By Samer Skaik
The intent of the Security of Payment (SOP) legislation in many jurisdictions[1] was set out to help vulnerable class of subcontractors get paid in a timely manner. As such, rapid statutory adjudication was introduced within the legislation whereas adjudication decisions are binding and interim pending any subsequent final resolution of the dispute by arbitration or litigation. However, adjudication decisions can mainly be set aside[2] by way of judicial review on grounds of jurisdictional errors which invalidate adjudication process. Adjudicators are always susceptible to errors when deciding upon jurisdictional issues due to many factors including the complex drafting of the SOP legislation, tight timeframes, complexity of raised arguments, a failure by disputants to raise jurisdictional issues not apparent on the submissions as well as the inappropriate selection of adjudicators where the referred matter requires a particular expertise.
There are two types of jurisdictional errors in adjudication. The first type relates to the existence of essential jurisdictional facts upon which the validity of the adjudicator’s appointment is founded, including the existence of a construction contract and duly made payment claim. The second type relates to the adjudication making process where the adjudicator may exceed his or her jurisdiction by, for instance, failing to give either parties sufficient opportunity to respond to any issue raised by the other party or making a decision which has not been advanced by either party. The scope of this article mainly addresses the first type of jurisdictional errors.
Although respondents often rely upon jurisdictional objections in their adjudication response to frustrate adjudication process, the SOP legislation seem to be ill-equipped to appreciate this critical matter which could eventually erode the legislative intent. Adjudicators are usually appointed before being served the response to the adjudication application and neither the appointing authority[3] nor the adjudicator would have certainty whether or not new jurisdictional objections will be raised in the adjudication response. Some adjudicators prefer to wait until the adjudication response is lodged or time barred so they can commence examining the referred disputed matters.
Moreover, the legislation in NSW and Victoria allow adjudicators 10 business days to determine adjudication cases from the date of accepting the appointment not the date of receiving adjudication response.[4] The problem with this arrangement becomes manifest if the adjudicator appointment is made on the same day of the lodgement of adjudication application. In that case, the adjudication response can be made within five business days from the appointment[5] which means that the appointed adjudicator is left with five business days only to make a determination. This flawed arrangement ignores the very possibility that the adjudication response may include complex jurisdictional arguments that would need much more time by adjudicators, let alone the legal expertise, to be properly considered in order to reach a reasoned determination that can resist challenges in court.
The supreme courts have a supervisory role over the statutory adjudication process. In this role, the courts have quashed many adjudication determinations on the grounds of jurisdictional error in recent years[6]. This is a problem as the courts’ involvement in statutory adjudication is contrary to the object of the SOP legislation and its own early pronouncements relating to minimal intervention by the courts[7].
The courts, by way of judicial review, have dealt with many latent problems related to Jurisdictional issues and there has been an increasing number of court applications that have been successful in challenging adjudication determinations. For example, in NSW, Queensland and Victoria, there have been 197 cases challenging the adjudicator’s determinations in courts to the end of 2013, 48% of which have been successful.[8] In 2013 alone, there have been 22 challenge applications, 77% of which have been successful and adjudication determinations were set aside. In Western Australia (WA) and Northern Territory (NT), to the end of June 2015, 18 out 47 of the matters referred to Court (amounting to 38%) have been considered and the adjudicator’s determination was quashed.[9] It is worth mentioning that the lower percentage in WA and NT compared to other Australian States, as addressed above, may be influenced by the existence of the unique review mechanism within the legislation that allows an aggrieved adjudication party to apply for a review of an adjudicator’s ‘decision to dismiss’ an adjudication application without making a determination on the merits on the basis of certain grounds[10] and, therefore, acts as a filtering system to keep many challenges away from the Supreme Court.
The general pattern of the courts’ decisions has been to not support a pre-emptive application to prevent the adjudication proceeding, thus allowing adjudicators to determine their own jurisdiction on an interim basis[11]. This view is widely supported with, for example, the duty of adjudicators to ‘intellectually engage’ with the issues of the dispute[12]. In De Neefe Signs Pty Limited v Build1 (Qld) Pty Limited[13], Fryberg J commented that: “It is most unlikely that the legislature would have intended that adjudicators should be able conclusively to define the scope of their own jurisdiction.” Vickery J in Sugar Australia Pty Limited v Southern Ocean Pty Limited[14], suggested that:
“Clearly, if an adjudicator is presented with material or submissions which bring into question the jurisdiction of the adjudicator, he or she should determine the question and give reasons for the findings of fact or rulings on law. If however, the adjudicator’s decision on jurisdiction is challenged in Court on judicial review, the Court may deal with the matter afresh and receive additional evidence on the matter if the additional evidence is relevant to the determination of the question.” (emphasis added)
Encouraging adjudicators to determine questions relating to their jurisdiction, as judicially suggested,[15] is a problem considering the fact that adjudicators are not required by the statute to be legally trained or may not be competent to deal with these issues as uniquely decided by the Singaporean Court of Appeal in in Lee Wee Lick Terence v Chua Say Eng.[16] However, this problem is only the tip of the iceberg. The next part of this article will examine many problems and complexities emerging from encouraging adjudicators to determine jurisdictional questions.
