Adjudication Determination Set Aside – Adjudicator fails to provide adequate reasons for decision

Executive Summary

On 7 March 2018, the Supreme Court of New South Wales handed down judgment in Fulton Hogan Construction Pty Ltd v Cockram Construction Ltd [2018] NSWSC 264.  In that case the Supreme Court set aside an adjudication determination made under the Building and Construction Industry Security of Payment Act 1999 (NSW) (“the Act”). Ball J found the determination void for jurisdictional error, because the adjudicator failed to provide adequate reasons for their determination.

The Facts

On 4 April 2017, Fulton Hogan Construction Pty Ltd (“Fulton Hogan”) as head contractor, entered into a major works subcontract with Cockram Construction Ltd (“Cockram”) for the design and construction of (3) three car parks along the Sydney Coastline for a contract price of $22,137,366 (“the Subcontract”).

On 12 December 2017, Cockram served payment claim no 9 (“the Payment Claim”), claiming a total of $12,606,129.29 under the Subcontract.

On 2 January 2018, Fulton Hogan served a payment schedule in response to the Payment Claim certifying the amount payable (excluding GST) as $62,695.12.

On 16 January 2018, Cockram lodged an adjudication application with Australian Solutions Centre in respect of the Payment Claim. Australian Solutions Centre appointed the Adjudicator to determine the application.

After reviewing the application, the Adjudicator determined that $8.3 million was payable by Fulton Hogan to Cockram under the Subcontract. Fulton Hogan sought judicial review of the determination arguing the Adjudicator had failed to give adequate reasons for her decision. Accordingly, Fulton Hogan sought an order that the determination be set aside.

The Issues

A major issue with respect to the payment claim was the ensuing offsetting claim by Fulton Hogan for liquidated damages for delay in reaching Substantial Completion, and the corresponding claim by Cockram that it was not liable for liquidated damages because it was entitled to an Extension of Time (“EOT”) under the Subcontract.

There were a number of condition precedents set out in the Subcontract for a party to obtain an EOT. Under clause 22.2(1)(e), to be entitled to an EOT, Cockram had to demonstrate that Fulton Hogan had received an equivalent extension of time under clause 10.10 of the Head Contract.

In dealing with the question of whether clause 22.2(1)(e) had been satisfied, the Adjudicator said:

“… I do not consider that this is a legitimate condition precedent as it relies on a contract relationship… to which the Claimant is not a party. Further, there is no information to suggest that Fulton Hogan even sought an EOT from the Head Contractor’s Principal.”

The Adjudicator’s failure to provide reasons

The Adjudicator’s failure to give reasons for a critical element of her decision (that being refusing to apply clause 22.2(1)(e)) meant she had failed to comply with the requirements of s22(3)(b) of the Act.

Fulton Hogan submitted that Cockram failed to satisfy the condition precedent set out in clause 22.2(1)(e) of the Subcontract. That is, Cockram failed to show that Fulton Hogan received an equivalent extension of time under the Head Contract as Cockram received under the Subcontract.

Cockram’s position was, inter alia, that clause 22.2(1)(e) of the Subcontract was void because of the operation of section 12 of the Act, which states:

“a pay when paid provision has no effect in relation to any payment for construction work … under the contract”

Further, section 12(2)(c) of the Act states that a “pay when paid provision” is a provision that:

“makes the liability to pay money owing, or the due date for payment of money owing, contingent or dependent on the operation of another contract.”

In other words, Cockram’s position was that clause 22.2(1)(e) was void because the liability to pay was dependent on the operation of the Head Contract.

The Adjudicator did not offer either of the above reasons for her conclusion.

It appears the Adjudicator says clause 22.2(1)(e) shouldn’t be applied because it is not ‘legitimate or workable’, which without more, is not a proper basis for refusing to apply the clause.

She does say the clause is not a legitimate condition precedent because it relies on a contract to which the claimant is not a party. Accordingly, Cockram submits the Adjudicator must have had in mind the expression “contingent or dependent on the operation of another contract” in s12(2)(c) of the Act.

Cockram further submits the conclusion is reinforced by the High Court decision Maxcon Constructions Pty Ltd v Vadasz (trading as Australasian Piling Co) [2018] HCA 5, which refers to the s12 equivalent in the Building and Construction Industry Security of Payment Act 2009 (SA) (“the SA Act”).

However, neither section 12 nor the High Court’s decision in Maxcon were put to or mentioned by the Adjudicator.

Taking these considerations into account, Ball J found that it was mere speculation that the Adjudicator intended to rely on s12 in finding that clause 22(1)(e) did not apply. A conclusion critical to the Adjudication Determination.

The Decision

In reaching his conclusion, Ball J took into consideration the informal nature of the adjudication process and the fact adjudicators may be placed under extreme time pressures because of the truncated nature of the process.[1]

Nevertheless, Ball J set aside the Adjudicators’ determination, finding it void for jurisdictional error because of the Adjudicator’s failure to provide adequate reasons where reasons are required by statute,[2] namely s22(3)(b) of the Act.

This decision is a stark reminder that Adjudicators must provide clear and logical reasons for their decisions on important aspects of their findings, or run the risk having of their decisions set aside.

[1] New South Wales Land and Housing Corporation v Clarendon Homes (NSW) Pty Ltd [2012] NSWSC 333.

[2] Seddon v Medical Assessment Panel [No. 2] WASC 1 at [114].

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