3 December 2012 Hugh Foxcroft SC

In the Supreme Court of New South Wales McDougall J has quashed an adjudication determination the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act) on the basis that the adjudicator had:

1 considered claims in an adjudication application which were put on a significantly different basis from that put in the payment schedule;

2 failed to consider reasons advanced by the respondent in answer to the changed claims as put in the adjudication application; and

3 failed to give any reasons for the adoption of the claimant’s quantification.

Arogen, the claimant, was subcontracted by Leighton to supply horizontal directional drilling services for certain electricity network upgrading works in Sydney.

In June 2012 Arogen submitted a monthly payment claim to Leighton claiming in excess of $6.2M (exclusive of GST), the greater part of which related to variation claims. In July 2012 Leighton provided a payment schedule to Arogen assessing no moneys to be due to Arogen, but a small amount payable by Arogen to Leighton. The payment schedule responded specifically to each item of the payment claim and included calculations and reasons for the difference in assessment.

In August 2012 Arogen made an adjudication application supported by a large volume of material, including a copy of Leighton’s payment schedule. Significantly, the copy of the payment schedule provided by Arogen to the adjudicator did not include the accompanying calculations.

In due course Leighton served an adjudication response. However, the adjudication response failed to specify that the payment schedule provided to Arogen had included calculations.

Leighton also contended that Arogen’s adjudication application significantly changed the basis of the claims from those which had been advanced in the payment claim.

The Court quashed the adjudication determination.

McDougall J accepted that Arogen had significantly changed the basis of its claims in the adjudication application from the way those claims had been presented in its payment claim. By considering the new basis of the claims the adjudicator had acted outside the limits of his jurisdiction under the Act.

The Court considered that the adjudicator, by incorrectly applying the Act to bar Leighton from relying on the calculations (which had, in fact, issued with the payment schedule), had denied natural justice to Leighton. The consequence of the erroneous ruling was that the claimant was permitted to advance its claim in a way that the respondent was not able to answer. This was a jurisdictional error.

McDougall J also held that the adjudicator failed in his obligation to give reasons for his adoption of Arogen’s quantification of its claim. The adjudication determination contained no more than a statement of satisfaction with the claimant’s quantification. The Court stated that an adjudicator was obliged to provide sufficient reasons to explain his conclusions. A failure to do so constituted a failure to exercise the jurisdiction given in accordance with the conditions upon which it was given.

Accordingly, parties to an adjudication should:

1 ensure that the adjudicator has been given a complete and accurate copy of each document being relied upon, particularly those provided pursuant to obligations imposed by the Act; and

2 ensure that the basis of the claims presented in the adjudication application is the same as that contained in the payment claim.

Adjudicators should:

1 ensure that documents provided, particularly those provided pursuant to obligations imposed by the Act, are complete; and 2 properly assess the quantum of claims, not merely adopt the quantification provided by a party by use of a form of words.