Adjudication Update – Procedural Fairness

In a recent matter concerning a Building and Construction Industry Payments Act (BCIPA) dispute between Ostwald Brothers (the contractor) and Jaylon Pacific (the subcontractor), the Supreme Court of Queensland considered whether an adjudicator’s reliance on matters that were not the subject of submissions by either party rendered the decision void.

Almost five months after the date for substantial completion, Jaylon submitted a payment claim of approximately $441,500. Ostwald disputed much of that claim and sought to set off against the claim any sum that the adjudicator found to be an amount due for liquidated damages for late performance. These damages were calculated by Ostwald to be about $403,500.

The adjudicator at first instance effectively upheld Jaylon’s claim. He rejected Ostwald’s claim for liquidated damages in its entirety based upon an interpretation of the contract that was not the subject of submissions from either party. This was the primary ground upon which Ostwald relied to attack the adjudicator’s decision. Ostwald alleged it had been denied procedural fairness.

The Court found that although an adjudicator is not required to provide an opportunity to the parties to be heard on every point, there is a clear obligation to do so where the point is material to the outcome of the adjudication. The only exception to the above rule is where it can be said that no submission could have been made which might have produced a different result.

The task of an adjudicator is to decide the adjudication application having regard only to the matters specified in section 26(2) of BCIPA. That involves a consideration of the provisions of the Act to the extent they are relevant, the terms of the construction contract, the payment claim and supporting submissions and material, and the payment schedule including supporting submissions and material.

In relation to extensions of time claimed by Jaylon, it was for it to make good its argument that the date for substantial completion should be regarded by the adjudicator as having been extended until June 2015. Unless it was able to do so, Ostwald had an entitlement to the payment of liquidated damages.

While the Court found that the adjudicator was likely to have misconstrued relevant clauses of the contract, the adjudicator’s most significant error, which rendered the decision void, was that he decided Ostwald’s claim for liquidated damages on a basis that was not the subject of submissions from either Ostwald or Jaylon.

It is a well-settled area of law that a substantial denial of the opportunity to be heard can invalidate an adjudication decision, with the consequence that such a decision may be declared void.

The Court found that this denial of an opportunity to be heard, was substantial and had a direct impact on the reasoning adopted by the adjudicator.

Ostwald should have been afforded an opportunity to be heard but, because Ostwald was not, the decision could not stand and so was declared void.

“The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.”
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