Building and Construction Law Update - SOP Act adjudication quashed because of incorrect reference date and denial of procedural fairness

Building & Construction Law
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Brolton Group Pty Ltd v Hanson Construction Materials Pty Ltd [2020] NSWCA 63

In Brolton Group Pty Ltd v Hanson Construction Materials Pty Ltd [2020] NSWCA 63, the New South Wales Court of Appeal dismissed an appeal from a decision setting aside an adjudication determination on jurisdictional and procedural fairness grounds.

The facts were not in dispute.  Brolton Group Pty Ltd (Brolton) was a contractor under a construction contract with Hanson Construction Materials Pty Ltd (Hanson) as principal.  The works involved the construction of a quarry processing plant for the contract price of $85M.  The contract provided for progress payments with a reference date for the submission of payment claims of the last Tuesday of each month.  On 29 August 2019, Brolton served a payment claim under the Building and Construction Industry Security of Payment Act 1999 (NSW) for $6.3M “for work completed up to September 2018” (no specific reference date was specified in the payment claim).  Hanson’s payment schedule provided for no payment (“nil” payable) and the dispute went to adjudication.

At adjudication, the parties agreed that the relevant reference date was 25 September 2018 and the adjudication proceeded on that basis.  However, in determining that an amount of $2.8M was payable on account of the payment claim, the adjudicator found for Brolton on the basis of a reference date of 23 October 2018 – a reference date not contended for by either party.[1]

At the trial of the matter at first instance before Ball J,[2] and on appeal, the parties accepted that the adjudicator had determined the adjudication application on the basis of a reference date (23 October 2018) that was not available because the entitlement to progress payments under the relevant clause of the contract did not survive termination of the contract.  However, Brolton submitted (at trial and on appeal) that that did not matter because the 25 September 2018 was an available reference date.

The question for the Court of Appeal was whether, if the wrong reference date was used by the adjudicator, but another reference date was available, the error was a jurisdictional error upon which the determination should be set aside.  The Court of Appeal (Meagher, Gleeson and Payne JJA) held that the error was a jurisdictional error.  The Court, following the High Court in Southern Han Breakfast Point Pty Ltd (in liq) v Lewence Constructions Pty Ltd,[3] said (at [31]) that the precondition (or jurisdictional fact) that enlivens the exercise of the adjudicator’s statutory power under s 22 of the Act[4] to determine the adjudication application is the existence and service of a valid payment claim, namely, one made by a person entitled under s 8 of the Act[5] to a progress payment “on and from” the reference date in respect of which the payment claim is made.

In this case, as there was no entitlement to a progress payment “on and from” 23 October 2018 because that date was not an available reference date, the adjudicator’s determination involved jurisdictional error: [46].  The fact that there was another reference date available (25 September 2018) was irrelevant given that the date relied on by the adjudicator was not available.  Accordingly, the adjudicator’s jurisdiction was not enlivened and the adjudication determination was void.

Given that the reference date identified by the adjudicator was not available, there was no need for the Court of Appeal to consider the natural justice ground.  Nevertheless, the Court did so on the footing that the adjudicator made his determination on a basis not contended for by either party.

The Court of Appeal, quoted the primary judge who, the Court said, correctly stated the relevant principles, including as follows (at [53]):

“There will be a denial of natural justice where the adjudicator determines a dispute on a basis for which neither party has contended without giving the parties an opportunity to make submissions on the matter: [referring to authorities including Watpac Constructions v Austin Corp [2010] NSWSC 168 at [143]]”

Because the adjudicator made his finding on the basis of a reference date which neither party supported, and without giving the parties the opportunity to make submissions on the point, there had been a denial of natural justice.

For these reasons the appeal was dismissed.

 

[1] This case was decided on the Building and Construction Industry Security of Payment Act 1999 (NSW) in force prior to amendments effective 21 October 2019, which has now removed the requirement in NSW for an available reference date for construction contracts entered into after that date.

[2] Hanson Construction Materials Pty Ltd v Brolton Group Pty Ltd [2019] NSWSC 1641.

[3] Southern Han Breakfast Point Pty Ltd (in liq) v Lewence Constructions Pty Ltd (2016) 260 CLR 340.

[4] The cognate provision in the Building and Construction Security of Payment Act 2002 (Vic) (the Victorian Act) is s 23.

[5] Corresponding to s 9 in the Victorian Act.

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Adam Rollnik practises in commercial law

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