Catchwords

Construction Contracts (Security of Payments) Act (NT) – security of payments – natural justice – substantial failure to comply with requirements of – no opportunity to address critical issues not raised by parties – deprived of possibility of a successful outcome – adjudication – determination – judicial review

Significance

The Supreme Court of the Northern Territory has quashed the determination of an adjudicator on the grounds of a denial of natural justice in circumstances where the adjudicator failed to request submissions on the particular point on which his decision was based.

Facts

INPEX Operations Australia Pty Ltd (respondent) engaged JKC Australia LNG Pty Ltd (claimant) to perform engineering, procurement, supply, construction and commissioning of onshore facilities for in relation to the respondent's gas field development (Contract).

On 3 November 2016, the claimant issued two invoices to the respondent – one for US$205,825,452, and a separate invoice for the GST component.

On 24 November 2016, the respondent issued a notice of dispute, disputing US$133,501,780 of the first invoice and US$17,510,093 of the GST claimed.

On 3 January 2017, the claimant made an adjudication application under the Construction Contracts (Security of Payments) Act (NT) (Act) in relation to US$83,933,837, being a portion of the disputed amount.

The adjudicator alerted the parties by email to an issue that he considered relevant, and invited the parties' submissions as to 'whether the provisions implied into deficient construction contracts by section 20 of the NT Act should or should not be imported into the [Contract]'. The parties provided submissions to the effect that neither considered section 20 of the Act to apply.

The adjudicator determined that the respondent pay the claimant USD$83,933,837 (Determination) on the basis that section 20 of the Act did operate to insert implied terms into the Contract, relevantly, that the respondent ought to have provided a notice of dispute within 14 days. As the respondent in fact issued its notice of dispute 21 days after the invoices were served, the adjudicator determined that the respondent was consequently obliged to pay the whole amount of the invoice. The respondent sought judicial review of the adjudication determination on the basis, inter alia, that there was a substantial failure to accord natural justice.

Decision

The court held that there had been a substantial denial of natural justice and quashed the determination.

Whilst both parties had disagreed with the adjudicator that section 20 of the Act had any operation upon the Contract, Kelly J noted the real question to be tried was whether the adjudicator afforded the parties reasonable notice of the basis on which he intended to make his decision and an opportunity to address that proposition.

Whilst the adjudicator did alert the parties as to the issue of the application of section 20 of the Act, he did not indicate his view during the adjudication process, or what he considered the consequences of application of section 20 of the Act would be upon the parties.

Further, he did not warn the parties that he was contemplating making his determination on the basis that the respondent had failed to issue its notice of dispute within 14 days.

Whilst the claimant argued this issue was implicit in the question asked, his Honour held that the adjudicator's communication did not fairly put the claimant on notice, and, that, in any event, the terms of the adjudicator's email specifically precluded the respondent from making any submissions about what would be the consequences of implying the terms into the Contract. This amounted to a substantial denial of natural justice, depriving the respondent of the possibility of a successful outcome.