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

Risk Management of Disputes on Engineering & Construction Projects Using Cloud-Based Project Management Tools

Legal disputes are a critical element of effective risk management. Disputes have the capacity to completely derail a project; blowing out the time, budget and the political capital (or social license to operate). Just like other risks on a project, there are factors that increase the likelihood of disputes occurring, and there are processes that can be implemented to mitigate the extent of their occurrence and impact on the project.

A few general observations can be made about construction and engineering disputes:

(1) Uncertainty combined with large sums of money is a recipe for disputes.

(2) Most disputes turn primarily on their facts.

(3) Time-pressures often undermine the ability of contractors to properly examine the contract or site conditions before work commences.

(4) Lawyers are often seen as an expense (rather than an insurance) and will more readily be engaged to fight claims, rather than prevent them.

(5) Legal disputes have the capacity to multiply the cost of a project.

Dispute Risk Management – Addressing Uncertainty

Therefore, an effect risk management strategy requires setting up systems and practices to mitigate the likelihood and duration of disputes. This is done primarily by addressing sources of uncertainty:

(1) Uncertainty in time limits and notice requirements for claims (e.g. extension of time, delay costs, variations, progress payments etc etc)

As soon as possible, make a list of all the prerequisites for making claims and extending time under the contract and keep it handy. You want to avoid having to rely on a verbal assurance from the other party that they won’t hold you to the strict contract time limits.

(2) Uncertainty of scope or performance requirements.

At the earliest opportunity, identify and clarify any points of uncertainty in the customer’s expectations (e.g. vague elements of the spec, boundaries of the scope etc etc) and confirm this with them in writing (be as specific as possible).

It is all well and good to just ‘leave the contract in the draw’, but if a dispute arises all that good will and mutual understanding will evaporate. If you have not thoroughly documented these mutually agreed departures from (or clarifications of) the contract, the other party will pull that contract out of the draw and rely on it with impunity (or you’ll be facing their own documentation of what you supposedly said you would do).

(3) Uncertainty in your ability to prove the facts you rely on should a dispute escalate.

It is a lesson that many learn the hard way – ‘document everything’. Don’t rely on verbal assurances (at the very least confirm them in writing by sending that person an email with any relevant pictures or documents attached). When a disagreement arises it will be critical that you can provide a clear and reliable documented chronology of what was said, who said it, what their authority was to say it, when it was said, and the circumstances of the communication that impacted on how it was understood.

Benefits of Effective Dispute Risk Management

The best way to address this is by having effective systems to keep you organised and make it easy to reliably document everything. This way, when a dispute does escalate you will have records of everything, and be able to quickly identify the relevant documents. This will:

(1) Allow your lawyer to more quickly advise you of the strength of your position.

(2) Reduce the legal costs involved in case preparation.

(3) Allow quick and comprehensive responses to claims (e.g. security of payment, EOT, delay etc etc). 

(4) Minimise uncertainty over the strength of your position, allowing your lawyer to take a more forceful and decisive approach in negotiations

(5) Ensure that you are able to meet the timetable set by the dispute resolution clauses.

As a result, the average cost and duration of disputes will reduce, you will establish a reputation that discourages other parties from ‘trying it on’ which will reduce the number of disputes, and you will have more time and energy to devote to growing your business.

Tools to Manage Dispute Risk 

Much of the above revolves around having robust systems to document everything and keep you organised. Two project management tools that were prominent at the Sydney Build Expo this year (30-31 March 2017) were Procore and Aconex (Aconex also integrates with BidContender).

Procore

Aconex

Critically, tools like these are:

(1) Cloud-based: So you won’t lose your data if you lose your device.

(2) Optimised for mobile devices: So you can document developments on the fly while on site.

(3) Simultaneously accessible by multiple parties: So you can ensure that everyone is kept on the same page as the project inevitably evolves.

(4) Designed to keep you organised: Maintaining a clear filing system and chronology of project developments so that you (and your lawyer) can quickly find those critical documents.

Remember, disputes are not resolved on the basis of what actually happened, they are resolved on what can be proved by hard evidence. The best response to that letter of demand from the other party’s lawyers is solid documentary evidence showing their case to be baseless.

Document everything, be specific, your lawyer will thank you – and most of all, you will place your self in the best possible position to protect your interests and resolve disputes economically.

Contact Us for assistance with dispute resolution and advice. 

See also:

 

Practical Tips from “Tracing a Construction Dispute” Seminar at the NSW Supreme Court

It was an eminent panel in fine form at last night’s seminar (3 April 2017) “Tracing a Construction Dispute” at the NSW Supreme Court, presented by the Lighthouse Club and 39 Essex Chambers. The panel was comprised of:

  • Solicitor Simon Bellas, Partner, Jones Day
  • Quantity Surveyor Stephen Bolt, QS, Director – Aquenta and Vice President LHC, Sydney
  • Solicitor Alex Baykitch AM, Partner, King & Wood Mallesons, Sydney and President of ACICA
  • Mediator Dennis Wilson, Independent Barrister and Mediator, Sydney
  • Barrister Ben Olbourne, Barrister, 39 Essex Chambers, Singapore
  • Arbitrator David Bateson, former Head of Construction, King & Wood Mallesons, Hong Kong and now Arbitrator, 39 Essex Chambers, Singapore
  • President of the NSW Court of Appeal Justice Margaret Beazley
  • NSW Chief Justice Tom Bathurst

The panel considered a common construction dispute scenario, each providing their advice to the room on the stage of the dispute in which they would become involved. Some important takeaways included:

(1) Time Bars 

It is common knowledge that tender processes are often short and subcontractors will often not have much opportunity to review the contract documentation before papers are signed and work begins. However, it is of the utmost importance to clearly identify the time limits and notice requirements applicable to any claims under the contract.

