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1------------- Dispute Resolution -----------------t

Adjudicators -Their Role And Functions Under The Building andConstruction Industry Security of Payment Act 1999 NSW

- Philip Davenport, Lecturer,School of Building,University of New South Wales.

1. IntroductionThe Building and Construction Industry Security of

Payment Act 1999 NSW provides a statutory process foradjudication of disputes over progress payments underconstruction contracts or contracts for related goods orservices. This includes disputes over payment ofcontractors, subcontractors, architects, engineers,surveyors, suppliers of building materials, hirers ofconstruction plant and other suppliers of related goods orservices. The relevant provisions of the Act will commenceon a date in 2000 yet to be proclaimed.

This commentary is concerned with thequalifications, role and functions of a person who takeson the role of a statutory adjudicator under the Buildingand Construction Industry Security ofPayment Act 1999.It is intended as a general guide to potential adjudicators.It is not a substitute for examination of the Act itself andfor taking legal advice in any particular instance. Thislegislation is unique and the views expressed in this paperhave not been tested. They represent the opinions of theauthor but in many aspects there is room for a differentinterpretation.

A general discussion of the legislation will be foundin (1999) #67 Australian Construction Law Newsletter atp.48 and the Act itself can be found at http://www.austlii.edu.au. No regulations have been made.

The term "claimant" refers to the party to aconstruction contract who lodges a payment claim underthe legislation. The term "respondent" refers to the personon whom the payment claim is served. The claimant maybe a contractor, subcontractor, consultant, supplier or hirer.The respondent may be an owner, main contractor, headconsultant or subcontractor.

The term "construction contract" refers to a contractnot only for construction work but also to a contract forthe supply of "related goods or services" (see definitionsin sections 4, 5 and 6). Related goods include materials toform part of any building, and constructional plant,including plant on hire. Related services include provision

of labour, other than under a contract of employment, andarchitectural, engineering, surveying, quantity surveyingand other advisory services.

The Act does not apply to "a construction contractfor the carrying out of residential building work (withinthe meaning ofthe Home Building Act 1989 NSW) on suchpart of any premises as the party for whom the work iscarried out resides or proposes to reside in" (section7(2)(b)), but it would apply to a subcontract with a builderother than an owner builder. Therefore, generallyspeaking, an adjudicator will not be called upon to decidea dispute over a progress claim by a builder on an owneroccupier or tenant of residential premises.

An adjudicator could be called upon to decide adispute over a progress claim by a person providing relatedgoods or services (e.g. an architect or a supplier ofbuildingmaterials) to a resident or an owner builder. An issue couldarise as to whether certain work, for example, a garage orswimming pool is on such part of the premises as the ownerresides. That is not an issue which would usually fall tobe determined by an adjudicator. It is an issue which goesto the jurisdiction of an adjudicator. An adjudicator is notempowered to determine a dispute over his or herjurisdiction.

The Act imposes strict time limits on taking varioussteps in the adjudication process and there is no provisionfor extending times. An exception is that the claimantand the respondent can agree to allow the adjudicator morethan 10 business days for making a decision (section21(3)(b)). A "business day" is any day other than aSaturday, Sunday, public holiday or 27 to 31 Decemberinclusive (section 4).

The adjudicator will usually be determining thevalue, in accordance with the terms of the constructioncontract, of construction work or of related goods orservices supplied in connection with construction work(section 10). This will often involve deciding issues oflaw, interpretation of the construction contract and whetherwork complies with the requirements of a construction

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contract and, if not, the estimated cost of rectifying thedefect. Despite the fact that the adjudicator is usuallyvaluing work or services, the adjudicator does not have tobe a quantity surveyor or to have any particular expertisein valuing work. The adjudicator must decide the valueon the basis of the submissions of the parties, not upon theadjudicator's own experience (section 22(2)).

2. QualificationsOnly a "natural person" can be an adjudicator

(section 18(1)(a)). This means a human being as distinctfrom a corporation or other legal entity. The adjudicatormust not be a party to the construction contract out ofwhichthe dispute arises.

The superintendent, architect or engineer whotraditionally administers a contract is not a party to thecontract and is not disqualified from being an adjudicator.However, the construction contract cannot state who willbe the adjudicator (section 17(4)). The superintendent,architect or engineer or other person administering theconstruction contract cannot be named in the contract asthe adjudicator. But after the respondent has served apayment schedule on the claimant and a dispute arises,the claimant and the respondent can agree upon who is tobe the adjudicator for that particular dispute (section17(3)(a)).

If the claimant and the respondent propose to agreeupon who will be adjudicator, the claimant would want toensure that the agreement was made very quickly because,after 5 business days, the claimant no longer has a right tomake an adjudication application (section 17(3)(b)). Thetime cannot be extended by agreement. The 5 days runsfrom, but not including, the date upon which the claimantreceives the payment schedule from the respondent. Ifthe payment schedule is received on Monday 1st of themonth, the last day for making an adjudication applicationwould be on Monday 8th.

If the parties agree upon an adjudicator, the claimantmust lodge the claimant's adjudication application withthat person within those 5 business days. If the claimantfails to do so, there is no provision for extending the timeand the claimant has lost the right to an adjudication underthe Act. Any adjudication by that person would not thenbe an adjudication under the Act but, by agreement betweenthe parties and with the adjudicator, it could neverthelessbe an adjudication at common law. It would then be whatis commonly called an expert determination.

It seems from the context of the legislation that onlyone person can be adjudicator in respect of a particularadjudication application. If two or more people were to beappointed adjudicators, problems would arise if they didnot make identical determinations.

In most instances, the claimant will lodge theadjudication application with an approved nominatingauthority. That process is discussed in the next chapter.

There is provision in the Act (section 18(1)(b)) for aregulation which could prescribe the qualifications,expertise or experience which a person must have in orderto be an adjudicator. No regulation has been made.

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When the parties don't agree upon who is to beadjudicator, the adjudicator is nominated by an "approvednominating authority". The Minister administering thelegislation can authorise any entity to be a approvednominating authority for the purposes of the legislation(section 28). The need or otherwise for a regulationprescribing the qualifications which an adjudicator musthave will probably depend upon whether approvednominating authorities nominate suitably qualified andexperienced adjudicators or whether restrictions have tobe placed upon their freedom to select adjudicators.

A party to a dispute can ask an unapproved entity tonominate but that nomination would not have any statutorybacking. If the parties agreed to use the person nominatedthen, in the circumstances discussed above, theiragreement would be binding.

3. NominationPresumably the Minister will publish a list of

approved nominating authorities. There are likely to bemany applications by interested entities. A constructioncontract can designate a nominating authority (approvedby the Minister) as the nominating authority for thepurposes of adjudication applications with respect to thatconstruction contract (section 17(3)(a)(ii)). In consideringwhether to approve of an applicant, the Minister willprobably consider what criteria the applicant proposes touse in selecting adjudicators. It is reasonable to anticipatethat applicants will establish panels of possibleadjudicators and may run training courses or evenexaminations to establish qualification.

It would not be appropriate for an approvednominating authority to charge a fee to the claimant orrespondent, but the nominating authority could charge afee to adjudicators either to be on a panel or whenaccepting an appointment as adjudicator or both.

An adjudication application can only be lodged bya claimant, i.e. the party claiming to be entitled to aprogress payment. It is a request for an adjudicator tomake an adjudication under the legislation. There areprescribed requirements for a valid adjudicationapplication (section 17). An adjudication application mustbe in writing. It must identify the payment claim and thepayment schedule. This would usually be done byattaching copies of each. The claimant should attach allsubmissions and documents which the claimant wants theadjudicator to take into consideration.

After receipt of an adjudication application, anapproved nominating authority must act quickly. Only 4business days are allowed for the authority to select anappropriate adjudicator and for the adjudicator to acceptthe adjudication application. If, within that 4 businessdays, the claimant has not received notice from theadjudicator that the adjudicator accepts the adjudicationapplication, the claimant can give the authority noticewithdrawing the application. The claimant can then servethe application on any other approved nominatingauthority (section 26).

If the claimant does not withdraw the adjudication

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but:

appointment is not complete until both the claimant andthe respondent are served. However, if the claimant isserved within 4 business days, the claimant has no rightto withdraw the adjudication application even though therespondent is not served until later.

5. Adjudication timetableThe timetable up to the adjudicator's acceptance of

the adjudication application is discussed above. Afteracceptance, the adjudicator has to determine anadjudication application as expeditiously as possible and,in any case, within 10 business days after the date on whichthe adjudicator notified the claimant and the respondentas to the adjudicator's acceptance of the application(section 21(3)). The claimant and the respondent, byagreement between them, can allow the adjudicator morethan the prescribed 10 days (section 21(3)(b)).

Sometimes the parties may decide that it is in theirmutual interest that the adjudicator should first try tomediate the dispute and, for that reason, may require moretime. Sometimes the parties may decide that theadjudicator should make a final and binding expertdetermination of some issue. It is open to the parties toagree upon giving the adjudicator functions over and abovethose given be the Act. Any such agreement should bevery carefully drafted. Otherwise, it may amount to awaiver of the statutory rights. The statutory exemptionfrom liability in section 30 only protects the adjudicatorto the extent that the adjudicator exercises functions underthe Act. The adjudicator may want to negotiate additionalexemptions in respect ofhis or her functions as a mediatoror expert.

If, for some reason, the parties were not notified onthe same day of the adjudicator's acceptance ofappointment, it is not clear whether the 10 days for theadjudicator to make a decision would run from the date ofthe earlier or the later notification. This problem is likelyto arise when a notice is faxed to one party and posted tothe other. Section 31(2) provides that a notice that is postedor faxed to a person's ordinary place of business is takento have been served when the notice is received at thatplace. The facsimile will usually be received a day or twobefore the notice sent by post.

If, at the end of the 10 days allowed to theadjudicator, or such further time as the claimant andrespondent agree upon (section 21(3)(b)), the adjudicatorhas not made a determination of the adjudicationapplication, the applicant can withdraw the applicationfrom that adjudicator and request any approved nominatingauthority to nominate another adjudicator (section 26(2)).The new adjudication application must be made within 5business days after the adjudicator is in default.

