By Samer Skaik

Statutory adjudication has been enacted progressively throughout Australia on a state-by-state basis over a period of 10 years starting in 1999. The first Australian jurisdiction to introduce statutory adjudication was New South Wales (NSW) by virtue of the Building and Construction Industry Security of Payment Act 1999. Despite the many differences between all of the Acts in Australia, they can be broadly grouped on the basis of similarity into the East Coast model Acts (including New South Wales, Queensland, Victoria, South Australia, Tasmania and Australian Capital Territory)[1] and the West Coast model Acts (including Northern Territory and Western Australia).[2] The East Coast model Acts were modelled after the original NSW Act and provide, in addition to an adjudication scheme, for a highly regulatory statutory payment scheme which runs alongside the contractual payment scheme. The West Coast model Acts are more akin to the UK Act, affording primacy to the contractual payment scheme. The common objective of all the legislation is to facilitate timely cash flow within the construction contractual chains.

The East Coast model’s adjudication scheme was originally intended to assist, in particular, vulnerable contractors to get paid quickly[3] and, as such, to be a quick and inexpensive process resulting in an adjudication decision provisionally binding in nature. The West Coast model’s adjudication scheme has an express object within the legislation that the adjudication process aims to resolve disputes fairly and as quickly, informally and inexpensively as possible.[4] In Western Australia (WA), the Minister stated in her second reading speech:

” The rapid adjudication process is a trade-off between speed and efficiency on the one hand, and contractual and legal precision on the other. Its primary aim is to keep the money flowing in the contracting chain by enforcing timely payment and sidelining protracted or complex disputes.” [5]

Over the recent years, a considerable number of adjudication applications for large and complex payments claims have been lodged in NSW, Queensland, Victoria and Western Australia as illustrated in the table below. The Table also demonstrates that the number of small adjudicated claims in WA is much lesser than other jurisdictions. This issue has been raised in the recent discussion paper for the review of the WA Act.[6] Notably, Victoria also has been dealing with a considerable number of large payment claims despite the fact that the regime is unique amongst the East Coast model Acts in excluding certain classes of amounts (generally of a complex nature) from being allowed in statutory payment claims.

Table: Number of adjudication applications lodged and determined in NSW, Queensland, Victoria and Western Australia [7]


The parties to large payment disputes in adjudication typically invest a lot of resources in the adjudication process, including the engagement of lawyers and technical experts to reinforce their positions. This has the tendency to cause the adjudication process to drift away from the simple process intended towards a more complex process more akin to curial proceedings with substantial amounts of legal and technical submissions before the adjudicator. This provides a challenge to adjudicators of such claims, which McDougall J sums up  as follows, “[the NSW Act] provides a very limited time for adjudicators to make their decisions on what, experience shows, are often extremely complex claims involving very substantial volumes of documents”.[8]

There is a general view that statutory adjudication has improved cash flow within the industry. However, the Australian East Coast model has received a lot of criticism from practitioners for reasons relating to many procedural issues. These criticisms have, in particular, pointed at the unsuitability of the legislation in its current form (save for Queensland) to satisfactorily deal with complex adjudications that involve large payment disputes with large volumes of documents. Notwithstanding the provisional “pay now, argue later”[9] nature of statutory adjudication, the interim enforcement of adjudication determinations that are perceived as lacking in quality has many negative ramifications not least of which is a proliferation of judicial challenges to adjudication decisions which results in not only late or non-payment for the claimants but also extra costs to both disputing parties, and a general undermining of faith which the construction industry has in the adjudication process. Under the East Coast model, as at the end of 2013 there had been a total of 197 cases challenging the adjudicator’s determinations in the NSW, Queensland and Victorian courts, 48% of which were successful.[10]

According to the Society of Construction Law Australia, the courts have lost confidence in the adjudication process after seeing “more and more cases where the quality of the adjudication decision making process has been so poor that the courts have been increasingly willing to intervene.”[11] In 2014, courts in the East Coast model jurisdictions dealt with around 50 applications in relation to adjudication decisions (20 in NSW, 19 in Queensland and three in Victoria, four in Australian Capital Territory, three in South Australia and one in Tasmania).[12] This, it is contended, is representative of the evolving dissatisfaction of respondents with the adjudication process.

In WA, since the commencement of the WA Act in 2005 until end of June 2015, the WA State Administrative Tribunal (WASAT) has reviewed 37 decisions of adjudicators dismissing applications without considering the merits. In 25 cases, the adjudicators’ decisions were confirmed while 12 cases (amounting to 37%) were set aside or remitted to the original adjudicator to revisit the original decision to dismiss. On the other hand, there have been 32 out of 1421 cases referred to the WA Supreme Court to review appointed adjudicator determinations. 13 out 32 of the matters heard (amounting to 40%) have been considered and the adjudicator’s determination was quashed. [13] In Northern Territory (NT), there have been a total of 137 adjudication applications since the commencement of the Act in August 2006 up until June 2015, and 15 judicial challenges of adjudication determinations, five of which (amounting to 33%) resulted in the adjudication determinations being quashed.[14]

