Solicitors:
Hugh & Associates Lawyers - Plaintiff
Paul J Hick - First Defendant - submitting appearance
Piper Alderman - Second Defendant - submitting appearance
File Number(s): 2017/256394
[2]
Introduction
HIS HONOUR: On 24 August 2017, I made orders having the effect of disqualifying the first defendant (the adjudicator) from acting as adjudicator of a payment claim for $130,364.03 (including GST) made by the second defendant (Electrical Energy) on the plaintiff (Quickway) under the provisions of the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act), for electrical cabling work on a project at Bateau Bay on the Central Coast. The orders are set out later.
References to sections are references to the Act.
The orders were made in urgent circumstances and I gave only the briefest ex tempore reasons.
The adjudicator and Electrical Energy filed submitting appearances. I invited any party to inform me by 29 August 2017 if more detailed reasons were required. Quickway took up the invitation. These are the more detailed reasons.
On 22 April 2017, Electrical Energy served on Quickway two payment claims under the Act, for work done in connection with electrical cabling at a substation in Canterbury ($24,725.25) and another one in Leichhardt ($41,250). Each claim had a notation that it had been assigned to a third person (a factoring company) and directed payment to be made to that party.
The claims were not paid and Electrical Energy made adjudication applications to an authorised nominating authority under the Act.
On 14 July 2017, the nominating authority notified Quickway and Electrical Energy that the adjudicator had accepted appointment in both cases.
The adjudicator made determinations in both cases on 28 July 2017. He awarded Electrical Energy $22,499.98 in the Canterbury claim and $41,250 in the Leichhardt claim, in both cases including GST.
On 4 August 2017, Quickway initiated proceedings in this List, seeking declarations that the adjudication determinations were void and orders in the nature of certiorari quashing them. Quickway paid the adjudicated amounts into Court, as it was obliged to do. I will refer to those proceedings as the challenge proceedings.
The adjudicator was joined to the challenge proceedings as second defendant. He filed a submitting appearance, save as to costs, and relied on the protection from liability provisions contained in s 30(1). [1]
Quickway's first complaint in the challenge proceedings was that payment claims cannot validly be made or served under the Act for a debt which has been assigned by the claimant to a third party.
Its second complaint was that it was denied natural justice because the adjudicator held that the reference date for both claims was 31 March 2017, whereas the only submissions made by the parties in relation to reference date were by Electrical Energy and it identified only 30 April 2017 and 28 April 2017 respectively. In the Canterbury adjudication, Quickway did not suggest that this denial was serious enough to warrant the interference of the Court, but in the Leichhardt adjudication, it argued that it was denied the opportunity to make submissions that 31 March 2017 was not an available reference date. [2]
The challenge proceedings were heard by Parker J on 15 August 2017. His Honour reserved judgment.
On 18 July 2017, Electrical Energy served the payment claim on Quickway for the work at Bateau Bay. Quickway served a payment schedule on 1 August 2017 and on 15 August 2017, Electrical Energy made an adjudication application to the same nominating authority.
On 21 August 2017, the nominating authority notified Electrical Energy and Quickway that the adjudicator had accepted appointment as the adjudicator for the Bateau Bay claim.
Quickway immediately wrote to the adjudicator drawing his attention to the fact that judgment in the challenge proceedings, to which the adjudicator was a party, was reserved and asserting that it was not appropriate for the adjudicator to accept an appointment as adjudicator in the Bateau Bay claim while those proceedings were pending. Quickway asserted that the adjudicator's interest as a party to the challenge proceedings gave rise to a conflict of interest, alternatively a perceived, if not actual, apprehension of bias in him purporting to adjudicate the Bateau Bay application.
On 22 August 2017, the adjudicator directed to the parties a written "Request for Further Submissions". In it, he recorded that in considering whether there was any conflict of interest or reason why he could not accept the nomination, he took into account the two previous adjudication determinations between the same parties which were presently before the Court seeking judicial review on the basis of alleged jurisdictional error or denial of natural justice. He recorded that although he was a defendant named in the challenge proceedings, he was not active in them and that he had filed a submitting appearance. He recorded further that in the process of considering the issue of conflict, he considered the High Court decision in Ebner v Official Trustee in Bankruptcy (2000) 205 CLR 337, which sets out the relevant test for apprehension of bias. He stated that he took the view that a fair-minded lay observer would not apprehend that he might not bring an impartial mind to the resolution of the question he was required to decide and consequently, he accepted the nomination. He also stated the following:
Irrespective of the threatened proceedings and the potential threat of seeking costs against me, having already accepted the nomination and therefore having been appointed under the Act, it is not appropriate for me to withdraw simply because one party objects and threatens proceedings against me. It is incumbent upon me to consider properly the concerns raised by the Respondent and to allow both parties the opportunity to make submissions on the issue.