An adjudicator who fails to make a determinationwithin the 10 days, or further time agreed by the claimantand the respondent, is not entitled to claim any fees orexpenses for making the determination (section 29(4)).Any agreement which excludes, modifies or restricts theoperation of the Act is void (section 34). After expirationof the statutory 10 business days, the parties could agree

the approved nominating authority does notnominate within the 4 business days; orthe person nominated by the approvednominating authority does not accept thenomination within the 4 business days,

(b)

application then the nominating authority can nominateeven though the 4 business days has expired. Althoughthe Act does not explicitly cover the situation, it seemsthat if;

(a)

(i) a person nominated by the approvednominating authority does accept thenomination albeit outside the 4 business days;and

(ii) before the claimant serves notice undersection 26 on the nominating authoritywithdrawing the application,

the adjudicator is nevertheless taken to have beenappointed.

This conclusion is drawn from the fact that section19 provides that "On accepting an adjudicationapplication, the adjudicator is taken to have beenappointed to determine the application". It does notimpose a time limit on acceptance. However, anacceptance would be ineffective if it was made after thetime when the claimant served on the nominating authoritya notice of withdrawal of the application from thatnominating authority.

4. Acceptance of appointmentAn approved nominating authority does not actually

appoint an adjudicator. The authority would contact apotential adjudicator and ask the adjudicator if theadjudicator wishes to accept the adjudication application.The adjudicator accepts the adjudication application byserving notice of acceptance on the claimant and therespondent (section 19(1)). Section 31 deals with serviceof notices.

Notice can be served by facsimile. Although section31 does not specifically state that the adjudicator's noticeof acceptance cannot be oral l , the terms "delivering" and"lodging" notice in section 31 seem to indicate that thelegislation contemplates that all notices will be written.

Section 31(2) refers to serving a notice by delivery(courier), post or facsimile but it does not refer to sendinga notice by email. Section 31 (3) provides that theprovisions of section 31 are in addition to and do not limitthe provisions of any other law with respect to service ofnotices. An adjudicator should serve notices by courier orby facsimile whenever possible. Then the time of receiptcan be fixed. To be on the safe side, the adjudicator shouldnot serve notices by email except with the consent of theparty being served and the adjudicator should insist upona prompt acknowledgement of receipt of the email, so thatthere is no doubt that the notice has been received.

The adjudicator is actually appointed when theadjudicator serves notice of acceptance on the claimantand the respondent (section 19(2)). It seems that the

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to give the adjudicator further time, thereby reinstatingthe adjudicator's right to fees.

The time for making a determination on theadjudication application is not necessarily the same as thetime when the determination must be communicated tothe parties. An adjudicator may refuse to communicatehis or her decision until paid by the parties (section29(5)(a)). The adjudicator who wants to ensure promptpayment can notify the parties that the determination hasbeen made and will be sent to the parties upon receipt bythe adjudicator of his or her fees. An invoice should beattached.

Section 21(3) provides that the adjudicator mustmake a determination within 10 business days or suchfurther time as the claimant and the respondent may agree.Is a determination made by the adjudicator after theallowed time a valid determination? The answer appearsto be "No". However, the legislation does not specificallyprovide that a late determination is void.

The fact that, after default by the adjudicator, theclaimant has only 5 business days in which to withdrawthe application and lodge a new adjudication applicationsuggests that if the claimant allows the 5 business days toexpire without lodging a new application, all rights toadjudication of the particular payment claim are lost.Otherwise, when the adjudicator is in default for morethan 5 business days, neither party could terminate theadjudication and the adjudicator could take years to delivera decision which would nevertheless be binding. Sincethe Act is dealing with progress payments, it would beunacceptable if, long after events have moved on, a liabilitywhich is no longer relevant could be created. Moreover,by then there may be a number of other payment claimsand adjudication applications.

If an adjudicator does not make his or herdetermination within time, the adjudicator should requestthe parties to agree upon an extension of time for makinga determination. If the parties don't agree to an extensionof time, the adjudicator should not decide the adjudicationapplication. Then the adjudicator cannot claim payment(section 29(4)) but, provided that the adjudicator has actedin good faith, the adjudicator is exempt from liability(section 30).

If, before the adjudicator makes a decision, theparties settle the dispute then they should notify theadjudicator to that effect. Sometimes they may want theadjudicator to make a decision which reflects theiragreement. That would mean that the respondent has thestatutory obligations that follow a determination (section23). Sometimes they will not want the adjudicator to makeany determination. In that event, the adjudicator is notprecluded from claiming fees and expenses even thoughthe adjudicator has not made a determination within theprescribed 10 business days (section 29(4)).

To give the respondent an opportunity to makesubmissions, the adjudicator must not make adetermination until the respondent's time for respondingto the adjudication application has expired (section 21(1)).Usually, that will be two business days after the adjudicator

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has served notice of acceptance on the respondent. If, bythat time, the adjudicator has not received the respondent'sresponse, the adjudicator must ascertain from the claimantwhen the claimant served the respondent with a copy ofthe adjudication notice. The respondent can lodge aresponse later than 2 business days after the adjudicatorserves notice of acceptance provided that the respondentdoes so within 5 business days after being served with acopy of the adjudication application.

A day is 24 hours commencing at the expiration ofthe previous day and expiring at midnight at the end ofthat day. Since a notice can be given by fax, it may wellbe served at 11.59pm but 12 midnight would be too late.

6. Gathering information

6.01 Initial submissionsSection 22(2) provides:"In determining the adjudication application, theadjudicator is to consider the following mattersonly:

(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 havebeen duly made by the claimant is supportof the claim,

(d) the payment schedule to which theapplication relates, together with allsubmissions (including relevantdocumentation) that have been duly madeby the respondent in support ofthe schedule,

(e) the results ofany inspection carried out bythe adjudicator of any matter to which theclaim relates."

The adjudicator is severely limited in what theadjudicator can take into consideration when making adetermination. The adjudicator does not have the samescope as an arbitrator, an expert or a superintendent. Thehardest part of an adjudicator's role is to decide whatcannot be taken into consideration. An adjudicator mustbe very careful not to gather information which theadjudicator cannot take into consideration.

If a party wishes to challenge the validity of theadjudicator's determination, the most likely ground is thatthe adjudicator has considered something other than thematters listed in section 22(2).

The adjudicator will first receive the claimant'sadjudication application. That must be written and includeparticulars of the payment claim, the payment scheduleand all submissions which the claimant wishes to make insupport of the payment claim or to demonstrate why therespondent's reasons for non-payment are not valid(section 17(2)).

The adjudicator will next receive the respondent'sresponse to the adjudication application. The respondent

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must lodge this with the adjudicator within 5 business daysof receiving the adjudication application from the claimant,or within 2 business days after receiving the adjudicator'snotice of acceptance of the adjudication application,whichever time last expires (section 20(1)). Theadjudication response must be written and must containsuch submissions as the respondent wants to put to theadjudicator.

The adjudicator cannot take into account anadjudication response which is not made within time(section 21(2)). The adjudicator cannot grant an extensionof time for the response. The adjudicator cannot request afurther written submission from the respondent (section21 (4)(a)) if the respondent has not lodged a response withintime. Consequently, if the respondent fails to make anyresponse within time, the adjudicator will usually decidethe claim on the basis of the information included in theadjudication application alone.

The adjudication application must identify thepayment schedule. The payment schedule will include therespondent's reasons for not paying. It may be that eventhough the respondent has not lodged a response whichthe adjudicator can consider, the adjudicator willnevertheless not be satisfied that the claimant is entitledto the amount claimed. In other words, absence of a validresponse does not necessarily mean that the adjudicatorhas to determine that the claimant is entitled to the wholeamount claimed. The adjudicator still has to be satisfiedas to the amount, if any, to which the claimant is entitled.

Even if the respondent does not lodge anadjudication response within time, the adjudicator maystill request a further written submission from the claimant,but not the respondent, and if the adjudicator does so, theadjudicator must give the respondent an opportunity tocomment on that further submission (section 21(4)(a)).Similarly, even in the absence of an adjudication response,the adjudicator can hold a conference (section 21(4)(c))or carry out an inspection of any matter to which the claimrelates (section 21(4)(d)).

An adjudicator may make a determination on theapplication and response alone. This is the prudent coursefor an adjudicator to adopt. The adjudicator's role is quitedifferent to that of the superintendent administering acontract for the principal. The superintendent is appointedby the principal to look after the principal's interests. Theduty which the superintendent owes to the principal willdepend upon the contract or relationship between theprincipal and the superintendent. Generally speaking, itis a duty to value work honestly and fairly and to ensurethat the principal pays no more than the contract requires.If the superintendent is negligent in valuing work, thesuperintendent can be liable to the principaF and, perhaps,to the contractor3

• An adjudicator does not have a similarliability (section 30).

The superintendent has an obligation to the principalto seek out defects and other reasons, if any, why theprincipal should not pay the amount claimed. Theadjudicator does not have that obligation. So far as theadjudicator is concerned, it is up to the respondent to

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discover any defects or other reasons why the claimant isnot entitled to the amount claimed. It would be wrong forthe adjudicator to embark upon the investigation which asuperintendent embarks upon.

6.02 Further submissionsThe adjudicator may request further written

submissions from either party but if the adjudicator doesso, the adjudicator must give the other party an opportunityto comment on the submissions (section 21 (4)(a)).

It is possible that a claimant or respondent willcomprise more than one person or corporation. Forexample, a contractor may be a partnership orjoint ventureor land may be owned by two people and they may contractjointly and severally. If a claim is made jointly, or is madeagainst two or more respondents jointly, then there is oneclaim, one response and one adjudication.

However, if the claimant wants to make severalrespondents severally (separately) liable, the claimant maylodge separate payment claims against each respondent.There will then be separate responses and separateadjudications. The adjudicator must then be careful todistinguish the separate adjudications and to give eachseparate respondent an opportunity to comment as requiredby section 21(4)(a).

