Adjudicator Training – Building and Construction Industry Payments Act 2004 (Qld)
Good Faith and Natural Justice
Logan Campbell*
1.
The adjudicator’s duty is to come to a view as to what is properly payable, on what the
adjudicator considers to be the true construction of the contract and the Act and the true merits of
the claim.1
2.
In discharging this duty the courts have held that, as with all statutory powers, an adjudicator
must act in good faith and ensure that both the claimant and the respondent receive a fair hearing
of their ‘properly made’ submissions by affording natural justice to both parties. Section 26 of
the Act also requires the adjudicator to “consider” the respective payment claim and payment
schedule and those submissions made in the adjudication.
3.
The adjudicator’s three obligations to act in good faith, consider relevant matters and ensure the
requirements of natural justice are observed in the adjudication process are all closely related. All
three have been identified by the courts as being key requirements for a valid adjudicator’s
decision.2 Failure to comply with any of these requirements will likely result in the adjudication
decision being set aside as void. Each of these three requirements will be considered in turn.
Good Faith
4.
An adjudicator must make a genuine attempt to understand and apply the relevant contract and
3
exercise their power as adjudicator in accordance with the Act.
5.
What exactly is required to “act in good faith” is not easily defined. It is a principle that the
adjudicator must engage and comply with in conducting themselves from the time of accepting
the nomination until their function is fully discharged. It is not as simple as saying that acting in
good faith means the adjudicator acts honestly or that the adjudicator must not act in bad faith. In
Northbuild Construction Pty Ltd v Central Interior Linings Pty Ltd4, White JA observed:
The phrase ‘bona fide attempt’ or ‘acting in good faith’ describes an implied condition of validity
for discretionary decisions. Although the articulation of good faith has been regularly employed, a
definition has proved elusive, no doubt due to its chameleon qualities and depending very much on
the context.”
6.
The issue has often been described as whether the test of ‘good faith’ is a broad or narrow test.
The criteria is not whether the adjudicator’s decision is ‘reasonable’. In Qld Bulk Water Supply
Authority v McDonald Keen Group Pty Ltd5 rejected the argument that the test for good faith
included a requirement of reasonableness:
[32] It may be correct to say that a decision which displays an extreme degree of unreasonableness
* Director, Construction and Infrastructure Group, Gadens Lawyers, Brisbane, Mobile 0408 486 896.
1
Coordinated Construction Co Pty Ltd v JM Hargreaves (NSW) Pty Ltd [2005] NSW CA 228 per Hodgson JA.
2
See Brodyn v Davenport; Northbuild Construction v Central Interior Linings [2011] QCA 22.
3
At first instance in Northbuild Construction Pty Ltd v Central Interior Linings Pty Ltd [2010] QSC 95 at [11] per
Martin J, citing Queensland Bulk Water Supply Authority t/as Seqwater v McDonald Keen Group Pty Ltd (in liq) [2010] QCA 7.
4
Northbuild v CIL [2011] QCA 22. The “requirement of good faith” was examined in some detail at [81]–[96].
5
[2009] QSC 165, cited with approval in subsequent judgments, including John Holland Pty Ltd v TAC Pacific Pty Ltd [2009]
QSC 205 at [21]; James Trowse Constructions Pty Ltd v ASAP Plasterers Pty Ltd [2011] QSC 145 at [21]-[23].
BNEDOCS BCIPA - Good Faith and Natural Justice.doc
2
akin to that described in Associated Provincial Picture House Ltd v Wednesbury Corporation, is
not a decision for the purposes of s 26 of the Payments Act. Otherwise, I do not consider an
adjudicator’s decision purporting to be made under the Payments Act will be invalid if it is not
“reasonable”. The Payments Act seeks to provide a mechanism for obtaining a decision which will
be quick, but in a sense, provisional. It does not seem to me, consistent with the general object and
tenor of the Act, to impose a requirement of “reasonableness”.
[33] I am therefore of the opinion that the test advanced on behalf of QBWSA is too widely
formulated. If the broad test for good faith is to be adopted, then what is required is a genuine
attempt to exercise the power in accordance with the provisions in the Payments Act. Specifically,
in relation to a consideration of the construction contract, what is required is a genuine attempt to
understand and apply that contract.
7.
On appeal in Queensland Bulk Water6 the Queensland Court of Appeal settled on the position that
the requirement that an adjudicator act in good faith involved consideration of the interim nature
of the decision being reached, and confirmed that it required the adjudicator to make a genuine
attempt to discharge their duties under the Act:
The learned primary judge took as his starting point for considering QBWSA’s attack on the
adjudication the condition identified as essential for validity in Brodyn Pty Ltd t/a Time Cost
and Quality v Davenport: a bona fide attempt by the adjudicator to exercise his power under the
legislation. …..
The statutory context in which the minimum requirements for a valid decision under the
Payments Act fell to be determined was different: the adjudicator’s decision had an interim
quality. His Honour preferred the broader approach advanced by QBWSA: what was required of
the adjudicator was a genuine attempt to exercise his power in accordance with the Payments
Act provisions, and in considering the construction contract, a genuine attempt to understand
and apply it. But on either approach, the adjudicator’s decision was not void on the ground that
he had not acted in good faith.
8.
It may be that the adjudicator’s decision is so unreasonable that a court may conclude did not
make a genuine attempt to decide the issues in dispute in accordance with the Act and the
contract:7
In Queensland Bulk Water Supply Authority v McDonald Keen Group Pty Ltd, P Lyons J
rejected a submission that to be valid, an adjudicator’s decision must also be reasonable. ... In
the view of P Lyons J, it may be correct to say that a decision which displays “an extreme
degree of unreasonableness” in a Wednesbury sense would not be a decision for the purposes of
s 26 of the Act. In the present matter, counsel for the applicants did not argue that there was any
requirement of reasonableness. At times during his oral argument, counsel referred to the
unreasonable conclusions of the adjudicator. But he made it clear that this was submitted as a
basis for inferring a lack of good faith, in the sense of the absence of a genuine attempt to decide
the questions according to the Act and the contract.
…. It is common ground here that the applicants must establish no more than that the
adjudicator did not make a genuine attempt to apply the Act and to understand and apply the
contract. I go then to the alleged errors of the adjudicator, which are said to demonstrate the
absence of good faith in that sense.”
9.
In the Queensland Court of Appeal decision in Northbuild v CIL, Justice Wilson stated (at [96]):
… the power must be exercised honestly for the purpose for which it was given. … the enquiry
should focus more on whether the adjudicator has performed the function demanded by the
Payments Act and less on pursuing elusive synonyms, keeping always in mind that the
6
Queensland Bulk Water Supply Authority t/a Seqwater v McDonald Keen Group Pty Ltd (in liq) [2010] QCA 7 at [31]–[32] per
Holmes JA and Fraser JA.
7
Spankie & Northern Investment Holdings Pty Ltd v James Trowse Constructions Pty Ltd [2010] QSC 29 at [19]–[20].
BNEDOCS BCIPA - Good Faith and Natural Justice.doc
3
legislative intent dictates a person with recognised expertise in the area be selected for the task
by an informed body and this, necessarily, facilitates the rapid decision making required.
10.
In practice the complaint that the adjudicator has not made a genuine attempt to apply the Act and
understand and apply the contract must be demonstrated by identifying errors in the adjudicator’s
reasoning (or lack of reasons) in the decision. Given the short timeframes for not only the
preparation of submissions but also for the adjudicator to prepare a reasoned decision based on
those submissions, the adjudicator’s task is not an easy one. The submissions may be disjointed
or difficult to follow, or a party may employ the strategy of ‘dumping’ documents and
information on both the other side and the adjudicator in an attempt to ‘cover all bases’, but
without directing the adjudicator’s attention to the key issues in dispute.
11.
By identifying and articulating an understanding of each party’s submissions and the relevant
parts of the contract, particularly the key submissions in relation to each claim, the adjudicator
should be able to demonstrate that they have made a genuine attempt to understand and analyse
the parties’ respective submissions. By providing reasons for their decision, the adjudicator
should also avoid simply adopting one party’s position over the other, which the courts have held
is a failure to act in good faith.
