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CC Builders –v– Milestone Civil Judicial Review of Adjudication

CC Builders (Aust) Pty Ltd v Milestone Civil Pty Ltd [2019] NSWSC 1251¹

On 6 September 2019, His Honour Rein J delivered a decision in this case which sets out a summary of the law at this time in respect of setting aside an Adjudicator’s Determination due to a denial of procedural fairness and jurisdictional error.

This case is an example of the type of circumstances that arise due to the “rough justice”² afforded by the Building and Construction Industry Security of Payment Act 1999 (NSW) (as amended) (the Act).

Facts and Background

The Adjudicator determined that CC Builders (Aust) Pty Ltd (CCB) owed an amount of $113,767.87 (inclusive of GST) to Milestone Civil Pty Ltd (Milestone).

Following the adjudication, Milestone was able to obtain payment of that amount from the head contractor (presumably because it issued a payment withholding request).

In the proceeding, an application was made by CCB with the Supreme Court seeking to recover the adjudication amount from Milestone in the proceedings by having the Adjudicator’s determination set aside.

The two main issues which arose in the proceeding in relation to the determination were whether there was:

1) A denial of natural justice and procedural fairness in that the Adjudicator did not properly consider CCB’s payment schedule and/or the issue of delays alleged by CCB to have been caused by Milestone (Denial of Natural Justice Claim); and

2) A jurisdictional error in relation to a claim for carry over work (the Carry Over issue) for $77,982.27 which was allowed by the Adjudicator.

CCB also sought to challenge the Adjudicator’s finding that CCB pay the entirety of the Adjudicator’s fees given that Milestone did not recover all of the money that it claimed from CCB.

The Denial of Natural Justice Claim

CCB’s Payment Schedule included a claim that Milestone had delayed the completion of the Contract. There were two periods of delay asserted to have been caused by Milestone:

1) 21 November 2018 to 22 February 2019 (the “First EOT claim”); and

2) 23 February 2019 to 24 April 2019 (the “Second EOT claim”).

The Payment Schedule stated:

“In our view, you have without cause abandoned the works from 23 February 2019, and you have not completed the scheduled works within the Construction Period. We are therefore entitled to deduct, at a minimum, the amount of $1,500 per day agreed Delay Costs pursuant to the contract.

On the basis that you abandoned the site on 23 February 2019, 47 business days have been lost to date, and the Delay Costs claimed are $70,500. On the basis that the works were scheduled to be completed on 20 November 2018 and no valid extensions of time were applicable, 50 days were lost between 21 November 2018 and 22 February 2019, and the Delay Costs claimed for that period are $75,000.”

The Adjudicator stated that CCB were prevented from including the Second EOT claim in its adjudication response pursuant to section 20(2B) of the Act, as “CCB had not advanced the Second EOT claim in its payment schedule.”

Section 20(2B) of the Act provides:

“(2B) The respondent cannot include in the adjudication response any reasons for withholding payment unless those reasons have already been included in the payment schedule provided to the claimant.”

This was found to be an error by the Adjudicator as the Second EOT was expressly mentioned in the Payment Schedule. By reason of that error, the Adjudicator wrongly precluded himself from considering CCB’s submissions on the topic of the Second EOT.

CCB argued that the failure to consider CCB’s submissions on the Second EOT amounted to a failure to accord procedural fairness and a denial of natural justice which should lead to the setting aside of the Adjudicator’s decision.

Case Law for Claim of Denial of Natural Justice

His Honour Rein J referred to this summary in Timwin Construction v Façade Innovations [2005] NSWSC 548, where McDougall J summarised the bases upon which a determination can be set aside:

“In Brodyn v Davenport and Anor  [2004] NSWCA 394, the Court of Appeal (Hodgson JA, with whom Mason P and Giles JA agreed) held that a determination made by an adjudicator under [the Act] could be set aside and relief granted by way of deprivation and injunction in the following circumstances:

1) Where an adjudicator failed to comply with the basic and essential requirements laid down in the Act for there to be a valid determination;

2) Where the adjudication determination does not amount to an attempt in good faith to exercise the relevant power, having regard to the subject matter of the legislation;

3)  Where the adjudicator denied natural justice to a party (the content and operation of the doctrine of natural justice must take account of the narrow statutory scheme); or

4)  Where the adjudication determination was procured by fraud in which the adjudicator was complicit.