The adjudicator requested further submissions in respect of what he described as "his preliminary observations expressed above", and directed the parties to provide their submissions by 23 August 2017.
[3]
The Act
The Act provides for a claimant to make a payment claim for a progress payment on the person who, under a construction contract, is or may be liable to make the payment.
The respondent to a claim may reply by providing a payment schedule, which must indicate the amount of the payment (if any) that the respondent proposes to make. Where no payment schedule is served, the claimant may recover the unpaid portion of the claimed amount as a debt due in a court of competent jurisdiction, or make an adjudication application in relation to the claim. It is not uncommon for a respondent to indicate a nil amount.
Division 2 of the Act (ss 17 to 26) is entitled Adjudication of Disputes.
The adjudication process entails the making of an adjudication application by the claimant and the appointment by an authorised nominating authority of an adjudicator.
Section 17 entitles a claimant to apply for adjudication of a payment claim and sets out the requirements for an adjudication application.
Section 18 provides that a person is eligible to be an adjudicator in relation to a construction contract if the person is a natural person, and if the person has such qualifications, expertise and experience as may be prescribed by the regulations for the purposes of this section. It provides further that a person is not eligible to be an adjudicator in relation to a particular construction contract if the person is a party to the contract, or in such circumstances as may be prescribed by the regulations for the purposes of this section.
Section 19 provides that if an authorised nominating authority refers an adjudication application to an adjudicator, the adjudicator may accept the adjudication application by causing notice of the acceptance to be served on the claimant and the respondent. It provides further that on accepting an adjudication application, the adjudicator is taken to have been appointed to determine the application.
Section 20 contains provision for the respondent to lodge with the adjudicator an adjudication response.
Section 21 provides:
(1) An adjudicator is not to determine an adjudication application until after the end of the period within which the respondent may lodge an adjudication response.
(2) An adjudicator is not to consider an adjudication response unless it was made before the end of the period within which the respondent may lodge such a response.
(3) Subject to subsections (1) and (2), an adjudicator is to determine an adjudication application as expeditiously as possible and, in any case:
(a) within 10 business days after the date on which the adjudicator notified the claimant and the respondent as to his or her acceptance of the application, or
(b) within such further time as the claimant and the respondent may agree.
(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, and
(b) may set deadlines for further submissions and comments by the parties, and
(c) may call a conference of the parties, and
(d) may carry out an inspection of any matter to which the claim relates.
(4A) If any such conference is called, it is to be conducted informally and the parties are not entitled to any legal representation.
(5) The adjudicator's power to determine an adjudication application is not affected by the failure of either or both of the parties to make a submission or comment within time or to comply with the adjudicator's call for a conference of the parties.
Section 22 provides:
(1) An adjudicator is to determine:
(a) the amount of the progress payment (if any) to be paid by the respondent to the claimant (the "adjudicated amount" ), and
(b) the date on which any such amount became or becomes payable, and
(c) the rate of interest payable on any such amount.
(2) In determining an adjudication application, the adjudicator is to consider the following matters only:
(a) the provisions of this Act,
(b) the provisions of the construction contract from which the application arose,
(c) the payment claim to which the application relates, together with all submissions (including relevant documentation) that have been duly made by the claimant in support of the claim,
(d) the payment schedule (if any) to which the application relates, together with all submissions (including relevant documentation) that have been duly made by the respondent in support of the schedule,
(e) the results of any inspection carried out by the adjudicator of any matter to which the claim relates.
(3) The adjudicator's determination must:
(a) be in writing, and
(b) include the reasons for the determination (unless the claimant and the respondent have both requested the adjudicator not to include those reasons in the determination).