An example may serve to explain. Assume that landis owned by Mr. and Mrs. Smith. Assume that they contractjointly and severally with a contractor for the constructionof a factory. Assume that a progress payment of $10,000is due. The contractor is entitled to recover payment fromeither Mr. Smith or Mrs. Smith or both. Assume that thecontractor wishes to make each separately liable. Thecontractor may issue a separate payment claim to each ofMr. and Mrs. Smith and lodge separate adjudicationapplications. It may be that the one adjudicator is appointedto decide both adjudications.

The adjudicator would decide that Mr. Smith is liableto pay the contractor $10,000 and the adjudicator wouldseparately decide that Mrs. Smith is liable to pay thecontractor $10,000. Each of Mr. and Mrs. Smith would beseparately liable to payor to provide security. However, apayment by Mr. Smith of $10,000 would discharge Mrs.Smith's liability and Mr. Smith could provide one securityfor both Mr. and Mrs. Smith.

The problem for the adjudicator will be to distinguishclaims of separate liability from claims ofjoint liability. Itis possible that the contractor may include the separateclaims in the one payment claim document and the oneadjudication application document. The adjudicator wouldnevertheless have two adjudications and two separatedeterminations which might nevertheless be comprised inthe one document.

In the case of some novel forms of contract whichhave recently come into vogue, called "alliancecontracting" it is possible for there to be several partiesmaking one progress claim for separate amounts from theprincipal. For example, party A may claim $500,000, partyB may claim $300,000 and party C may claim $100,000all in the one progress payment claim. Each ofA, Band C

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should lodge a separate payment claim and a separateadjudication application even though the respondent toeach payment claim is the same person.

If the adjudicator requests further writtensubmissions from a party, the adjudicator must set a verystrict deadline so that the adjudicator can giye the otherparty time to comment (section 21(4)(b)). The adjudicatormust not take into account a further written submissionon which the other party has not been given an opportunityto comment. Sometimes the comment will itself be asubmission upon which the adjudicator should give theother party the opportunity to comment. The adjudicatorcan also set deadlines for comment (section 21(4)(b)). Thecomment does not have to be written but if it is not written,the adjudicator should ensure that it is only made in thepresence of the other party at a conference called by theadjudicator under section 21(4)(c). The adjudicator shouldensure that any written comment by one party is also givento the other party.

If a party requests approval to make a submission,the adjudicator could make it a condition of the approvalthat the claimant and the respondent agree to a particularextension of the time for the adjudicator to make a decision.

Submissions can include arguments based on lawor facts. Submissions can include written statements bywitnesses, test results, expert reports and opinions.Although submissions must be written, it seems that theycould contain photographs. Writing is not confined towriting on paper. However, there could be a problem ifsubmissions comprise or include an electronic form ofwriting, e.g. an email. Submissions must be served on theadjudicator and the other party but section 31 dealing withservice does not authorise service by email.

6.03 InspectionFor the purposes of the adjudication proceedings,

the adjudicator can carry out an inspection of any matterto which the claim relates (section 21(4)(d)). An inspectionwould not appear to extend to conducting tests. Theadjudicator can use the inspection in order to betterunderstand the submissions but not to gather freshevidence. For example, if the claim is that certain tiles arenot the colour prescribed in the construction contract, theadjudicator might inspect the tiling work to see if the claimis justified. However, if on inspection the adjudicatordiscovered a different defect not raised by the respondentin the respondent's first submission to the adjudicator, forexample that there are no construction joints in the tilingwork, then no matter how serious the second defect maybe, the adjudicator cannot take the second defect intoaccount. That second defect is not part of the dispute. Atthat stage, it is too late for the respondent to raise a freshground for not paying the payment claim.

If the adjudicator decides to carry out an inspection,the adjudicator must be very careful to avoid the situationwhere the adjudicator acquires knowledge which theadjudicator cannot lawfully take into consideration. Forexample, if the adjudicator visits a site, some employee ofor consultant engaged by a party may comment to the

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adjudicator on the work. The adjudicator must not takethat comment into consideration. The adjudicator mustbe deaf to any comments other than comments by a partyupon a written submission of the other party. Only theparties to the adjudication, namely the claimant and therespondent can make any submission or comment. If aparty is a corporation then someone will be therepresentative of that party. This will usually be the personwho signed the party's adjudication application orresponse. The adjudicator must be careful to see that theadjudicator has no communication whatsoever withanyone but the authorised representative of the corporation.

If the adjudicator is in any doubt as to who is theauthorised representative of a party, the adjudicator shouldask the party to provide evidence of the authority of anyperson who purports to represent the party. At anyonetime, a party should have only one representative.

If a party wishes to challenge the validity of theadjudicator's determination on the ground that theadjudicator has taken into account something other thanthe matters set out in section 22(2), a site inspection islikely to be a fruitful source of evidence for a challenge.It will be very difficult for an adjudicator to carry out asite inspection without asking questions, hearingcomments, making observations or seeing things whichthe adjudicator cannot take into account.

An adjudicator should make it a practice of neverhaving an inspection unless the inspection is absolutelynecessary in order to make a finding on a submission byone party or the other. The adjudicator should carry outthe inspection only in the presence of the claimant and therespondent both being present together at all times. Wherea party is a corporation, the party should be representedby a single representative. No other person should beallowed to speak to the adjudicator or about the issues inthe hearing of the adjudicator. If a representative of aparty speaks to anyone, e.g. to a consultant to the party,the conversation should not be in the hearing of theadjudicator. It is almost as if the adjudicator has to carryout the inspection with blinkers and ear muffs.

6.04 ConferenceThe adjudicator can call a conference of the parties

(section 21(4)(c)). This presents some problems. Thelegislation does not say what use the adjudicator can makeof the conference. In fact, section 22(2) does not permitthe adjudicator to take into account the conference butonly submissions that have been "duly made" by theparties.

Although, in section 21(4)(a), the legislation refersto "comments" by one party on the further submissions ofthe other party, section 22(2) does not refer to comments.It seems that the comments contemplated under section21(4)(a) must be part of the submissions referred to insection 22(2)(c) and (d). It seems that comments made ina conference can be taken into consideration as part ofsubmissions provided that those comments are limited tocomments on written submissions already made.

The adjudicator has no power to summon witnesses,

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take evidence, administer an oath or demand theproduction of documents. The adjudicator is notconducting an investigation.

The conference should only be with the parties ortheir duly authorised agents, but not their witnesses. Theadjudicator can only take into account submissions by theparties, not submissions by witnesses. Submissions by aparty could include legal submissions by a legalrepresentative of the party provided that they are the party'ssubmissions. For example, John Brown, a subcontractormay be the claimant. John Brown may have a lawyer oranyone else prepare the adjudication application andsubmissions for him but he would sign them (personallyor by his agent) and they would be his submissions.

Similarly, John Brown would have to attend theconference personally or by a duly authorised agent. Theagent may be a lawyer. The agent speaks for John Brown.An expert engaged by John Brown cannot attend theconference to give the expert's opinion. The adjudicatoris not entitled to take it into consideration (section 22(2)).However, the expert's report could be attached to a writtensubmission by the claimant. Except with the consent ofthe adjudicator and the other party, no one should be atthe conference other than the adjudicator and the partiesor their duly authorised agents.

A transcript could be made of the conference, butthe adjudicator must be very careful to ensure that theconference does not become a hearing as distinct from anopportunity for parties to make comments on submissionsalready made. In other words, there should be noquestioning by one party of the other or by the adjudicatorof the parties. The adjudicator must be careful not to makethe conference into an adversarial proceeding or even aninvestigation.

The adjudicator may say, "[ am troubled by thisaspect of the claimant's submission. The respondent hassaid ... Does the claimant wish to make any furthercomment on the point?" But the adjudicator should notindulge in a cross-examination of the party. If the claimantdid make any further comment, the adjudicator may, in allfairness, give the respondent the opportunity to comment.The legislation does not say that the rules of natural justiceapply. The legislation provides very strict rules for theconduct of an adjudication and it seems that there is noneed to import the rules of natural justice.

The adjudicator must be very careful not to raise atthe conference any matter which is not in the legislation,the construction contract, the adjudication application, theresponse or the further submissions, if any, provided bythe parties pursuant to a request by the adjudicator undersection 21(4)(a). The adjudicator's task is to make adecision on the provisions of the contract and thesubmissions of the parties. The adjudicator is notadministering the construction contract as a superintendentwould. The adjudicator's decision must be made on thebasis only of the matters set out in section 22(2). It maywell be that if the adjudicator was the superintendent, andarbitrator or an expert making an expert determination,the adjudicator would arrive at a quite different decision.

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It is not for the adjudicator to protect a party if the partyfails to make appropriate submissions.

In arbitration and, sometimes, in an expertdetermination, the arbitrator or expert calls a preliminaryconference before accepting appointment. An adjudicatorhas no statutory authority to call a conference beforeaccepting appointment. Such a conference is not aconference under section 21(4)(c). A person who has beennominated as an adjudicator may call a preliminaryconference but the parties are not obliged to attend andthere is a risk that the time for acceptance of theadjudication application (4 business days after theapplication is lodged - section 26(1)(a)) may expire beforethe adjudicator accepts the application. The consequencewould be that the applicant could withdraw theadjudication application and seek a new appointment.

7. The adjudicator's determination

7.01 Formal requirements5. (above) dealt with the time within which the

adjudicator has to make a determination and theconsequences ofdelay. 6. (above) dealt with the limitationson the power of the adjudicator to gather information andto consider matters. This part is concerned with the formatof the adjudicator's determination and how the adjudicatordecides the amount and date for payment.

Section 22(1) provides:"An adjudicator is to determine:(a) the amount ofthe progress payment (if any)

to be made by the respondent to the claimant(the adjudicated amount), and

(b) the date on which any such amount becameor becomes payable. "

The determination must be in writing (section 22(3)).The adjudicator is not required to give reasons or the basison which any amount or date has been decided unless,before the adjudicator makes the determination, either theclaimant or the respondent requests the adjudicator toinclude these matters in the determination (section 22(3)).

In the Appendix there is a precedent for anadjudicator's determination with the adjudicator's reasonsand calculations. The footnotes to the precedent providefurther guidance on drafting a determination.

