Adjudication: a method of dispute resolution intended to provide quick, sometimes rough, and temporarily binding justice to maintain cashflow in an industry well known for payment difficulties throughout the supply chain.
Loved and hated in equal measure since its adoption in the UK in the late 1990s, its existence is as much a dispute resolver as the procedure itself. Prior to its introduction, a wronged party’s only option was costly and time-consuming litigation or arbitration, a road it may be reluctant to travel. Now a party can quickly, easily, and with (relatively) little cost, obtain a binding third party decision on the matter in dispute.
Despite its faults, it has proved to be highly effective and adopted, in various forms, in many other countries.
Australia is no exception, but rather than legislate at federal level, has instead introduced statutory adjudication on a state by state basis. Each state or territory has its own specific, and different, adjudication process and procedure.
In addition, generally, the right to adjudicate arises only in respect of payment of money, only in respect of a specific ‘payment claim’, and within strict timescales of the issue of that claim. In that regard, Adjudication in Australia is radically different to that in the UK, which, in contrast, permits disputes to be referred at any time and in respect of any matter arising under the contract.
Nonetheless, the overall object remains similar and as set out in NSW’s Building and Construction Industry Security of Payment Act 1999 the purpose of the legislations is:
to ensure that any person who undertakes to carry out construction work (or who undertakes to supply related goods and services) under a construction contract is entitled to receive, and is able to recover, progress payments in relation to the carrying out of that work and the supplying of those goods and services.
The different enabling legislations generally fall into what has been called the ‘East Coast Model’ (NSW, VIC, QLD, TAS, ACT and SA) and the ‘West Cost Model’ (WA and NT).
The primary differences between those models are:
- That the East Coast Model legislation provides detailed statutory payment provisions that override any contrary contractual terms, and which are engaged by a party submitting a payment claim under the relevant Act and by requiring a response within a prescribed time frame. In contrast, the West Coast Model Act will preserve any payment provisions agreed by the parties.
- That the East Coast Model legislation permits payment claims only up the supply chain whereas the West Coast Model Acts permit payment claims in either direction
- Both Models differ in respect of adjudicator appointment, submissions and the approach of the adjudicator in making his determination. The East Coast Model legislations are significantly more restrictive and determinations are often made on an ‘all or nothing’ basis as one party may have failed to follow a procedure. In contrast, the West Coast Models are more flexible, promoting a proper, evaluative approach to the adjudicator’s determination.
Despite their differences, the various legislations generally follow a similar procedure, with differences primarily surrounding the prescribed timescales. A full and detailed analysis would cover many pages and is outside the scope of this article, which provides, instead, a brief introduction to the adjudication procedures under the relevant legislations.
The starting point of any adjudication is the issue of a ‘Payment Claim’ by the claimant and properly served on the respondent. The legislation makes detailed provisions for service.
The Payment Claim is not a usual monthly application for payment (albeit that current advice is that all applications for payment are made as a Payment Claim), but rather an express action by the claimant as a precursor to adjudication. One of the requirements of a valid Payment Claim is that it must contain the words ‘This is a payment claim made under….’ the relevant Act.
A valid Payment Claim must also identify the work performed prior to a reference date and state the value of the work claimed.
The reference date is either a date to be found in the contract, or if there is no such date, a date established by the operation of the relevant Act. For example, in New South Wales it is the last day of the month in which the work was first performed and the last day in any subsequent month. In Victoria, it is 20 business days after the work was commenced and every 20 business days thereafter.
The work performed must fall under the umbrella of the relevant Act and not be subject to exclusion. In Victoria, for example, the claimable value of variations may be limited in adjudication if the contract sum exceeds $750,000.
The due date for payment of the amount stated in the Payment Claim is either that provided by the contract, or, if there is no such date, a period stated in the relevant Act.
Following receipt of a Payment Claim, the respondent must either pay the full amount claimed (and if he does so there will be no need for proceedings) or, within a strict timescale set down by the relevant Act (often 10 business days of receipt), must issue a ‘Payment Schedule’ setting out the amount proposed to be paid, along with a detailed explanation of the respondent’s valuation.
In some states, the relevant Act will prevent the adjudicator from later considering any matters raised by the respondent in adjudication that were not included in the Payment Schedule. As with the Payment Claim, there are detailed provisions as to the method of service of the Schedule. If the Payment Schedule is issued late, it will be deemed invalid, as if it was not issued at all.
On receipt of that Payment Schedule, the claimant can either decide to accept the contents therein, in which case no further action is required (unless the sum stated as due is not paid by the due date for payment) or, if the claimant wishes to dispute the respondent’s valuation, he can apply for adjudication.
The claimant must apply for adjudication within a strict timescale set out by the relevant Act. This varies from Act to Act, but is often as short as 10 business days. Failure to apply for adjudication within that time will bring all matters arising from that Payment Claim to an end. If the claimant wishes to make an adjudication application, he will need to do so in respect of the next Payment Claim.