(4) If, in determining an adjudication application, an adjudicator has, in accordance with section 10, determined:
(a) the value of any construction work carried out under a construction contract, or
(b) the value of any related goods and services supplied under a construction contract,
the adjudicator (or any other adjudicator) is, in any subsequent adjudication application that involves the determination of the value of that work or of those goods and services, to give the work (or the goods and services) the same value as that previously determined unless the claimant or respondent satisfies the adjudicator concerned that the value of the work (or the goods and services) has changed since the previous determination.
(5) If the adjudicator's determination contains:
(a) a clerical mistake, or
(b) an error arising from an accidental slip or omission, or
(c) a material miscalculation of figures or a material mistake in the description of any person, thing or matter referred to in the determination, or
(d) a defect of form,
the adjudicator may, on the adjudicator's own initiative or on the application of the claimant or the respondent, correct the determination.
[4]
Discussion
The adjudicator's functions mimic the judicial function in material respects.
The adjudicator is to consider all submissions that have been duly made by the parties. The adjudicator's determination must be in writing and include reasons (unless both parties have requested that they not be included).
If the respondent fails to pay an adjudicated amount, the claimant may request the authorised nominating authority to provide an adjudication certificate (s 24(1)) and an adjudication certificate may be filed as a judgment for a debt in any court of competent jurisdiction and is enforceable accordingly (s 25(1)).
It is well settled that natural justice (or procedural fairness) is to be afforded to the parties by an adjudicator, [3] the essential elements of which include fairness and detachment. This involves the absence of the actuality or the appearance of disqualifying bias and the according of an appropriate opportunity to be heard. [4]
In Michael Wilson & Partners Limited v Nicholls (2011) 244 CLR 427, the High Court reiterated the test to be applied in determining whether a judge is disqualified by reason of the appearance of bias.
At 437 [31], Gummow ACJ, Hayne, Crennan and Bell JJ said:
It has been established by a series of decisions of this Court that the test to be applied in Australia in determining whether a judge is disqualified by reason of the appearance of bias (in this case, in the form of prejudgment) is whether a fair-minded lay observer might reasonably apprehend that the judge might not bring an impartial and unprejudiced mind to the resolution of the question the judge is required to decide.
The same test applies to an adjudicator. [5]
The test is objective and it is important to keep an inquiry about an apprehension of bias distinct from any inquiry about actual bias. [6]
Quickway did not assert the presence of actual bias on the part of the adjudicator.
A fair-minded lay observer might reasonably (indeed, in my opinion, in this case, would) apprehend that the adjudicator in this case might not bring an impartial and unprejudiced mind to the adjudication of the Bateau Bay application.
He was being sued by Quickway, one of the parties to the Bateau Bay adjudication, which was asserting that he had denied it natural justice, a complaint which, as it happened, was upheld by Parker J in relation to the Leichhardt claim after I made orders in this case. [7]
In both the Canterbury and Leichhardt claims, the adjudicator had made findings adverse to Quickway including that Quickway was to pay 100% of his fees and expenses. He observed that its submissions were "practically all jurisdictional challenges that failed and many had little merit".
He had filed a submitting appearance in the challenge proceedings, but it was save as to costs and he claimed protection from liability under s 30 of the Act. A costs order against him thus remained a possibility, even if not a probability.
In his Request for Further Submissions, he referred to the potential threat of seeking costs against him. Manifestly, he had a personal, if indirect, interest in the outcome of the challenge proceedings, adverse to that of Quickway.
He was troubled (with justification) from the start as to the appropriateness of his accepting the appointment, having, as his Request for Further Submissions reveals, actually considered whether there was any conflict of interest or reason why he could not accept the nomination. Although he described what he had said as preliminary observations, they were hardly preliminary, because he proceeded to accept the appointment.
He had made a ruling (adverse to Quickway) on his own bias (or rather lack of it), which intromission he never communicated to the parties until his Request for Further Submissions. Knowledge of these facts would in itself give rise to a reasonable apprehension of bias. It is not necessary to consider whether actual bias is disclosed.
The duty of an authorised nominating authority to refer an application to an eligible adjudicator under s 17(6) of the Act, and the acceptance by an adjudicator under s 19, are not matters of inconsequence.