The adjudicator decides only two matters. The firstis the amount of the progress payment, if any, to be paidby the respondent to the claimant. This is called the"adjudicated amount" (section 22(1)(a)). The second isthe date on which the amount became or becomes payable(section 22(1)(b)). Consideration is now given to howthe adjudicator is to decide these two matters.

7.02 Deciding the adjudicated amountThe adjudicated amount can never exceed the

amount claimed in the payment claim which has givenrise to the adjudication. An adjudicated amount can neverbe an amount which the claimant must pay the respondent.The adjudicator cannot decide that the claimant is not owed

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any money but that the claimant must pay the respondentan amount.

The adjudicated amount cannot include an itemwhich is not included in the payment claim. For example,even if the construction contract provides for interest orfor an additional amount on account of cost adjustment(i.e. adjustment ofpayments to take into account rise andfall in prices), the adjudicator cannot include interest orcost adjustment in the adjudicated amount unless they havebeen claimed in the payment claim which has given riseto the adjudication.

There are two possible methods of calculating theamount of the progress payment to which the claimant isentitled. Section 9 provides:

"The amount of a progress payment to which aperson is entitled in respect of a constructioncontract is to be:(a) an amount calculated in accordance with the

terms of the contract, or(b) if the contract makes no express provision

with respect to the matter, the amountcalculated on the basis of the value of theconstruction work carried out by the person(or the related goods and services suppliedby the person) under the contract."

In deciding the amount of the progress claim, theadjudicator must decide whether the contract expresslyprovides how the amount is to be calculated. If the contractprovides a method of calculation, the adjudicator is boundto adopt that method (section 9(a)). If the adjudicatordecides that the construction contract does not expresslyprovide how the amount is to be calculated, the adjudicatormust apply the criteria in section 1O. If the adjudicator isrequired to provide reasons for his or her decision, theadjudicator should state in those reasons which method ofvaluation the adjudicator adopted.

7.03 Express provision for valuationMost standard forms of construction contract

provide how the amount of a progress payment is to becalculated. But the approach taken by standard forms canbe divided into two distinct categories, namely theobjective valuation and certification. AS2124-1986 is anexample of objective valuation. AS2124-1992 is anexample of certification.

AS2124-1986 in section 42.2 provides:"The amount due to the Contractor at the time fora claim for payment shall be the value of the workcarried out by the Contractor in peiformance ofthe Contract to that time together with any moneysdue to the Contractor under any other provision ofthe Contract or for breach ofcontract less-(a) amounts already paid under the Contract;(b) amounts which the Principal is entitled to

deduct under Clause 42.3 or 42.10.

Where work is defective or omitted, the estimatedcost of rectifying the defect or omission shall betaken into consideration."

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Clause 42 includes certain other directions withrespect to the calculation of progress payments. Whilethose provisions will be relevant for the adjudicator'sdetermination, it is not necessary to repeat them here.Under AS2124-1986 the amount of the progress paymentis determined objectively. It is not the amount certifiedby anyone. Now compare AS2124-1992 where the amountof a progress payment is the amount certified by thesuperintendent.

The relevant parts of AS2124-1992 are found inclause 42.1. They provide:

"Within 14 days after receipt ofa claimfor payment,the Superintendent shall issue to the Principal andto the Contractor a payment certificate stating theamount ofthe payment which, in the opinion oftheSuperintendent, is to be made by the Principal tothe Contractor or by the Contractor to thePrincipal.

... within 14 days of issue by the Superintendent ofthe Superintendent's payment certificate, whicheveris the earlier, the Principal shall pay to theContractor or the Contractor shall pay to thePrincipal, as the case may be, an amount not lessthan the amount shown in the Certificate as due tothe Contractor or the Principal as the case maybe, or if no payment certificate has been issued,the Principal shall pay the amount of theContractor's claim."

Notwithstanding that under AS2124-1992 there canbe a payment due to the principal, the principal cannotmake a payment claim under the Act. Section 8 onlyauthorises a payment claim by the person who hasundertaken to carry out construction work or to supplyrelated goods or services.

Assume that under AS2124-1992 the contractormakes a payment claim for $10,000. If at the time whenthe respondent principal gives the contractor a paymentschedule no progress certificate under section 42.1 hasissued, then the express provisions ofAS212-1992 requirethe principal to pay the full amount of the payment claim.In an adjudication, the adjudicator would find that the fullamount of the payment claim is payable. It is not open tothe respondent principal to argue that because work isdefective or there is an amount due to the principal4

, thecontractor is not entitled to the full amount claimed. Thecontract provisions expressly provide that the contractoris entitled to a progress payment of the full amountclaimed. The adjudicator is bound by section 9(a) tocalculate the adjudicated amount in accordance with theexpress terms of the contract.

Now assume that at the time when the principal givesthe contractor a payment schedule, the superintendent hasissued a progress certificate for $8,000. The principal'spayment schedule would state that the principal is not liableto pay the contractor the full $10,000 claimed in thepayment claim because under the express terms of theconstruction contract (clause 42.1 of AS2124-1992) the

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amount to which contractor is entitled is the amount inthe superintendent's progress certificate, namely $8,000.

The principal is bound to pay the $8,000 and thecontractor can lodge an adjudication application in respectof the remaining $2,000. The adjudicator must calculatethe adjudicated amount in accordance with the expressterms of the construction contract (sections 9(a) and 22(2)).Unless the adjudicator finds that the progress certificateis not a valid certificate under the construction contract,the adjudicator cannot ignore it. If the adjudicator findsthat it is not a valid progress certificate then theconsequence is that there is no progress certificate and theadjudicator would decide that under the express terms ofthe contract, in the absence of a valid progress certificate,the principal must pay the whole amount claimed.

In the above example, it would be most importantfor the contractor to have stated in the submissionaccompanying the adjudication application that the groundupon which the contractor submits that the amount of theprogress payment should be $10,000 not $8,000 is thatthe superintendent's certificate is not valid. The contractorwould have to state the grounds upon which the contractorclaims that it is not valid. An analysis of possible groundsis beyond the scope of this paper but the cases in thefootnote may provide some guidance on grounds forchallenging the validity of the superintendent's certificate.5

Where the express provisions of a constructioncontract govern the amount of a progress payment and theexpress provision is that the amount is the amount fixedby a certificate, an adjudicator is likely to be faced withthe argument that, instead of a finding that the certificatewas not valid (with the consequence that under the termsof the contract, the full amount of the progress claim isdue), the adjudicator can substitute his or her opinion forthat of the certifier.

This approach may be superficially attractive but itpresents the following problem. Under section 22, theamount of the progress payment is determined inaccordance with the express provisions of the contractunless there are no express provisions. The expressprovisions of the contract do not permit the adjudicator torevise the certificate of the superintendent or to substitutehis or her valuation for that of the superintendent. Beforethe adjudicator can embark upon a valuation other thanthat prescribed in the contract, the adjudicator has to findthat there are no express provisions in the contractgoverning the amount of the progress payment. Howeverthe contract has express provisions. They are that theamount of the progress payment is the amount certified orif there is no certificate (or no valid certificate) then thefull amount must be paid.

Under the other type of progress paymententitlement, exemplified by AS2124-1986, the freedomof the adjudicator to arrive at a value is not constrained bya progress certificate or valuation determined by someoneelse in accordance with the construction contractconditions. Nevertheless, the adjudicator must lookcarefully at what can be included in a progress valuationunder the terms of the contract. In addition to the value of

14

work carried out, AS2124-1986 permits the inclusion bythe contractor of claimsfor "moneys due to the Contractorunder any otherprovision ofthe Contract orfor breach ofcontact".

This includes claims for extra under an expressprovision of the contract, e.g. for variations, latentconditions, interest and cost adjustment (rise and fall) andclaims for damages, e.g. delay costs arising from a failureto provide access. The matters which the adjudicator maybe called upon to value are very broad. It would be prudentfor any principal contemplating using AS2124-1986 orany other contract with such an all embracing progressclaim provision to amend it to restrict progress claims toclaims for the value of work performed. The amendmentcould provide that until the amount payable for extras(variations, latent conditions, damages, etc.) is agreed orfinally determined by the dispute resolution provisions ofthe construction contract, no amount in respect thereof isto be included in progress claims.

7.04 No express provision for valuationUnder section 9, if the construction contract does

not make express provision for the calculation of a progressclaim, the calculation is made under section 1O(1)(b) forconstruction work and section 10(2)(b) for related goodsor services. In both cases the adjudicator first has regardto the contract price or rates. A contract always has priceor rates, even it is an implied term that the price or rateswill be a reasonable price or reasonable rates.

Then the adjudicator has regard to:"any variation agreed to by the parties to thecontract by which the contract price, or any otherrate orprice set out in the contract, is to be adjustedby a specific amount. "

If the contractor executes a variation and in apayment claim includes $10,000 on account of thevariation, the adjudicator can only take that claim intoaccount if and to the extent that the claimant and therespondent have agreed upon a specific amount for thevariation or a specific amount has been fixed by the disputeresolution provisions of the contract or by litigation. Ifthe parties have reached no agreement on the amount, orthe amount has not been fixed by some other mechanismsuch as an expert determination, then the adjudicatorvaluing under clause 10(1)(b) or clause 10(2)(b) cannotinclude in the adjudicated amount any amount on accountof the variation.

Similarly, other adjustments to the contract price orrates, whether up or down, cannot be taken intoconsideration until the specific amount (in dollars) of theadjustment has been agreed between the claimant and therespondent or otherwise fixed by some third party. Theadjudicator cannot be that third party unless the claimantand the respondent agree with the adjudicator that theadjudicator will perform that additional function. Thatwould be a function outside the scope of the Act. Wherework has been omitted from the contract by a variationorder, the principal would not have to pay progress claims

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for the work that has been omitted or goods that have notbeen supplied. In calculating the value of work done orgoods supplied, the adjudicator cannot include work notdone or goods not supplied.

Section 10(2)(b) provides that the value of unfixedmaterials is not included in a progress valuation unlessthey have become, or on payment will become, theproperty of the party for whom the construction work isbeing carried out.

7.05 Deciding the date for paymentThe adjudicator must decide the date when the

payment claim should have been paid or should be paid.Section 11 of the Act deals with the date for payment. It iseither a date fixed by the contract terms or it is the datewhich is two weeks after the payment claim was given tothe respondent.

