Building and Construction Industry Security of Payment Act 1999 (NSW) – Adjudication determination quashed – failure to give adequate reasons.

Fulton Hogan Construction Pty Ltd v Cockram Construction Ltd [2018] NSWSC 264

In Fulton Hogan Construction Pty Ltd v Cockram Construction Ltd [2018] NSWSC 264, the Supreme Court of NSW has set aside as void, for jurisdictional error, an adjudication determination made under the Building and Construction Industry Security of Payment Act 1999 (NSW) (Act). The $8.3M determination was set-aside on the basis that the adjudicator gave inadequate reasons for her decision. The decision is important because it confirms that a failure to give adequate reasons by an adjudicator is a jurisdictional error and that such a determination may be quashed by an order of the Court in the nature of certiorari.

Facts

Fulton Hogan Construction Pty Ltd (Fulton Hogan), the head contractor, and Cockram Construction Ltd (Cockram), the subcontractor, were parties to a major works subcontract for the design and construction of three carparks (and associated works) in NSW. The contract price was just over $22M.

On 12 December 2017, Cockram served a payment claim under the subcontract (and pursuant to the Act) for approximately $12.6M. In response, Fulton Hogan issued a payment schedule in which it claimed that only $62,695.12 was payable.

Cockram then sought adjudication of the dispute, and on 20 February 2018 (amended on 28 February 2018) the adjudicator determined that approximately $8.3M was payable to Cockram. Fulton Hogan sought judicial review of the adjudication determination in the Supreme Court of New South Wales, including on the basis that the adjudicator failed to give adequate reasons for decision, and it sought an order in the nature of certiorari to quash the determination.

Issues

One of the main issues in dispute between the parties in relation to the payment claim was a claim by Fulton Hogan for liquidated damages for delay, and Cockram’s counter-position that it was entitled to an extension of time (EOT) under the subcontract (and so was not, therefore, liable for liquidated damages as claimed).

One of the preconditions to Cockram becoming entitled to an EOT under the subcontract was set out in clause 22.2(1)(e). According to the judgment, that clause provided that Cockram, in order to obtain an EOT, had to show that Fulton Hogan “has received an equivalent extension of time under clause 10.10 of the Head Contract.”

One of matters in issue then, was whether Cockram had shown that Fulton Hogan had received such an EOT under the Head Contract. In dealing with this question, the adjudicator said in her reasons, among other things:

“EOT under the Head Contract – clause 22.2(1)(e): I do not consider that this is a legitimate condition precedent as it relies on a contract relationship, and the attendant obligations, to which the Claimant is not a party. Further, there is no information to suggest that the Respondent [Fulton Hogan] even sought an EOT from the Head Contractor’s Principal.”

The requirement for an adjudicator to provide reasons for decision

In the Supreme Court, Ball J noted that s 22(3)(b) of the Act requires that an adjudicator must give reasons for his or her decision. His Honour also said that in determining what counts as adequate reasons “the informal nature of the adjudication process and the fact that the adjudicator may be placed under extreme time pressures because of the truncated nature of the process” must be borne in mind.

Fulton Hogan submitted at trial that the adjudicator did not give adequate reasons for refusing to apply clause 22.2(1)(e) of the subcontract. Fulton Hogan’s position appears to have been that Cockram had not shown that Fulton Hogan had received an equivalent extension of time under the Head Contract (and so the condition precedent to an EOT in clause 22.2(1)(e) had not been satisfied), and yet the adjudicator had not provided any adequate reasons for refusing to give effect to this condition precedent. In other words, because Cockram had not overcome the condition precedent, it was not entitled to an EOT, and yet the adjudicator had not given adequate reasons for (effectively) ignoring this condition precedent.

Cockram, on the other hand, said (among other things) that the adjudicator was entitled to take the view she took as a result of the operation of s 12 of the Act. This section, entitled, “Effect of ‘pay when paid’ provisions”, provides in sub-s (1), among other things, that a “pay when paid provision has no effect in relation to any payment for construction work… under the contract”. Under s 12(2)(c), a “pay when paid” provision means, amongst other things, a provision in a contract 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.”

That is to say, Cockram’s position was that clause 22.2(1)(e) of the subcontract was void because of the operation of s 12 of the Act, and it was for this reason that the adjudicator found for Cockram on the EOT issue.

Were the adjudicator’s reasons adequate?

In his reasons for decision, Ball J said that the difficulty with Cockram’s position, and its reliance on s 12 of the Act, was that the adjudicator did not expressly refer to s 12 at all, and that, instead:

“she appears to be saying that cl 22.2(1)(e) should not be applied because she did not consider it to be legitimate or workable, which, without more, is not a proper basis for refusing to apply the clause”.

His Honour concluded that:

“The result is that it is simply a matter for speculation why the Adjudicator thought that cl 22.2(1)(e) did not apply. That conclusion was critical to the Adjudicator’s decision on the issue of extensions of time and consequently liquidated damages. Consequently, in my opinion, the Adjudicator failed to give reasons for a critical aspect of her decision. In my opinion, that involved a failure to comply with the requirements of s 22(3)(b) of the Act and amounted to a jurisdictional error.”

Conclusion

The distinction between jurisdictional and non-jurisdictional error is sometimes difficult to ascertain. However, a number of types of error have been recognised by the Courts as jurisdictional in nature. These include where a tribunal or adjudicator: identifies the wrong issue; asks the wrong question; ignores relevant evidence; relies on irrelevant evidence, and in some circumstances, makes an erroneous finding or makes a mistaken conclusion (Craig v South Australia (1995) 184 CLR 163 at 179). To these may be added: acting in bad faith or breaching the rules of natural justice (Amasya Enterprises Pty Ltd v Asta Developments (Aust) Pty Ltd [2015] VSC 233 at [80]); and a failure to give adequate reasons where reasons are required by statute (Seddon v Medical Assessment Panel [No.2] [2012] WASC 1 at [114]).

Justice Ball’s decision in this case is a stark reminder for adjudicators, who are indeed acting under considerable time pressures in determining disputes under the Act, that they must provide clear and logical reasons for decision on important aspects of their findings. If they do not do so, their decisions may be set aside for jurisdictional error with serious consequences for the parties.