In its recent decision Laing O’Rourke Australia Construction Pty Ltd v Samsung C&T Corporation [2016] WASCA 130, the Court of Appeal of Western Australia has sought to clarify the circumstances in which an adjudicator’s determination will be quashed for jurisdictional error and has set out the correct approach for reviewing a determination made under the Construction Contracts Act 2004 (WA) (Act).

The Court of Appeal has confirmed that an adjudicator will not exceed his or her jurisdiction to make a determination merely because he or she makes an error in the construction or application of the contract. In order to have an adjudicator’s determination set aside, the adjudicator must have expressly excluded the contract from his or her consideration or must have taken no account of the contract.

The Court of Appeal’s reasoning is consistent with the objects and purpose of the Act, which was intended to facilitate the expeditious and informal process of adjudication in order to keep money flowing.

1 Background

On 21 February 2014, Laing O’Rourke Australia Construction Pty Ltd (LORAC) engaged Samsung C&T Corporation (Samsung) to perform construction work on the port at the Roy Hill iron ore mine in Western Australia (Subcontract).

On 27 January 2015, LORAC issued a monthly progress claim under the Subcontract for an amount of $43,443,517 (January Progress Claim). Samsung did not issue a final progress certificate. On 10 February 2015, Samsung exercised its right to terminate the Subcontract for its own convenience. The parties subsequently entered an interim deed under which Samsung was required to pay LORAC $45,000,000 in termination payments for all work done prior to termination. On 25 February 2015, LORAC issued a second progress claim under the compensation provisions of the Subcontract for $54,713,156.47, in respect of works it had performed prior to Samsung’s termination of the Subcontract (February Progress Claim).

Samsung refused to pay LORAC for either of the January or February Progress Claims.

LORAC applied to have both payment disputes with respect to the January and February Progress Claims adjudicated under the Act. The adjudicator made both determinations in LORAC’s favour, requiring that Samsung pay LORAC $20,965,076 in respect of the January Progress Claim (First Determination) and $23,175,442.01 in respect of the February Progress Claim (Second Determination).

Samsung refused to make these further payments to LORAC and consequently, LORAC sought leave to enforce the First Determination and Second Determination as judgements. Samsung commenced proceedings for judicial review, seeking orders to quash the First Determination and Second Determination, on the basis of, amongst other grounds, that the adjudicator had fallen into jurisdictional error.

2 Process of Adjudication under the Act

The jurisdiction conferred upon an adjudicator under the Act is limited to disputes arising under construction contracts, and the adjudicator’s task is to determine, on the balance of probabilities, whether any party to the payment dispute is liable to make a payment. The adjudicator is required to determine an application within 14 days. For the purposes of making a determination, an adjudicator must act informally and if possible make the determination on the basis of the adjudication application and its papers. The adjudicator is not bound by the rules of evidence and may inform himself or herself in any way he or she thinks fit.

3 The Decision at First Instance

Prior to Mitchell J’s decision at first instance, the accepted view was that an adjudicator had some scope to make errors and therefore an adjudicator’s determination could not be quashed merely for errors of law.

The trial judge held that each of the adjudicator’s determinations must be quashed on the ground that the adjudicator had exceeded the jurisdiction conferred by the Act. Mitchell J held that in both the First Determination and Second Determination, the adjudicator had failed in fundamental respects to determine the relevant payment dispute by reference to the terms of the Subcontract. Essentially, the trial judge had broadened the scope of what could be considered a jurisdictional error in the context of determinations made under the Act, and thereby expanded the scope of the Court’s ability to quash an adjudicator’s determination and intervene in the adjudication process.

4 The Decision on Appeal

The Court of Appeal unanimously overturned the trial judge’s decision and found that the adjudicator had not exceeded his jurisdiction.

Martin CJ considered the objects of the Act and the Minister’s Second Reading Speech in highlighting that the legislature had intended the adjudication process to be a ‘trade-off between speed and efficiency on the one hand, and contractual and legal precision on the other.’ Martin CJ also referred to the characteristics of the adjudication process, including that the adjudicator need not be legally qualified and that determinations made in respect of claims other than for a final payment are to be taken to be payments on account of the total amount payable under the contract.

Importantly, Martin CJ held that an adjudicator will not exceed the jurisdiction to make a determination merely because he or she misconstrues the contract or makes an error in the application of its terms to the facts. However, on the other end of the spectrum, an adjudicator who expressly excludes from consideration the construction contract, or who took no account whatever of the contract, would exceed the jurisdiction conferred by the Act. Cases which fall between these two extremes must be determined on a case-by-case basisby ascertaining precisely what the adjudicator has done, and then determining whether his or her actions constitute a determination of the kind for which the Act makes provision.

In applying this approach,Martin CJ concluded that the error made by the adjudicator was an error in the construction or application of the Subcontract and an error of this kind does not take an adjudicator beyond the jurisdiction conferred by the Act.

The Court upheld the appeal against the trial judge’s decision to set aside the First Determination and the Second Determination, and had both determinations restored. However, the Court of Appeal did not enforce the determinations on the basis that Samsung’s payments made under the interim deed satisfied its obligation to pay the amounts under both determinations.

5 Implications

Parties to construction contracts that elect to have payment disputes determined under the Act can have greater confidence that those determinations will be upheld, and ordinarily can be enforced.

While the courts had drifted away from allowing adjudicators to make errors in their determinations, the decision of the Court of Appeal in this case represents a shift back to a position that is more consistent with the purpose and objectives of the Act.