a new duty of care to be implemented to make it easier for home owners to seek compensation against building practitioners who have acted negligently, and ensuring all buildings that are constructed adhere to plans that comply with the Building Code of Australia. These bold reforms are set to be introduced through legislation later this year.

Investigative and Disciplinary Role:

The Commissioner will also be responsible for the investigation and discipline of misconduct in the building industry. This may include investigating the regulation of building standards, building quality and building disputes. Mr Chandler is currently investigating and considering the scale of the situation at the Mascot Towers.

What Does This Mean For Apartment Owners?

Apartment owners and purchasers will hopefully be better protected following the appointment of the NSW Building Commissioner. As this multi-faceted role was developed with the security of home owners in mind, policies that aim to ensure high standards of building and construction, such as the new duty of care, make seeking compensation for construction misconduct easier and more accessible.

Further Information  

It is important that home owners and building developers are made aware of their possible obligations and rights. We can provide additional information and advice to you regarding your building or property situation. If you would like to discuss your concerns with a legal professional please contact us on 9963 9800 or at law@etheringtons.com.au

Dealing with Construction Defects in Strata Developments

The past months have seen the construction industry face heavy criticism as a deluge of problems affecting apartment buildings across Australia begin to surface. Construction issues range from superficial cracking to major structural defects threatening the very stability of the building, and the use of combustible materials putting lives at risk.

All industry players are impacted with the question of blame bouncing between architects, engineers, certifiers, developers and builders. In the meantime, hundreds of unit owners, investors and renters face uncertainty and many occupants are still unable to live in their units as the stability and safety of their buildings are scrutinised.

Strata defects can have an overwhelming financial and emotional impact on a unit owner. If you have recently purchased a new or near-new apartment or townhouse in a strata complex only to find construction defects or poor-quality work, you will no doubt feel devastated and frustrated.

If you believe your strata unit or the common areas in your strata building have defective building work, you should act quickly. Knowing your rights and the relevant time limitations in pursuing a claim for defective work will empower you to take the appropriate steps to have the work rectified.

Implied warranties for building work

As with all residential building work, a newly-built strata unit comes with various implied statutory warranties, even if these are not stated in the building contract.

These warranties not only apply between the builder / developer and original owner but, subject to time limitations, may pass onto subsequent owners. They cannot be avoided by contrary provisions in a building contract.

The Home Building Act 1989 (NSW) implies specific warranties into every contract for residential building work, namely:

  • that the work will be completed with due care and skill and in accordance with any plans and specifications provided in the contract;
  • that all materials supplied will be good and suitable for the purpose for which they are used and, unless otherwise stated, will be new;
  • that the work will be done in compliance and accordance with applicable laws;
  • that the work will be done with due diligence and within the time set out in the contract and, if no time is stipulated, within a reasonable time;
  • if the work is the construction of a dwelling or comprises alterations, additions, repairs or renovations to a dwelling, the work will result in the dwelling being reasonably fit for occupation as a dwelling;
  • that the work and materials used to do the work will be reasonable for the specified purpose or result.

What is a building defect?

It is important to distinguish between major defects and minor defects as the warranty period differs between each.

Major defects are covered by a six-year warranty and other ‘general’ defects (those not classified as a major defect) have a two-year warranty period.

A major defect is defined as:

  • a major element of a building (such as a fire safety system, waterproofing or structures critical to the building’s stability such as foundations, footings, walls, roofs, beams or columns) which causes or is likely to cause all or part of the building to be uninhabitable or unable to be used for its intended purpose, or which threatens or is likely to cause the collapse or destruction of the building as a whole, or part of it.

Responsibilities for repairing defects

The holder of the contractor licence (or person required to hold a contractor licence) under the building contract is the party responsible to repair any defects. Generally, this will be the developer or builder of the project.

The statutory warranties extend to defective work that has been undertaken by a subcontractor on behalf of a principal contractor. For example, if the defective work concerns tiling that was carried out by a subcontractor of the principal builder, then the principal builder remains responsible to the property owner for the defective work (however they will in turn rely on the warranty between the principal and tiler).

Defects in a strata scheme

Defective work in a strata complex may relate to the unit itself and / or the common area.

Identifying and acting on defects and potential defects before they escalate is essential to ensure that action can be taken within the warranty limitation periods.

