16 In section 5, Mr Wallace set out, from paras 5.3 to 5.13, various defects that, in his opinion, existed at one time or another. In the case of all but para 5.10, the report was in the form, "I have reported ... that during my inspections ...." or "I have reports that" some defect exists.
17 In no case does Mr Wallace say in terms that the defects that he had reported upon at some stage in the past were current as at the date of his report, 29 October 2010. It may be possible to infer that some of the matters reported upon might not have been rectified, but if that inference is one that can be drawn, the process by which it could be drawn is by no means clear.
18 I excepted para 5.10, in my brief summary of the defects that Mr Wallace had observed to exist at some time. That is simply because para 5.10 was in a different format, and referred to a failure to provide certification. I do not think that this has anything to do with the case of incomplete work, or the dispute between the parties as to the percentage of completion.
Nature of the challenges
19 Bauen makes a number of challenges to the adjudicator's reasoning processes. It submits that, in some respects, he failed to carry out the task entrusted to him by the legislation, and in doing so, denied natural justice to Bauen. It is convenient to start with para 8 of the determination.
No reference to the payment schedule?
20 In para 8, and elsewhere in the determination, the adjudicator said that what was relevant was the existence of defects as at the reference date. His reasoning was, in substance, that the material in the adjudication response did not satisfy him, that there were any defective works outstanding as at the reference date. A challenge was made to his identification of the reference date as being the relevant date, but that can be put to one side for the moment. In fairness to the adjudicator, I think that what he was saying was that it needed to be shown that there was defective work outstanding as at the reference date because that was the date at which the payment claim speaks, and the date at which the entitlement was to be determined. Thus, as he said explicitly both in para 8 and in para 9, if defects had been rectified before the reference date (i.e., rectified by Westwood), they should not be taken into account in assessing the amount of the payment claim.
21 In terms, the adjudicator said that it was the adjudication response that he "examined" in relation to the allegation of defective work. However, as was submitted, that is not the task entrusted to him by the statute. Section 22(2) of the Act sets out the matters which the adjudicator is to "consider" (and says that the adjudicator is to consider those matters only). They include, by para (d), the payment schedule together with the submissions (including relevant documentation) duly made in support of it. It is, of course, legitimate to have regard to an adjudication response to see what, if any, submissions are duly made in support of a payment schedule. But it is the payment schedule that is to be examined to see what is the case that the respondent to a payment claim puts forward for denying its liability to make the payment of the claimed amount.
22 Adjudicators are required, by s 22(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) 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.
23 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.
24 Of concern in Waterways Authority v Fitzgibbons was the primary judge's acceptance of the evidence of one medical practitioner over that of others. It appears from what Hayne J said at [131] that the trial judge concluded that the evidence of a particular practitioner should be accepted and preferred "but disclosed no reasoning supporting that conclusion". As his Honour said at the end of the same paragraph, "[t]he absence of explanation for, and reasoning and support of, the conclusion expressed ... reveals that the process of fact finding miscarried".
25 In this case, the proper inference to draw from what the adjudicator said at para 8 of his reasons, coupled with his failure to indicate anywhere else that he examined, or in the language of s 22(2)(d) "considered" the payment schedule for the purpose stated in para 8, is that he examined only the adjudication response to see if the "defence" of defective works had been made good. This suggests that the adjudicator did not carry out the statutory function entrusted to him, in so far as considering the payment schedule is an element of that function.
26 I acknowledge that at various places in the determination, the adjudicator refers to the payment schedule. He does so, for example, in para 5 (where he refers to a set-off claimed for delay costs) and in para 7 (where he refers to the allegations of defects). What he does not do is say that he looked at the payment schedule "to see if it contains anything to support an allegation of defective work at the reference date".
27 On the face of things, therefore, there is jurisdictional error because the adjudicator failed to exercise the jurisdiction given to him by the Act. In a somewhat analogous situation, in Musico v Davenport [2003] NSWSC 977, I referred to an adjudicator's failure to have regard to relevant provisions of the construction contract with which that case was concerned (and noted s 22(2)(b) of the Act, requiring consideration of the provisions of the construction contract), and said that the adjudicator "therefore failed to carry out the task that the Act requires to be carried out in the manner that the Act requires it to be carried out". It followed, I said in that case, that the adjudicator "failed to exercise the jurisdiction given to him by the Act".
28 For the same reasons, I think that in relation to the issue with which I am presently concerned, the adjudicator failed to exercise the jurisdiction given to him by the Act. That is why I said, earlier, that there is jurisdictional error in the approach taken.