Endnotes:
[1] The legislation is based upon two distinct models adopting either United Kingdom (UK) or New South Wales (NSW) model. The legislation in Queensland, Australian Capital Territory, Victoria, Tasmania and South Australia, are largely based on the Building and Construction Industry Security of Payment Act 1999 (NSW), which is often called “the default model”. The legislation in Isle of Man, Ireland are largely based upon the Housing Grants, Construction and Regeneration Act 1996 (UK), which is often called “the evaluative model”. The legislation in New Zealand, Singapore, Malaysia, Western Australia and Northern Territory also follow the UK model but have much more detailed procedures and provisions. The key difference between the two models is that the “evaluative model” gives primacy to the parties’ contractual terms relating to payment whilst the “default model” provides statutory right to payment if the paying party fails to provide what is called a “payment schedule”.
[2] The main remedies in judicial review to set aside adjudication determinations are pregroative writ of certiorari, injunction or declaration.
[3] In this article, this term is used to broadly unify the description of the appointer used in different jurisdictions authorised nominating authorities, registrar, authorised nominating bodies, prescribed appointers, etc.
[4] In NSW and Victoria, the ten-day period is calculated from the date of adjudicator’s acceptance of appointment (see, eg, s 21(3) Building and Construction Industry Security of Payment Act 1999 (NSW) (NSW Act)), while it is calculated in many other Jurisdictions, from the date of receipt of adjudication response (see, eg, s23(3) Building and Construction Industry Security of Payment Act 2009 (ACT) (ACT Act); s(31) Construction Contracts Act 2004 (WA) (WA Act))).
[5] Under the NSW Act, the respondent has the right to serve an ‘adjudication response’ within five business days after receiving the adjudication application or two business days after the adjudicator is appointed whichever time expires later (s 21 (1)), provided it had served a payment schedule (s 22 (2A)). The adjudicator’s notice of accepting the nomination should be served within four business days after the adjudication application is made, otherwise, the claimant may opt to withdraw its application (s 26 (1)). Under the WA Act, within 14 days after the date on which a party to a construction contract is served with an application for adjudication, the party must prepare a written response to the application (s 27). If an application for adjudication is served upon a prescribed appointor, the appointor, within five days after being served, must appoint a registered adjudicator to adjudicate the payment dispute concerned and send the application and any response received by it to the adjudicator (s 28). The adjudicator must release the determination within 14 days after the date of the service of the response (s 31).
[6] Recently, the NSW Supreme Court of appeal concluded that relief is not available to quash an adjudicator’s determination on a ground other than jurisdictional error in Shade Systems Pty Limited v Probuild Constructions (Aust) Pty Limited [2016] NSWCA 379.
[7] Brodyn Pty. Limited. t/as Time Cost and Quality v Davenport [2004] NSWCA 394 at [51].
[8]Society of Construction Law Australia, “Report on Security of Payment and Adjudication in the Australian Construction Industry”, Australian Legislative Reform Subcommittee, Feb 2014, p 37.
[9] See Building Commissioner, Annual report (2014-2015), Construction Contracts Act 2004 (WA), page 10; Department of the Attorney-General and Justice, Annual report (2014-2015), Construction Contracts (Security of Payments Act) 2004 (NT).
[10] The WA Act requires an appointed adjudicator to first consider an application against qualifying criteria in the Act that defines a valid claim (s.3) and a payment dispute (s.6). The application must be dismissed if it also fails on any one of further hurdles in s.31(2)(a)(i to iv). The adjudicator is required to consider whether the payment claim comes from a valid construction contract, is served in time and in a prescribed manner and is not too complex to decide within set time limits.
[11] Australian Remediation Services Pty Limited v Earth Tech Engineering Pty Limited [2005] NSWSC 362 at [13] (McDougall); Energetech Aust Pty Limited v Sides Engineering Pty Limited [2005] 226 ALR 362; and Securcorp Limited v Civil Mining & Construction P/L [2009] QSC 249.
[12] Laing O’Rourke Australia Construction v H and M Engineering and Construction [2010] NSWSC 818 at [36]
[13] [2010] QSC 279 at [11].
[14] [2013] VSC 535 at [114].
[15] Amongst all jurisdictions operating SOP legislation and encouraging adjudicators to initially decide upon jurisdiction, Singapore is an exception where it was held by the Court of Appeal in in Lee Wee Lick Terence v Chua Say Eng [2012] SGCA 63 that the adjudicator is not competent to decide whether he or she was validly appointed to adjudicate the matter and any jurisdictional objection should be made before the High Court not the adjudicator. The Court held that the issues relating to the validity of the payment claim or payment response, were jurisdictional issues which went to the validity of the appointment of the adjudicator.
[16] [2012] SGCA 63 at [64].