12.
In practice, it is difficult to establish that an adjudicator has failed to act in good faith, and there
is, perhaps, a greater risk that the adjudicator will fail to consider a submission made by one of
the parties or inadvertently deny one of the parties natural justice than not make a genuine attempt
to understand and apply the Act and the relevant contract.
13.
Frequently the allegation that an adjudicator has not acted in good faith is made where one party
complains that the adjudicator has ignored or misunderstood their submissions. For this reason to
performance of the adjudicator’s statutory obligation to consider a parties ‘properly made’
submissions as required by section 26 of the Act is also often examined by the courts in In
making a genuine attempt, the adjudicator does not fail to act in good faith simply because he or
she does not correctly interpret the parties’ submissions or the contract. As the court observed in
James Trowse v ASAP Plasterers8 concerning the obligation “to consider”:
The first respondent also asserted that if the court accepted the applicant’s submissions, this would
place an unnecessary burden on adjudicators and would open up the floodgates for contested
adjudication decisions. If the applicant’s submissions were correct, an obligation would be
imposed on the adjudicator to ensure that the adjudicator correctly interprets each party’s
submissions and if the adjudicator fails to do so, this would amount to a denial of natural justice.
The respondent contended that this is not what BCIPA provides. According to the respondent, s
26(2) requires the adjudicator to simply “consider” the matters listed in that section in good faith.
BCIPA does not compel the adjudicator, as an essential pre-condition to the exercise of
jurisdiction, to correctly interpret the submissions of the applicant. The failure to correctly
interpret submissions is not a jurisdictional error.
14.
Some examples of circumstances where an aggrieved respondent has challenged the validity of
the decision on the basis the adjudicator did not properly consider their submissions or the
contract follow.
The adjudicator’s obligation ‘to consider’
15.
8
As the adjudicator is exercising statutory powers conferred by the Payments Act, they must
exercise those powers within the boundaries of the Act. In the context of ‘relevant
considerations’ the court in Azrel v New South Wales Land and Housing Corp stated:9
James Trowse Constructions Pty Ltd v ASAP Plasterers Pty Ltd [2011] QSC 145 at [43].
9
[2006] NSWCA 372 at [49] and [41], referred to with approval in Vieola Waters Solutions v Kruger Engineering [2007] NSW
46 at [24].
BNEDOCS BCIPA - Good Faith and Natural Justice.doc
4
Judicial review is concerned only with the legality of an administrative decision, in the sense of
whether or not the decision maker has exceeded the legal boundaries of his or her powers. Those
boundaries are defined, in part, by reference to the consideration of matters which are legally
impermissible and the failure to consider matters to which the law requires that consideration be
given. The requirement of consideration is not satisfied by formalistic references.
16.
The adjudicator’s obligation to consider only certain matters is set out in section 26(2) of the Act,
and has been summarised as a requirement that the adjudicator consider the provisions of the Act,
the provisions of the contract and submissions duly made. In Queensland s. 26(2) also requires
the adjudicator to take into account Part 4A of the Queensland Building and Construction
Commission Act 1991 (formerly the QBSA Act).
17.
The adjudicator’s obligations to “consider” and act in good faith were discussed in Brodyn v
Devonport:10
…it is sufficient to avoid invalidity if an adjudicator either does consider only the matters referred
to in s.22(2), or bona fide addresses the requirements of s.22(2) as to what is to be considered.
The requirement of section 22 is that the adjudicator must consider the provision of the Act, the
provision of the contract and submissions duly made.
18.
In Timwin Constructions v Façade Innovations the court expanded on this point:11
[38] There has not been any decision to my knowledge elaborating the requirement of good faith
to which Hodgson JA pointed in Brodyn. Clearly, I think, his Honour was not referring to
dishonesty or its opposite. I think he was suggesting that, as is well understood in the
administrative law context, there must be an effort to understand and deal with the issues in the
discharge of the statutory function. …
[39] That construction of the requirement of good faith is supported by the provisions of s
[26(2)], requiring an adjudicator to "consider" certain matters. A requirement to consider, or take
into consideration, is equivalent to a requirement to have regard to something. …
[40] As his Honour emphasised, the requirement to “have regard to” something requires the
giving of weight to the specified considerations as a fundamental element in the determination, or
to take them into account as the focal points by reference to which the relevant decision is to be
made. …
[41] In the present case, I think that an available, and better, inference is that the adjudicator did
not consider, in the sense that I have just explained, the submissions for the parties in which the
ambit of the dispute that was intended to be raised in relation to variations was explained. Had he
turned his mind to those submissions, he would have known what it was the parties understood the
dispute to be; what it was that they were arguing. Because he did not, as it appears, turn his mind
to those submissions, he did not deal with the real dispute.
19.
Taking relevant matters into consideration therefore requires the adjudicator to do more than
simply refer to them or making passing comment12. The adjudicator’s decision must demonstrate
an understanding of the matters and the significance of the decision to be made about those
matters and a process of evaluation, sufficient to warrant the description of the matters being
taken into consideration. The obligation in s.26(2) should be read “… as requiring an active
process of intellectual engagement.” 13 The adjudicator must demonstrate by their written
decision that they have made a genuine attempt to do this.
10
(2004) 6 NSWLR 421; [2004] NSWCA 394 at [56] per Hodgson JA.
11
Timwin Constructions Pty Ltd v Façade Innovations Pty Ltd [2005] NSWC 548 at [38] to [41] per McDougall J.
12
Weal v Bathurst City Council (2000) 111 LGEER 181 at [80].
13
Laing O’Rourke Australia Construction Pty Ltd v H&M Engineering and Construction Pty Ltd [2010] NSWSC 818.
BNEDOCS BCIPA - Good Faith and Natural Justice.doc
5
20.
While misconstruing a clause in the contract may not be a jurisdictional error, this does not give
the adjudicator license to reach their own conclusions separate to those contended for by the
parties. If he or she did, then that would not only be a failure to consider submissions properly
made, but a substantial denial of natural justice through reaching a conclusion neither party had
contended for. Again it can be seen that these three principles of good faith, to consider relevant
matters and to ensure natural justice is observed are closely related. As White JA observed in
Northbuild v CIL at [107]:
His Honour adopted the approach described by Barrett J in Shellbridge Pty Ltd v Rider Hunt
Sydney Pty Ltd and by Hodgson JA in John Holland Pty Ltd v Roads & Traffic Authority of New
South Wales. In Shellbridge, Barrett J said:
… the whole of the content and tenor of an adjudication may be called in aid in
deciding whether particular submissions were considered in the way the Act requires.
Inference is permissible. The question is not to be approached solely by reference to
the presence or absence of explicit statements referring expressly to the submissions.
In John Holland, Hodgson JA noted:
The relevant requirement of s 22(2) [s 26 of the Payments Act] is that the adjudicator
consider the provisions of the Act, the provisions of the contract and submissions duly
made. If an adjudicator does consider the provisions of the Act and the contract which
he or she believes to be relevant, and considers those of the submissions that he or she
believes to have been duly made, I do not think an accidental or erroneous omission to
consider a particular provision of the Act or a particular provision of the contract, or a
particular submission, could either wholly invalidate a determination, or invalidate it as
regards any part affected by the omission. One could express this by saying that such
an accidental or erroneous omission does not amount to a failure to comply with
s 22(2), so long as the specified classes of considerations are addressed …
Although not referred to by the primary Judge, in John Holland Basten JA noted, firmly, that
authority to decide the scope of the right conferred by the Act or, if relevant, the scope of the
right under the construction contract rests conclusively with the adjudicator.
[108] The primary Judge also referred to observations of Hodgson JA in Coordinated
Construction Co Pty Ltd v JM Hargreaves (NSW) Pty Ltd where he expressed a view of the role
of the adjudicator not materially different from that of Basten JA:
The adjudicator’s duty is to come to a view as to what is properly payable, on what the
adjudicator considers to be the true construction of the contract and the Act and the true merits of
the claim.
At a minimum, the primary Judge noted, the adjudicator must consider the complete
submissions of the claimant and the respondent.
21.
