Commercial Building Disputes – 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.