If any of those circumstances applied, the Court held, a determination would not be a “determination” within the meaning of the Act at all, and would be void.”

His Honour Rein J ultimately found that the decision by the Adjudicator to exclude the submissions made by CCB with respect to the Second EOT amounted to a denial of procedural fairness establishing jurisdictional error. His Honour stated the following reasoning:

  • an Adjudicator is required to take into account the submissions of the parties (section 22(2)(c));
  • if the submissions cover a matter not contained in the payment schedule (or the payment claim) s20(2B) prevents the respondent (or claimant) from including that matter in its adjudication response (or adjudication claim);
  • if the Adjudicator has found that a submission was not duly made for reasons that are reasonable (albeit erroneous), it is not for the Court to determine whether or not the Adjudicator was correct to so conclude, and the Adjudicator’s decision would not constitute a denial of procedural fairness; and
  • however, if the Adjudicator does not explain how he has concluded that the adjudication response or submissions relate to a claim that has not been advanced in the payment schedule, but there is clear evidence that they do (and the Adjudicator’s own reasons confirm that they do), then there is a lack of reasonableness and rationality as to the determination that the submissions were not duly made because they were not contained in the payment schedule.

In the course of the decision, His Honour noted at [34]:

“I am fully aware of the considerable pressure on adjudicators and it can be seen that the Adjudicator in this case was called upon to determine many issues. Nevertheless, I am persuaded that his decision to reject CCB’s submission on the Second EOT claim had no rational or reasonable basis, taking this case outside of the strictures of John Holland, and cases such as Icon and Perform.”

Consequence of a finding that the Adjudicator breached the obligation of procedural fairness and natural justice

CCB submitted that the entire adjudication should be set aside as a result of the above, whereas Milestone submitted that only that part of the adjudication relating to the delay claim should be set aside.

Ultimately, His Honour Rein J decided to follow the approach taken in various recent authorities³ and set aside the entire adjudication with the following conditions:

  • CCB will not seek to re-agitate the Carry Over claim at any further adjudication, or seek to recover the Carry Over amount from Milestone other than at a final hearing, pursuant to s 32 of the Act; and
  • CCB accept liability for 50% of the Adjudicator’s fee, which, in any event, is the default position specified in s 29 of the Act.

Conclusion

To summarise, the decision made by the Court was as follows:

1) The Adjudicator’s decision in relation to the Second EOT claim’s quashed (subject to conditions) due to a denial of procedural fairness and jurisdictional error in failing to have regard to the CCB’s submissions;

2) In relation to the Carry Over claim, no error was demonstrated and no error of a jurisdictional kind was identified; and

3) CCB are to accept liability for half of the Adjudicator’s fees.

In this case, the lack of reasonableness and rationality of the Adjudicator’s error led to a finding that the Determination constituted a denial of natural justice.

For more information in relation to this decision or the amendments to the Act, please contact us.

Contact us

For more information, please contact our lawyers David Glinatsis,  Matthew Singh or Catherine Lucas at excellence@kreisson.com.au or on 02 8239 6500.

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1.[2019] NSWSC 1251

2.Probuild Constructions (Aust) Pty Ltd v DDI Group Pty Ltd  [2017] NSWCA 151 at [130] per McColl JA

3.Emergency Services Superannuation Board v Davenport [2004] NSWSC 697 and  YTO Construction Pty Ltd v Innovative Civil Pty Ltd [2019] NSWCA 110