HG Alert: Adjudicator favours Claimantís Submission over Respondentís: Not bad faith, just bad luck - 23 Apr 2010

A recent case, Northbuild Construction Pty Ltd v Central Interior Linings Pty Ltd & Ors, reinforces the Court’s view that progress payment applications for adjudication under the Building and Construction Industry Payments Act 2004 (BCIPA) are a fast track interim measure to resolving disputed progress claims, but allow for further civil proceedings should the parties pursue their contractual rights. This can create a problem if an adjudicator awards a progress payment to a claimant, and then the claimant goes into liquidation, leaving the respondent with little ability to claw back the progress payment.

The Court gives adjudicators sufficient discretion in their decision making process and recognises that as adjudicators are specialists in their field, they are entitled to come to their own conclusions based on the materials provided. It’s also important to keep in mind that adjudicators deal with complex matters within tight timeframes and will sometimes make errors.

If an adjudicator makes uncomplimentary comments about the material you provide, or if he or she favours the other party’s submissions or material over yours, it’s not necessarily bad faith.

Background to Northbuild Construction Pty Ltd v Central Interior Linings Pty Ltd & Ors: the application to declare the adjudicator’s decision void

Northbuild Construction Pty Ltd was the head contractor for the construction of an apartment complex at Runaway Bay, Queensland. Central Interior Linings Pty Ltd (CIL) was subcontracted to undertake carpentry and plastering works for the complex.

Northbuild made various payments to CIL, but after the subcontract was terminated in August 2009, CIL served a payment claim on Northbuild under the BCIPA. In response, Northbuild served a payment schedule asserting no further money was owed under the subcontract. The matter went to adjudication, where CIL was awarded the sum of $856,594 plus interest and costs.

Northbuild applied to the Supreme Court of Queensland to have the adjudicator’s determination declared void. However, Northbuild’s application was dismissed.

The Queensland Courts’ current position

This case confirmed that the current position in Queensland as to adjudicators making decisions in good faith is that an adjudicator is required to make a genuine attempt to understand and apply the relevant construction contract and to exercise his or her power in accordance with the BCIPA. This requires the adjudicator to take into account:

  • the provisions of the construction contract and the BCIPA;
  • the payment claim and the payment schedule, together with all the submissions, including relevant documentation, that have been properly made in support of the claim and schedule; and
  • the results of any inspections carried out by the adjudicator for any matter to which the claim relates.

In assessing whether or not an adjudicator has exercised his or her power in good faith, the whole of the content and substance of the adjudication must be looked at. It’s not enough to simply look at isolated fragments in the adjudicator’s written reasons, or to pick out and choose various statements or lack of statements in a lengthy adjudication and assert on that basis that an adjudicator has not exercised his or her power in good faith.

It may be the case that numerous submissions are made to the adjudicator. An adjudicator’s failure to make reference to all of those submissions is not enough to show that he or she did not act in good faith. After all, good faith does not require the adjudicator to set out every detail of every part of every report or other document provided by a party to the adjudication.

Adjudicator’s approach to valuing variation works in good faith

The payment claim in Northbuild Construction Pty Ltd v Central Interior Linings Pty Ltd & Ors included 73 variation claims. Northbuild’s payment schedule set out the amounts it thought would be properly payable and the valuation method for each amount. Northbuild argued that the adjudicator did not act in good faith because he expressed his discontent about the material provided by Northbuild, did not consider each variation individually, and applied a broad brush method of valuation to variations of $5,000 or less. Some of the comments made by the adjudicator in his decision included the following:

  • It was unrealistic of Northbuild to expect that the adjudicator would sort through 73 variations and the supporting material to determine whether the variations are included in the scope of the original contract.
  • For the purposes of a progress payment, it is not necessary to value each one of the 73 variations individually and decide every issue in each variation - this approach is not pragmatic and is not in line with the intention of the BCIPA, which encourages a quick resolution.
  • What has to be determined in adjudication is a value for the purpose of a progress payment. The final value of each variation is a matter for expert determination, litigation or arbitration.

The Court accepted that the requirements of the construction contract for valuing variations entitled the adjudicator to make a fair and reasonable valuation of the variation works. The contract provided that valuation of any variation work would be determined between Northbuild and CIL, or in the absence of such agreement, Northbuild would make a fair and reasonable valuation of the variation. There was no objective yardstick provided in the contract to value the variation, such as clauses setting out how the process of valuation was to occur, or clauses inserting a bill of quantities or schedule of rates.

The Court held that the adjudicator did not simply reject Northbuild’s submissions and supporting material to come to his determination. His decision considered whether or not the progress payment was payable on what he considered to be the true construction of the contract between the parties and the BCIPA, and so the adjudicator acted in good faith.

Our recommendations from this case

For all variation works, the clauses of the construction contract should provide a method for valuing the variations. For example, you should insert a bill of quantities or schedule of rates to avoid a situation where an adjudicator needs to make his or her own valuation.

If you are subject to a negative adjudication decision, we recommend that you conduct an immediate review of the adjudicator’s reasons to determine whether or not the adjudicator has complied with the BCIPA.

For more information about this case or the BCIPA, please contact HopgoodGanim’s Construction, Infrastructure and Major Projects team.