29 Were it necessary to decide, that could also support a finding of denial of natural justice.
Discretionary factors
30 However, it was urged upon me for Westwood that one must pay attention to what would have happened if the adjudicator had looked at the payment claim. (It was urged upon me for Bauen that if I were to undertake this task, it would be intruding into the functions of the adjudicators). I have indicated that one of the documents specifically referred to in the payment schedule as justifying the failure to pay on the ground of defective work does not appear to say anything relevant to this particular contract. I have indicated also that the other documents referred to, which may or may not speak about the particular project, were prepared on 12 and 20 August 2010. I have to say that I think it is unlikely in the extreme that an adjudicator who properly instructed himself or herself as to the relevant task, could find anything in the documents to which reference was made that would supplement the conclusion that, in this case, the adjudicator drew from the adjudication response.
31 If matters went no further, it would be necessary to consider whether, in those circumstances, the relief that prima facie is available under s 69 of the Supreme Court Act 1970 (NSW) based on the conclusions that I have reached, should be granted or withheld as a matter of discretion.
32 Before leaving the question of defective work, I should note that it was of particular relevance in this case because, as I have said, the adjudicator rightly identified his task as being to value the construction work in accordance with s 10(1)(b). As part of that process, the adjudicator was required to have regard to whether any of the work was defective and, if so, the estimated cost of rectifying that defective work. By inference, at least, the adjudicator would be required to set off, from the claimed amount, whatever amount he reached as the estimated cost of rectifying those of the defects asserted by Bauen that he might find were proved to his satisfaction.
33 In this case, however, not only was it difficult to identify from the documents given to the adjudicator what, if any, work was defective; it was difficult, if not impossible, to work out what was the cost of rectifying those defects. So far as I can tell, neither the payment schedule nor the adjudication response contained any attempt to identify specific defects that should be taken into account in assessing the amounts of the progress claim, nor any costing of the rectification of those defects to enable the adjudicator to determine what, if anything, should be allowed for them. Nor, so far as I can tell, was there any basis on which the adjudicator, had he been able to identify the defects, could have costed their rectification. In reality, I think, any estimate of cost would have been a guess.
34 In those circumstances, also, it seems to me to be strongly arguable that there is a strong discretionary ground for the refusal of relief. There was no material before the adjudicator to enable him to say what amount should be set off from the amount claimed by Westwood in respect of the defects alleged. Thus, Bauen did not provide any reason to the adjudicator (apart from a bold and unparticularised assertion that the cost of rectification exceeded the amount of the payment claim) to enable him to come to a reasoned decision.
35 However, there is also a complaint in relation to para 11 of the determination. Because I have concluded that Bauen is entitled to relief for the reasons that follow in relation to that complaint, I do not need to resolve the discretionary issues relating to the complaint about para 8 of the determination.
No reasons for decision?
36 I turn to para 11 of the determination. In that paragraph, the adjudicator dealt with the dispute as to the percentage of works that are complete. It is clear, from the way he approached it, that there was an assertion of particular percentages of completion made by Westwood and an assertion of lesser percentages of completion made by Bauen. From the material in the payment claim and payment schedule (and adjudication application and adjudication response) to which I was taken, it appears that there was no more than assertion against assertion. The adjudicator dealt with that by saying that he saw no reason for not accepting one assertion rather than the other, and thus accepting the valuation flowing from the assertion which he preferred.
37 It was submitted for Bauen that in proceeding that way, the adjudicator did not comply with his obligation to give reasons; or alternatively, to the extent that those were his reasons, that they show that he did not carry out the task of making a determination. Reliance was placed on the decision of the Court of Appeal in Halkat Electrical Contractors Pty Ltd v Holmwood Holdings Pty Ltd [2007] NSWCA 32.
38 In that case, as appears from the reasons of Giles JA, (with whom Santow and Tobias JJA agreed) at [14], the adjudicator had before him, as the adjudicator here had before him, assessment versus assessment, or assertion versus assertion, in each case unsupported by evidence that would enable him independently to determine the outcome. The adjudicator preferred one party's assertion to the other because, in another respect, quite unrelated, that other party had put propositions which the adjudicator described as "unmeritorious challenges", and had asserted "completely unjustified deductions".
39 In those circumstances, Giles JA said that the adjudicator did not carry out the task given to him by the Act. The reasons that the adjudicator gave did not support the conclusion, and thus there was a failure to perform the statutory function. I set out his Honour's reasons at [26] to [28]:
26 With respect to the trial judge, I consider that the fundamental vice in the adjudicator's determination can be shortly explained without embarking on an exegesis of the reference in Brodyn Pty Ltd v Davenport to a bona fide attempt to exercise the statutory power. Section 22 of the Act required that the adjudicator determine an adjudicated amount (s 22(1)) by considering particular matters (s 22(2)). The adjudicator had to make a determination, 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. But that is what the adjudicator did. He stated expressly in his reasons that he did not have evidence on which he could independently arrive at the value of the completed work, and that he adopted the appellant's valuation in preference to that of the respondent because of the respondent's unmeritorious challenges to the validity of the payment claim.