If, on the other hand, the respondent does not issue the Payment Schedule, or issues an invalid Payment Schedule, the claimant must formally notify the respondent under the provisions of the relevant Act, and allow them further time in which to issue it. That further time is prescribed by the relevant Act and can be as short as 5 business days.
On receipt of a Payment Schedule, as above, the claimant can choose to accept the contents therein, in which case no action is required (unless the sum stated as due is not paid by the due date for payment) or, if the claimant wishes to dispute the respondent’s valuation, he can apply for adjudication within the strict timescales of the relevant Act.
If, on the other hand, the respondent continues to fail to serve a Payment Schedule, the claimant can apply for Adjudication and, as ‘punishment’ for that failure, the respondent is prevented from providing any written submissions in the adjudication proceedings. To win, the claimant only has to demonstrate to the adjudicator that he has complied with certain key matters as to procedure, timescale, contract and similar obligations.
To start the adjudication process, the claimant makes application to an Authorised Nominating Authority (ANA) for the nomination of an adjudicator. Unlike the UK where nominating bodies are unregulated, in Australia nominating bodies must be registered with the government, i.e. be ‘authorised’ and adjudicators must undertake regulated training in adjudication in order to be listed, and continue to be listed, by the ANA.
Queensland has gone one step further and, as part of its recent amendments to its relevant Act, has abolished all ANAs apart from the QBCC (the Queensland Building and Construction Commission), a government body. The QBCC charge anything up to around $5,300.00 for the nomination of an adjudicator.
Following the commencement of adjudication, the respondent (if he is allowed to) must prepare and serve his response within the timescales prescribed by the relevant Act. Often this is as short as 5 days, but in Western Australia, for example, it is 14 days.
In some states that response is limited to those matters raised in his Payment Schedule. But in Victoria, for example, if the response includes matters not raised in the Schedule, the adjudicator must allow the claimant a further 2 business days in order to reply to those new matters.
Queensland adopts a slightly different approach, differentiating between ‘standard claims’ (up to $750,000) and ‘complex claims’ (over $750,000). For standard claims a respondent can serve a response in adjudication based only on those matters included in the Payment Schedule. For complex claims, the respondent can serve a response including any reasons, whether or not stated in the Payment Schedule. In complex claims the claimant is able to serve a reply for any new matter raised by the respondent in his response.
Queensland also limits the amounts that can be charged by an adjudicator depending upon the sum claimed.
The adjudicator must make his determination within the times set out in the relevant Act; this is often 10 business days. Some states allow this time to be extended by agreement of the parties; Victoria, for example, allows an extension to be granted by the claimant only, but limited to a further 5 business days.
The respondent must pay any sum determined as due by the adjudicator within 5 business days of the service of the determination or by the due date for payment, whichever is later. If he does not pay, the claimant may apply for an Adjudication Certificate from the Authorised Nominating Authority and pay a nominal fee.
The Adjudication Certificate is a sealed document for the purpose of debt recovery through the courts.
In the UK, unless the adjudicator had breached natural justice, or acted outside his powers or shown bias, that would have been the end of it. The adjudicator’s decision would be binding and if either of the parties remained dissatisfied they would need to take that dispute to the courts or, if the parties agreed, to arbitration.
However, that is not the case in Australia. In Victoria, for example, in certain limited circumstances, a Review Adjudication application can be made where a second Adjudicator reviews, and can change, certain, limited parts of the first Adjudicator’s determination.
In South Australia the Supreme Court, in Built Environs Pty Ltd v Tali Engineering Pty Ltd & Ors SASC 84, has found that an adjudication determination can be set aside if, amongst other things, the adjudicator made an error of law.
The Supreme Court of New South Wales has recently made a similar finding in Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd NSWSC 770, where an adjudicator’s determination was quashed due to an error of law and sent back to him for further consideration and determination.
Whilst these are rare occurrences compared with the number that are enforced, and each will turn on its facts, there does seem to be slightly less reluctance to enforce adjudicator’s determinations in Australia than in the UK.
This is one of the criticisms levied at Australian adjudication; there are an increasing number of determinations being quashed and increasing anecdotal evidence of dissatisfaction with the quality of adjudicator’s decisions, particularity in large and complex payment disputes coupled with extremely tight timeframes.
What Australian adjudication gains in speed and brevity, it loses in flexibility and effectiveness as disputes increase in size, particularly those Acts the follow the East Cost Model.
It is fair to say that adjudication in Australia is far more limited in scope and far more procedural than that in the UK (and that in its neighbour, New Zealand which more closely follows the UK model). But despite its criticisms, the intention of adjudication is to provide inexpensive access to swift justice and, in that regard, there is no doubt that it has been a success.
The original article above was first published in the Chartered Institute of Civil Engineer’s monthly magazine and can be read by clicking here.