Two South Australian decisions concerning the Building and Construction Industry Security of Payment Act 2009 (SA) (the Act) have cut across the effectiveness of adjudication determinations and in one case, undermined the intended operation of the Act.
In Romaldi Constructions Pty Ltd v Adelaide Interior Linings Pty Ltd  SADC 39, the Act was overridden by an injunction which prevented a subcontractor from recovering a payment an adjudicator had determined was owed to the subcontractor.
In Built Environs Pty Ltd v Tali Engineering Pty Ltd & Ors  SASC 84, an adjudication determination was declared void and set aside. This decision highlights the importance of reviewing adjudication determinations to identify whether all matters relevant to the determination have been addressed. Natural justice and impartiality on the part of the adjudicator and the nominating authority are relevant considerations.
A contractor commenced proceedings against a subcontractor for costs incurred to complete work it alleged the subcontractor had not completed. The contractor argued that the subcontractor was about to be declared insolvent and in the absence of an order preventing the subcontractor from seeking recovery of the adjudication amount, the contractor's claim in the proceedings would be rendered pointless. The adjudication determination was not challenged by the contractor.
The subcontractor asserted that by allowing the contractor's application, the purpose of the Act would be defeated. By virtue of the operation of the Act, the subcontractor claimed it was entitled to payment of the adjudication sum. Judge Barrett acknowledged that the policy of the Act (for subcontractors to have a right to payment of adjudications in their favour) militated against the grant of an injunction. However, he concluded that the balance of convenience favoured the granting of an injunction as there was a real risk of the subcontractor not being able to repay the adjudication sum if the injunction was not granted.
The subcontractor successfully appealed the decision. Watch this space for an update on Justice Anderson's appeal judgement.
Built Environs Pty Ltd engaged Tali Engineering Pty Ltd to supply and erect structural steelwork for the construction of a shopping centre.
Tali Engineering made 9 payment claims under the Act. Built Environs' payment schedule in response to payment claim number 9 set off liquidated damages against amounts claimed by Tali Engineering and assessed Tali Engineering's claim as zero. Tali Engineering referred payment claim number 9 to adjudication by lodging an adjudication application with the nominating authority, 'Nominator'. The manager of Nominator was also the CEO of a company who was also a contract consultant, project manager and engineer engaged by Tali Engineering to advise and assist in connection with contractual issues with Built Environs (issues which eventually became the subject of the adjudication application).
Mindful that Tali Engineering may seek adjudication under the Act, the CEO asked another person, before Tali Engineering made its adjudication application, to act on behalf of Nominator on the nomination and appointment of an adjudicator. The adjudicator determined that Built Environs was not entitled to set off liquidated damages against the amount claimed by Tali Engineering.
Built Environs sought judicial review of the determination, in part on the following grounds:
The prevention principle precludes an owner recovering liquidated damages where a delay has been caused by an act or omission of the owner in breach of the contract.
Tali Engineering contended in its adjudication application that Built Environs had omitted items critical for Tali Engineering to complete the Subcontract. Neither Tali Engineering nor Built Environs raised the prevention principle in their submissions. Tali Engineering had not sought to invoke the prevention principle in progress claim number 9 or in correspondence with Built Environs prior to submitting progress claim number 9.
Justice Blue found:
Accordingly, the court held that the adjudicator denied natural justice to Built Environs by upholding Tali Engineering's progress claim on the basis of applying the prevention principle.
Nominator's duty under the Act as a nominating authority was to act impartially in selecting an adjudicator to adjudicate the dispute between Tali Engineering and Built Environs.
Nominator's manager had an interest as advisor to Tali Engineering, in Nominator selecting from the available pool of adjudicators an adjudicator who might favour Tali Engineering. Tali Engineering argued that there was no apprehended bias because the CEO stepping away from the nomination was analogous to the creation of a "Chinese Wall" within a firm of solicitors.
Justice Blue found that the analogy of the creation of a "Chinese Wall" was not apposite to the position of a nominating authority under the Act. Given the importance that the adjudicator as the ultimate decision-maker be and be seen to be independent, it was equally important that the nominating authority itself be and be seen to be independent. A Chinese Wall would not preclude a reasonable apprehension of bias arising given Nominator's alignment with Tali Engineering.
The court held thata fair-minded lay observer would regard the identity of the person selecting the decision-maker as important as the identity of the decision-maker. There was a reasonable apprehension of bias on the part of Nominator in selecting the adjudicator which rendered the adjudication determination void.
Justice Blue also made the following observations:
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