Those who follow developments in Australia’s security of payment legislation would notice a recent consistent trend: Courts have been increasingly reluctant to set aside adjudication determinations on the basis that the adjudicator did not discharge their duty to ‘consider’ the material before them or that their reasons were inadequate. This has especially been the case in New South Wales, with a recent flux of Court of Appeal decisions to that effect.
The Victorian Supreme Court is the latest to now follow this trend.
In Shunshunli Pty Ltd v Seascape Constructions Pty Ltd [2023] VSC 725, the Court dismissed an application to set aside an adjudication determination made under the Building and Construction Industry Security of Payment Act 2002 (Vic Act) and provided guidance on the difficulties associated with attempting to do so.
Background
Shunshunli engaged Seascape under a fixed-price contract to construct a four-storey residential building. Practical completion was achieved in December 2022.
The parties fell into dispute as to whether the Contract was varied from a fixed-price to a cost-plus model.
Seascape subsequently served its final payment claim, claiming:
- $51,095.93 (excluding GST) for the final stage of Works; and
- $128,842.93 (excluding GST) for 12 approved variations.
Shunshunli scheduled $nil in its payment schedule. Shunshunli contended it had already paid Seascape a sum that exceeded the alleged adjusted contract sum.
Seascape then submitted an adjudication application in respect of its final payment claim. The Adjudicator found in favour of Seascape and determined an adjudicated amount of $207,612.80 (including interest).
Grounds for challenging the determination
Shunshunli challenged the determination on the following four grounds:
- The Adjudicator failed to consider submissions in Shunshunli’s adjudication response.
- The Adjudicator’s reasons were inadequate.
- The Adjudicator did make a bona fide attempt to conduct the adjudication.
- The Adjudicator denied Shunshunli procedural fairness.
Decision
Justice Stynes rejected each of the above four grounds advanced by Shunshunli.
First, her Honour found that having regard to the whole of the Determination, the Adjudicator had discharged their obligation to consider the submissions in Shunshunli’s adjudication response. In doing so, her Honour was satisfied that the Adjudicator had carried out an active process of intellectual engagement in considering the material relied on by Shunshunli. We note that this constitutes a higher threshold than that recently imposed by the New South Wales Court of Appeal (see our update here).
Second, her Honour found that the Adjudicator’s reasons were adequate when regard was had to the tight time frame imposed on the Adjudicator. This tight time frame means that a Court should not scrutinise adjudication determinations with an “overcritical or pedantic eye”.
Third, her Honour found that the Adjudicator had made a bona fide attempt to conduct the determination. This was so, despite the Adjudicator having copied and pasted the parties’ submissions throughout the determination, which her Honour noted was a process regularly adopted by decision-makers to enable to parties to understand that their contentions have been considered.
Fourth, her Honour dismissed Shunshunli’s contention that the Adjudicator denied it procedural fairness. That contention was based on the Adjudicator issuing a notice under section 21(2B) of the Vic Act as they considered the adjudication response contained “new reasons”. Section 21(2B) of the Vic Act provides that if an adjudication response contains “new reasons” for withholding payment that were not included in the payment schedule, then the Adjudicator ‘must serve’ a notice on the claimant setting out those new reasons and stating that the claimant has two business days to lodge a response to those reasons.
Shunshunli submitted that the Adjudicator’s consideration of the further material put on by Seascape in response to the section 21(2B) notice constituted a denial of procedural fairness.
Justice Stynes held that the Adjudicator was correct to issue the section 21(2B) notice and therefore, the Adjudicator did not deny Shunshunli procedural fairness by considering Seascape’s response.
Takeaway
This case is another example of the importance of ensuring payment schedules contain comprehensive and detailed reasons for withholding payment to maximise the arguments available in the event of adjudication proceedings. That is because Courts have become increasingly reluctant to overturn adjudication determinations on the basis that the Adjudicator failed to discharge their obligation to consider a party’s material or because the Adjudicator’s reasons are inadequate.
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