The adjudicator is not required to comb the entire contract to identify potentially relevant clauses,
but is entitled to rely on the parties to identify the relevant clauses and evidence. In Thiess Pty
Ltd and John Holland Pty Ltd v Civil Works Australia Pty Ltd14 the applicant referred to a
number of clauses in the contract in its adjudication response. These clauses of the contract were
not referred to in the payment schedule. The question for the court was whether the adjudicator
should have considered these clauses and their effect in making his decision:
[12] It was not in issue before me that not only were these clauses of the contract not referred to
in TJH’s payment schedule, the propositions which it sought to advance by reference to those
clauses in the contract were not referred to in the payment schedule.
…
[14] Despite the fact that neither the specific clauses nor the general propositions advanced in
the adjudication response were contained in the payment schedule, TJH submitted before me
that these clauses, although not raised by TJH in its payment schedule, could properly be raised
14
[2010] QSC 187.
BNEDOCS BCIPA - Good Faith and Natural Justice.doc
6
by TJH and considered by the adjudicator pursuant to s 26(2)(b) of the BCIPA. TJH submits
that the adjudicator should have, but did not, consider these clauses and their effect, and
accordingly fell into jurisdictional error in making his decision.
....
[18] Despite the patent prohibition in s 24(4) on TJH including in its adjudication response reasons
for withholding payment which had not been included in the payment schedule served on CWA,
TJH submitted that the adjudicator should nevertheless have had regard to the contractual
provisions to which it referred because of the operation of s 26(2) of the BCIPA.
[19] TJH’s argument was that s 26(2)(b) required the adjudicator to have regard to the provisions
of the construction contract, and specifically cl 2, 7 and 8. TJH, indeed, submitted that s 26(2)(b)
“required” the adjudicator to consider the provisions of the construction contract, regardless of the
stage of the adjudication process at which they are raised.
The importance of providing reasons for the adjudicator’s decision
22.
The only means by which an adjudicator may demonstrate that they have considered the payment
claim, payment schedule and submissions properly made is the adjudicator’s written reasons.
That is “the record”. The adjudicator cannot later supplement or explain what they meant by a
particular passage in their decision upon an application for judicial review.
23.
For this reason, the decision must set out all the adjudicator’s reasons for the determination of
each claim and the calculation of the adjudicated amount. This may seem somewhat obvious, but
is expressly required by s. 26(3) of the Act:
(3) The adjudicator’s decision must—
(a) be in writing; and
(b) include the reasons for the decision, unless the claimant and the respondent have both asked
the adjudicator not to include the reasons in the decision.
24.
Although the process is rapid and results in an interim decision, the parties to an adjudication
application are still entitled to see some intellectual process that leads to the conclusion,
particularly where, in many cases, very substantial sums of money are involved. The reasons
must set out the steps that were in fact taken in arriving at that result. The relevant principles
were expressed in Bauen Constructions v Westwood Interiors:15
Adjudicators are required, by [s.26(3)(b)] of the Act, to give the reasons for their determination
unless the parties have dispensed them from doing so. That engages the problem of sufficiency of
reasons. In the context of the courts, that question was considered by Hayne J (with whom
McHugh and Gummow JJ agreed) in Waterways Authority v Fitzgibbons [2005] HCA 57; (2005)
79 ALJR 1816. His Honour said at [129] that reference to the sufficiency of reasons may give rise
to ‘some doubt about what principles are engaged’. At [130], his Honour explained one of those
principles as follows:
“... because the primary judge was bound to state the reasons for arriving at the decision
reached, the reasons actually stated are to be understood as recording the steps that were
in fact taken in arriving at that result.” (Emphasis added)
Although adjudicators work under significantly greater time pressures than judges, and their
reasons should not be scrutinised with the attention to detail to which the reasons of trial judges
and intermediate appellate courts are subjected in ultimate courts of appeal, nonetheless the
reasons must indicate why it was that the adjudicator arrived at the determination given in
accordance with s. 22(1). Just as there is with judges, so too with adjudicators there is a
presumption that the stated reasons are all of the reasons for coming to the conclusion expressed.
15
[2010] NSWSC 1359 at [22] – [23].
BNEDOCS BCIPA - Good Faith and Natural Justice.doc
7
25.
The court concluded that in those circumstances the adjudicator had “failed to exercise the
jurisdiction given to him by the Act” as the adjudicator’s determination gave no intellectual
justification for the decision that was made. It did not involve any process of consideration or
reasoning and was, in the court’s view, an abdication of the obligation to reason.
26.
For this reason an adjudicator cannot just accept the evidence of one witness or the argument of
one party over the other without engaging in a critical written assessment. In fact the exercise is
not to accept one side’s version or the other – the adjudicator is required to make findings and set
out the reasons for and process by which each finding is made.
27.
The adjudicator is not required to consider in detail the minutiae of each claim and submission,
and this may not even be possible given the timeframes under the Act. For example, in Hitachi
Limited v O'Donnell Griffin Pty Ltd [2008] QSC 135 the adjudicator:
28.
(a)
assessed 12 of 113 variation claims, but those 12 variations comprise 96% of the total
claimed value of $14 million;
(b)
said in his decision that it was not possible to assess each individual variation but that it
was possible to make an assessment of a lump sum amount which represented a
reasonable assessment of the value of work executed, particularly given the time allowed.
(c)
said that he would examine in detail a selection of the variation claims to find that he
considered could be comfortably satisfied as being a reasonable lump sum assessment of
a progress payment on account; and
(d)
expressly that it had taken into account all variation claims and had also taken into
account all submissions, statements and supporting documents.
The court took the adjudicator's statement as to what he had considered at face value, saying it
was unfair to " analyse his reasons as if they were reasons for judgment of a judge". The court
held that s.26 does not require the adjudicator to consider, assess and value each separate claim,
and that there was nothing about the adjudicator's stated methodology which offended the court’s
sense of justice:
Would failure to deal specifically with a handful of claim worth a few hundred dollars nullify a
decision on a payment claim made up of many hundred claimed variations with many millions of
dollars, all of the other claims having been carefully considered and individually valued? I hardly
think so.
29.
The court also observed there was no suggestion that the adjudicator had overlooked some
submission of importance.
30.
What the adjudicator is required to consider is to be assessed against the circumstances and
content of each adjudication. The adjudicator's methodology must be appropriate given the
circumstances, the nature of the enquiry, the subject matter and the strict time rules under which
he was acting.16
31.
At a practical level, the adjudicator should consider, and the extent of their reasons should reflect,
the importance of each claim in the overall context of the adjudication. This is best done by
summarising each party’s submissions concerning each claim, as doing so will not only
demonstrate the adjudicator has made a genuine attempt to consider whether one or other of the
party’s submissions are correct, but it also assists the adjudicator in properly understanding the
issues in dispute and in (preferably) reaching a correct decision on the law and the facts before
them.
16
Abel Point Marina (Whitsundays) Pty Ltd v Uher [2006] QSC 295.
BNEDOCS BCIPA - Good Faith and Natural Justice.doc
8
32.
This highlights the importance of each party assisting the adjudicator by directing the
adjudicator's attention to the material and clauses in the contract relied on for each claim. It is not
the adjudicator’s job to trawl through all the material provided by one party in an endeavour to
find reasons to support that party’s claim or, perhaps, counter the arguments of the other party.
33.
In John Holland Pty Ltd v Roads & Traffic Authority of New South Wales17 Hodgson JA made the
following observations (emphasis added):
[54] In my opinion, there may be a sense in which [s 26(2)] is breached if there is any relevant
provision of the Act or provision of the contract which is not considered by the adjudicator, or
indeed if there is any one of what may be numerous submissions duly made to the adjudicator
which is not considered. However, in my opinion a mere failure through error to consider such a
provision of the Act or of the contract, or such a submission, is not a matter which the legislature
intended would invalidate the decision.
