Nuance Group (Australia) Pty Limited (Nuance) received a payment claim from Shape Australia Pty Limited (Shape) under the Building and Construction Industry Security of Payment Act 2002 (Vic) (Act) for over $3.5 million, and responded by issuing a payment schedule which listed the total amount payable to Shape as '$nil'. Shape initiated an adjudication application for $2,243,105.55 (Claimed Amount).

The Adjudicator determined that $1,400,007.12 was payable by Nuance. Nuance submitted the determination for review under section 28B of the Act. The reviewing adjudicator subsequently reduced the figure to $1,216,715.72 (Reviewed Determination).

Nuance challenged the validity of the initial determination and, therefore, the Reviewed Determination on the basis that the Adjudicator had erred in making his determination. Shape maintained its position that the Adjudicator had correctly discharged his obligations under the Act.

Where did the adjudicator go wrong?

Justice Digby held that the adjudicator fell into manifest error by adopting an impermissible, two-step approach to calculating the payable figure. In particular, the adjudicator accepted Shape's claimed amount at face value, and then deducted various items included in Shape's claim which he found to be excluded amounts from that figure. The balance remaining was determined the payable amount. Further, the adjudicator failed to provide clear reasons and a basis for his calculations.

Digby J affirmed that section 23 of the Act requires that in performing his or her duty, an adjudicator must, 'at a minimum', firstly determine whether the claimed work (including the provision of goods or services) had been performed; secondly, give a monetary value to that work and the goods and services; and thirdly, provide the determination, reasons, and 'the basis on which any amount determined has been decided' in writing [para 51].

Despite the court acknowledging that even 'bare reasons which render the Adjudicator's determination comprehensible will suffice', given the strict time frames in which adjudicators operate [52], the determination in question provided 'no sufficiently comprehensible reasons' [67] and required one to 'attempt to piece together the asserted rational justification' [68]. Further, 'the Adjudicator did not however, as he was required to do, determine whether the construction work the subject of the payment schedule had been performed, and whether associated goods and services had been provided, and valued those items' [69].

Take away

The courts have consistently set a "low bar" for adjudicators in the performance of their determinations. However there are minimum standards to be applied by adjudicators in the processes they adopt and in the reasons they publish in their determinations. Failure by the adjudicator to comply with the minimum standards in sections 22 and 23 of the Act may result in the determination being declared void and of no effect. Parties should carefully consider the process adopted by the adjudicator to ensure it complies with the requirements of the Act.

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