Australia: Failure to DIY - Determination set aside as adjudicator relies on third-party assistance

IN BRIEF - JUDGEMENT RAISES CONSIDERATIONS FOR ADJUDICATORS

In St Hilliers Property Pty Limited v ACT Projects Pty Ltd & Anor [2017] ACTSC 177, the ACT Supreme Court considered the extent to which an adjudicator appointed under the Building and Construction Security of Payment Act 2009 (Act) may receive assistance in deciding an adjudication application.

The Court found that the role of adjudicator is personal to the person who accepts their appointment and that a determination will be void if the adjudicator impermissibly delegates their function.

DID ADJUDICATOR FAIL TO FULFIL FUNCTION UNDER THE SECURITY OF PAYMENT ACT?

St Hilliers commenced proceedings seeking to set aside an adjudication application. During the proceedings, the adjudicator put an invoice into evidence that detailed the work performed on the determination. On review, the invoice revealed that half of the total hours spent on the determination was attributed to someone else.

In light of the invoice, the plaintiff argued that the determination was void on the basis that the adjudicator had impermissibly delegated his function, and in the process, considered material that was not open to him to consider under section 24(2) of the Act.

Section 24(2) of the Act expressly defines what an adjudicator is permitted to consider when deciding an adjudication application, as follows:

  1. In deciding an adjudication application, the adjudicator must only consider [emphasis added] the following:
    1. this Act;
    2. the construction contract to which the application relates;
    3. the payment claim to which the application relates, together with any submission, including relevant documentation, properly made by the claimant in support of the claim;
    4. the adjudication application;
    5. the payment schedule, if any, to which the application relates, together with any submission, including relevant documentation, properly made by the respondent in support of the schedule;
    6. the adjudication response, if any;
    7. the result of any inspection by the adjudicator of any matter related to the claim.

In essence it was submitted that by liaising with a third party and considering draft determinations prepared by someone else (which contained many expressions of view and draft findings about legal and factual matters), the adjudicator failed to fulfil his function under the Act, ultimately requiring the determination to be set aside.

In addition to this, the plaintiff submitted that this delegation was a denial of procedural fairness as had the parties known that the adjudicator would ask someone else to draft his determination, they should have been given the opportunity to make submissions to that person.

In reply to this, the adjudicator submitted that whilst he had obtained help from a third party, this assistance was permitted under the Act. Further, and more importantly, the adjudicator submitted that he had personally applied his mind to, and had thoroughly considered, every issue raised, with the final product being his own.

COURTS FINDS ADJUDICATOR DID NOT COMPLY WITH SECTION 24(2) OF ACT, RAISES QUESTION ON DEGREE OF ACCEPTABLE ASSISTANCE

In determining whether the adjudicator had fulfilled his function under the Act, his Honour referred to McDougall J's comments in Laing O'Rourke v H and M [2010] NSWSC 818 at [39]:

In my view, the obligation to consider matters imposed by [the equivalent section in the NSW legislation to s 24(2)] should ... [require] an active process of intellectual engagement...

In consideration of the evidence before him, his Honour found that the adjudicator took into account a determination prepared by a third party, without active engagement, amounting to a failure to comply with section 24(2) of the Act.

The Court accepted that an adjudicator is personally appointed under the Act to determine the application. This does not mean that an adjudicator must work alone, with no clerical or other assistance. It was held (at [118]) that, whether the assistance amounts to an usurpation of the task of adjudication must be a matter of degree.

The case leaves the question of where acceptable assistance ends and impermissible usurpation of the task of an adjudicator begins open. The assistance provided in this case was significant. Based on the timesheets alone, it appears that the third party contributed 50% to the preparation of the adjudication determination.

CONSIDERATIONS FOR ADJUDICATORS AND PARTIES SEEKING TO SET ASIDE ADJUDICATION DETERMINATIONS

There are a number of key things to consider from this decision.

Firstly, adjudicators should carefully consider whether they are able to complete the determination within the statutory time. If they cannot, they should decline their appointment or seek additional time to ensure that the Act's requirements are complied with.

Secondly, it raises the issue of whether this was an isolated incident or a commonplace practice amongst adjudicators.

Thirdly, for a party who is dissatisfied with an adjudication determination, the decision provides a further ground to challenge and set aside adjudication determinations. A review of the adjudicator's invoice is the starting point. However, if the adjudicator does not indicate who actually undertook the work and provides only the hours, that will be difficult.

Finally, and more broadly, this decision exposes the shortcomings of the security of payment regime when attempting to determine lengthy and complex applications. As made plain by the legislation, the Act was originally intended for the protection of cash flow for small subcontractors. Large and complex adjudication applications place adjudicators in a difficult position, as they have to complete their task within a limited period of time, are required to engage with the task of valuing the work and are unable to seek assistance (beyond mere clerical or administrative assistance).

Timothy Seton
Construction and engineering
Colin Biggers & Paisley

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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