[55] The relevant requirement of [s 26(2)] is that the adjudicator consider the provisions of the
Act, the provisions of the contract and submissions duly made. If an adjudicator does consider the
provisions of the Act and the contract which he or she believes to be relevant, and considers those
of the submissions that he or she believes to have been duly made, I do not think an accidental or
erroneous omission to consider a particular provision of the Act or a particular provision of the
contract, or a particular submission, could either wholly invalidate a determination, or invalidate it
as regards any part affected by the omission. One could express this by saying that such an
accidental or erroneous omission does not amount to a failure to comply with s 26(2), so long as
the specified classes of considerations are addressed; or alternatively, if one takes the view that s
26(2) does require consideration of each and every relevant provision of the Act and the contract
and each and every submission duly made, the intention of the legislature cannot have been that
this kind of mistake should invalidate the determination.
34.
35.
17
Examples of where the court may hold an adjudicator made a determination by a process other
than in considering the matters in accordance with s. 26 of the Act are:18
(a)
where the adjudicator departed from the only matters the adjudicator might consider in
reaching a decision, being the provisions of the Payments Act, the terms of the
construction contract, the payment claim and response and all submissions properly
made;19
(b)
where the adjudicator, in departing from the above list, considered, for example, what the
adjudicator regarded as “a fair thing”;
(c)
where the adjudicator truly disregarded a claimant’s (or for that matter, respondent’s)
submissions;
(d)
where the adjudicator does not make a bona fide attempt to consider matters required to
be considered;
(e)
where the adjudicator gives insufficient reasons;
(f)
where the adjudicator misconceives the adjudicator’s role;
(g)
where the decision reveals an extreme degree of unreasonableness.
In Firedam Engineering v KJB Construction, the adjudicator failed to give any consideration to
the adjudication response except in relation to one point. Disregarding submissions properly
(2007) 23 BCL 434; [2007] NSWCA 140.
18
[2011] QSC 145 at [52].
19
Northbuild Construction v Central Interior Linings Pty Ltd [2011] QCA 22 at [79]-[80].
BNEDOCS BCIPA - Good Faith and Natural Justice.doc
9
made it are in contrast to adjudicator addressing submissions made by a party in considering
those to be irrelevant.
36.
The requirement to consider and take into account a party’s properly made submissions also
means that the adjudicator cannot simply adopt the amount specified by one party in its
submissions as valid without actually engaging in the valuation process required under section 14
also.
37.
A failure to consider a document which s.26(2) requires the adjudicator to consider will invalidate
the entire decision, as occurred in Syntech Resources Pty Ltd v Peter Campbell Earthmoving
(Aust) Pty Ltd.20 The adjudicator refused to consider a spreadsheet setting out an explanation and
calculations of reason stated in the payment schedule, on the basis that the respondent must have
prepared the spreadsheet or something similar before issuing the payment schedule in order to
have determined the quantum that it proposed to deduct. Based on this assumption, the
adjudicator found that the Respondent could have, and should have, provided it with the payment
schedule to the claimant and that as a consequence the Claimant was denied the opportunity of
replying to the detail making up the proposed deduction. The adjudicator therefore refused to
take the spreadsheets into account and found in favour of the claimant on the two claims
concerned. The claims affected comprised approximately one third of the adjudicated amount.
38.
The adjudicator did not say that the spreadsheets were outside the payment schedule or advanced
reasons not articulated in the payment schedule. Nor did he determine, or purport to determine,
that the spreadsheets were part of a submission which had not been duly made. The court found
that the spreadsheets did not raise any new reasons for withholding payments; but were
explanatory of reasons for withholding payment set out in the payment schedule, so the
adjudicator clearly could not have done so. The only bases for the adjudicator excluding the
spreadsheets were those which appear on the face of the adjudication.
39.
The court held that s 26(2)(d) requires the adjudicator, in the circumstances, to consider the
spreadsheets because they were part of submissions duly made. The word “submissions” in s
26(2) is not to be construed narrowly. Indeed, the words of the section show specifically that the
submissions may include relevant documentation in support. The entire decision was declared
void as, in rejecting the spreadsheets and in determining the matter without reference to the
spreadsheets, the adjudicator in the present case failed to comply with an essential legislative
requirement for the determination he was to make, and thereby committed a jurisdictional error.
40.
It is common for parties to an adjudication to provide expert reports and witness statements in the
adjudication which were not provided with or even referred to in the payment claim or payment
schedule. This does not mean these documents can be ignored – quite the opposite. As the court
found in Syntech, the provision of a report or document for the first time as part of the
adjudication response does not mean the adjudicator can ignore it. The adjudicator must assess
these documents and determine whether they contain submissions in support of the claim pursued
by the claimant or the reasons for withholding payment stated in the payment schedule. If the
report or document does not represent a ‘shift’ in that party’s position, the adjudicator is bound to
consider it and take it into account in determining the claim.21
41.
In this way the adjudicator’s obligation to consider only those things set out in s.26 is related to
the obligation to ensure procedural fairness. The Act makes no provision for the claimant to
respond to the adjudication response. If a document is submitted as part of the adjudication
response and it is in support of a reason for withholding payment stated in the payment schedule,
the adjudicator is not obliged to give the claimant a further opportunity to respond to the details in
that document or report. The adjudicator is entitled, and should, carefully assess and decide
20
[2011] QSC 293 at [79].
21
A similar situation arose in Trysams Pty Ltd v Club Constructions (NSW) Pty Ltd [2007] NSWSC 941.
BNEDOCS BCIPA - Good Faith and Natural Justice.doc
10
whether the document falls within the scope of those things which s.26 requires them to consider.
42.
Despite the interim nature of an adjudication, natural justice requires the adjudicator to consider
the report unless (even if erroneously) they determine that it was, or was part of, a submission not
properly made. It is therefore critical that, as such circumstances are frequently encountered in an
adjudication, the adjudicator must make such a determination. If they do not and fail to take that
document into account when required to, it will also likely amount to a substantial failure to
afford natural justice which will render the whole adjudication void.22
Natural Justice
43.
The requirement to observe the principles of natural justice required by the Act goes beyond the
“basic and essential requirements” which are pre-conditions to a valid determination, and go to
the particular process during the adjudication concerning the receipt and the consideration of
submissions by the adjudicator. This is why the requirements of natural justice are also described
as being the requirement to observe “procedural fairness”.
The effect on the adjudicator’s decision if there is a substantial denial of natural justice
44.
A substantive denial of natural justice will invalidate a decision if the procedure falls short of that
measure of natural justice to which a party is entitled under the scheme of the Act. It is a not a
‘one size fits all’ principle nor a rigid rule. However, because of the serious remedies allowed
under the Act, the adjudicator must ensure that there is strict compliance with the principles of
natural justice for their decision to be valid. For example, a failure to serve a copy of the
adjudication application on the respondent, or to not serve a complete copy of the adjudication
application, would ordinarily be a denial of natural justice which would entitle the respondent to
have the decisions to decide is void.23
45.
The entire decision is rendered void if there is a substantial denial of natural justice by the
adjudicator, even in relation to only one of several claims that have been determined by the
adjudicator. The decision cannot be severed to ‘save’ the claims that are not tainted:24
Non-compliance with an essential precondition for the existence of a valid adjudication
determination renders the determination void. For example, affording natural justice, to the extent
that the Act requires it to be given, is one of the essential conditions for the existence of a valid
determination. In this area there can be little room for the concept of partial invalidity in relation to
determinations arrived at in breach of its requirements. Indeed, it would be rarely safe to introduce
such a concept. As McDougall J said in Watpac Constructions v Austin Group [2010] NSWSC
347 at [29]:
… it may not always be obvious to see how a denial of natural justice has affected the
outcome: for example, where the omitted or irrelevant matter had the capacity to assess an
adjudicator’s overall view of the ‘credibility’ or substance of a party’s case.’”
The general principle against the adjudication procedure prescribed by the Act
46.
The starting point for any discussion of the application of the rules of natural justice to the
adjudication process are the judgments in Musico v Davenport and John Holland Pty Ltd v
Cardno MBK (NSW) Pty Ltd:
If an adjudicator proposes to make a determination on a basis for which neither party had
22
As was found in Syntech and Trysams.
23
Pacific General Securities Limited v Solimon & Sons Pty Ltd [2006] NSWSC 13.
