Australia: Quick and dirty adjudication: it is quick but is there a limit to how dirty?

Construction Law Update - July
Last Updated: 24 July 2016



In the recent decision of BGC Contracting Pty Ltd v Citygate Properties Pty Ltd [2016] WASC 88, the Supreme Court of Western Australia quashed two adjudication determinations made by the same adjudicator under the Construction Contracts Act (WA) 2004 (Act).

The first determination was quashed because the adjudicator had not determined the application within time.

The second determination was quashed on the basis of jurisdictional error.

At the heart of the Court's decision with respect to the second determination was a finding that the adjudicator's reasons did not demonstrate a rational approach to determining the relevant payment dispute.

This decision builds on a growing body of case law which emphasises that, whilst adjudications under the Act are intended to provide a rapid and informal means of resolving payment disputes, adjudicators must demonstrate, by their determinations, that they have engaged with all issues and adopted a rational approach to determining the dispute(s).

This decision is also the first instance of a determination being quashed because the adjudicator made his or her determination outside of the strict time period prescribed by the Act.

Background facts to the first determination

On 1 April 2014, Citygate and BGC entered into a $58 million contract under which BGC agreed to undertake construction work on the Eaton Fair Shopping Centre expansion.

On 7 January 2015, BGC applied to adjudicate Citygate's assessment of BGC's 14th progress claim by which Citygate disallowed $1.5 million of BGC's $5.3 million claim.

At the adjudicator's request, the parties agreed to extend the time within which the adjudicator had to make his determination to midnight on 26 February 2015.

As the time leading up to this deadline drew closer, the adjudicator asked both parties whether they would consent to him providing his financial determination together with basic reasons prior to the 26 February 2015 deadline, with full reasons to follow several days later on the 3 March 2015. BGC did not consent.

At 11:52 pm on 26 February 2015, the adjudicator sent an email to the parties attaching a document the adjudicator described as his "preliminary determination". The adjudicator's email and the "preliminary determination" document made reference to an "Annexure B", but, the adjudicator did not attach "Annexure B" to his email.

At 12:53 am on 27 February 2015, the adjudicator must have realised his omission and sent the parties a second email, in identical terms to that sent by him just over an hour earlier at 11:52 pm. This second email attached both the "preliminary determination" and the "Annexure B" document.

Relevantly, Annexure B described the amounts the adjudicator determined that Citygate was to pay to BGC. Annexure B contained a prefatory note which stated that, due to time constraints, the adjudicator had been unable to provide detailed reasons for each of BGC's claims and that more detailed reasons would be provided.

Later, on 3 March 2015, the adjudicator sent an email to the parties attaching what he described as his "final determination" (which contained more extensive and detailed reasons) and a revised version of Annexure B.

Court's finding in respect of the first determination

Justice Tottle quashed the adjudicator's determination on the basis that the application was deemed by section 31(3) of the Act to have been dismissed because the adjudicator had made his determination out of time.

Tottle J found that the time within which the adjudicator had to make his determination expired at midnight on 26 February 2015.

Background facts to the second determination

On 19 March 2015, BGC applied to adjudicate a payment dispute in respect of its 16th progress claim under the contract.

On 8 May 2015, the adjudicator emailed his determination which comprised:

  1. a narrative section finding that Citygate was liable to pay BGC the sum of $392,145 plus GST; and
  2. a lengthy schedule dealing with 64 items (55 variation claims and 9 claims for backcharges). The schedule comprised two columns. In the first column, titled "Determination", the adjudicator stated his conclusion and gave brief reasons in respect of most, but not all, of the disputed items. In the second column, titled "Awarded", the adjudicator determined a dollar amount in respect of nine of the 64 disputed items.

Court's finding in respect of the second determination

Tottle J quashed the second determination on the basis that the adjudicator had failed to exercise the jurisdiction conferred on him by the Act (such an error being a jurisdictional error).

Tottle J found the adjudicator failed to exercise his jurisdiction because (amongst other things):

  1. the adjudicator's reasons did not demonstrate that he had:
    1. adopted a rational approach in determining the subject payment dispute; or
    2. engaged with or determined certain disputed items; and
  1. it was impossible to ascertain from the adjudicator's responses how the he had determined an award of $392,145.

Tottle J helpfully commented on the standard of reasons that adjudicator's are to maintain:

"It is incumbent on an adjudicator to make it plain in the reasons that he or she has engaged with the issues. The reasons should make plain what the Adjudicator has determined and why. The authorities make it clear that the reasons do not have to be detailed or elaborate but an adjudicator cannot omit to give reasons entirely in respect of significant items and leave the parties to work out for themselves the basis upon which a determination has been made".

Tottle J seized upon certain aspects of the adjudicator's determination as examples of the adjudicator's failings, including the adjudicator's determination of:

  1. a dispute between the parties as to whether or not Citygate had attempted to "claw back" in payment certificate 16, the award made against it in the first determination; and
  2. Contract Variation 454 (a negative variation).

With respect to the "claw back" dispute, Tottle J found that it was not possible to know from the adjudicator's reasons what approach he had taken in making his determination with respect to this dispute and what he had awarded.

With respect to Variation 454, both parties agreed that Citygate was entitled to payment in respect of this variation but differed as to its value. (BGC contended that Citygate should only be entitled to an amount of $15,311 whilst Citygate contended that it was entitled to an amount of $42,555.)

The adjudicator had dealt with Variation 454 under two separate items in the determination schedule.

In respect of the first item, the adjudicator's reasons in the "Determination" column of the schedule suggested that he had determined the dispute in Citygate's favour. However, inconsistent with that determination, the adjudicator ordered Citygate to pay BGC $104,250 in the "Awarded" column.

In respect of the second item, the adjudicator awarded an amount of $42,555 to BGC in the "Awarded" column despite finding the parties' submissions failed to explain the "large difference" between them.

The adjudicator had therefore awarded BGC an amount of $146,805 for Variation 454. Based on the above analysis, Tottle J found the adjudicator had adopted an inconsistent approach to the same disputed item. Further, the adjudicator's determination that BGC was entitled to be paid for Variation 454 could not be justified where BGC did not dispute that it owed money to Citygate for the variation; the only dispute was as to the quantum of that amount. His Honour found that the adjudicator's approach to determining Variation 454 was "irrational".

What can we learn from this decision?

One lesson from this decision is that parties to an adjudication should be mindful not to place too much time pressure on adjudicators, particularly with respect to more complex payment disputes. In this case, BGC did not consent to the adjudicator's request for a further extension of time in which to make his determination. As a result, BGC received a determination in its favour which, because it was not made within time, was quashed and thereby unenforceable.

Conversely, this decision may encourage adjudication respondents to withhold consent to an adjudicator's request for an extension of time, particularly in more complex payment disputes.

Because it was common ground that the adjudicator's first determination had not been made within the prescribed time (as extended), Tottle J's judgment does not grapple with the question of whether section 31(3) may permit an adjudicator to make a determination within the prescribed time and, then, communicate that determination to the parties out of time. As the Act does not specify the service requirements for a determination, it is therefore still open to parties to contend that an adjudicator's determination made within time, but served on the parties out of time, is a valid determination.

This note was originally published by Spencer Flay and Kristian Cywicki as a Corrs in Brief article available here: corrs-in-brief/quick-and-dirtyadjudication-it-is-quick-but-there-is-alimit-to-how-dirty/.

The case is available at: supreme/supdcsn.nsf/judgment.xsp?do cumentId=FE84E1E7F9DCC41648257F8 8001836F8&action=openDocument&Ses sionID=EE7DHWXX19

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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