The owners corporation is responsible for alerting a developer or builder to defects concerning the common property and for arranging repairs and maintenance. This involves requesting maintenance schedules, manuals and warranty documents for various facilities and equipment, carrying out regular maintenance activities, prioritising defects and agreeing on and appointing an expert to carry out defect inspections.

Strata owners should stay informed regarding the management of common property and the progress of any defective work claims by attending regular strata meetings.

The longer time goes on, the more difficult it is to distinguish whether a building issue is a true defect or stems from poor maintenance and / or wear and tear. Indeed, the latter may well be argued by a developer should proceedings become necessary.

Getting help

It is unlikely that a construction project will ever be completed without at least some minor defects, many of which will not be apparent until after practical completion. A reasonable approach and good communication skills generally assist in having defective work issues resolved. In a strata scheme, this is particularly important as the committee will need to coordinate and appoint a strata manager to be the ‘voice’ for all lot owners.

Unfortunately, defects are not always agreed and / or rectified in a reasonable and practical manner and disputes can become heated. If you experience problems negotiating to have defective work fixed or a developer / contractor denies liability for the defects, there are various avenues you can take.

Mediation provides an alternative to expensive and time-consuming litigation and can achieve good results before problems escalate. An experienced property lawyer will explain your rights and guide you through the relevant process.

If your dispute cannot be resolved, it is important to obtain legal advice quickly to avoid expiration of the relevant time limits.

If you need more information, assistance, or advice on how to proceed please call us on (02) 9963 9800 or email law@etheringtons.com.au.

 

 

What are defects and how does a defects liability period work?

While every builder dreams of the perfect build without so much as a single fault being found with their work, the reality of most construction projects is that at some stage issue will be taken with some or all of the work and a defect complaint will arise.

It is therefore important to understand exactly what is meant by the term ‘defect’, how a contractual ‘defects liability period’ works in practical terms and also whether there is any right to claim damages for covering the costs of rectifying a defect.

What exactly is a ‘defect’?

Ordinarily, where the term ‘defect’ is used in a construction contract it refers to work that has not been performed in accordance with the standards and requirements of the particular contract.

Matters to take into consideration in determining if there is a defect may include:

  • the quality of any work and the standard of workmanship;
  • whether design directives have been followed and correct materials have been used; and
  • whether the works have been performed in accordance with contractual specifications and drawings.

The ‘defects liability period’ and how it works

Most experienced builders and contractors would be familiar with the term ‘defects liability period’ as the term commonly appears in construction contracts including contracts based on pro forma Australian Standards building and construction contracts.

A defects liability period is the time period specified in the contract during which a contractor is legally required to return to a construction site or build to repair any defects which have appeared in that contractor’s work since the date of construction. Usually a defects liability period will start either at practical completion or upon reaching standard completion.

Even if you are familiar with the term, it is important to check each new contract carefully to ensure you understand how long the defects liability period is and what is expected of you during that period.

A contract will specify the length of any defects liability period. Anywhere from 12 to 24 months is a fairly common period, although longer or shorter periods are also possible.

The length of any defects liability period will depend on the nature of the build, the type of work a particular contractor carries out and whether it is likely that any inherent defects may take time to become apparent. For example, it is not uncommon for contracts involving complex builds and large government contracts to specify longer defects liability periods than a simple domestic building contract.

Why specify a defects liability period in a contract?

A defects liability period gives both a principal and contractor a degree of certainty as to the process that will be followed for making good any defects which may not be apparent at the date of practical completion.

In addition, a defects liability period can also be useful in providing a means of making good any defects that are apparent at the time of practical completion but which either do not need to be rectified prior to practical completion or perhaps cannot be easily rectified due to the presence of other contractors and trades still working on the build.

Wherever possible, it also makes practical sense to have the contractor who carried out the original work return to fix any defect as this contractor will be familiar with the site and the work in question. This is likely to be the most cost effective approach to any rectification work. Also, a contractor may prefer to be the sole party authorised to carry out any rectification work within a given period as the quality of the work and any subsequent repairs will potentially affect a contractor’s reputation.

Once a defect is fixed does a new defects liability period commence?

