In brief - Adjudicator made a number of fundamental errors
In the recent decision of Leighton v Arogen  NSWSC 1323, Justice McDougall of the Supreme Court of NSW quashed another adjudication determination of Philip Davenport dealt with under the NSW Building and Construction Industry Security of Payment Act on the grounds that he made a number of fundamental errors.
Dispute over payment schedule for drilling services
On 8 March 2011, Leighton Contractors Pty Limited (Leighton) contracted with Arogen Pty Ltd (Arogen) whereby Arogen agreed to supply horizontal directional drilling services in connection with an electrical supply upgrade project in southern Sydney.
On 12 July 2012, Arogen submitted a payment claim to Leighton in excess of $6.2 million, of which almost $5.5 million related to "variations/additional works".
On 24 July 2012, Leighton responded with a payment schedule which provided a scheduled amount of - $239,000 (ie Arogen owed Leighton). Leighton's payment schedule responded specifically to each item of Arogen's payment claim, giving reasons why its assessment of the items differed from Arogen's.
There was a dispute as to whether Leighton's payment schedule included an attached "calculation" in respect of the variations where Leighton's assessment of the value of the variation differed from that of Arogen's. Arogen asserted in its adjudication application that Leighton did not attach any calculations to its payment schedule.
On 7 August 2012, Arogen lodged an adjudication application with respect to its payment claim. Leighton served an adjudication response on 15 August 2012.
Variation items in payment claim
Six variation items claimed by Arogen were identified in the payment claim as for "delay and disruption" due to Cooks River heritage issues for a nominated period. The adjudication application, however, stated that a portion of the claims were based on the effects of inclement weather and "excusable delay".
Leighton submitted that the payment claim "departed impermissibly from the way the relevant claim had been put in the payment claim". Nevertheless, Leighton addressed these new bases of the claim.
Adjudicator finds in favour of Arogen
In his determination dated 22 August 2012, the adjudicator, Philip Davenport, found in favour of Arogen. Mr Davenport determined that the disputed "calculations" were not attached to Leighton's payment schedule and therefore Leighton was subsequently "barred" from relying on the calculations (as an adjudication response cannot rely on any reasons not included in the payment schedule).
Supreme Court quashes adjudication determination
Justice McDougall held that the adjudication determination was void and quashed for the following (principal) reasons.
Arogen changed the basis of its claim in relation to a number of variation items
The court held that on a "fair and obvious reading", the payment claim referred to a basis of claim "that was quite different to that advanced in the submissions".
The court held the adjudicator should not have considered Arogen's submissions as having been duly made.
The court reaffirmed the position that "an applicant may not rely on, and an adjudicator may not consider, material that is included in an adjudication application which is outside the scope or ambit of the claim described in the payment claim".
The adjudicator invalidly applied section 20(2B)
Section 20(2B) of the Act provides that a Respondent's adjudication response cannot include any reasons for withholding payment unless those reasons have already been included in the payment schedule.
The court found that Leighton's payment schedule did include the calculations. Regardless, the court noted that the "reasons for withholding payment" stated by Leighton in its payment schedule were that the variations had been overvalued and were excessive and held that the calculations merely gave details of these reasons and therefore constituted either a part or an extension of these reasons for non-payment. Therefore, Leighton was not prevented from relying on the calculations.
By invalidly applying section 20(2B), the adjudicator denied Leighton natural justice.
The adjudicator failed to provide reasons
The adjudicator failed to provide "any, let alone any sufficient" reasons for the adoption of Arogen's quantification of its claim. The adjudicator dealt with a question of quantum simply by stating:
I am satisfied that the claimant is entitled to have the amounts claimed for included in the calculation of the progress payment.
The adjudicator further dealt with the dispute as to whether Leighton attached "calculations" by simply stating "no calculation was attached", giving no clear reasons for expressing this view. There were also no clear reasons given that indicated the adjudicator had turned his mind to the components of the claim or the underlying rates claimed by Arogen.
A Claimant should take care not change the basis of claim it has presented in its payment claim in the Adjudication Application it lodges with respect to that payment claim under the Act.
For the avoidance of doubt, a Respondent should ensure that all relevant material to support any assessment or valuation has been included as part of its payment schedule.
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