By Samer Skaik
Many construction practitioners in Australia face difficulties in understanding the mechanism of the Statutory Adjudication and how it differs from a State to another. While it is important to point out that the Australian Acts are different, there are a number of common mechanisms. Typically, a person entitled to a progress payment for carrying out construction work (or supplying related goods and services) had to seek recovery of any unpaid amounts via lengthy legal proceedings in arbitration or court. As such, parliament enacted the Security of Payment (SoP) legislation to protect the rights of such persons and facilitate rapid recovery of due payment. The SoP legislation provides statutory rights enabling quick and inexpensive recovery of progress payment for any subcontractor or supplier performing construction works or supplying related goods and services. To facilitate these rights, the SoP introduced a rapid adjudication process to resolve payments disputes.
Under the East coast model, the mechanism established starts when a person who carried out construction work (the claimant) under a construction contract serves a proper payment claim on the paying party (the respondent), who may then serve what is called a ‘payment schedule’. The ‘payment schedule’ must state how much, if anything, the respondent will pay the claimant and the respondent’s grounds for withholding payment of any of the claimed amount. If the respondent fails to serve a payment schedule on the claimant within a prescribed time, the respondent must pay the claimant the whole of the claimed amount by the due date for payment. If the respondent fails to do so, the claimant is entitled to suspend work and recover the whole of the claimed amount as a debt. Alternatively, the claimant can seek adjudication of the payment claim. The reason why a claimant may choose the option of adjudication rather than suing on the statutory debt is to avoid the requirement to issue a summons for the statutory debt.[1] If the respondent has provided a payment schedule that includes reasons for withholding payment of the claimed amount or any part of the claimed amount, the claimant may seek adjudication of the payment claim.
Except in Queensland, all East Coast model Acts provide for authorised nominating authorities (ANAs), appointed by the relevant government Minister, to train and nominate adjudicators for adjudication applications. The adjudication process must be completed within a prescribed time. Typically this is ten business days after the adjudicator is appointed. An adjudication decision is binding and ‘temporarily final’ pending any final curial proceedings. The role of the adjudicator under this model is largely that of a ‘statutory certifier’ who essentially determines the amount of the progress payment due but does not decide any claims for debt or damages.[2] The progress payment to which a claimant is entitled is an amount calculated under the construction contract or, if the contract does not provide for the calculation, an amount calculated in accordance with the SoP legislation. Some construction contracts provide that in calculating the amount of a progress payment, account must be taken of claims for damages by the claimant or claims by the respondent for set off of debt or damages. When the construction contract so provides, the adjudicator will have to decide the amount of the progress payment taking into account such claims or set offs. Adjudication decisions under this model are not subject to judicial review except upon limited grounds related to jurisdictional errors and/or denial by the adjudicator of natural justice.
The West Coast model legislation provides a default interim progress payment regime, leading to a rapid adjudication process. However, unlike the East Coast model, the West Coast model gives primacy to the parties’ agreed contractual payment mechanism, and the default statutory payment provisions only apply where the contract remains silent. Further, unlike the East Coast model, payment claims can be made both up and down the contractual chain. Also, the notion of ‘payment schedule’ is not applicable as a precondition to entitle a respondent to make submissions and to be heard in any subsequent adjudication, and there is no limitation on what might be included in the adjudication response. After the dispute arises, either party may, within a prescribed time, seek adjudication of a payment dispute, which arises if an amount claimed has not been paid in full, or rejected, or has been wholly, or partially, disputed by the time it is due under the contract.
The process under this model somewhat mirrors a court process and the adjudicator’s role is analogous to an inferior court, rather than an administrative tribunal[3]. Accordingly, the test and ambit of jurisdictional error is very narrow, as inferior courts would commit a jurisdictional error when purporting to act wholly, or partly, outside their jurisdiction, or whilst acting within their jurisdiction, but doing something for which they lack authority[4]. The adjudicator has an authority to decide questions of law authoritatively and wrongly as long as the error is not jurisdictional.[5] The adjudicator also has 14 days to release his or her determination regardless of the size and nature of the payment dispute.
Contrary to its counterparts in Australia, the Queensland Act has been significantly amended in 2014 to provide a unique dual mechanism retaining the proceedings of the standard payment claims as stated in the original Act with some differences, and introducing a separate mechanism for large claims which has longer timeframes and allows a respondent to raise any arguments in its adjudication response even if not previously included in its payment schedule.
There is a general consensus that the “broad brush” approach of the legislation makes it very much suitable for dealing with simple claims disputes. However, in recent years, an increasing number of complex claims involving large amounts, expert reports and legal submissions has been considered by adjudicators.[6] This has led to a major drift in the application of the SoP legislation. This was not the intention of the Act in NSW upon which all the subsequent East Coast model legislation were based.[7]
Conclusion
There are essentially three main adjudication mechanisms in Australia led by NSW, Queensland and Western Australia. It is so difficult to judge upon which mechanism provides better adjudication outcome and further research is required. Having said that, none of the three mechanism has provided sufficient measures to diminish the insolvency cases and/or improve the quality of adjudication outcome.
End notes:
[1] Davenport, P, Adjudication in the building industry, third edition, the Federation Press, 2010, p 12.
[2]K & J Burns Electrical Pty Ltd v GRD Group (NT) Pty Ltd [2011] NTCA 1 per Southwood J at [2].
[3] See Perrinepod Pty Ltd v Georgiou Group Building Pty Ltd 2011 WASCA 217 at [118].
[4] See Craig v South Australia [1995] HCA 58 at [12].
[5] See, eg, O’Donnell Griffin Pty Ltd v John Holland Pty Ltd [2009] WASC 19 at [102]; Hall Contracting Pty Ltd v Macmahon Contractors Pty Ltd [2014] NTSC 20 at [31].
[6] See Skaik, S., Coggins, J. & Mills, A. (2015) How should adjudicators deal with expert reports in Australia? RICS Cobra Conference Proceedings, Sydney, 8-10 July 2015.
[7] Brand, M and Davenport, P, “Analysis of recent amendments made to security of payment legislation in New South Wales”, RICS Construction and Property Conference, 2011, p. 29.