24
Seabay Properties Pty Ltd v Galvern Construction Pty Ltd [2011] VSC 183 at [67].
BNEDOCS BCIPA - Good Faith and Natural Justice.doc
11
contended and which has not been addressed, then natural justice requires that the adjudicator give
the parties notice of what he or she is contemplating, so that they may put submissions on it, and
where an adjudicator does not do so, there is a breach of the requirement of procedural fairness.25
47.
While the principle of natural justice is well understood, the requirement to afford natural justice
is shaped by the relevant legislation and the particular circumstances of the case:
The relevant content of procedural fairness must be ascertained by reference to the specific
statutory scheme. Where that scheme is inconsistent with some element which might otherwise
26
have been implied under the general law, it is the general law which must give way.
48.
The manner in which the adjudicator is required to apply the principles of natural justice is
therefore framed by the requirements of, and the process set out in, the Act. A claimant does not
have a right of reply to the adjudication response, nor is the adjudicator required to consider
provisions of the contract not raised by either party.27 As will be seen also, the adjudicator is
given statutory powers which enable them to ensure that both parties are properly afforded natural
justice within the confines of the adjudication process. This is precisely why the adjudicator has
the power to require further submissions.
49.
The procedural limitations provided under the Act have been described as follows:28
The content or extent of the requirement to afford natural justice is to be assessed by reference to
the relevant statutory provisions, including:
(1) the requirement that a respondent state in its payment schedule its reasons why its scheduled
amount is less than the claimed amount (s 14(3));
(2) the limited time within which a respondent to an adjudication application may lodge an
adjudication response (s 20(1)); and
(3) the prohibition against a respondent’s including in its adjudication response any reason for
withholding payment that has not been stated in its payment schedule (s 20(2B)).
50.
One of the hallmarks of the process provided for under Part 3 of BCIPA is rapid adjudication of
payment claims for the purpose of maintaining cash flow between contesting parties in the
context of the building industry. This policy objective cannot, however, displace the overriding
obligation on an adjudicator to observe the principles of natural justice in the course of the
adjudication process provided for under Part 3 of the Act. The adjudication must be both swift
and fair.29
51.
The requirements of natural justice in an adjudication were summarised by the court in Fifty
Property Investments v O’Mara as follows:30
i. A denial of natural justice, to the extent that natural justice is to be afforded as contemplated by
the procedure established by the Act, invalidates an adjudication [Brodyn [57]]:
25
Musico v Davenport [2003] NSWSC 977 at [107]-[108]; John Holland Pty Ltd v Cardno MBK (NSW) Pty Ltd [2004] NSWSC
258 at [13]; see also of Holmwood Holdings v Halkat Electrical Contractors Pty Ltd [2005] NSWSC 1129 at [135]. Other key
authorities include John Holland Pty Ltd v TAC Pacific Pty Ltd [2010] 1 Qd R 302 at [18]; James Trowse Constructions Pty Ltd v
ASAP Plasterers Pty Ltd [2011] QSC 145 at [45] and [50]; see also John Holland at [40]–[41]; and Walton Construction (Qld)
Pty Ltd v Corrosion Control Technology Pty Ltd [2011] QSC 67 at [58]–[60].
26
Co-ordinated Construction Co Pty Ltd v Climatech (Canberra) Pty Ltd [2005] NSWCA 229 at [28]. See also John Holland
Pty Ltd v TAC Pacific Pty Ltd [2010] 1 Qd R 302 at [18].
27
Which argument was dismissed in Music v Davenport at [106]-[107].
28
Shorten v David Hurst Constructions Pty Ltd [2008] NSWSC 546 at [27]-[30] Einstein J.
29
See Syntech at [41].
30
[2006] NSWSC 428 at [44]–[45].
BNEDOCS BCIPA - Good Faith and Natural Justice.doc
12
ii. The circumstance that the legislation requires notice to the respondent and an opportunity to the
respondent to make submissions (ss 17(1) and (2), 20, 21(1), 22(2)(d)) confirms that natural justice
is to be afforded to the extent contemplated by these provisions and, in my opinion, such is the
importance generally of natural justice that one can infer a legislative intent that this is essential to
validity, so that if there is a failure by the adjudicator to receive and consider submissions,
occasioned by breach of these provisions, the determination will be a nullity.
iii. The ambit of the measure of natural justice required by the Act extends beyond the “basic and
essential requirements" which are preconditions to validity, to the particular process during the
adjudication of receiving and considering the submissions referred to in the Act … Thus a denial
of natural justice will invalidate an adjudication, but only if the procedure falls short of that
measure of natural justice to which a party is entitled under the scheme of the Act.
52.
The Act requires notice to the respondent that the work for which payment is claimed must be
sufficiently identified, and gives the respondent an opportunity to respond to that in the payment
schedule. For example, the contractual basis for a claim e.g. which might simply be describing
the claim as a variation, should be identified in the payment claim. This is particularly so if the
contractual basis for the claim is not clear from the description of the work or on the face of the
payment claim. As the respondent is prevented from relying on new reasons that weren’t stated
in the payment schedule, if the claimant were to change or add a new contractual basis for a
particular claim for construction work set out in his payment claim, the respondent would not be
able to make submissions properly made in its adjudication response.31
53.
The adjudicator must therefore be aware of the restrictions on both parties in raising new grounds
in the adjudication application and the adjudication response that were not otherwise raised in the
payment claim and payment schedule.
54.
One circumstance where the claimant is entitled to make submissions on a matter that was not set
out in its payment claim is, for example, where the respondent asserts an entitlement to levy
liquidated damages in its payment schedule as a reason for withholding payment of an amount
claimed in the payment claim. In those circumstances, the claimant is entitled to respond to that
reason for withholding payment, and frequently this is seen by the claimant submitting that the
respondent is unable to apply liquidated damages due to estoppel, waiver or some other
conduct/misconduct by the respondent during the course of the construction work. Doing so is
entirely permissible, as the scope of the dispute has been framed by the payment claim and the
payment schedule. If the claimant is not allowed to make submissions concerning the
respondent’s entitlement to levy liquidated damages, or the amount of liquidated damages applied
and how it was calculated, then there would be a substantial denial of natural justice to the
claimant.
55.
The requirements of natural justice in the conduct of the adjudication process were summarised
by the court in Procorp Civil v Napoli Excavations: 32
The Requirements of Natural Justice
v. The content of the rules of natural justice are variable.
31
In John Holland Pty Ltd v Cardno MBK (NSW) Pty Ltd [2004] NSWSC 258 at [22]-[24] A technical compliance with s 17 by
providing a minimal amount of information in the payment claim, insufficient to enable the respondent to discern its nature and
be in a position meaningfully to verify or reject it, may have the inexorable consequence that the respondent is barred under this
section from dealing with that matter in its adjudication response. That might result in the adjudication process being aborted.
The adjudicator does not have the power to consider materials supplied by a claimant and which go outside the scope of the
materials provided in the payment claim. See also Minister for Commerce v Contrax Plumbing (NSW) Pty Ltd [2004] NSWSC
823 at [49]–[51] and [56]–[60].
32
Procorp Civil Pty Ltd v Napoli Excavations & Contracting Pty Ltd [2006] NSWSC 205 at [10].
BNEDOCS BCIPA - Good Faith and Natural Justice.doc
13
vi. Musico v Davenport [2003] NSW SC 977 is authority for the proposition that an adjudicator
breaches the requirements of natural justice where an application is determined upon a basis not
advanced by either party.
