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A high bar to prove jurisdictional error: Confirmation of the adjudicator’s duty to consider – Ceerose Pty Ltd v A-Civil Aust Pty Ltd [2023] NSWCA 215

Gretel Wathen & Richard Kouchoo

12 October 2023

On 12 September 2023, the Supreme Court handed down its judgement in the matter of Ceerose Pty Ltd v A-Civil Aust Pty Ltd [2023] NSWCA 215.  The Court of Appeal had to review a Supreme Court decision to partially set aside an adjudication determination for reason of jurisdictional error.

Facts

In late 2021, A-Civil was subcontracted by Ceerose (the contractor) to complete construction works for two projects located in York Street, Sydney (York Street) and Greenknowe Avenue, Elizabeth Bay (Elizabeth Bay).

In May 2022, A-Civil served two payment claims on Ceerose for each project under the Building and Construction Security of Payment Act 1999 (NSW) (SOPA).  Both payment claims were disputed by Ceerose.

In June 2022, A-Civil served an adjudication application for each project, hence commencing the adjudication process.

The adjudicator found in favour of A-Civil, awarding $2,045,453.97 for the York Street works, and $349,324.36 for the Elizabeth Bay works.  Ceerose subsequently appealed the adjudication determinations to the Supreme Court.

On 20 March 2023, Justice Darke in the Supreme Court found that each determination was partially affected by jurisdictional error which resulted in an order for those parts of the determinations being set aside pursuant to s. 32A of Building and Construction Industry Security of Payment Act 1999 (SOPA) (see Ceerose Pty Ltd v A-Civil Aust Pty Ltd [2023] NSWSC 239 [link previous Kreisson article]).

Ceerose appealed the judgement to the Court of Appeal, arguing that the primary judged erred in:

  1. not ruling the adjudicator’s failure to make adjudicator’s own assessment about matters that were commonly agreed between the parties, as a jurisdictional error (ground 3);
  2. setting aside only part of the decision that was affected by jurisdictional error and not the reasoning that accompanied the decision (grounds 5, 8 and 10);
  3. ruling that the adjudicator should receive full payment for its determination, considering the adjudication determination was partially set aside due to jurisdictional error (grounds 4 and 9); and
  4. failing to find jurisdictional error in the adjudicator’s determination, that no liquidated damages were payable (grounds 1, 2, 6 and 7).

The appeal was dismissed, the reasons for which are summarised below.

Judgment

Ground 3: Jurisdictional error and the duty to consider under s. 22 SOPA

Ground 3 of Ceerose’s appeal concerned the adjudicator’s failure to reach its own conclusions, simply depending on the parties’ submissions, thereby not properly considering the matters listed at s. 22(2) of SOPA. The argument on this ground was that the primary judge should have found this to be a jurisdictional error.

In dismissing this ground, the Court of Appeal held that jurisdictional error vitiates a decision when a decision maker fails to address an essential matter without which the decision would lack the necessary characteristics required of it.

s. 22(2) of SOPA provides the matters an adjudicator is required to consider, namely:

(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.

It is evident that an adjudicator is only required to consider those submissions that have been “duly made” by the parties in other words, material that is relevant.

When discussing the extent of the material an adjudicator is required to consider, the Court of Appeal disapproved of the interpretation of that duty made by Hodgson JA in Coordinated Construction Co Pty Ltd v JM Hargreaves (NSW) Pty Ltd (2005) 63 NSWLR 385; [2005] NSWCA 228 (Hargreaves decision).  Specifically, the Court of Appeal disagreed with Hodgson JA’s commentary at [51] to [53] of the Hargreaves decision, and in doing so clarified the following (see paragraphs [75] to [78]):

  1. 20(2B) of SOPA stipulates that an adjudicator cannot look beyond the terms of an adjudication response when rejecting part, or all of a payment claim;
  2. 14(3) requires a payment schedule to provide reasons as to why it has scheduled an amount less than the payment claim;
  3. where the reasons advanced by a respondent are invalid, and there are no further matters for the adjudicator to consider, it is then open for the adjudicator to determine the amount payable in favour of the claimant based on the payment schedule; and
  4. further, due to these express restrictions on the contents of the adjudication response, it would be an error to allow the adjudicator to consider matters that go beyond the terms of the payment schedule (and that are repeated in the adjudication response).