In the adjudicator's reasons, the adjudicator shouldstate whether the adjudicator has adopted a date fixed bythe contract or has applied section 11(b).

A construction contract could specify that the datefor payment ofprogress claims is a date well into the future,even the date of practical completion. However, theconstruction contract could not provide that the date is thedate when, or a date which is after, the respondent receivespayment from a third party. Section 12 bars any "paywhen paid" or "pay if paid" clause in a constructioncontract. If the construction contract included a ''pay whenpaid clause", the adjudicator would ignore it and applythe date specified in section 11(b), namely the date 2 weeksafter the payment claim is made.

Even though the date for payment is a date beforethe date of the adjudicator's decision, the adjudicatorcannot add interest to the adjudicated amount.

7.06 Previous adjudication decisionsTo what extent is an adjudicator bound by decisions

made in an earlier adjudication? It is submitted that anadjudicator is not bound by the decision of an earlieradjudicator, but the decision of the later adjudicator doesnot affect the binding consequences of the earlier decision.

For example, assume adjudicator no. 1 decides thatthe value of work at the date of payment claim no. 1 is$10,000 and that this is the amount which the respondentmust pay. The respondent is bound to pay $10,000 or toprovide security for that amount. Otherwise, there is adebt enforceable in law (section 25(2)(a)) and, after givingnotice, the claimant can suspend work (section 25(2)(b)).

Assume that in the second payment claim thecontractor claims that the total value of the constructionwork carried out by the contractor is $15,000 and that thecontractor is entitled to a further progress payment of$5,000. Assume that a second adjudicator decides thatthe construction work is defective and is worth nothingwhatsoever. That decision would not have the effect ofcancelling the debt of $10,000. An adjudicator cannotdecide that the claimant must pay the respondent money.

Similarly, the contractor's right to suspend work onaccount of the respondent's failure to pay the first

15

adjudication amount of $10,000 or to provide securitywould continue notwithstanding the decision of the secondadjudicator.

Assume that following the first adjudication therespondent had paid $10,000 into a designated trustaccount. The second adjudicator's decision would notentitle the respondent to withdraw money from thedesignated trust account (section 24(2)).

These are not instances of the second adjudicatorbeing bound by the decision of the first adjudicator. Theyare simply instances showing that the second adjudicationdoes not extinguish rights of the claimant arising from thefirst adjudication.

Now consider the "rights" of the respondent arisingfrom the first adjudication. The only "right" which therespondent can acquire from an adjudication is a decisionthat the respondent is not liable to pay more money thanthe amount, if any, which the respondent was previouslyliable to pay. If a person is indebted to another, it takessomething to cancel the debt. An adjudication cannotcancel a debt. If a person is not indebted to another, ittakes something to create a debt. The adjudication cancreate a debt.

Now take the reverse of the previous example.Assume that in respect of an adjudication on payment claimnumber 1 for $10,000, an adjudicator decides that theclaimant is not entitled to anything in respect of the workbecause it is defective. Can the adjudicator deciding anadjudication application with respect to payment claimnumber 2 decide that the same work is not defective andthat the claimant is entitled to a progress claim in respectof it?

Firstly, the second adjudicator cannot consider thedetermination of the first adjudicator except to the extentthat it is part of a submission to the second adjudicator bythe claimant or the respondent. Therefore, assume thatthe respondent attaches the determination of the firstadjudicator and argues that the second adjudicator is boundby the decision of the first adjudicator. Assume thatnothing has been done to rectify the allegedly defectivework.

The adjudicator is not making a judicial decisionand consequently the doctrine of res judicata has noapplication. There is not an issue estoppel because a courtor arbitrator is not bound by the decision of the firstadjudicator that the work is defective. There appears tobe no bar to the second adjudicator coming to a differentconclusion to that of the first adjudicator as the whetherthe work is defective or not. The second adjudicator coulddecide that the respondent must pay the claimant $10,000.

8. FeesSection 29 of the Act deals with the adjudicator's

fees. Ideally, the parties will have agreed with theadjudicator on the adjudicator's fees before the adjudicatorgives notice under section 19 of acceptance of appointmentas adjudicator. If the adjudicator is a person agreed uponbetween the parties, they will usually have approachedthe adjudicator as soon as the dispute arose and agreed

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upon terms. The terms could include provision of securityfor the adjudicator's fees or even payment in advance.

Each approved nominating authority will have itsown procedure for dealing with adjudication applications.Before nominating an adjudicator, an approved nominatingauthority could advise the claimant and the respondent ofthe names of several possible nominees and their respectivefees. The nominating authority may be able to obtain theconcurrence of both parties to the nomination and the feesof the adjudicator.

A claimant can withdraw the adjudicationapplication and go to another nominating authority if,within 4 business days after lodgment of the adjudicationapplication, the first nominating authority has not had anadjudicator accept the adjudication application.Consequently, there will not be much time to obtain theagreement of the claimant and the respondent.

If no fee is agreed between the adjudicator and theparties to the adjudication, the adjudicator is entitled to"such amount, by way of fees and expenses, as isreasonable having regard to the work done and expensesincurred by the adjudicator" (section 29(1)(b)).

If the adjudicator and the parties cannot agree uponthe amount, the adjudicator would have to sue for it. Theadjudicator can sue one party or both for the whole fee.Normally each party must contribute 50% of the fee. Theclaimant and the respondent are jointly and severally liableto pay the whole fee (section 29(2)). If one party pays thewhole fee, that party is entitled to recover 50% from theother party (section 29(3)) except in the unusualcircumstance that the adjudicator decides that adjudicationapplication or adjudication response was "whollyunfounded" .

If the adjudicator decides that the adjudicationapplication or adjudication response was whollyunfounded, the adjudicator can determine that the claimantand the respondent are each liable to contribute a differentproportion of the fee. If a party's application or responseis wholly unfounded then one would expect that that partyshould be liable to contribute 100% of the adjudicator'sfee. The adjudicator could still recover the whole fee fromthe other party and leave it to that party to recover theamount from the party liable to contribute 100%.

The adjudicator is not entitled to be paid any fees orexpenses if the adjudicator fails to make a decision within10 business days after acceptance of the adjudicationapplication or such longer period as the claimant andrespondent agree to allow the adjudicator (section 29(4)).

The adjudicator can claim a lien on the decision.The adjudicator can make the decision within theprescribed time and notify the parties that the adjudicatorwill not release the decision to the parties until his or herfees and expenses are paid (section 29(5)(a)). Theadjudicator would have to state the amount which theadjudicator claims and, if the amount has not beenpreviously agreed, the adjudicator is only entitled to claima reasonable amount for fees and expenses.

Sometimes an adjudicator will be faced thefollowing problem. Assume that no fee has been agreed

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and the adjudicator demands an amount of $1 ,000. Assumethat a reasonable amount is $800 and that the parties paythat amount but the adjudicator still refuses to deliver thedecision until the remaining $200 is paid. In thosecircumstances, the adjudicator would lose the right to anyfee whatsoever and the parties would be entitled to recoverthe $800 paid.

That arises because, after receipt of the $800, theadjudicator is not refusing to communicate his or herdecision until his or her fees are paid. The adjudicator isrefusing to communicate the decision until paid an amountof $200 to which the adjudicator is not entitled. Section29(4) bars any entitlement to fees or expenses unless thedecision is made in time. The exemption from the bar onlyapplies when the adjudicator is refusing to communicatethe decision until his or her fees are paid.

An approved nominating authority may set andpublish a recommended fee for adjudicators but anagreement between approved nominating authorities on astandard fee would probably be in breach the TradePractices Act 1974 (Cth).

9. LiabilitySection 30 of the Building and Construction Industry

Security ofPayment Act 1999 (NSW) provides:"No action lies against an adjudicator or any otherperson with respect to anything done or omitted tobe done by the adjudicator in good faith in theexercise of the adjudicator's functions under thisAct."

This section might be compared with section 51 ofthe Commercial Arbitration Act 1984 (NSW) whichprovides:

"An arbitrator or umpire is not liable for negligencein respect of anything done or omitted to be doneby the arbitrator or umpire in the capacity ofarbitrator or umpire but is liable forfraud in respectof anything. done or omitted to be done in thatcapacity."

A person who is not validly appointed as anadjudicator, although acting in good faith, does not havethe protection of section 30. Consequently, a personproposing to act as an adjudicator must first look to seethat his or her appointment under the Act is in order. Aperson becomes an adjudicator when the person acceptsan adjudication application (section 19). It goes withoutsaying that only a valid adjudication application can beaccepted. The adjudicator's first task therefore is to satisfyhimself or herself that the adjudication application is avalid application capable of acceptance.

An adjudication application is not capable ofacceptance by the adjudicator if, prior to acceptance, theclaimant has, under section 26, withdrawn the applicationby notice to the adjudicator or the adjudicator's nominatingauthority.

An adjudication application is not capable ofacceptance if the application is not made within 5 business

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days after the claimant received the payment schedule inrespect of which the dispute arises (section 17(3)(b)). Theadjudicator will not necessarily know when the claimantreceived the respondent's payment schedule. However,within 2 business days after accepting appointment, theadjudicator will usually have a submission from therespondent (section 20(1)). If the respondent does not raisethe argument that the adjudication application was notmade within time, the adjudicator is reasonably safe inassuming that the application was made in time.

However, if the adjudicator is not satisfied that theadjudication application was made in time, the adjudicatorcan notify the parties and not make a decision within theprescribed time (section 21(3)). If the claimant has in factmade the adjudication application within time, the claimantcan then lodge it with another nominating authority.

To be valid and capable of acceptance theadjudication application must be in writing and mustidentify the payment claim and payment schedule to whichthe adjudication application relates (section 17(2)). Theadjudicator should check the details of the payment claimand payment schedule. The requirements for a validpayment claim are in section 13. The requirements for avalid payment schedule are in section 14.

If the adjudication application is not made to anapproved nominating authority, it must be made to anadjudicator chosen by the parties (section 17(3)(a)(i)).Anyone who receives an adjudication application directlyfrom a claimant would want to check that the respondenthas agreed to him or her being the adjudicator.