...
ix. Mason J observed in Kioa v West (1985) 159 CLR 550 at 585 that the real question in most
cases has now become what the hearing rule requires, rather than when it applies. The hearing rule
is a requirement of procedural fairness, but the Act prescribes the procedure that is to apply in
connection with an adjudication determination. The legislature, having addressed itself to the
question as to how a claimant and the respondent to adjudication application are heard by an
adjudicator, the Act makes it clear that that is the limited opportunity of the hearing which is to be
given and there is no warrant to vary that legislative scheme: see e.g. Twist v Randwick Municipal
Council (1976) 136 CLR 106 per Barwick CJ at 110.
x. The adjudicator has a broad discretion as to how to establish the facts that are relevant in the
valuation of a disputed payment claim. He is entitled to make use of the material submitted by the
parties, and provided the parties are given the relevant notice to enable material to be placed before
the adjudicator, the requirements of natural justice in the Act are satisfied. There is no other
requirement as is established by applying the simple rules of construction.
xi. This is consistent with the Court’s statements on the natural justice issue in Brodyn v
Davenport by specific reference only to sections 17(1), (2), 20, 21(1) and 22(2) (d) of the Act:
… such is the importance generally of natural justice that one can infer a legislative
intention that this is essential to validity, so that if there is a failure by the adjudicator to
receive and consider submissions, occasioned by breach of these provisions [namely
occasioned by the failure to give notices], the determination is a nullity. (At [57] (adding
emphasis to make the point clearly)).
xii. The requirements of fairness require an adjudicator to determine the value of a contested
payment claim only by reference to the specific submissions made by the parties, and if the
adjudicator is minded to move outside those submissions, the adjudicator must give the parties the
opportunity to make further submissions.
xiii. The Act contains the particular measure of natural justice which is a pre-condition to validity:
Broydn v Davenport at [57], which requires no resolution as to whether the failure to accord
procedural fairness is void or voidable.
xiv. A failure by an adjudicator to have regard to relevant facts may amount to a denial of natural
justice under the Act. The rationale is clear: "Whether one talks in terms of procedural fairness or
natural justice, the concern of the law is to avoid practical injustice". According to Gleeson CJ,
this alone was sufficient to dismiss the complaint of lack of procedural fairness in Minister for
Immigration and Multicultural affairs; Ex parte Lam (2003) 214 CLR 1 at 13–14.
56.
It is not sufficient for an aggrieved party to assert that there has been a denial of natural justice at
a theoretical level. The courts are concerned with the practical effect of the alleged denial and, in
particular, whether the denial has worked real injustice by denying one party of a real opportunity
to obtain a different result. Provided the adjudicator follows the process set out in the Act for the
proper submissions of each party’s arguments, the risk of a substantial denial of natural justice is
significantly reduced.
Materiality – the denial of natural justice must be substantial and have affected the outcome
57.
The importance of the denial of natural justice being “substantial” or “material” was explained by
the court in Syntech Resources:33
It is necessary for there to be a “substantial” denial of natural justice. This means that “the
opportunity denied was material, namely that the matter about which the adjudicator did not
33
Syntech Resources Pty Ltd v Peter Campbell Earthmoving (Aust) Pty Ltd [2011] QSC 293 at [36].
BNEDOCS BCIPA - Good Faith and Natural Justice.doc
14
provide an opportunity to be heard was a point upon which the adjudicator based his or her
decision and was significant to the actual determination”.34 Even if the court is satisfied that there
has been a denial of natural justice, relief may be denied if it can be shown that compliance with
the requirements of natural justice could have made no difference to the outcome. As Applegarth J
said:35
It is probably sufficient in this regard for the applicant for relief to show that there were
substantial submissions that, as a matter of reality and not mere speculation, might have
persuaded the adjudicator to change his or her mind.
[37] In respect of each of the spreadsheets in the present case, the adjudicator’s decision to exclude
those spreadsheets from his consideration was based on the fact that PCE had not previously been
supplied with those spreadsheets, had not had the opportunity to challenge Syntech’s position in
reliance on those spreadsheets, and had thereby been denied natural justice. PCE did not object to
the adjudicator receiving the spreadsheets. The adjudicator did not call for any further submissions
from the parties on the spreadsheets, nor inform them of his intention to determine the matter
without reference to the spreadsheets. By s 25(4) of BCIPA, an adjudicator “may ask for further
written submissions from either party and must give the other party an opportunity to comment on
the submissions”. One of the purposes intended to be served by that subsection is for the
adjudicator to give parties notice of an intention that the adjudicator is minded to come to a
particular determination on a particular ground for which neither party has contended.36
58.
Any alleged denial of natural justice of procedural fairness must have affected the outcome of the
determination if it is to infect the entire decision. In the case of an adjudicator determining a
claim on a ground for which neither party has contended, then the party who claims to have been
denied natural justice must be able to identify what submissions it would have made that arguably
would have made a difference to the outcome of the determination had they been given the
opportunity to put those submissions to the adjudicator.
59.
The Court will carefully assess any complaint that a party has been denied natural justice and the
opportunity to make submissions on a particular point, subject both to the restrictions set out in
the Act as to submissions being properly made in section 26. This is where the adjudicator’s
reasons for the decision are critical in demonstrating whether the adjudicator failed to have regard
to one of the party’s submissions, or whether the adjudicator has misinterpreted those
submissions or the applicable law. If the adjudicator has made a genuine attempt to understand
and determine the issue, this will not amount to a denial of natural justice.37
60.
This concept of materiality is inextricably linked to the measure of natural justice that the Act
requires parties to be given in a particular case. 38 The circumstances in Fifty Property
Investments related to the adjudicator’s consideration of certain documents where the parties had
no notice of the documents in question, and had not been provided with an opportunity to
respond. The court set out the relevant principles as follows:
[51] Neither the adjudicator, nor either party, thought to inform the other of the correspondence
which each had respectively sent to the adjudicator.
34
John Holland Pty Ltd v TAC Pacific Pty Ltd [2010] 1 Qd R 302 at [40].
35
Ibid.
36
Musico v Davenport [2003] NSWSC 977.
37
Brodyn at [75] to Hodgson J.
38
John Goss Projects Pty Ltd v Leighton Contractors Pty Ltd (2006) 66 NSWLR 707; [2006] NSWSC 798 at [42]. At [57] of
John Goss Projects, the court observed that as the concept of good faith was unsettled, it was preferable to do with most
applications on the basis of a denial of natural justice. This was because not only this was also because of the possibility that the
concept of good faith overlapped with the reference to “good faith” in section 30(1).
BNEDOCS BCIPA - Good Faith and Natural Justice.doc
15
[52] The receipt and consideration by the adjudicator of Impero's letter of 16 January, and
enclosures, without notice to FPI, was a denial of natural justice. The receipt and consideration
from one party of material, whether in the nature of evidence or submissions, which is not made
known to the other, is a denial of natural justice… If, in pursuance of s 21(4)(a), the adjudicator
seeks further information from a party, an opportunity must be afforded to the other to comment.
This is specifically required by s 21(4)(a), which provides as follows:
(4) For the purposes of any proceedings conducted to determine an adjudication
application, an adjudicator:
a) may request further written submissions from either party and must give the other party
an opportunity to comment on those submissions …
[53] The result of a denial of natural justice is that the decision is void, even if the decision would
not have been affected by any submissions which might have been made had an opportunity to
make them been afforded. While, as a matter of discretion, relief might be declined if it can be
shown that the denial of natural justice could not possibly have made a difference to the outcome,
all that a plaintiff need establish is that the denial of natural justice deprived it of the possibility of
a better outcome, and in order to negate that possibility it is necessary to conclude that a properly
conducted adjudication could not possibly have produced a different result …
61.
In Shorten v David Hurst Constructions Pty Ltd39 the requirement of materiality was described as
follows:
…[R]elief may be declined if it can be shown that the denial of natural justice could not possibly
have made a difference to the outcome. It is important to recall that on the authorities, cases in
which procedural fairness “could have made no difference” to an outcome “will be a rarity”: …
It is only where an affirmative conclusion is reached, that compliance with the
requirements of procedural fairness ‘could have made no difference’ to the result that
relief will be withheld. This Court has emphasised that such an outcome will be a rarity.
It will be ‘no easy task’ to convince a court to adopt it.” (Citations omitted, emphasis
added).
An example of such a rarity is where it is obvious and certain that even in the absence of the
breach of procedural fairness, the same result would have been reached. Trysams Pty Ltd v Club
Constructions (NSW) Pty Ltd [2008] NSWSC 399, discussed below, is an example of such a case.