In light of this, the Court of Appeal found that the commentary regarding jurisdictional error in  Pacific General Securities Ltd v Soliman & Sons (2006) 196 FLR 388; [2006] NSWSC 13 (at 82]), Laing O’Rourke Australia Construction Pty Ltd v Monford Group Pty Ltd [2018] NSWSC 491 (at [1] to [3]) and Acciona Infrastructure Australia Pty Ltd v Chess Engineering Pty Ltd [2020] NSWSC 1423 (at [40]) were also incorrect as these  relied on the above dicta in the Hargreaves decision.

Alleging lack of consideration of material – the issues

To successfully argue that an adjudicator failed to undergo consideration of relevant material as required by s. 22(2), one must prove that that consideration did not occur.  This is a high bar to overcome as pointed out by the Court (at [62] to [67]).  For example, not only is an adjudicator not required to provide reasons for its determination, but due to the limited timeframe within which they are required to make a determination (10 days), it is at times not practicable for them to provide reasons.

Ground 5, 8 and 10: Setting aside a decision due to jurisdictional error and s. 32A SOPA

Grounds 5, 8 and 10 appeal the primary judge’s application of s. 32A of SOPA.  Ceerose argued that the primary judge was incorrect to only set aside the part of the decision vitiated by jurisdictional error and not the accompanying reasoning.

s. 32A of SOPA provides:

(1) If, in any proceedings before the Supreme Court relating to any matter arising under a construction contract, the Court makes a finding that a jurisdictional error has occurred in relation to an adjudicator’s determination under this Part, the Court may make an order setting aside the whole or any part of the determination [emphasis added].

(2) Without limiting subsection (1), the Supreme Court may identify the part of the adjudicator’s determination affected by jurisdictional error and set aside that part only, while confirming the part of the determination that is not affected by jurisdictional error.

Ceerose contended that the term ‘determination’ includes not only the decision but also the accompanying reasons.  In doing so, it referenced s. 22(3)(b) which provides that an adjudication determination must “include the reasons for the determination”.

In response to this argument, the Court of Appeal held (at [109]) that because a judicial review is only concerned with the determination or orders made, the Court was only required to set aside the part of the determination affected by the jurisdictional error and not the reasons.

Grounds 4 and 9: Payment of adjudicator fees under s. 29 SOPA

Under grounds 4 and 9, Ceerose contended that the adjudicator was not entitled to payment of the adjudicator’s fee under s. 29 of SOPA.

s. 29 of SOPA provides:

(3) An adjudicator is entitled to be paid for adjudicating an adjudication application—

(a) such amount, by way of fees and expenses, as is agreed between the adjudicator and the parties to the adjudication, or

(b) if no such amount is agreed, such amount, by way of fees and expenses, as is reasonable having regard to the work done and expenses incurred by the adjudicator.

(4) The claimant and respondent are jointly and severally liable to pay the adjudicator’s fees and expenses.

(5) The claimant and respondent are each liable to contribute to the payment of the adjudicator’s fees and expenses in equal proportions or in such proportions as the adjudicator may determine.

(6) An adjudicator is not entitled to be paid any fees or expenses in connection with the adjudication of an adjudication application if he or she fails to make a decision on the application (otherwise than because the application is withdrawn or the dispute between the claimant and respondent is resolved) within the time allowed by section 21(3).

….

Ceerose argued that because the adjudication determination was found to contain jurisdictional errors and as such partially set aside, then the adjudicator was not entitled to payment.

The Court of Appeal did not accept this submission, holding that:

“[132]    An adjudication determination affected by legal error is not necessarily void for all purposes. One of those purposes is the obligation to pay costs of the adjudication provided in s 29(1)-(3). The adjudicator’s right to be paid is based on a fact: the adjudicator is “entitled to be paid for adjudicating an adjudication application”.

