Perceptions of bias have undermined confidence in Authorised Nominating Authorities for some time. While a recent push to abolish the bodies has failed in South Australia, it’s an encouraging sign to see the issue on the legislative agenda.

On 7 July 2016, the South Australian House of Assembly voted to block a private members’ bill from Mr Stephan Knoll MP to abolish Authorised Nominating Authorities (ANAs) in that State. Such a move would have seen South Australia follow Queensland and become only the second jurisdiction to remove ANAs after a 2015 Senate Economics References Committee report condemned the bodies as susceptible to “apprehension of bias”.[1]

Authorised Nominating Authorities

ANAs are for-profit organisations that receive an authorisation from a State Minister to accept security of payment adjudication applications. They appoint an adjudicator who will determine the payment dispute. Operating as an independent intermediary on behalf of the parties, they are designed to help avoid satellite disputes about the adjudicator’s appointment - delaying final resolution of the payment claim.

A 2015 Senate Economics References Committee report concluded that there is a perception that ANAs and their fee structures and practices in selecting and appointing adjudicators are systemically biased in favour of claimants. Further, as the claimant selects the ANA to use, a “for profit” ANA has a perceived vested interest in appointing a “pro-Claimant” adjudicator who is more likely to make a favourable adjudication determination for the claimant and so encourage repeat business.

This adverse perception undermines one of the major advantages of a well-functioning security of payment regime – the avoidance of cost and delay in litigation. If adjudication determinations are accepted as independent then they are less likely to be challenged and the parties are less likely to go to court to seek a final resolution of the underlying disputes. They will be accepted as a “fair”, albeit imperfect decisions, due to the rapid nature of the process.

Another Example of Momentum to Reform

Notwithstanding that the private members’ bill in South Australia was not passed, it is another example of moves to modify and reform security of payment legislation around the country. This push for reform is coming from the judiciary and legislature, as well as industry participants themselves.

Some examples of this push are set out below.

  • First, the newfound increase in the scope of judicial oversight and willingness of courts to intervene in adjudications.

    We recently commented on the New South Wales Supreme Court decision of Probuild,[2] which held a determination is amenable to judicial review in the case of non-jurisdictional error. This is in contrast to the previous understanding, that judicial review was only available for jurisdictional error, and where there was a breach of the “basic and essential requirements” of the Act. This widening of the scope of judicial review means that adjudications are more likely to be challenged and will motivate adjudicators to ensure that their determinations are well-written, well-reasoned and error free.

    In October this year, the High Court will consider security of payment legislation for the first time[3]. The High Court will consider whether, under the NSW legislation, the existence of a reference date is a jurisdictional fact and whether determinations may be reviewed for non-jurisdictional error on the face of the record.

    This may prove to be a watershed moment for the industry.
  • Second, as we have previously reported, the Queensland legislature has abolished “for profit” ANAs and has transferred their appointment function to the Queensland Building and Construction Commission. The Commission maintains an independent Adjudication Registry which is the sole body authorised to accept adjudication applications and appoint adjudicators.

  • Third, in 2006, the Victorian parliament introduced amendments allowing parties to agree on a list of three or more ANAs the Claimant must select from if they wish to file an adjudication application. This affords respondents more control over ANAs and greater confidence in the system. ANAs are also more incentivised than in other States to ensure that they are perceived favourably by respondents – although still not to the extent for claimants.

  • Finally, from an industry perspective, in 2014, the Society of Construction Law Australia released a report calling for reform by allowing parties to appoint the adjudicator equally. The Society opined that allowing the parties to choose their adjudicator would encourage confidence in the adjudication system, encourage higher standards among adjudicators and tend to produce fairer results.[4]

There is clearly a momentum towards reforming the appointment process of adjudicators and oversight of their determinations. This will build confidence in adjudicator’s impartiality and promote greater acceptance of their determinations. While the recent push in South Australia failed, it may not be long before further challenges arise across Australia.