Whilst the Act does not contemplate or require that a proposed adjudicator will give the parties an opportunity to be heard on whether she or he should accept or decline an appointment, there is nothing to inhibit a proposed adjudicator from requesting the authorised nominating authority to make enquiry as to whether there is any objection to her or his appointment in cases of doubt (on the assumption that where there is doubt, the adjudicator nevertheless sees fit to consider acceptance). One might have thought that it would be appropriate for a nominating authority to give consideration to the fact that two other disputes between the same parties had been referred to the same adjudicator before making a referral. It would of course be inappropriate for an authorised nominating authority to make a referral to an adjudicator if it had knowledge that the adjudicator was a defendant in proceedings instituted by one of those parties in relation to an earlier adjudication determination which that nominating authority had referred to that adjudicator.
It is appropriate to make orders [8] having the effect of disqualifying the adjudicator from the Bateau Bay adjudication and to accept undertakings which will permit the adjudication application otherwise being dealt with expeditiously under the Act.
Although Quickway was put to expense in having to bring these proceedings, it did not seek any orders for costs against either the adjudicator or Electrical Energy.
[5]
ORDERS And Undertakings
I note and accept the undertaking given by the plaintiff through its counsel that it will not dispute, by reason only of the making of orders set out below, the entitlement of the second defendant to make a new adjudication application in relation to the payment claim, the subject of the adjudication application identified below, within four business days of today 24th August 2017, or the entitlement of the authorised nominating authority to refer the adjudication application to an eligible adjudicator other than the first defendant, it being noted that the undertaking is given without prejudice to any entitlement of the plaintiff otherwise to challenge the efficacy of any adjudication determination resulting from the payment claim.
The referral of adjudication application reference no 2017-TASC-086 by the authorised nominating authority to the first defendant is set aside. The acceptance of that application by the first defendant is set aside. The first defendant is restrained from acting as the adjudicator of that application or any resubmitted adjudication application in respect of the payment claim the subject of the application.
There shall be no order as to costs to the intent that each party shall pay his or their own.
[6]
Endnotes
Section 30(1): An adjudicator is not personally liable for anything done or omitted to be done in good faith: (a) in exercising the adjudicator's functions under this Act, or (b) in the reasonable belief that the thing was done or omitted to be done in the exercise of the adjudicator's functions under this Act.
Section 8(1)(a) provides that on and from each reference date under a construction contract a person who has undertaken to carry out construction work under the contract is entitled to a progress payment. Section 8(2) provides that "reference date", in relation to a construction contract, means a date determined by or in accordance with the terms of the contract as the date on which a claim for a progress payment may be made in relation to work carried out or undertaken to be carried out (or related goods and services supplied or undertaken to be supplied) under the contract, or if the contract makes no express provision with respect to the matter-the last day of the named month in which the construction work was first carried out (or the related goods and services were first supplied) under the contract and the last day of each subsequent named month. See Southern Han Breakfast Point Pty Ltd (in Liquidation) v Lewence Construction Pty Ltd (2016) 91 ALJR 233.
Musico & Ors v Davenport & Ors [2003] NSWSC 977 at [33]; Brodyn Pty Ltd t/as Time Cost and Quality v Davenport & Anor (2004) 61 NSWLR 41 at [57]; Reiby Street Apartments v Winterton Constructions [2006] NSWSC 375 at [22]; Allpro Building Services Pty Ltd v Micos Architectural Division Pty Ltd [2010] NSWSC 474 at [10].
Plaintiff S157/2002 v The Commonwealth of Australia (2003) 211 CLR 476 at 490 [25].
Section 18(2) provides that a person who is a party to the contract is not eligible to be an adjudicator. This is an express recognition that the detachment is required.
Michael Wilson & Partners Limited v Nicholls (2011) 244 CLR 427 at 437 [33].
Quickway Constructions Pty Ltd v Electrical Energy [2017] NSWSC 140 at [36]-[52]. His Honour did not uphold the complaint concerning the assignment notation.
Section 90(1) of the Civil Procedure Act 2005 (NSW) provides that the court is, at or after trial or otherwise as the nature of the case requires, to give such judgment or make such order as the nature of the case requires.
[7]
Amendments
12 September 2017 - para 32 "the actuality or"
footnote 2 amended
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Decision last updated: 12 September 2017