These statistics suggest that there is also scope for improvement of adjudication quality under the West Coast model, with the proportion, although not the sheer number, of judicial reviews and quashings as compared to total number of adjudication determinations not being too dissimilar to that in the East Coast model jurisdictions. Further, this is the case despite the existence of the unique review mechanism within the West Coast model legislation[15] that allows an aggrieved adjudication party to apply for a review[16] of an adjudicator’s decision to dismiss an adjudication application on the basis of certain grounds[17] and, therefore, acts as a filtering system to keep challenges away from the Supreme Court as mentioned above. The recent discussion paper for review of the WA Act sought submissions for possible improvement within the Act to better deal with complex and/or large payment disputes.[18] However, the final report of the discussion paper, despite receiving many submissions suggesting quality measures, did not recommend any significant changes to the Statute in order to improve the quality of adjudication.[19] Apparently, there is still a dearth of a proper empirical research as to the performance of the West Coast model as there is a “lack of appropriate evaluations of the West Coast model”.[20]

Conclusion

The Australian Statutory Adjudication scheme is well designed to deal with simple and small payment claims. This is not the case where larger and more complex claims are adjudicated and the scheme is ill-equipped to deal with them. As such, there is an urgent need for scheme overhaul in all States and Territories. In Queensland, it is apparent that the recent amendments in 2014 have gone too far in taking measures to better deal with complex claims. As a result, the adjudication process becomes more akin to arbitration being lengthy and so costly to the parties.

End notes:

[1] The relevant legislation is: Building and Construction Industry Security of Payment Act 1999 (NSW) (hereafter “the NSW Act”, Building and Construction Industry Payments Act 2004 (Queensland) (hereafter “the Queensland Act”), Building and Construction Industry Security of Payment Act 2002 (Vic) (hereafter “the Vic Act”), Building and Construction Industry Security of Payment Act 2009 (Tas) (hereafter “the Tas Act”), Building and Construction Industry Security of Payment Act 2009 (ACT) (hereafter “the ACT Act”), Building and Construction Industry Security of Payment Act 2009 (SA) (hereafter “the SA Act”).

[2] The relevant legislation is: Construction Contracts (Security of Payments) Act 2004 (NT) (“hereafter “the NT Act”) and Construction Contracts Act 2004 (WA) (hereafter “the WA Act).

[3] See Iemma, M, NSW Parliamentary Debates, Legislative Assembly, 29 June 1999, p1594.

[4] The WA Act, section 30.

[5] MacTiernan, A J, WA Parliamentary Debates, Legislative Assembly, 3 March 2004, at 275.

[6] See Evans, P, “Discussion Paper-Statutory Review of the Construction Contracts Act 2004 (WA)”, Department of Commerce, State of Western Australia, 2014, page 41.

[7] Note: The numbers in NSW and Queensland relate to adjudication claims upon which determinations released in the reported financial year. All figures are extracted from the formal annual reports in each State as being published by (NSW: the Office of Finance & Services; Queensland: Building and Construction Industry Payments Agency; Vic: Victorian Building Authority; WA: Building Commissioner).

[8]ChaseOyster Bar v Hamo Industries [2010] NSWCA 190 at [207]-[209].

[9] In the Australian Judiciary system, this term appeared first in Multiplex Constructions Pty Ltd v Luikens [2003] NSWSC 1140 at [96] (Palmer J). Since then, it has repetitively appeared in various court cases related to the security of payment legislation across all States.

[10] Society of Construction Law Australia, Australian Legislative Reform Subcommittee, “Report on Security of Payment and Adjudication in the Australian Construction Industry”, Feb 2014, (hereafter “the SoCLA Report”) p 37.

[11] Society of Construction Law Australia, p 38.

[12] The figures are deemed approximate, although being extracted with care from searching in reliable databases, namely, Australasian Legal Information Institute (Austlii) and Judgments and Decisions Enhanced (Jade). Deliberate key words were used such as “name of the legislation” and “adjudication determination/decision.”

[13] See 2014-2015 annual report, Construction Contracts Act 2004 (WA), page 10.

[14] See Annual report (2014-2015), Department of the Attorney-General and Justice, Northern Territory Government.

[15] See, for example, WA Act, s 46.

[16] In WA, this review is conducted by the WA State Administrative Tribunal (WASAT). In NT, the review is conducted by the Local Court.

[17] These grounds include that the contract concerned is not a construction contract, the application has not been prepared and served in accordance with the requirements of the Act, and the adjudicator is satisfied that it is not possible to fairly make a determination because of the complexity of the matter or the prescribed time or any extension of it is not sufficient for any other reason – see WA Act, s 31(2)(a).

[18] See Evans, P, “Discussion Paper-Statutory Review of the Construction Contracts Act 2004 (WA)”, Department of Commerce, State of Western Australia, 2014.

[19] See Evans, P, “Report on the Operation and Effectiveness of Statutory Review of the Construction Contracts Act 2004 (WA)”, Department of Commerce, State of Western Australia, August 2015, available online: https://www.commerce.wa.gov.au/sites/default/files/atoms/files/cca_review_report.pdf

[20] Yung, P, Rafferty, K, McCaffer, R & Thomson, D, “Statutory Adjudication in Western Australia: Adjudicators’ Views”, Engineering, Construction and Architectural Management, 2015, vol. 22, no. 1, p 70.

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