Insights

In brief - Adjudicator denies builder procedural fairness and breaches rules of natural justice

The NSW Supreme Court has held in Anderson Street Banksmeadow Pty Ltd v Helcon Contracting Australia Pty Ltd [2013] NSWSC 491 and [2013] NSWSC 657 that an adjudication determination in favour of a piling subcontractor in the amount of $104,857.50 was void on the basis that the adjudicator denied procedural fairness to the builder in breach of the rules of natural justice.

Payment claim for piling work referred to adjudication

In the payment claim, the piling subcontractor Helcon Contracting Australia Pty Ltd ("Helcon") included claims for three variations totalling $54,000 in value (based on the variation work being 100% complete).

In its payment schedule, the builder Anderson Street Banksmeadow Pty Ltd ("Anderson") took the position that the variation work was 0% complete. In circumstances where Helcon had penetrated and caused damage to a sewer pipe whilst carrying out its work, Anderson also sought in its payment schedule to deduct the amount of $50,006.40 from any amount due to Helcon for costs incurred by Anderson to protect people and property, mitigate damage and analyse the cause of the damage.

Piling subcontractor challenges deduction sought by builder

When applying for adjudication of its payment claim, Helcon included no evidence in the adjudication application to establish that the variation work was 100% complete.

Helcon challenged the deduction sought by Anderson on the basis that Helcon was not aware of the location of the sewer pipe until the day after the incident.

Builder claims that piling subcontractor should have been aware of location of sewer pipe

In responding to Helcon's adjudication application, Anderson acknowledged that the variation work was partially complete, but took the position that Helcon bore the onus of establishing that the work was 100% complete (as claimed) and had not done so.

Anderson noted that Helcon should have been aware of the location of the sewer pipe at tender because the tender package included drawings showing its location.

Builder commences Supreme Court proceedings following unfavourable adjudication determination

In relation to the variations, the adjudicator determined in the adjudication determination that Anderson had not satisfied her as to what work was incomplete and that Helcon's valuation for the variations should be accepted in the absence of any valuation by Anderson.

In relation to the deduction sought by Anderson, the adjudicator determined that Anderson had not established by way of survey reports that the sewer pipe ran in the precise location indicated by the drawings in the tender package and, that, on that basis, she was not satisfied that Anderson had proven Helcon's liability for the costs incurred.

Anderson commenced proceedings in the NSW Supreme Court seeking a declaration that the determination was void and of no effect and, alternatively, an order that the determination be quashed.

Was the builder denied procedural fairness?

In relation to the variations, the issue before the Supreme Court was whether the adjudicator failed to make a bona fide attempt to exercise her statutory power by not determining what work had been carried out or the value of that work.

In relation to the deduction, the issue before the Supreme Court was whether the adjudicator denied Anderson procedural fairness by resolving the issue on a basis not advocated by Helcon and in circumstances where Anderson was not given an opportunity to make submissions in respect of it.

Supreme Court finds that adjudicator breached requirements of natural justice

In relation to the variations, Stevenson J held that the adjudicator's apparent conclusion that Anderson bore the onus of showing the extent to which the variation work was incomplete may have been an error, but such an error was within the adjudicator's jurisdiction to make.

The Supreme Court found that the adjudicator addressed the merits of the matter in some considerable detail and therefore there was no failure to make a bona fide attempt to exercise her statutory power.

In relation to the deduction, Stevenson J held that Helcon's position in the adjudication was that Anderson had not provided any plans as to the location of the sewer pipe before the incident. Helcon did not advance any position in the adjudication that any plans in the tender package did not precisely indicate the location of the sewer pipe.

The adjudicator rejected Anderson's submission that the plans were available to Helcon at tender on the basis that Anderson had not proven that the plans were precisely accurate as to the location of the sewer pipe.

As this was not an argument advanced by Helcon, natural justice required the adjudicator to notify the parties of her intention to resolve the matter on this basis. Her failure to do so was in breach of the requirements of natural justice. The breach was a "material" breach in the sense that the matter in respect of which the submissions were not sought was germane to the adjudicator's determination.

The Supreme Court held that the adjudicator thereby committed jurisdictional error.

Subcontractor argues that adjudication determination should not be declared void

Helcon submitted, in reliance on the 2013 decision of the Queensland Supreme Court in BM Alliance Coal Operations Pty Ltd v BGC Contracting Pty Ltd (No 2) [2013] QSC 67, that the Court should decline to make a declaration that the adjudication determination was void on the basis that the adjudicator had committed jurisdictional error in respect of one discrete aspect of the matter only (ie the deduction).

Helcon argued that the court should accept the giving of an undertaking by Helcon to pay to Anderson the fruits of the determination referable to the jurisdictional error (ie the monetary amount of the determination applicable to the deduction) on the basis that such an undertaking was accepted by the Queensland Supreme Court as being an appropriate and sufficient way to remedy the jurisdictional error.

Supreme Court finds that adjudication determination is void

However, the court distinguished the decision in the BM Alliance Coal Operations case on the basis that the jurisdictional error in that case did not arise from a breach of the rules of natural justice and the amount affected by jurisdictional error in that case represented only 15% of the value of the determination.

The court noted the finding of Hodgson JA in Brodyn Pty Ltd t/a Time Cost and Quality v Davenport [2004] NSWCA 394 that a determination made in breach of the rules of natural justice is void (and not merely voidable) and therefore made a declaration that the adjudication determination was void.

Court will void a determination where adjudicator denies procedural fairness in breach of the rules of natural justice

This decision highlights the vulnerability of adjudication determinations where an adjudicator decides an issue on a basis not advocated by the parties without giving the parties an opportunity to make submissions on that basis.

The decision also reinforces that adjudication determinations will be declared void where the jurisdictional error in question arises from a breach of the rules of natural justice.

This article has been published by Colin Biggers & Paisley for information and education purposes only and is a general summary of the topic(s) presented. This article is not specific legal advice. Please seek your own legal advice for any questions you may have. All information contained in this article is subject to change. Colin Biggers & Paisley cannot be held responsible for any liability whatsoever, or for any loss howsoever arising from any reliance upon the contents of this article.​

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