McDougall J had occasion in John Goss Projects Pty Ltd v Leighton Contractors Pty Ltd (2006)
NSWLR 707 to observe that "the concept of materiality is inextricably linked to the measure of
natural justice that the Act requires parties to be given in a particular case. Whatever the principles
of natural justice may require in that particular case they could not require the adjudicator to give
the parties an opportunity to put submissions on matters that were not germane to his or her
decision.
Where an adjudicator was minded to decide a dispute on a basis for which neither party had
contended, then natural justice required the adjudicator to notify the parties of that intention, so
that they could put submissions on it. … However, as I pointed out in John Goss at [42], “the
concept of materiality is inextricably linked to the measure of natural justice that the Act requires
parties to be given in a particular case”. By that I meant, as I said, that the principles of natural
justice could not … “require an adjudicator to give the parties an opportunity to put submissions
on matter that were not germane to his or her decision”.
At the very least, the point must be (as I said) “germane to [the] decision”. In addition, perhaps, it
must be at least arguable that meaningful submissions could have been put if an opportunity to put
them had been afforded i.e. that there was something to be put that might well persuade the
adjudicator to change his or her mind.
39
[2008] NSWSC 546 at [23]-[30], referred to with approval in John Holland Pty Ltd v TAC Pacific Pty Ltd [2009] QSC 205.
BNEDOCS BCIPA - Good Faith and Natural Justice.doc
16
The concept of materiality requires some analysis of at least:
(1) the importance or otherwise of the relevant subject matter (as to which, it is said, there was a
denial of an opportunity to put submissions): in particular, its significance to the actual
determination; and
(2) whether or not there were submissions that could properly have been put that, as a matter of
reality and not mere speculation, might have affected the determination.
Even if the court is satisfied that there has been a denial of natural justice, relief may be denied if it
can be shown that compliance with the requirements of natural justice could have made no
difference to the outcome.
62.
The materiality of the denial of natural justice therefore goes to the exercise of a court’s
discretion whether to decline relief if the denial of natural justice could not possibly have made a
difference to the outcome. To pass the threshold for relief the complainant need only show that
the denial of natural justice deprived it of the possibility of a better outcome and in order to
negate that possibility it is necessary to conclude that a properly conducted adjudication could not
possibly have produced a different result.40 In demonstrating the materiality of the breach to the
outcome of the decision, the aggrieved party should explain what submissions they would have
made to the adjudicator had they been given the opportunity to do so.41
63.
The materiality of the issue being considered also guides the adjudicator in assessing whether to
seek further submissions from the parties on the point. While the power to require further
submissions from the parties is discretionary, the adjudicator must still strictly follow the process
set out in s.25(4)(a) – the adjudicator may ask for further written submissions from either party,
but must give the other party an opportunity to comment on the submissions received.
64.
If the adjudicator does requires further submissions, then the adjudicator should not only allow
the affected party to provide a first set of submissions and the other party to respond (as is
compulsory under Section 25(4)) but to also allow a ‘second round’ of responsive submissions,
particularly if both parties are required to give the first found of submissions by the same
deadline.
65.
Regardless of how many time the adjudicator requests the parties to give further submissions, it is
critical that both parties are given exactly the same opportunity and time in which to give those
further submissions. This is based on the principal that each party must be given a fair and equal
opportunity to present its case, subject to the confines of the Act. For example, the adjudication
response is only to be provided within five working days of the respondent being served, whereas
the applicant has 10 working days from receiving the payment schedule in which to make the
application in the first place.
Examples of what will be a substantial denial of natural justice
Where the adjudicator receives unsolicited submissions from one party and does not state in the decision
that they did not consider the submissions improperly made.
66.
In Hitachi v O'Donnell Griffin42 the respondent sent a facsimile to the adjudicator in response to
a request by the adjudicator for an extension of time in which to deliver the decision. That
facsimile contained an assertion that much of claimant's material need not be considered by the
adjudicator as the adjudicator was bound by the valuation of work from an earlier adjudication.
40
Kaio v Hurst (1985) 159 CLR 550 at 633.
41
See also Transfield Services (Australia) Pty Ltd v Nortask Pty Ltd [2012] QSC 306.
42
[2008] QSC 135.
BNEDOCS BCIPA - Good Faith and Natural Justice.doc
17
67.
The court considered this a "most disturbing document", which was attempting to influence
adjudicator into thinking there was a quick answer, namely the adoption of the respondent's
argument. The court concluded it was impossible to know whether the adjudicator was
influenced by the message within that fax, but that remained as a serious question mark over the
decision (the presence of apprehended bias) and was found to be serious enough to amount to a
denial of natural justice. The court observed that if the adjudicator does not disclaim the
influence of some correspondence to him or invite the other party to respond, the decision may be
open to challenge on the basis of a denial of natural justice.
68.
The adjudicator must therefore be particularly careful when they receive unsolicited submissions
from one party outside of the adjudication application or response. In Thiess Pty Ltd and John
Holland Pty Ltd v Civil Works Australia Pty Ltd43 the respondent asserted that the claimant was
not licensed under (then) Queensland Building Services Authority Act, which reason not stated in
payment schedule but raised in the adjudication response. The claimant wrote a letter to the
adjudicator outside the relevant timeframe for the adjudication application. The respondent also
wrote to a letter contending that the adjudicator was precluded from considering the claimants
letter because it was provided outside the relevant timeframe. The applicant claimed that it
should have been given an opportunity to respond to the letter.
69.
In his decision the adjudicator expressly disregarded the claimant’s letter. The question was
whether this constituted a failure on the part of the adjudicator to afford the applicant natural
justice. The court held it was not:44
TJH sought to contend that it had been denied natural justice because the adjudicator did not hear
it on a matter which it unsuccessfully objected to the adjudicator hearing, on a proposition which
the applicant has now abandoned. To state TJH’s argument in this way demonstrates that it is
bereft of merit. In any event, counsel for TJH conceded before me that the adjudicator’s decision
was not tainted or infected by his (supposed) failure in this regard. TJH therefore fails on this
contention that it was somehow denied natural justice.
Whether the adjudicator is required to consider or have regard to all the provisions of the contract other
than those to which the parties have directed his or her attention
70.
One of the key decisions concerning the application of natural justice to adjudication is the
decision in Musico v Davenport [2003] NSWSC 977 at [106] – [107]:
[106] As to two of those matters – namely, those referred to in paras 3(a) and 3(d), Grosvenor’s
position appears to be that, although the matters were not explicitly raised, nonetheless, because,
in effect, Mr Davenport was required to consider the provisions of the contract, the provisions of
the payment schedule and the provisions of the Act, it was open to him to reach the view that he
did, notwithstanding that Grosvenor had not advanced or contended for those views in its
adjudication application.
[107] If that be Grosvenor’s position it is, in my opinion, wrong. It may readily be accepted that
the Act provides for a somewhat rough and ready way of assessing a builder’s entitlement to
progress claims. It may also be accepted that the procedure is intended not only to be swift, but
also to be carried out with the minimum amount of formality and expense. Nonetheless, what an
adjudicator is required to do is to decide the dispute between the parties. Under the scheme of the
Act, that dispute is advanced by the parties through their adjudication application and adjudication
response (which, no doubt, will usually incorporate the antecedent payment claim and payment
schedule). If an adjudicator is minded to come to a particular determination on a particular ground
for which neither party has contended then, in my opinion, the requirements of natural justice
require the adjudicator to give the parties notice of that intention so that they may put submissions
43
[2010] QSC 187.
44
Supra, at [10].
BNEDOCS BCIPA - Good Faith and Natural Justice.doc
18
on it. In my opinion, this is a purpose intended to be served by s 21(4) of the Act (although the
functions of s 21(4) may not be limited to this).
71.
72.
It can be seen from this passage that the Act frames the particular requirements for procedural
fairness, and it is in this statutory context that the adjudicator must consider and apply procedural
fairness. For example:
(a)
The payment claim must identify the work and the amount claimed for that work under
the contract. The contractual basis for each claim should be identified in the payment
claim;
(b)
The respondent has the opportunity to respond to that claim in the payment schedule, but
is prevented from raising new reasons for withholding payment in the adjudication
response if that reason is not stated in the payment schedule;45
(c)
For that reason a claimant cannot change the contractual basis for its claim or introduce a
new claim in its adjudication response, as the respondent is prevented by s.24(4) from
responding to that new ground in its adjudication response.46
In Shorten v David Hurst Constructions Pty Ltd47 the copy of the adjudication application served
upon the respondent was incomplete, and the respondent did not receive a copy of all the
documents which the claimant had provided to the adjudicator. The court held that the denial of
procedural fairness was material.
