What is the effect of failure of Adjudicator to comply strictly with time limits in the Building and Construction Industry Security of Payment Act 1999 (NSW) in issuing a Determination?

19/05/2020

Watson & Watson Lawyers currently act for many Owners, Builders or Subcontractors who are either serving or and receiving Payment Claims and some of the matters are proceeding to an Adjudication Application and Determination.

We recently had cause to consider whether a Decision made by an Adjudicator under the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act) was invalid for failure to comply with s 21(3)(a)(i) of the SOP Act.  The provision requires an Adjudicator to make their Determination within 10 business days of the lodgement of the Adjudication Response. In our client’s circumstances, the Adjudicator made the Determination one day late, and by reason of this, did not charge his fee. The question we had to consider was whether this delay meant the Determination itself was invalid.

An analysis of the relevant authorities indicated that it was not invalid.

In the Decision of the Supreme Court of New South Wales in 2017 Mt Lewis Estate, the legislation was different in that the Determination had to be made within 10 business days of the notification of the Adjudicator’s acceptance of the matter. Nevertheless, the Determination was also made one day late.  While not an essential point in reaching its final conclusion, the Court made it clear that the argument that the Determination would be invalid by virtue of the appointed Adjudicator’s failure to comply with the time provision would not be upheld as a basis for a Court declaring the Determination to be invalid, void and unenforceable.  The Court considered that the provision exempting an Adjudicator from liability for anything done in good faith (section 31) would “undoubtedly extend to a failure to deliver on time” unless that failure was not in good faith, and that a construction of the SOP Act in favour of the validity of a slightly late Determination was most effective and conducive to prompt and quality Adjudicator Decisions. The Court determined that in light of all provisions and the objects and purpose of the Act, legislative intent did not require that a late Determination was automatically void. 

However, the position was different in relation to the Adjudicator’s entitlement to be paid fees for a late Determination. In that event, the Court held that the power of an Adjudicator “to make a Determination under s 29(3) presupposes an entitlement on an Adjudicator’s part to be paid fees and expenses. Here, there was no such entitlement because of the late Determination.” It followed that the Adjudicator was not entitled to determine that the fees of the Adjudication should be paid by the respondent.

In the earlier case of MPM Constructions, decided by the Supreme Court in 2004, the Court came to the same conclusion as to the validity of a late Determination, despite the Decision in the Adjudication being 4 business days late. It began by considering that a breach of a time limit clause is unlikely to make the SOP Act invalid, consistent with the High Court case of Project Blue Sky, as such a finding would undermine the purpose of the legislation. The Court then noted that in the event the time for making a Determination had passed, the claimant may withdraw and reissue their application. This is inconsistent with the Decision becoming a nullity on passage of the 10 days, as there would be nothing to withdraw.

Further, in the MPM Constructions case, the Court noted that an Adjudicator may not recover his or her costs if the time limits are not complied with. The Court held that the SOP Act had explicitly made provision for a situation where the Decision was made late, and hence the legislative purpose was not to invalidate the Determination.  However the MPM Constructions’ case was decided before the case of Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd NSWCA 190 which may put some doubt on the Decision in the MPM Constructions’ case which was decided by New South Wales Court of Appeal.  Watson & Watson acted for Chase Oyster Bar Pty Ltd and the Court held that the failure of the Applicant/Builder to comply with section 17(2) of the SOP Act was a jurisdictional error and in those circumstances, the Decision was void.

It is also interesting to consider whether at some point the delay would become so great so as to warrant invalidation. While MPM Constructions did allow a significant
4 day delay, the more recent case of Mt Lewis Estate held that a late Determination does not ‘automatically’ void the Determination. This tends to suggest that while invalidation may not arise by operation of law (as found in Mt Lewis Estate case) it could nonetheless be ordered by the Court exercising its discretion in an appropriate circumstance.  What is certain is that a late Determination disentitles an Adjudicator from recovering their fees, and this will lead to a cheaper result for the losing party.

It appears that challenging an Adjudicator’s Determination on the basis that it was late and hence failed to comply with the s 21(3)(a)(i) is unlikely to be successful, especially where the delay is only minor.  However the issues may be decided differently by an Appeal Court.  Any such challenge would require serious consideration of the facts and the case law at the time that the issue arose.  Before taking such issue one would need to consider the cost of the proceedings including the Appeal Court and risks associated with such proceedings.

If you are seeking legal assistance in relation to seeking to recover money (or oppose such action) due from an Owner, Builder or Subcontractor including bringing, or opposing a claim under the Building and Construction Industry Security of Payment Act 1999 (NSW), or any other building or construction matter, please contact Richard Watson Accredited Specialist Building & Construction or Shereen Da Gloria his Personal Assistant to discuss your matter and seek timely appropriate advice.

This is only a preliminary view and is not to be taken as legal advice without first contacting Watson & Watson Solicitors on 9221 6011.