Traversing the Adjudication Minefield

Bega Valley Shire Council v Kenpass Pty Ltd [2024] NSWSC 399

Case Summary

The court considered the validity of an adjudication determination made under the Building and Construction Industry Security of Payment Act 1999 (NSW). The Council sought to have the determination quashed, alleging that the adjudicator failed to comply with the requirements of the Act and denied the Council procedural fairness.

The central issue revolved around the quantification of delay damages claimed by Kenpass. The Council argued that the adjudicator erred by:

1. Failing to consider the reasons for disputing the quantum of delay damages provided in the Payment Schedule and the Adjudication Response.

2. Finding that the Council did not object to the quantum, daily rate, or calculation of the extension of time claimed by Kenpass.

3. Accepting Kenpass's quantification of delay damages without considering the provisions of the contract or evidence.

The court dismissed the Council's claims, holding that:

1. The adjudicator's determination that the reasons in the Payment Schedule did not meet the minimum requirements for a "reason for withholding payment" under the Act was not a jurisdictional error.

2. The adjudicator's decision that the submissions in the Adjudication Response raised "new reasons" for withholding payment, which he was not permitted to consider under the Act, was within his jurisdiction and did not constitute a denial of natural justice.

3. The adjudicator was not required to independently examine the contractual basis, merits, or quantification of the claim once he found that the Council did not advance valid reasons for withholding payment. Accepting the claimed amount without further inquiry was consistent with the Act's intention to ensure minimal delay in determining statutory entitlements.

Key Takeaways

• Adjudicators have broad discretion in interpreting and applying the requirements of the Security of Payment Act, and errors in this regard are generally not jurisdictional errors.

• The sufficiency of reasons in a Payment Schedule and the determination of whether submissions in an Adjudication Response are "duly made" are matters within the adjudicator's jurisdiction, and courts will not reassess these determinations unless they are irrational or unreasonable.

• If an adjudicator finds that a respondent did not provide valid reasons for withholding payment in the Payment Schedule, the adjudicator can accept the claimed amount without further inquiry into the merits or quantification of the claim, deferring the final determination of contractual rights to a different forum.

• The Security of Payment Act prioritises prompt determination and enforcement of statutory entitlements, even if an adjudicator's determination may be erroneous on the merits.