07 Jun 2018
Low threshold for adjudicator's reasons
By Frazer Moss, Kath Hallpike
The New South Wales Court of Appeal has underscored the formidable challenges faced by parties seeking to establish jurisdictional error in adjudication determinations.
What will suffice to satisfy the statutory obligation to provide "reasons" in support of an adjudication determination under the security of payment legislation? According to a recent decision of the New South Wales Court of Appeal, it seems the obligation is less than exacting; the legislation requires only that reasons be given, not that they "be adequate according to any objective criterion".
In Cockram Construction Ltd v Fulton Hogan Construction Pty Ltd  NSWCA 107, the Court of Appeal allowed an appeal against the first instance decision which held that an adjudication determination under the Building and Construction Industry Security of Payment Act 1999 (NSW) was void for jurisdictional error because the adjudicator failed to give adequate reasons in support of her determination. Under section 22(3)(b) of the Act, a determination of an adjudicator is required to "include the reasons for the determination".
Cockram, the appellant subcontractor, served a payment claim on the respondent head contractor, Fulton Hogan. In its payment schedule response, Fulton Hogan set off amounts that it claimed were due by way of liquidated damages for delay. Cockram, in turn, applied for adjudication. Cockram countered the claim for liquidated damages by asserting an entitlement to extensions of time. Fulton Hogan disputed those EOT claims, relying on a provision of the subcontract (clause 22.2(1)(e)) which made Cockram's entitlement to an EOT conditional on Fulton Hogan receiving an equivalent EOT under the contract with its principal.
In answer to Fulton Hogan's argument based on clause 22.2(1)(e), the adjudicator relevantly determined "I do not consider that this is a legitimate condition precedent as it relies on a contract relationship… to which the Claimant is not a party". The primary judge did not accept that this conclusion constituted "reasons" as contemplated by the Act, stating "on the face of it, 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." Thus it was held there had been a failure to comply with section 22(3)(b) of the Act.
The Court of Appeal, however, was satisfied the determination "recorded a complete argument" for the finding Cockram was entitled to EOTs, that whether the finding "proceeded on a correct understanding of any applicable law" was "not to the point". Noting that adjudicators need not be lawyers, the Court stated the language employed in determinations should not "be viewed through the prism of legal concepts", and that what is required is an "explanation for the outcome", not "a written account of the subjective process by which the determination was reached".
Indeed, these sentiments are reflected in the recent review of security of payment laws by John Murray AM, and his observation that in the interests of speed and cost efficiency, "parties are prepared to accept that the adjudicator's decision they will receive will capture the essence of the adjudicator's reasoning and not necessarily include a detailed dissertation of the applicable law".
Fulton Hogan then sought to advance a further argument to the effect the adjudicator failed to perform her statutory function by refusing to apply clause 22.2(1)(e) of the subcontract. This argument was premised on section 22(2)(b) of the Act, which obliges an adjudicator to consider "the provisions of the construction contract" from which an application arises. In this instance, it was clear that the adjudicator had in fact considered the relevant contractual provisions; she simply concluded in her determination that clause 22.2(1)(e) was not to be applied. That the conclusion may or may not have "proceeded from an error in construction or wrong understanding of the applicable law" did not substantiate Fulton Hogan's contention that the adjudicator failed to discharge her statutory functions under section 22(2).
In the post-Probuild environment, doubtless the anxiety to characterise non-jurisdictional errors as jurisdictional is not going to dissipate. It remains to be seen whether this tension will be addressed by the reforms now being considered by the Government.