It was a point emphasised by barrister Ben Olbourne that while a more understanding approach may be taken in the UK, you should assume that contractual time-bars will be strictly enforced in Australia. This was driven home by Justice Beazley, who explained that unless the extension of time clause, or an estoppel, could be engaged, failing to give notice of the claim in the time required under the contract will often be fatal.

(2) Documentation

Arbitrator David Bateson and Justice Beazley, both emphasised the importance of documentation on construction projects.

Mr Bateson stated that in his experience, while witnesses have their role, it is the documents that will usually carry the day in arbitration. He implored parties to take a focused approach to the presenting of their evidence and arguments. It is far better to present the most salient documents, with targeted submissions that reference (rather than recite at length) the evidence, than to write ‘War & Peace’ and drown the arbitrator.

Mr Bateson also advised that parties select expert witnesses who have the requisite communication skills to be engaging in Court and make their underlying methodologies clear. Sound expertise, incomprehensibly communicated, will be discarded as unhelpful.

Justice Beazley commented on the risky practice on multi-million dollar projects of parties relying on casual verbal assurances. Her Honour referred to the recent case of Crown Melbourne Limited v Cosmopolitan Hotel (VIC) Pty Ltd & Anor [2016] HCA 26 in which a party from Crown said to Cosmopolitan “we’ll look after you at renewal time”. Such casual verbal assurances will often not be sufficient to give rise to a collateral contract or an estoppel by which to enforce the benefit hoped for.

Her Honour commented that such problems are compounded where the identity and position of the person giving the assurance has not been recorded. In such circumstances the nature of what is being promised is not specific enough, it is unclear whether the person had the authority to make good on the assurance, and both these matters question the reasonableness of placing reliance on such an assurance.

(3) Enforcing Security of Payment Determinations 

Solicitor Alex Baykitch took the room through the general procedure for making a Security of Payment claim, obtaining an adjudicator’s determination, and enforcing the determination. Importantly, he reminded everyone that the benefits of the Security of Payment Act are available not just to builders, but also to those who provide goods and services for use in construction work.

Mr Baykitch then commented on the recent case of Fitz Jersey Pty Ltd v Atlas Construction Group Pty Ltd [2017] NSWCA 53 handed down on 23 March 2017. This case contains an important practical lesson for developers looking to challenge an adjudicator’s decision.

In that case,

  • The builder had served a payment claim on the developer for over $10.5M, and stated stated it to be a progress payment claim made under the Building and Construction Industry Security of Payment Act 1999 (NSW).
  • The developer responded by serving a payment schedule on the builder asserting that no amount was payable.
  • The builder successful obtained an adjudicator’s determination that the claim was payable in full.
  • The developer failed to make payment within the required 5 days, and so the builder obtained an adjudication certificate.
  • The developer commenced proceedings in the Supreme Court challenging the validity of the adjudicator’s determination.
  • The builder filed the adjudication certificate in the Supreme Court, causing it to take effect as a judgment debt.
  • The builder successfully applied ex parte to the Supreme Court for a garnishee order to enforce the judgment debt, served it on the developer’s bank, and the bank paid the sum to the builder out of the developer’s account.
  • The developer found out that the money had been paid from its account, but was unsuccessful in having the garnishee order set aside. No undertaking had been given by the builder not to proceed to enforce the judgment debt, and no interlocutory relief had been applied for by the developer at the time the garnishee order was sought.

This case was an important reminder of the speed with which an adjudicator’s determination can be enforced. It was also reminder to those wishing to challenge an adjudicator’s determination to quickly apply for an interlocutory injunction to prevent enforcement of the determination before it can be set aside.

(4) Mediation

Finally, Mediator, Dennis Wilson, reminded the room of the important opportunity that mediation provides parties to achieve the just, quick and cheap resolution of disputes (referring to section 56 of the Civil Procedure Act 2005).

Mediation allows parties to:

  • Keep the dispute confidential;
  • Keep control of the dispute and retain full flexibility as to the terms on which it is resolved;
  • Hold a more open and frank discussion which assists the resolution of disputes;
  • Minimise the cost, procedure, and time required to resolve a dispute;
  • Avoid the damage to reputation and the critical path of proceeding to litigation;
  • Consider mutually acceptable outcomes, rather than digging further into their positions;

The seminar was well attended by fellow members of the Society of Construction Law Australia and other groups. As always it is excellent to see professionals from the construction industry and legal profession gather and exchange such practical advice. With the number of construction projects on foot growing by the day it is more important than ever to support a cooperative and informed approach to resolving disputes efficiently.