16 September 2019

Procedural fairness in adjudication?

This article was written by Scott Watson and Aisling Scott and Ethan Hyde.

Recent decisions in Queensland and New South Wales in relation to security of payment determinations serve as a reminder that the tight time limits imposed on adjudicators may constrain the requirements of procedural fairness and natural justice which may be seen in other administrative decisions.  These constraints have the practical effect of limiting the ability of parties to successfully challenge determinations on these bases. 

Key takeaways

When responding to an adjudication application, it is crucial for the respondent to review the application and the material accompanying it carefully, anticipate the potential findings the adjudicator may make, and address each of those potential findings in your response. Even where it is arguable that a potential finding is not available because the claimant has withdrawn that aspect of its claim, the safe course is to submit that the claimant has withdrawn those claims, whilst also addressing the substance of such claims.  Doing so will limit the need to rely upon the limited avenues available to challenge an adjudicator’s determination.

Authorities for some time have held that it is a high threshold to successfully challenge an adjudicator’s determination. As these cases demonstrate, even where an adjudicator:

  • identifies an authority that none of the parties included in their submissions;
  • does not ask the parties for further submissions about that authority; and
  • arguably, incorrectly interprets that authority,

the failure to ask the parties for further submissions may not constitute a substantial denial of natural justice so as to be able to set aside the effect of the determination.

We set out a brief summary of the two decisions below.

ABC Glass & Aluminium Pty Ltd v Nik Nominees Pty Ltd & Anor

In ABC Glass & Aluminium Pty Ltd v Nik Nominees Pty Ltd & Anor [2019] QSC 171, ABC Glass & Aluminium Pty Ltd (ABC) challenged an adjudication determination made under the Building and Construction Industry Payments Act 2004 (Qld) (BCIPA) on the basis that it had been denied procedural fairness.

Background

The dispute between ABC and Nik Nominees Pty Ltd (Nik Nominees) arose in relation to refurbishment works at the Hamilton Island Yacht Club Villas.  Nik Nominees fabricated and supplied the aluminium shutters that were installed on the project by ABC. Nik Nominees submitted a payment claim for $344,432.92.  ABC responded with a payment schedule, proposing payment of “nil”.  ABC’s rejected the claim on a number of bases, including that the contract between Nik Nominees and ABC was a profit share arrangement, and by s 3(2)(c) of the BCIPA was not a contract to which BCIPA applied.

The adjudicator found in favour of Nik Nominees, determining that:

  • ABC had not provided sufficient evidence the contract was a profit share arrangement; and
  • even if it were a profit share arrangement, the decision of Edelbrand Pty Ltd v H M Australia Holdings Pty Ltd [2012] NSWCA 31 was authority for the proposition that a profit share arrangement was not excluded by s 3(2)(c) of the BCIPA.

Edelbrand was one of four judgments the adjudicator had independently identified (ie neither of the parties had included in their submissions). The adjudicator did not ask the parties for further submissions addressing these judgments.

ABC subsequently challenged the adjudicator’s decision in the Queensland Supreme Court. ABC submitted the adjudicator’s interpretation of Edelbrand was incorrect and, by failing to ask the parties to provide submissions on this authority and the others the adjudicator had identified, that the adjudicator denied ABC procedural fairness.

Decision

The Court found that ABC had not been denied procedural fairness in the circumstances.  In part, this conclusion appears to have been informed by the fact that ABC accepted it could not seek judicial review of the adjudicator’s finding that there was insufficient evidence the contract between ABC and Nik Nominees was a profit share arrangement. The Court held that the adjudicator’s error in interpreting Edelbrand did not make any difference to the decision the adjudicator made on the evidence presented. Accordingly, the adjudicator’s failure to ask the parties to provide submissions on Edelbrand was not a substantial denial of natural justice.

Rhomberg Rail Australia Pty Ltd v Concrete Evidence Pty Limited

In Rhomberg Rail Australia Pty Ltd v Concrete Evidence Pty Limited [2019] NSWSC 755,  Rhomberg Rail Australia Pty Ltd (RRA) sought a declaration that an adjudication determination made under s 22 of the Building and Construction Industry Security of Payment Act 1999 (NSW) was void, as the adjudicator had denied RRA procedural fairness.

Background

RRA and Concrete Evidence Pty Limited (CE) were parties to a subcontract under which CE was to lay reinforced concrete for the track slab in connection with the light rail project in Newcastle. The claim was the final progress claim under the subcontract and included $1,206,754.12 claimed in respect of 119 variations.

A number of schedules were attached to CE’s adjudication application. Those schedules included a register of the variations CE included in its payment claim (Tab 7) and a schedule containing various supporting documents for all 119 variations (Tab 8). However, due to a printing or photocopying error, some of the 119 variations were not included in Tab 7. RRA submitted that given CE’s “withdrawal of all variations which do not appear in Tab 7, [RRA] has not addressed those variations…”.

The adjudicator ultimately determined that CE had not withdrawn its claims for the variations omitted from Tab 7, however, the adjudicator did not ask RRA to make further submissions about the omitted variations before determining the entitlement and value of those variation claim. RRA subsequently sought review of the adjudicator’s determination, submitting that by not asking RRA to make further submissions (as the adjudicator is empowered to do), the adjudicator had denied RRA procedural fairness.

Decision

The Court found that RRA had not been denied procedural fairness, noting that, generally speaking, parties in adjudications are required to anticipate potential findings and make submissions on those anticipated findings. RRA could reasonably have concluded that Tab 7 was incomplete and that the adjudicator might deal with the variations that had been omitted from Tab 7. Accordingly, the Court concluded that the adjudicator did not deny RRA procedural fairness by failing to ask RRA to provide further submissions addressing the substance of the payment claims omitted from Tab 7.

Cladding Reforms in Queensland: Update

Further to our KWM insight on the current state of play regarding regulation of cladding in Queensland, and as foreshadowed in that note, the Building and Other Legislation Amendment Regulation 2019 (Regulation) is now in force.  The Regulation amends:

  • the Building Regulation 2006, as it relates to the professional indemnity insurance required to be held by building certifiers in relation to certain cladding products.  The explanatory note to the Regulation indicates that the change was driven by the increased difficulty said to be experienced by certifiers in obtaining the professional indemnity required under the Building Act 1975 to cover all private certifying functions, with insurers no longer offering exclusion free professional indemnity insurance. Exclusions include in relation to working with cladding, or more generally, non-conforming building products.  The relaxation of these requirements is in force from 9 August 2019 to 30 June 2021, to be reviewed in May 2021.  The Department of Housing and Public Works has indicated that the relaxation is time limited to allow further options to address this issue to be explored, to seek to return to a scenario where insurers are willing to offer comprehensive insurance policies (ie without exclusions in connection with cladding or non-conforming building products) to certifiers.

  • the Building and Other Legislation Amendment Regulation 2018, which established the three-part process for building owners in relation to the combustible cladding checklist.  The explanatory note to the Regulation indicates that these changes were requested by the QBCC by reference to the QBCC’s compliance and enforcement functions in respect of the three-part process.  The changes include, among others, a new ability for building owners to resubmit materials in the three-part process, further requirements in relation to the recommendations made by fire safety engineers, and additional definitions designed to provide further clarity around reporting requirements.  The amendments also contain additional penalty units applicable for certain non-compliances with the three-part process.

As a reminder, the next key step for eligible Queensland building owners is to engage a fire safety engineer by 31 October 2019. More details of who must comply with this date is in our KWM insight here.



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