If the adjudicator receives the adjudicationapplication from an approved nominating authority, it maybe that the authority expressly or impliedly warrants thatthe adjudication application is an adjudication applicationunder the Act and is capable of acceptance by theadjudicator. On the other hand, a prudent nominatingauthority would probably expressly negative any suchwarranty. In other words, the nominating authority wouldleave it to the adjudicator to satisfy himself or herself thatthe adjudication application complies with therequirements of the Act.

The exemption from liability in section 30 onlyapplies to things done or omitted to be done by anadjudicator in good faith in the exercise of the adjudicator'sfunctions under the Act. If, with the consent of the parties,the adjudicator was to attempt to mediate or was to makean expert determination on some matter as distinct froman adjudication under the Act, the adjudicator would beadvised to obtain the prior agreement of the parties that,in exercising the mediation role or the expert determinationrole, the adjudicator would also be exempt from liability.

The adjudicator must be careful to act in good faith.A discussion of the meaning of good faith is beyond thescope of this paper. It suffices to say that good faithinvolves more than mere honesty. Some acts which, ifdone by an arbitrator, might constitute a breach of the rulesof natural justice or lead to the removal of the arbitratorfor misconduct, could amount to a failure to act in goodfaith. For example, if an adjudicator was to have private

17

discussions concerning the dispute with one party in theabsence of the other, or a with a third party to gatherinformation which neither party had presented, that mightbe a failure to act in good faith.

10. EnforcementThe adjudicator is not concerned with the

enforcement of the adjudicator's decision. If the respondentfails to pay the amount decided by the adjudicator (the"adjudicated amount") or to provide security in a formpermitted by the Act, it is a matter for the claimant to suein the appropriate court or, alternatively, in the case ofresidential building work under the Home Building Act1989, in the Fair Trading Tribunal to recover judgmentfor and ultimately enforce payment of the adjudicatedamount.

The adjudication has fixed the amount payable andthe date upon which it is payable. The court would notrehear the dispute. The court would be concerned toascertain that there was a valid adjudication, theadjudicated amount, the date for payment determined bythe adjudicator and that the respondent had failed to paythe adjudicated amount or to provide security within 2business days allowed by section 25(5). The claimant whoestablishes these matters has a liquidated claim. Each courthas an expedited procedure for obtaining judgment inrespect of a liquidated claim. Adjudication avoids thedelays which occur when courts have to considerunliquidated claims.6

11. Setting aside an adjudicator's decisionAn adjudicator's decision is either a valid decision

or it is not valid. If it is not valid then it is not a decisionunder the Act and cannot be enforced. There is no appealfrom an adjudicator's decision. However, a partycontesting the validity of a decision can apply to theSupreme Court for a declaration that a particular decisionis not valid. Alternatively, if a claimant endeavours toenforce a decision by obtaining ajudgment, the respondentcan raise the defence that there was no valid adjudication.

Usually, only the respondent would have an interestin setting aside an adjudicator's decision. If a claimanthad the adjudication set aside, the claimant would be leftwith nothing except, perhaps, an entitlement to recoverfees paid to the adjudicator. The court cannot send it backto the adjudicator to redecide or correct. Perhaps, beforemaking an order setting aside a decision of an adjudicator,the court could require evidence that the claimant and therespondent have agreed upon such an extension of timefor the adjudicator to make a decision that, when the courtdeclares the adjudicator's original decision to be void, theadjudicator will have time to make a valid adjudication,thereby preserving the adjudicator's right to fees.

There is a considerable body of case law on whenthe courts will set aside the decision of an expert in anexpert determination. Those cases will presumably befollowed when it comes to challenges to the validity of anadjudication. It is submitted that courts will not set asidean adjudicator's decision solely for the reason that the

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adjudicator has made an error, for example, in applyingthe law, in valuing work, in deciding whether work isdefective or in the interpretation of the constructioncontract. The courts will set aside a decision if theadjudicator has not acted honestly or in good faith or hastaken into consideration matters other than those whichthe adjudicator is permitted to consider under section 22(2).

An adjudicator should never become embroiled ina dispute between the claimant and the respondent overthe validity of the adjudicator's decision. An adjudicatorshould not attempt to defend his or her decision. Theadjudicator will probably be named as a party to any claimfor a declaration that the decision is not valid. All theadjudicator should do is to file in the court a submittingappearance. That is a statement that the adjudicator agreesto accept any decision of the court except one involvingan order for costs against the adjudicator.

If an adjudicator is so ill advised as to attempt todefend his or her decision, the adjudicator may well endup paying the costs of the other parties in the courtproceedings.

12. Concurrent proceedingsSection 32 of the Act deals with the effect of

adjudication on other legal proceedings. An adjudicator'sdecision only decides the amount of a progress paymentand the date for payment. It does not finally determinethe contract price or the amount of adjustments forvariations, defects, omissions, provisional sums, liquidateddamages, rise and fall, etc.

Section 32(3) provides:"In any proceedings before a court or tribunal inrelation to any matter arising under a constructioncontract, the court or tribunal:

(a must allow for any amount paid to a partyto the contract under or for the purposes ofthis Part in any order or award it makes inthose proceedings; and

(b) may make such orders as it considersappropriatefor the restitution ofany amountso paid, and such other orders as it considersappropriate, having regard to its decisionin those proceedings."

In these regards, an arbitrator would have the sameobligations and powers as a court.

Section 32(3)(b) enables a court to make orderswhich, in effect, right (in so far as an award of money cando so) a mistake which the adjudicator may have made.For example, an adjudicator may decide that work isdefective but that decision does not prevent the respondentbringing a claim in arbitration or litigation in respect ofthe defect. In determining whether work was defective,the opinion of the adjudicator on the defect would not berelevant to the decision of the court or arbitrator.

Assume that a subcontractor claims a progresspayment of $10,000 and that in the payment schedule therespondent contractor refuses to pay because therespondent contractor claims that the work is defective.

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Assume that the adjudicator finds that the work is defectiveand that the subcontractor is not entitled to a progresspayment. The subcontractor can nevertheless sue in courtor, if there is an arbitration agreement, in arbitration forthe progress payment.

The court or arbitrator would ignore the adjudicator'sdecision and would determine the issue applying the termsof the construction contract. The court or arbitrator couldaward $10,000 plus interest.

The court or arbitrator could not award thesubcontractor the proportion of the adjudicator's fee whichthe subcontractor had paid. Section 29 of the Act providesthat as between themselves the claimant and respondentare liable to pay the adjudicator's fees in equal proportionsor, if the adjudicator determines that the application or theadjudication response was wholly unfounded, in suchproportions as the adjudicator determines.

To be entitled to recover from the adjudicator thefees paid by the subcontractor to the adjudicator, thesubcontractor would first have to have the adjudicator'sdecision set aside. Even then, the subcontractor mightnot have an entitlement to recover the fees. Unless setaside, the adjudicator's decision is still a valid decisioneven though the adjudicator may have been mistaken indeciding that the work was defective. Proceedings to havethe adjudicator's decision set aside are differentproceedings to the subcontractor's claim for $10,000 andinterest. The contractor can be liable to pay the $10,000and interest but not to pay damages because the adjudicatormade a mistake. The adjudicator would usually beprotected from liability by section 30.

Now take the reverse case, namely, where theadjudicator decides that the subcontractor is entitled to aprogress payment of $10,000 but, in fact, the work wasdefective and, under the strict terms of the subcontract,the subcontractor was not entitled to the progress payment.In subsequent proceedings in a court, tribunal orarbitration, the contractor could obtain an order forrepayment of the $10,000 and interest. However, pendingthe subsequent decision of the court, tribunal or arbitrator,the contractor must pay the amount decided by theadjudicator or lodge security for the amount.

Otherwise, pending the subsequent decision thesubcontractor can enforce payment of the $10,000 by suingin the appropriate court and can lawfully suspend workafter giving the notice required by section 27. Section27(3) provides:

"A claimant who suspends construction work (orthe supply of related goods or services) inaccordance with the right conferred by subsection(1) is not liable for any loss or damage suffered bythe respondent, or by any person claiming throughthe respondent, as a consequence of the claimantnot carrying out that work (or not supplying thosegoods or services) during the period ofsuspension. "

A clause in the construction contract, stating thatsuspension of work without permission is a breach ofcontract, would not override section 27(3). Section 34provides:

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"A provision ofany agreement (whether in writingor not) under which the operation of this Act isexcluded, modified or restricted, or which has theeffect of excluding, modifying or restricting theoperation of this Act, is void."

The fact that, at or before the time of theadjudication, proceedings have been commenced in acourt, tribunal or arbitration would not prevent theadjudicator from continuing with the adjudication. Theadjudicator cannot have regard to those proceedings(section 22(2)). Of course, in the unlikely event that theadjudicator received notice of an order from a court to theadjudicator that the adjudicator must not proceed, theadjudicator would have to obey the court order. However,it is most unlikely that a court would order an injunctionpreventing an adjudicator from proceeding with anadjudication except in the instance where the adjudicator,in fact, has no jurisdiction.

A court cannot extend the time for an adjudicationand the court could usually achieve justice by an injunctionpreventing the claimant from taking legal proceedings toenforce the adjudicator's decision. After all, to enforcepayment of an amount determined by the adjudicator, theclaimant has to go to court. To recover judgment for theamount of the adjudicator's decision, the claimant has todemonstrate that there was a lawful adjudication.

The fact that an adjudication is in progress does notprevent the commencement or continuation of other legalproceedings. In the case of a dispute concerning residentialbuilding work within the meaning of the Home BuildingAct 1989, an adjudicator may be faced with the case whereproceedings have been commenced in the Fair TradingTribunal before the adjudication application is lodged. Theadjudicator may be faced with the argument that section22 of the Fair Trading Tribunal Act 1998 (NSW) deprivesthe adjudicator of jurisdiction.

The relevant provisions of section 22 of the FairTrading Tribunal Act are:

" (1) In this section, court means any court,tribunal, board or other body (other than oneprescribed by or under subsection (2)) that:(a) is empowered under any other Act, or(b) by consent ofor agreement between two

or more persons has authority,

to decide or resolve any issue that is indispute, whether through arbitration orconciliation or some other means.

