WA decision clarifies when a SOP adjudication can be challenged

In this decision, the WASC confirmed that a jurisdictional error can arise where an adjudicator has failed to consider a matter that the Act requires them to consider, including a respondent’s payment schedule and any claimed set-offs. 

Background

The adjudication dispute arose after Cooper & Oxley engaged Caledonia as a subcontractor for the Hamersley Golf Course redevelopment. Following termination of the subcontract, Caledonia served a tenth progress claim, a written request for payment, for A$223,726.84 (approx. US$150,680).

Cooper & Oxley disputed the validity of the claim, assessed it as a negative amount, and asserted various set-offs and backcharges. In response, Caledonia applied for an adjudication of the progress claim under the Act.

The adjudicator determined that Cooper & Oxley owed Caledonia an amount of A$131,935.76 plus interest and fees. Cooper & Oxley then sought judicial review of the determination in the WASC.

Review of the adjudication decision

Cooper & Oxley put advanced two grounds for why the judicial review of the determination should be made.

Firstly, Cooper & Oxley argued the adjudicator failed to perform his functions under section 38(1)(a) of the Act because the determination did not take into account:

• that the subcontract had been terminated under clause 36.7;
• contractual limits on Caledonia’s post-termination entitlements under clause 36.8; and 
• rights to set-off under clause 17.10.

Secondly, Cooper & Oxley argued that the adjudicator failed to perform his functions under s38(1)(a) of the Act because he did not properly consider Cooper & Oxley’s entitlements to various set-offs for backcharges, defect remediation, and outstanding debts due.

The WASC’s decision

In its decision, the WASC stated that the Act “is not intended to facilitate a final determination of claims made by way of a progress claim”, but rather it “facilitates the determination of a progress claim to ensure a contractor is not deprived of cash flow pending a final determination of claims under the contract”. The Act's policy is to pay now, fight later, according to the court.

Regarding the first ground, the WASC found that adjudicator’s approach to termination, did not amount to jurisdictional error. The court found that the adjudicator understood that he needed to consider matters raised in the payment schedule, including set-offs, and the fact that he did not expressly cite cl 17.10 or 36.8 did not matter. The court found that in this case, termination did not change the essence of the adjudicators task, and that he only needed to consider set-offs and previous payments to the extent that Cooper & Oxley clearly raised them in the payment schedule.

Regarding the second ground, the WASC split up its reasoning by each category of claimed set-offs: backcharges, defect remediation and outstanding debts due. In summary, the WASC found that ground 2 was made out in part – it was made out in respect of backcharges and the outstanding debts due, but it was not made out in respect of the defect remediation claims.

The adjudicator did not address Cooper & Oxley’s claimed backcharges. The payment schedule, submissions, and statutory declaration clearly indicated the backcharges, and failing to consider them was a material omission and therefore a jurisdictional error. 

Similarly, for the outstanding debts due, it was found that because the adjudicator failed to address a material aspect of Cooper & Oxley’s response to the progress claim, there was jurisdictional error in respect of the adjudicator’s finding pertaining to the claimed deduction for outstanding debts due.

In contrast, regarding the defect remediation claims, the adjudicator reviewed the invoices provided, inquired whether they related to defects caused by Caledonia, and concluded that the link was not established. This demonstrated that the adjudicator did properly consider the issue and any issue with his conclusion was an argument based on merits, not a jurisdictional error.

Accordingly, while the first ground of Cooper & Oxley’s application could not be made out, the second ground succeeded in part, in respect of the backcharges and the claimed deduction for progress claim, but not in respect of the defect remediation claims. The adjudicator’s determination was therefore quashed in part.

The WASC made a final observation at the end of the judgement regarding the operation of progress claims under the Act, stating: “The Act envisages that the procedures relating to progress claims are carried out expeditiously, efficiently, and fairly, recognising that a progress claim is an interim claim. To achieve these objectives, the parties to a progress claim need to make sure their position in respect of the claim is clearly expressed. Doing so significantly reduces the need for, and scope of, proceedings such as these, and the legal costs associated with them. It is also important to bear in mind that clarity is usually achieved using plain language.” This reinforces the practical burden on respondents under the Act and that adjudicators cannot be expected to search thoroughly through extensive materials to infer arguments. Adjudicators cannot be expected to search thoroughly through extensive materials to infer arguments.

This decision reaffirms that an adjudicator’s decision under the Act can be set aside if the adjudicator makes a jurisdictional error. If the court finds that a jurisdictional error has occurred, the court may set aside the whole or any part of the determination. Outside of WA, similar decisions have occured.

The NSW Supreme Court has previously set aside parts of an adjudication determination affected by jurisdictional error, but allowed the unaffected parts of the determination to stand.

Similarly, in Queensland, there has been several decisions confirming that an adjudication determination affected by jurisdictional error may be set aside in part or wholly. For example, the Queensland Supreme Court found there had been jurisdictional error sufficient to set aside a determination due to the adjudicator failing to consider material documents in making its determination. The court held that the adjudicator’s failure to consider the relevant evidence and submissions constituted a failure to comply with the essential requirements of Queensland’s security of payment legislation. The Queensland Supreme Court intervened to rectify several jurisdictional errors committed by an adjudicator, which included failing to afford procedural fairness and failing to consider a party’s submissions.

In another decision, the Victorian Supreme Court confirmed, among other things that jurisdictional error is a valid basis for challenging an adjudication determination.     

Practical tips

The decision is an important reminder to contractors and the wider construction industry to:

• document everything clearly. Parties need to be clear and precise in payment schedules. Ensure that you list all reasons for withholding payment in the schedule;
• link supporting evidence to claims to ensure all invoices, spreadsheets and correspondence clearly show the basis for deductions;
• use plain language to avoid ambiguity using plain language. Adjudicators work under tight timeframes and need clarity;
• address termination rights explicitly to ensure that if a contract has been terminated, the effect of the termination on payment obligations and set-off rights should be clearly explained to the relevant party;
• check compliance with the Act. Ensure payment claims and schedules meet statutory content and timing requirements.

Co-written by Will Hudson of Pinsent Masons.