Whether a new defects liability period applies to rectified work will depend on the terms of each particular construction contract. It is important that both the principal and contractor are clear on this point prior to entering into a contract.

What right to damages exists for covering the costs of rectifying a defect?

Ordinarily any defect would be a breach of contract.

There have been several cases where the courts have considered whether the existence of a defects liability period in a contract alters or removes the need for a common law right to damages with individual cases appearing to turn on their particular facts and the behaviour of the parties to the contract.

Generally, damages for any defects will cover the amount needed to ensure that the work is brought up to the standard that a contractor was initially required to provide under the contract.

Depending on the particular circumstances of a build, damages could include recovery by the principal of any costs of reasonable demolition and rebuilding work and any secondary or incidental costs such as loss of income (if the property is unable to be rented out due to the rectification works) and ancillary costs such as relocation expenses (say if tenants are involved), or additional consultant’s fees directly related to the rectification works.

If circumstances dictate that carrying out rectification work in respect of the defects is not reasonable, for example if a building is so damaged or defective to make the work needed impossible or impractical to carry out, a principal may be able to recover damages for any loss in value of the building and (in very limited circumstances) possibly for loss of enjoyment or inconvenience suffered (where there is no actual loss in value of the subject property but the principal, for whatever reason, is unable to use and enjoy the building as previously planned).

Help is available

It is always prudent to seek advice prior to entering into any contract to ensure that you fully understand your rights and responsibilities.

If you have already entered into a contract or carried out work and a complaint has now been made that your work is defective, you may be concerned about both your professional reputation and any potential financial implications for your business.

If you find yourself in a situation where this could be an issue we recommend you seek legal advice as soon as possible. If you or someone you know wants more information or needs help or advice, please contact us on (02) 9963 9800 or email law@etheringtons.com.au.

Swimming Pool Compliance

If you’re the owner of a Torrens title property that has a swimming pool, you need to be aware of your obligations in relation to swimming pool compliance. Due to the preventable drownings that occur in swimming pools in Australia, a requirement has been placed on pool owners to ensure that their swimming pools are compliant with NSW regulations. This blog will briefly review the compliance and who it applies to.

Who does the compliance apply to?

The compliance for swimming pools applies to all swimming pools and spa pools that are capable of being filled with water to a depth greater than 30cm and are used for swimming, wading, paddling or any kind of human aquatic activity. Every pool owner must register their pool with the New South Wales Government Swimming Pool Register and also have a compliance certificate from either the council or a private swimming pool certifier. This is particularly important if a swimming pool owner plans to sell their property, as a certificate of compliance (or non-compliance) must be attached to the contract for sale. A failure to do so can result in a purchaser being able to rescind the contract.

Certificate of Compliance

A certificate of compliance can be issued by either the local council or a private certifier. In granting the certificate, the certifier will consider a number of safety items such as the fence and enclosure surrounding the swimming pool and the closure on the gate. The objective is to ensure that children do not inadvertently get into the pool area without the intervention of an adult. Once either the council or the certifier have assessed the swimming pool they may provide you with a certificate of compliance. The certificate of compliance can be attached to a contract for sale and it will remain valid for three years from the date of issue.

Certificate of Non-Compliance

If the local council or a certifier inspects your swimming pool or spa and they determine it is not compliant, they may issue you with a non-compliance certificate.  This certificate lists the reasons that the pool does not comply with the regulations and the items that need to be corrected before a certificate of compliance can be issued.

If the pool is deemed a risk to public safety, the swimming pool owner must rectify the non-compliant issues within a certain amount of time.

If the pool is not deemed to be a risk to public safety, the owner must still attend to the issues of non-compliance, however if the pool owner is selling the property containing the swimming pool the owner must attach this certificate of non-compliance to the contract for sale.

The effect of this is that it passes on the obligation to rectify the issues of non-compliance to the purchaser and the purchaser will have ninety days from the date of completion in which to correct the issues raised in the certificate of non-compliance and to receive a certificate of compliance.

A property owner should consult with their solicitor if they are selling their property to ensure that the appropriate certificate is attached to the contract or conversely, if a purchaser is looking at a property that has a swimming pool and either of those certificates are attached they should seek legal advice.

If you would like any further information about swimming pool compliance, please contact our friendly solicitors on 9963 9800 or at law@etheringtons.com.au.