When can I challenge an Adjudicator’s Determination? [Security of Payment Act]

As most in the construction industry would be aware, the Building and Construction Industry Security of Payment Act 1999 (NSW) (‘the Act’) provides for the swift determination of progress payment disputes.

The following link provides a quick refresher on how it all works: Outline of the Building and Construction Industry Security of Payment Act

But what if you believe the Adjudicator has got it wrong? if the other party isn’t willing to come to an agreement, and instead plans to file the Adjudication Certificate in court and enforce it?

Grounds for Challenging an Adjudicator’s Determination 

Identifying the grounds for challenging an Adjudicator’s Determination requires a foray into the highly technical areas of Administrative Law and Statutory Interpretation. This is the law of ‘reading between the lines’ to determine when a purported exercise of statutory power is actually invalid. This is because a Determination by an Adjudicator is an exercise of the statutory powers granted by the Act.

If an Adjudicator has failed to satisfy the mandatory pre-conditions that activate their power to make a Determination, then their Determination is not a valid Determination under the Act. When this occurs it is said that the Determination was affected by ‘jurisdictional error’ (i.e. the Adjudicator did not have the jurisdiction/power to make the Determination).

“There is, in our view, no reason in principle why the general law should treat… decisions involving jurisdictional error as binding or having legal effect unless and until set aside. A decision that involves jurisdictional error is a decision that lacks legal foundation and is properly regarded, in law, as no decision at all.” – Minister for Immigration and Multicultural Affairs v Bhardwaj [2002] HCA 11 at [51]

Restraining Enforcement of the Adjudication Certificate 

For the practical steps to be taken immediately if you intend to challenge the Adjudicator’s Determination see the summary under ‘Enforcing Security of Payment Determinations’ in Practical Tips from “Tracing a Construction Dispute” Seminar at the NSW Supreme Court

Jurisdictional Errors

The core guiding principle to this area is that the Courts take the view that Parliament intends that statutory powers be exercised according to reason, and only after satisfying the statutory pre-conditions.

Types of Jurisdictional Errors include:

(1) Failure to establish the factual prerequisites for making a Determination

A prominent example is where the reference date for the relevant payment claim has already been used for a previous payment claim. The High Court ruled late last year that you can only make one payment claim per reference date (i.e. payment milestone).

(2) Breach of Natural Justice / Procedural Fairness that could have materially affected the outcome of the Determination 

A breach of natural justice requires that the Adjudicator has not given one of the parties a reasonable opportunity to be heard on the issues that may result in a decision that is adverse to their interests. This might occur, for example, where the Adjudicator places heavy reliance on a new piece of evidence provided by one party, and does not give the other a chance to respond to that new evidence before making the Determination.

(3) Unreasonableness / Irrationality 

This requires showing that no Adjudicator acting reasonably could have made such a Determination. For example, awarding payment for work where there was no evidence that the work was even started.

There are a range of ways in which a Determination could be affected by Jurisdictional Error, so it is a good idea to have your lawyer check over the Adjudicator’s reasons if you are dissatisfied with the result.

Other options

The Act contains a ‘slip rule’ provision which allows for a party to raise a miscalculation or misdescription in the Determination with the Adjudicator for correction.

Furthermore, where the Determination is affected by jurisdictional error, an Adjudicator may be able to re-open the matter and determine it correctly, providing that each party is afforded the opportunity to provide further submissions and documentation (the High Court decision of Bhardwaj cited above provides authority for this).

Under s32(3) of the Act, if there is a subsequent dispute about another matter under the contract, the court or tribunal must take into account any amounts previously paid pursuant to a payment claim that was made under the Act.

There may also be situations generally in Security of Payment disputes where the circumstances provide scope for relief by asserting an estoppel or misleading & deceptive conduct. For example, in Bitannia Pty Ltd & Anor v Parkline Constructions Pty Ltd [2006] NSWCA 238 the payment claim was served on the owner and stated that it was also served on the architect, when it had not been. This caused the owner to miss the deadline for responding with the payment schedule. The owner was able to establish that there had been misleading and deceptive conduct, and this enabled them to escape the liability to pay the amount of the claim (which would otherwise be the result of missing the deadline – e.g. Ampcontrol v Gujarat NRE Wonga [2013] NSWSC 707).

Uncertainty – Error of Law

At present, the state of the law is that you cannot challenge a Determination on the ground that the Adjudicator misinterpreted the contract, or the operation of the legal rights that arise from the contract (i.e. error of law). However, the High Court has recently granted special leave to appeal to both a New South Wales and a South Australian dispute on this point.

Engaging the Lawyers

The payment schedule stage is the time to raise any reasons for withholding payment that arise under the contract. Section 20(2B) of the Act prevents a respondent from raising matters in their submissions to the Adjudicator that were not referred to in their payment schedule. At the very least, have your lawyer finalise the drafts of your payment schedules, and provide them with any notes that you consider relevant. Otherwise you may be tying your own hands when it comes to responding to an Adjudication Application.

As there is presently no room to challenge an Adjudicator’s Determination for misinterpreting the contract and its legal effect, it is highly advisable to involve your lawyer. They can prepare submissions that will guide the Adjudicator through the contract, the documentation, the legal issues, and set out the Determination that should be made upon the correct interpretation of it all. Given the time pressure applicable to Adjudication Determinations, having your lawyer provide this assistance will minimise the risk of important points being missed or misunderstood by the Adjudicator.

The Adjudicator’s Determination will set out their reasons for their decision. As the grounds for challenging a Determination are quite technical it is best to have your lawyer review these reasons. Lawyers with an Administrative Law background will be particularly skilled at identifying defects in a decision that can allow you to challenge it, or negotiate a solution with the other party.

Finally, being disciplined in your documentation of the progress of the project, and your communications with the other parties, will be a great help to your lawyer. Thorough documentation will go a long way to helping them secure the best outcome for you in any dispute under a construction contract (see: Systems for managing the risk of legal disputes on projects).

Contact AustraLaw for assistance with your payment claims and disputes

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