[133]     To paraphrase Gageler J in New South Wales v Kable (2013) 252 CLR 118; [2013] HCA 26 at [52], the action so taken, adjudicating an adjudication application, has consequences for the creation of legal rights and legal obligations, as set out in s 29, which consequences do not depend on the legal force of the adjudication decision itself.

[134]     The obligation of the parties to pay the “the adjudicator’s fees and expenses” being the subject matter of s 29(1), either “jointly and severally” (s 29(2)), or “in such proportions as the adjudicator may determine” (s 29(3)) is based on the fact underlying s 29(1), that the adjudicator is “entitled to be paid for adjudicating an adjudication application”. If that work is done, that remains a fact whether or not the decision is subsequently set aside for jurisdictional error.”

In light of the above analysis, grounds 4 and 9 were also dismissed.

Grounds 1, 2, 6 and 7: Liquidated damages

Grounds 1, 2, 6 and 7 appealed the primary judge’s refusal to award liquidated damages to Ceerose.

In relation to the York Street project, Ceerose argued that, although it was common ground that the Date of Practical Completion had not yet been reached, the adjudicator should have allowed Ceerose to adduce further evidence about A-Civil’s apparent termination of the contract (which allegedly entitled Ceerose to liquidated damages).  However, as evidence in relation to the termination was not provided in the payment schedule, Ceerose was not entitled to proffer those submissions in its adjudication response.

As such, the Court of Appeal agreed with the adjudicator’s determination that no liquidated damages were payable in respect of the York Street project.

In relation to the Elizabeth Bay project, A-Civil had, in its adjudication application, submitted that the contract listed the Date of Practical Completion as 25 May 2022.  Ceerose had responded by putting forward the argument that the Date of Practical Completion was actually 12 weeks earlier.  In doing so, it adduced, for the first time, the “Marking H” to the contract.  The adjudicator found no liquidated damages to be owed, reasoning that no evidence was adduced to support a change of completion date.  Ceerose argued that adjudicator had failed to consider that “Marking H” when reaching adjudicator’s determination.

The Court of Appeal agreed with the adjudication determination, finding that no liquidated damages were owed.  The Court concluded that, although “Marking H” was not mentioned specifically in relation to this issue, it was mentioned elsewhere and as such it could not be said that ”Marking H” was not considered.

Key takeaways

This decision clarified many aspects of the law surrounding adjudication and the application of several SOPA provisions.

The Court clarified the extent of an adjudicator’s duty to make relevant considerations, confirming that adjudicators are not required to look beyond the submissions duly made by the parties, nor are they to make their own enquiries.  Further, where a respondent’s submissions are baseless and/or irrelevant, an adjudicator is entitled to make a determination in favour of the payment claim.

This matter also made clear the obstacles that parties may face when running arguments concerning an adjudicator failure to carry out the adjudicator’s ‘duty to consider’.

Additionally, the Court clarified that when an adjudication determination is vitiated by jurisdictional error, that:

  1. the Supreme Court is only required to set aside the part of the decision affected by jurisdictional error, not the reasoning; and
  2. a finding of jurisdictional error does not impact upon an adjudicator’s entitlement to receive payment under s. 29 of SOPA so long as the adjudicator made it’s the determination within the stipulated 10-day time frame.

[ A high bar to prove jurisdictional error: Confirmation of the adjudicator’s duty to consider – Ceerose Pty Ltd v A-Civil Aust Pty Ltd [2023] NSWCA 215 ]

CONTACT US

For further information, please do not hesitate to contact Gretel Wathen, Lawyer or Richard Kouchoo, Special Counsel on (02) 8239 6500.

This communication is sent by Kreisson Legal Pty Limited (ACN 113 986 824). This communication has been prepared for the general information of clients and professional associates of Kreisson Legal. You should not rely on the contents. It is not legal advice and should not be regarded as a substitute for legal advice. The contents may contain copyright. 

Gretel Wathen

Lawyer | 02 8239 6500

About Gretel
Richard Kouchoo

Special Counsel | 02 8239 6500

About Richard

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