(3) If, at the time when an application was madeto the Tribunal in accordance with this Act,no issue arising under the application wasthe subject of a dispute in proceedingspending before a court, a court has nojurisdiction to hear or determine such anissue. "

19

For the following reasons, those provisions do notdeprive an adjudicator of jurisdiction. An adjudicator isdeciding an adjudication application. The issues are onlytwo, namely, whether the claimant is entitled to an amountin respect of the payment claim made by the claimant underthe Building and Construction Security of Payment Act1999 (NSW) and the date upon which payment must bemade (section 22(1)). Only an adjudicator appointed underthe Building and Construction Security of Payment Act1999 (NSW) can decide those issues. The Fair TradingTribunal can no more decide those issues than it can decidematters which are within the jurisdiction of the FamilyLaw Court or any other court or tribunal with exclusivejurisdiction in respect of certain issues.

Similarly, the fact that the claimant has lodged anadjudication application does not prevent the claimant fromcommencing proceedings in the Fair Trading Tribunal. Theproceedings would not be in respect of the same issues.In the Tribunal the claimant can claim an entitlement, underthe terms of the construction contract, to be paid a progressclaim but the Tribunal has no jurisdiction to entertain aclaim to decide an adjudication application.

To enforce an adjudicator's decision, the claimantmust sue in a court or the Fair Trading Tribunal. Theclaimant's claim is for an order against the respondent thatthe respondent must pay the claimant the amount decidedby the adjudicator. Section 25 of the Building andConstruction Security of Payment Act 1999 (NSW)provides that if the respondent fails to pay the amountdecided by the adjudicator or to provide security inaccordance with the Act, the claimant may recover theunpaid portion of the adjudicated amount as a debt.

That debt is just like any other debt. If, at the timethe court or tribunal is deciding whether to make an orderfor its payment, the court or tribunal is satisfied that thedebt has been paid or extinguished, the court or tribunalwill not make an order that it be paid. An example mayserve to explain.

Assume that there is a construction contract for$100,000 and the contract is at an end. The claimantcontractor has been paid $90,000 and an adjudicatordecides that the claimant contractor is entitled to a further$10,000 in respect of a payment claim. Assume that therespondent owner fails to pay the $10,000 or to providesecurity. Assume that the Fair Trading Tribunal, a courtor arbitrator has meantime heard a claim by the respondentowner in respect of defective work and has finally decidedthat the claimant contractor is liable to pay the respondentowner $5,000, making the final contract price $85,000.

If the contractor endeavoured to recover in any courtthe debt of $10,000 consequent upon the adjudicator'sdecision, the court would find that the decision of theTribunal finally determined the amount due from one partyto the other and it is not open to the contractor to bring asecond action. The court would apply the doctrine of resjudicata or the doctrine of issue estoppeF.

Prior to a final determination of the rights of theparties, the claimant can sue in a court for an order thatthe respondent pays the adjudicated amount, in this

ACLN - Issue #68

instance, $10,000 and the court should make such anorder8

• Assume that the order is made and the amount ispaid. A court subsequently called upon to decide the finalliability. of one party to the other must take into accountany amount paid and can order that it be repaid (section32(3)). The doctrines of res judicata and issue estoppeldo not prevent the second action to determine the finalliability of the parties (section 32).

Another argument which may be raised before anadjudicator is that section 440F or section 471B of theCorporation Law prevents the adjudication fromproceeding. Section 440F provides:

"During the administration of a company, noenforcement process in relation to the property ofthe company can be begun or proceeded with,except:

APPENDIX

Adjudicator'S Determination UnderThe BuildingAnd Construction Industry Security Of PaymentAct 1999 (NSW)9

Adjudicator: (name)

Claimant: (name)

Respondent: (name)

Construction Contract: (title of contract)

Adjudication application dated:

Date of this determination: 10

This is a determination under section 22 of the Buildingand Construction Industry Security ofPayment Act 1999(NSW) of an adjudication application dated # by theclaimant in respect of the claimant's payment claim dated# and the respondent's payment schedule dated #.

My determination is that the amount of the progresspayment which the respondent must pay the claimant is$# and that the date upon which the payment became duewasH.

(signature)Adjudicatorll

ReasonsThe respondent requested that I include in my

determination the reasons for the determination and thebasis upon which the amount and date have been decided.Following are my reasons and the basis of my decision onthe amount and date.

20

(a) with the leave of the Court; and(b) in accordance with such terms (if any) as the

Court imposes."

Section 471B makes similar provision. Thedifference is that section 440F applies when anadministrator is appointed to run a company and section471B applies when a liquidator is appointed.

Neither section prevents an adjudication from beingcommenced or continued. Moreover, a court cannot varyor extend the timetable for an adjudication. Adjudicationis not itself an enforcement process. After an adjudication,if the respondent does not pay the adjudicated amount orlodge security, the claimant can commence enforcementproceedings. It is those proceedings which would beprevented by section 440F or section 471B.

BackgroundIn determining this adjudication application I have

considered the following matters onlyl2:1. The provisions of the Building and

Construction Industry Security of PaymentAct 1999 (NSW).

2. The provisions of the construction contractfrom which the adjudication application arose.

3. The payment claim dated # and thesubmissions of the claimant whichaccompanied the adjudication application. 13

4. The respondent's payment schedule and theresponse dated # of the respondent to theadjudication application14.

5. Submissions made by the legalrepresentatives of the claimant and therespondent respectively at a conference of theparties which I called on #.

6. The results of my inspection on # of the siteof the construction work.

The dispute arises out of a construction contractdated # under which the claimant contracted to constructa cycleway for the respondent. The contract price was arate of $10,000 per metre. The parties agree that thecontract was wholly written and is comprised in thefollowing documents #. The contract includes generalconditions of contract AS2124-1986 and specialconditions. The contract required the claimant to reachthe stage of Practical Completion by #. On # the claimantserved a payment claim on the respondent. The claimwas for $200,000. It was a claim for a progress paymentfor 20 metres of cycleway @ $10,000 per metre.

On #15 the respondent provided a payment scheduleto the claimant. In the payment schedule the respondentshowed that an amount of $120,000 would be paid. Theparties agree that that amount has been paid. In thepayment schedule, the respondent said that the balance ofthe payment claim would not be paid because:

ACLN - Issue #68 21

Basis of my decision on the amountThe claimant claims to be entitled to a progress

payment calculated in accordance with the terms of theconstruction contract. The respondent does not disputethat the claimant's entitlement is to be calculated inaccordance with the terms of the construction contract. Iam satisfied that the construction contract makes expressprovision with respect to the calculation of progresspayment. Therefore, for the purposes of section 9 of theBuilding and Construction Industry Security ofPaymentAct 1999 (NSW), I will apply the contract provisions. 17

In their respective submissions, the claimant and therespondent have submitted technical reports by expertsretained by the claimant and the respondent respectively.I have read the reports and I have inspected the 5 metresof cycleway in question. I agree with the opinion of therespondent's expert that the 5 metres in question is so roughand pitted that it should be dug up and removed. It isbeyond repair. The claimant has not disputed that therespondent's estimate of $10,000 to dig up and removethe 5 metres is reasonable if the 5 metres has to be dug upand removed. I therefore find that the estimated cost ofremedying defective work is $10,000.

In a conference with the parties which I called on #,the claimant's lawyer Ms. # made the claimant'ssubmission on the question of whether liquidated damagesare a penalty. The submission was that the cycleway to bebuilt by the claimant is part of the approaches to a bridgebeing built by another contractor and that other contractoris so late that, irrespective of the claimant's delay, therespondent would not be able to make any use of thecycleway. The claimant submits that since the claimant'sdelay will not result in any actual loss to the respondent,the liquidated damages of $5,000 claimed by therespondent are a penalty and therefore, in law, notrecoverable.

I am satisfied that the fact that when the delay occursthe respondent suffers no actual damage does not mean

5. Retention moneys have been wronglycalculated. They should be deducted from thefinal amount payable, not the value of workdone.

Both parties accept that the adjudication applicationis properly before me for a decision. There are 4 issues tobe decided. They are:

1. Whether part of the work (from metre 10 tometre 15) is defective and, if so, the estimatedcost of rectifying the defect.

2. Whether liquidated damages are a penalty.3. Whether, while the claim over extension of

time remains to be determined by the disputeresolution provisions of the constructioncontract, the respondent is entitled to deductliquidated damages from progress payments.

4. How retention is to be calculated.

$150,00015 metres @ $10,000

Less

Retention @ 10% $ 15,000

Estimated cost of removal of defective work$ 10,000

Liquidated damages $ 5,000

Amount payable $120,000

The work is not defective.Even if the work is defective, there is no needto dig it up and remove it. It can be repairedat an estimated cost of $1,000.Liquidated damages are not enforceablebecause they are a penalty.There is a dispute over extensions of time andliability for liquidated damages and until thedispute is finally decided in accordance withthe dispute resolution provisions of thecontract, the respondent has no right to deductliquidated damages.

3.

4.

1. Of the 20 metres of cycleway constructed, 5metres, from the 10m mark to the 15 metremark, is defective and the superintendent hasdirected that it be dug up and removed.

2. The estimated cost of digging it up andremoval is $10,000.

3. The value of the work performed is only$140,000. This is calculated by allowing$150,000 (15 metres @ $10,000 for the workwhich does not have to be dug and removedand deducting $10,000 being the estimatedcost of digging up and removing the 5 metresof defective work).

4. The contract required the contractor toachieve practical completion by # andprovided for liquidated damages of $1 ,000 forevery day that the claimant was late inachieving practical completion. At the dateof the payment schedule the claimant hasincurred a liability of $5,000 for liquidateddamages.

5. Clause # of the construction contract providesthat the respondent can deduct liquidateddamages from any progress payment. Therespondent has deducted $5,000 representingliquidated damages.

6. The construction contract provides that therespondent can deduct retention moneys of10% of each progress payment.

7. The amount payable by the respondent iscalculated as follows:

On #16 the claimant lodged an adjudicationapplication which I accepted and which is the subject ofthis determination. In the written submissionsaccompanying the adjudication application the claimantsubmits:

1.2.

