By Hook or by Crooke - Dodgy adjudications disallowed

In the recent case of Richard Crookes Construction Pty Ltd v CES Projects (Aust) Pty Ltd (No.2),1  Justice McDougall in the Supreme Court of NSW overturned an adjudicator's determination on the basis that the adjudicator committed a jurisdictional error by failing to discharge his statutory function to value the work the subject of the payment claim.

This decision can be contrasted against the Queensland Supreme Court decision of Annie Street JV Pty Ltd v MCC Pty Ltd,2  whereby Justice Flanagan affirmed that the inadequacy of an adjudicator's reasoning itself does not amount to jurisdictional error.

The Crookes decision is important because it confirms that a poorly reasoned determination is vulnerable to challenge while Annie Street provides further guidance as to when the threshold of jurisdictional error may be reached.

Background

  • As part of a residential construction project in Newcastle, a progress payment dispute arose between Richard Crookes Construction Pty Ltd (RCC) and CES Projects (Aust) Pty Ltd (CES) in relation to CES' payment claim for $878,600. CES applied for adjudication of this payment claim under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act).
  • In support of its adjudication application, CES relied upon a statutory declaration, a series of photographs and certain sub-subcontractor invoices to prove the value of the work claimed.
  • In his determination of the claim for $794,624.30 of 'contract work' (ie not variations), the adjudicator made certain observations in relation to the statutory declaration and photographs, including that they were "not helpful in coming to a determination as [to] the value of the work" and that "this material far from establishes that this substantial amount of work has been completed".
  • The adjudicator went on to find that "an examination of the invoices indicates that well over $500,000.00 (ex GST) has been incurred by the claimant in both labour and material costs", albeit that there was some duplication in the material provided. The adjudicator concluded that, in relation to the contract works, the sub-subcontractor's invoices provided "some independent evidence, albeit imperfect, and most likely including costs relating to variations to the works but still in support of the claimant's position…" and determined that CES was entitled to the full amount claimed.
  • The adjudicator did not independently assess or verify the value of the contract works claimed.
  • RCC commenced proceedings seeking a declaration that the adjudicator's determination was void and should be quashed. RCC also applied for, and was granted, an interlocutory injunction to restrain CES from enforcing the determination.3
  • RCC's primary contention was that the adjudicator had failed to discharge an essential statutory function by failing to identify and value construction work claimed by CES, therefore depriving the adjudicator of jurisdiction.
  • In response, CES argued that the adjudicator satisfactorily discharged his statutory duty and that it was sufficient for the adjudicator to discharge his obligation to value the work by simply adopting a valuation submitted by one of the parties without doing more.

Decisions and reasons

‚ÄčIn accordance with established authority4, McDougall J held that the essential statutory function of an adjudicator involves, at a minimum, determining whether the construction work has been completed and the value of that work.

His Honour found that the adjudicator's determination that the sub-subcontractor's invoices "are sufficient proof for the bulk of the claim - $794,600 - is both counter-intuitive and entirely unsupported by any reasoned analysis". The adjudicator, by simply adopting CES' submissions without performing his own valuation, failed to:

  • determine the amount of the progress payment to be paid (following Hodgson JA in Plaza West Pty Limited v Simon's Earthworks (NSW) P/L [2008] NSWCA 279); and/or
  • demonstrate any rational assessment of the value of the works (citing Vickery J in SCC Plenty Road P/L v Construction Engineering (Aust) P/L [2015] VSC 631 (SCC Plenty Road)),

and therefore failed to value the construction work as required by section 22(2) of the Act.

Accordingly, his Honour held the adjudicator's determination was void and ordered for it to be quashed.

The decision in Crookes can be contrasted against Justice Flanagan's decision in Annie Street, decided shortly after Crookes, which also cited SCC Plenty Road with approval and confirmed that the "inadequacy, insufficiency, inconsistency or illogicality of reasons for a decision does not itself amount to jurisdictional error".5 Rather, it is the significance of the reasons, or their inadequacy, in the context of the surrounding material that may reveal the jurisdictional error.

In Annie Street, the adjudicator's reasons were not affected by jurisdictional error as the reasons evidenced a consideration of the contemporaneous documentation and the parties' sworn evidence in determining whether there was an agreement to vary the date for practical completion, and therefore the claimant's liability to pay liquidated damages. This can be distinguished from Crookes, where the adjudicator failed to independently value the works with reference to the evidence before him.

Significance

The decisions in Crookes and Annie Street clearly establish that adjudicators are required to provide reasons which show that the adjudicator has:

  • performed his or her own assessment of the value of the work; and
  • arrived at that assessment by:
    • fairly assessing and weighing the whole of the relevant evidence;
    • drawing any necessary inferences from the evidence; and
    • arriving at a rational conclusion founded on the evidence.

Failure to do so will render the determination liable to be quashed for jurisdictional error. The decisions benefit respondents as not only is there clear guidance for adjudicators as to the minimum standard for determinations, but moreover, claimants will need to carefully consider the evidence provided to establish the claim as adjudicators may be increasingly reticent to allow claims in the absence of clear evidence as to the performance of the work and its value.

The author is grateful for the assistance of Lara Meers, Karmen Gallegos and Adam Murphy, Lawyers, in preparing this Insight.

1 [2016] NSWSC 1229
2 [2016] QSC 268.
3 Refer to Richard Crookes Constructions Pty Ltd v CES Projects (Aust) Pty Ltd [2016] NSWSC 1119.
4 Refer to Pacific General Securities Ltd & Anor v Soliman & Sons [2006] NSWSC 13.
5 Annie Street [2016] QSC 268, [29].

Alex Whiteside

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Alex specialises in providing advice to the construction, infrastructure and mining sector. Alex focusses on providing advice during the delivery, completion and disputes phases of projects.

Alex acts for construction contractors, equipment suppliers and government entities and has extensive experience in drafting and negotiating project documentation, ranging from the Australian Standard suite of contracts through to project specific and PPP documentation.

Alex has a particular focus on disputes, including expert determination, adjudications, arbitration and Court proceedings. Alex has acted for clients in a broad range of construction and mining disputes including scope and variation claims, design, defect and delay/prolongation claims, injunctions and security of payment adjudications and appeals. Alex has significant expertise in Supreme Court actions in the Technology and Construction List.

Alex has completed secondments in the legal teams of Lendlease, Transport Infrastructure & Services and Sydney Trains.

Alex commenced his career advising insurers in relation to professional indemnity insurance policy coverage and claims.

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