Australia: Security of Payment - Adjudicators should only determine a dispute based on the arguments advanced
Construction Law Update

Relevance

Adjudicators are increasingly deciding matters on a basis for which neither party has contended, which invariably leads to a denial of natural justice.

The decision in Ostwald Bros Pty Ltd v Jaylon Pacific Pty Ltd & Ors¹ is a timely reminder of this point. Yet again an adjudication decision has been declared void as a consequence of an adjudicator's failure to comply with the principles of natural justice.

As Burns J reminded the parties:

"although an adjudicator is not required to provide an opportunity to the parties to be heard on every point, there is a clear obligation to do so where the point is material to the outcome of the adjudication, unless it can be said that no submission could have been made to the adjudicator which might have produced a different result".²

Principals, contractors and subcontractors alike should interrogate the reasoning behind any adjudication decision to ensure that the adjudicator has not fallen into error.

Facts

At adjudication, the adjudicator rejected Ostwald's claim for liquidated damages (LDs) based on the adjudicator's independent interpretation (after parties' submissions had closed) of the extension of time (EOT) and LDs provisions (clauses 5.4 and 5.7 respectively).

On Application Ostwald (as applicant) sought:

1. a declaration that the adjudication decision was void on the basis that Ostwald had not been afforded an opportunity to make submissions regarding the adjudicator's interpretation of clauses 5.4 and 5.7; and
2. an injunction restraining the adjudication registrar from issuing an adjudication certificate based on that decision.

The first respondent (Jaylon) submitted that though neither party had been given opportunity to make submissions on the interpretation relied upon by the adjudicator, it would have made no substantive difference to the decision if submissions had been received.

Decision

Burns J held the adjudicators decision was void for denial of natural justice.

With reference to a number of established authorities, Burns J also reminded the parties that:

"It is well settled that a substantial denial of natural justice may invalidate an adjudication decision with the consequence that such a decision may be declared void. Where an adjudicator decides a dispute on a basis for which neither party contended, there will be a substantial denial of natural justice unless it can be said that no submission could have been made to the adjudicator which might have produced a different result".³

In reaching his decision, Burns J also made reference to the following quote of McDougall J in David Hurst Constructions Pty Ltd v Durham⁴ which outlines the task of an adjudicator in determining a dispute:

"[What] is called for is some process of balancing or evaluating the competing materials supplied by the parties".⁵

The decision serves as a reminder that the matters which an adjudicator can consider are limited to those listed in section 26(2) of the Building and Construction Industry Payments Act 2004 (Qld).

A copy of the full decision is located at http://archive.sclqld.org.au/qjudgment/2016/QSC16-240.pdf.

Footnotes

¹ [2016] QSC 240.

² Ibid at [6].

³ Ibid at [30].

⁴ [2008] NSWSC 318.

⁵ Ibid at [69].