ACLN - Issue #68

that the liquidated damages are a penalty. As therespondent argues, the question is whether at the time thecontract is made, the assessment of liquidated damages isa penalty bearing in mind the damage which might beincurred if the claimant is late. The claimant has notsatisfied me that $1,000 per day was not a reasonableassessment at the time the contract was made. I find thatliquidated damages were not a penalty.

There is a dispute between the claimant and therespondent about extensions of time and whether theclaimant is liable to pay liquidated damages pending theresult of an expert determination on that issue. Under theterms of the construction contract, all disputes must bereferred to expert determination. An expert determinationover extensions of time and liquidated damages is beingdealt with separately by an expert appointed under thedispute resolution provisions of the construction contract.Before me, the submission of the claimant is not thatliquidated damages are not payable because the claimantis entitled to an extension of time. The submission is thatuntil the dispute over extensions of time and liability forliquidated damages is decided by the expert, the respondentis not entitled to deduct liquidated damages.

Clause # of the construction contract provides thatif the claimant fails to achieve practical completion by thedate for practical completion, namely #, the respondent isentitled to liquidated damages of $1,000 per day and isentitled to deduct the amount from progress payments.At the date of the payment schedule, the claimant wasfive days late. In my opinion, the fact that there is a disputeto be decided by an expert does not preclude the respondentfrom deducting liquidated damages from progresspayments pending a decision of the expert on the dispute.The respondent is entitled to deduct $5,000 on account ofliquidated damages.

I am satisfied that, under clause # of the constructioncontract, retention moneys can only be deducted from theamount which, but for retention moneys, would be paid.That amount is $135,000. Consequently, the respondenthas not properly calculated the progress payment. Thecalculation should have been as follows:

22

contract makes express provision for the date upon theprogress payment becomes duel8

•

The particular progress claim the subject of thisadjudication was made on 1 June 2000. The progresspayment was payable on 1 July 2000.

The respondent has paid the claimant $120,000 inrespect of the progress payment. A further amount of$1,500 was payable by the respondent to the claimant on1 July 2000.

Costs19

The respondent submits that I should make adetermination under section 29(3) of the Act that theclaimant must pay the whole or the major proportion ofmy fees and expenses. Under section 29(3) I am onlyentitled to determine the proportions in which the partiesmust contribute to my fees if I determine that theadjudication application was wholly unfounded. Since Ihave found that the claimant is entitled to $1,500, it followsthat the adjudication application was not whollyunfounded20

• Therefore, I make no determination undersection 29(3) and it follows that the parties must pay myfees and expenses in equal proportions.

(signature)Adjudicator

15 metres @ $10,000

Less

Estimated cost of removal of defective work

Liquidated damages

Amount payable but for retention

Retention @ 10%

Progress payment due

$150,000

$ 10,000

$ 5,000

$135,000

$ 13,500

$121,500

Date for paymentClause # of the construction contract provided that

progress claims can be made on the first day of each monthand progress payments will be made on the first day ofthe next month. Therefore, for the purposes of section 11of the Building and Construction Industry Security ofPayment Act 1999 (NSW), I find that the construction

ACLN - Issue #68

Footnotes1. Compare section 17(2)(a) which requires an

adjudication application to be in writing and section20(2)(a) which requires an adjudication response tobe in writing.

2. Sutcliffe v Thackrah [1974] AC 727.3. Pacific Associates v Baxter [1990] 1 QB 993.4. Clause 42.10 contains an express provision for set

off but the set off is after the progress value has beendetermined. For example, if the progress certificateis for $10,000 and the principal has a set off withinthe meaning of clause 42.10 for $2,000, that does notreduce the amount of the progress payment to whichthe contractor is entitled. It simply means that if theprincipal pays only $8,000 of the progress payment,an action by the contractor in court to recover the extra$2,000 will not be successful if the principal canestablish that the set off was valid. The adjudicatedamount under the Act would be $10,000 not $8,000.

5. Perini Corporation v Commonwealth [1969] 2NSWLR 530; Sutcliffe v Thackrah [1974] AC 727;Canterbury Pipelines v Christchurch Drainage Board[1979] 2 NZLR 347; CMR Builders (Vic) v RosebudHotel [1996] 13 BLR 55 and WMC Resources vLeighton Contractors [1999] 15 BCL 49. Thesuperintendent is an expert making an expertdetermination and cases on when a court will set asidean expert's determination are relevant. In the case ofAS2124-1992, it is also relevant to have regard to thewarranty by the principal in clause 23 that thesuperintendent will arrive at a reasonable measure orvalue of work, quantities or time.

6. The willingness of courts to enforce adjudicationdecisions is illustrated by two English cases, MacobCivil Engineering Limited v Morrison ConstructionLimited [1999] 15 Const. L.J. 300 and OutwingConstruction Limited v H. Randell and Son Limited[1999] 15 Const. L.J. 308.

7. The application of these doctrines is discussed inDavenport, P., Construction Claims, Federation Press,Sydney, 1995 atpp.170-175.

8. In England, the Housing Grants, Construction andRegeneration Act 1996 contains a scheme for interimadjudication of disputes. The scheme bears somesimilarity to the NSW Act. In Macob CivilEngineering Limited vMorrison Construction Limited[1999] 15 Const. L.J. 300, an adjudicator decided thata subcontractor was entitled to £302,366. Thecontractor did not pay and challenged in arbitrationthe validity of the adjudicator's decision. The HighCourt held that the contractor must make paymentnotwithstanding the pending arbitration.

9. This is a sample of a hypothetical adjudicator'sdetermination with reasons and basis of calculation.The important point is not whether the adjudicatorcame to the right decision but whether, in coming tothe decision, the adjudicator followed therequirements of the Act and, in particular, whetherthe adjudicator considered any matters other than

23

those which the adjudicator is entitled to consider(section 22(2)).

1O. If the date of the determination is more than 10business days after the date on which the adjudicatornotified the claimant and the respondent of his or heracceptance of the adjudication application, theadjudicator should add the following paragraph to thedetermination:

"By agreement made in writing between theclaimant and the respondent on #, the claimant andthe respondent agreed to extend the time for makingthis determination until #. "

If the time has not been extended by agreement thenthe adjudicator has no power to make the adjudicationafter the expiration of the 10 business days (section21(3)).

11. If the adjudicator has not been asked to providereasons then the determination should finish here withthe adjudicator's signature. Reasons are only requiredif, before the adjudicator makes his or herdetermination, the claimant or the respondent hasrequested the adjudicator to provide reasons (section22(3)).

12. Strictly speaking, it is not necessary to recite thematters considered but, by doing so, the adjudicatorcan assist to defeat any argument that the adjudicatorconsidered matters other than those permitted bysection 22(2). If a party is seeking to have theadjudicator's decision set aside, the party will belooking to see if the adjudicator has breached section22(2) by considering matters other than those which,under section 22(2), the adjudicator is allowed toconsider.

13. It should be possible to identify the submissions moreprecisely.

14. The adjudicator cannot consider a late adjudicationresponse (section 21(2)). The adjudication responseis late if it is made more than 2 business days afterthe respondent received the adjudicator's acceptanceof the adjudication application or 5 business days afterthe respondent received a copy of the adjudicationapplication, whichever is the later (section 20(1)).

15. This date must not be more than 10 business days (orsuch less time, if any, as the construction contractrequires) after the date upon which the payment claimwas served on the respondent (section 14(4)). If thepayment schedule is not served on the claimant withintime, the full amount of the payment claim is due andthere is no right to adjudication.

16. This date must not be more than more than 5 businessdays after the claimant received the payment schedule(section 17(3)(b)). Otherwise the claimant has lostthe right to go to adjudication. Section 26 providesfor a new adjudication application when theadjudicator fails to accept the adjudication applicationor make a decision within the prescribed time.

17. When providing reasons, it is important for theadjudicator to make it clear which of the two possiblemethods of calculation has been used. Section 9provides:

ACLN - Issue #68

"The amount ofa progress payment to which aperson is entitled in respect of a constructioncontract is to be:(a) an amount calculated in accordance with

the terms of the contract, or(b) if the contract makes no express provision

with respect to the matter, the amountcalculated on the basis of the value of theconstruction work carried out by theperson (or the related goods and servicessupplied by the person) under thecontract."

If the adjudicator finds that the contract does not makeexpress provision covering calculation of the progresspayment, the adjudicator should say:

"I find that the construction contract does notmake express provisionfor the calculation oftheprogress payment to which the claimant isentitled. Consequently, I have calculated theprogress payment having regard to the mattersset out in section 10 of the Building andConstruction Industry Security of Payment Act1999 (NSW)."

The adjudicator should then describe his or hercalculation relating it to the criteria stated in section10.

18. If the adjudicator did not find in the constructioncontract an express provision with respect to the dateupon which a progress payment becomes due, theadjudicator would say:

"I have not found an express provision in theconstruction contract stating the date on whichthe progress payment becomes due. Therefore,applying section 11(b) of the Building andConstruction Industry Security of Payment Act1999, the progress payment became due on thedate occurring 2 weeks after the payment claimwas made. The payment claim was made on 1June 2000. Therefore the progress paymentbecame due on 15 June 2000. "

19. Unless the claimant or the respondent has requestedthe adjudicator to make a determination under section29(3) that the other party must contribute more than50% of the adjudicator's fees and expenses, theadjudicator should not make any decision with respectto the respective contributions of the parties to theadjudicator's costs. This subheading "costs" wouldnot appear. The adjudicator can state the amount ofthe adjudicator's fees and expenses but that is notpart of the adjudicator's determination or reasons andis best done in a separate document.

20. It appears that a payment claim can only be whollyunfounded if the adjudicator decides that no amountwhatsoever is payable. Even then, the applicationmight not be wholly unfounded. Similarly, anadjudication response cannot be wholly unfoundedif the respondent is not found liable to pay the wholeamount claimed by the claimant on the date claimedby the claimant. 0

24

Editorial Note:The time limits set out in the legislation seem (with respectto all concerned in the preparation and enactment of thislegislation) so tight as to be impracticable. They are likely

to cause considerable difficulties in practice.- J.T.