Where the adjudicator interprets a clause of the contract which neither party has contended for
73.
If the adjudicator is considering whether to adopt a particular interpretation of a clause in the
contract which neither party has clearly contended for, the adjudicator must put that point to the
parties, under the power in Section 25(4) to seek further submissions, so that the parties have an
opportunity to make those submissions and to respond to the other side’s arguments also.
74.
In Spankie & Northern Investment Holdings Pty Ltd v James Trowse Constructions Pty Ltd48 the
respondent asserted it was entitled to liquidated damages as a set off to the amount claimed. The
respondent also disputed the certification of practical completion by the superintendent was
correct under the contract. The adjudicator based his decision upon an interpretation of the
liquidated damages clause on which neither party had made submissions. The adjudicator failed
to seek submissions on his proposed interpretation and the Court held it was a question upon
which the adjudicator should have sought submissions as permitted by s 25(4).
75.
If the adjudicator proposes to exclude certain documents from consideration that were submitted
by one of the parties in the adjudication, and the other party has not complained that the
documents should be excluded, the adjudicator should inform the parties of his or her intention
and invite submissions from the parties: Syntech v Peter Campbell Earthmoving.
76.
Where the adjudicator is given material that affects the outcome of the adjudication application
that are not provided to the other party, so that the other party is denied the opportunity to
comment on that material.49
45
Sections 24(4) and 26(2)(d).
46
Section 26(2)(c).
47
[2008] NSWSC 546 at [23], [25].
48
[2010] QSC 166.
49
TQM Design & Construct Pty Ltd v Daysein Pty Ltd [2004] NSWSC 1216
BNEDOCS BCIPA - Good Faith and Natural Justice.doc
19
77.
Another example of a denial of natural justice is where the adjudicator adopts an interpretation of
a particular clause in the contract is material to the outcome of a claim but that interpretation is
not one which either party has submitted should be adopted and the adjudicator does not give
notice to the parties and invite the parties to make further submissions regarding that proposed
interpretation.50
78.
A difficult circumstance which raises the prospect of a potential denial of natural justice is where
a respondent raises for the first time in the adjudication response an allegation that the payment
claim is invalid as a relevant jurisdictional fact has not be established e.g. there is not a valid
construction contract or the payment claim is invalid. As a respondent is not obliged to first raise
those matters as a reason for withholding payment in the payment schedule, it presents a difficult
circumstance where, while the adjudicator is required to consider those submissions as they are
properly made (as going to a jurisdictional point) it is not required to be first stated in the
payment schedule), unless the adjudicator is minded to dismiss those jurisdictional complaints
raised by the respondent in its adjudication response, he or she should request further submissions
from both parties by exercising the power under s.25(4). Arguably that is the very reason for that
power to request further submissions, to ensure that the adjudication process is conducted in a fair
and even manner subject to the requirements of the act.
Does using the adjudicator’s own knowledge breach natural justice?
79.
Strictly speaking, there is no breach of the rules of natural justice where the adjudicator uses his
or her own knowledge and experience in determining the questions in dispute. However, such an
approach can create difficulties. If the adjudicator uses their own knowledge and experience in a
way to advance and apply an interpretation or a proposition of fact or law that neither party has
contended for in their submissions the adjudicator must, before issuing their decision, alert the
parties to the adjudicator’s proposition and invite submissions on the point.
80.
For that reason, if an adjudicator is to call on his or her own experience or knowledge, and the
point in question is material to the determination of the dispute or claim overall in the context of
the adjudication application, then it is suggest the adjudicator should take a conservative approach
and inform the parties of this proposition and invite further submissions. By doing so, the
adjudicator should ensure that the principles of natural justice are observed as each party would
have been given an equal opportunity to comment on that proposed conclusion.
81.
In Holmwood Holdings v Halkat Electrical51 the NSW Court of Appeal also noted that “the
adjudicator has to make an adjudication and he did not make a determination if he arrived at an
adjudicated amount by a process wholly unrelated to a consideration of those matters [set out in
section 26(2)]. In that case, the adjudicator did exactly that, stating that while he did not have
evidence on which he could independent arrive at a value of the completed work, he simply
adopted that claimant’s valuation and preference to the respondent’s valuation because of the
view that the adjudicator had formed the respondent had made unmeritorious challenges to the
validity of the payment claim.
Examples of what will not be a denial of natural justice
82.
Cases in which procedural fairness ‘could have made no difference’ to an outcome will be a
rarity. It may be obvious and certain that even in the absence of the breach of procedural
fairness, the same result would have been reached.
50
See, for example, Green Eight Pty Ltd Home Building Pty Ltd [2005] NSWC 907 at [9].
51
[2005] NSWSC1129.
BNEDOCS BCIPA - Good Faith and Natural Justice.doc
20
83.
In Queensland, in the case of Hansen Yuncken Pty Ltd v Ian James Ericson trading as Flea's
Concreting52 the opposite conclusion was reached on the facts in that case – the denial of natural
justice was not material:
Accordingly, the omission of the missing letter had no practical consequence for the adjudication
response. In this case it can be said that a denial of natural justice, by the respondent being
deprived of an opportunity to address a piece of the evidence presented to the adjudicator, could
not possibly have produced a different result. In these circumstances, it is said that a denial of
natural justice still renders a decision void but that, as a matter of discretion, relief might be
declined … Similarly in this court, Applegarth J said in John Holland Pty Ltd v TAC Pacific Pty
Ltd:
In addition, the Court’s concern is with the practical effect of the alleged denial of natural
justice. Reference to the High Court’s decisions in Stead v State Government Insurance
Commission and Ex parte Aala supports the proposition that even if the Court is satisfied
that there has been a denial of natural justice, relief may be denied if it can be shown that
compliance with the requirements of natural justice could have made no difference to the
outcome.
84.
Ultimately, the question of materiality requires that the denial of natural justice was an essential
element in the adjudicator’s reasoning, or an essential step along the way to his conclusion.53 The
concept of materiality requires some analysis of at least:
(a)
the importance or otherwise of the relevant subject matter (as to which, it is said, there
was a denial of an opportunity to put submissions): in particular, its significance to the
actual determination; and
(b)
whether or not there were submissions that could properly have been put that, as a matter
of reality and not mere speculation, might have affected the determination.
85.
The fact that there is a second chance notice provision in s 21(2) means that the claimant is not
required to give specific notice to the respondent that it would contend in the adjudication there
had been no payment schedule.54
86.
Where no payment schedule has been given, the adjudicator is not required to wait the expiration
of the five business days after receipt of the abdication before delivering her decision.55
87.
The requirement to provide both parties natural justice does not mean that the adjudicator is
required to give the parties an opportunity to make submissions on all matters. The test is
whether the issue may be germane to the adjudicator’s determination on that claim or the
adjudication overall. In Shorten v David Hurst Constructions56 the court held that the adjudicator
was not required to give the parties an opportunity to make submissions on a basis that were not
“germane” to the adjudicator’s determination. However, in the instance the applicant also failed
to give the respondents a full copy of the adjudication application which did constitute a denial of
natural justice which was material to the outcome of the application overall, and so the
adjudication was held void. If there is any indication that the respondent does not have a
complete copy of a document, it is important that the adjudicator consider whether to exercise
their discretion to request further submissions on the point.
52
[2011] QSC 327 at [122].
53
Trysams Pty Ltd v Club Constructions (NSW) Pty Ltd [2008] NSWSC 399 at [52].
54
Minimax Fire Fighting Systems Pty Ltd v Bremore Engineering (WA Pty Ltd) [2007] QSC 333 at [34].
55
Minimax at [36].
56
(2009) 25 BCL 188; [2008] NSWSC 546.
BNEDOCS BCIPA - Good Faith and Natural Justice.doc