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Construction & Major Projects

Focus: WA case clarifies scope of possible challenges to adjudicator's decision

25 October 2012

In brief: A recent Supreme Court of Western Australia decision has found that a party aggrieved by an adjudicator's decision that he or she has jurisdiction to make a determination, or who considers that there has been a denial of natural justice, can apply to the court for a declaration that the determination is invalid. Also, the existence of an offsetting debt is not grounds for refusing leave to enforce a determination. Senior Associate Jeremy Quan-Sing and Lawyer Leila Peggs report.

How does it affect you?

This decision1 clarifies the extent to which a decision or determination by an adjudicator under the Construction Contracts Act 2004 (WA) (the Act) can be challenged. It is now more apparent that:

  • A party dissatisfied with a determination can apply to the WA Supreme Court for a declaration that the determination is invalid for 'jurisdictional error' (eg it ought to have been dismissed under section 31(2)(a) or there has been a denial of procedural fairness, and is therefore invalid).
  • The focus of a court's inquiry when undertaking judicial review of an adjudicator's decision that the four criteria in s31(2)(a) have been satisfied and the adjudicator's power to make a determination has been enlivened should be confined to an examination of the process followed by the adjudicator, not a factual investigation as to whether any of the four criteria actually existed.
  • Natural justice does not require an adjudicator to address arguments that are 'not expressly raised or discern arguments where they are not adequately articulated'.
  • A direction in a determination that a party pay the other a sum of money can only be satisfied by giving the money; the obligation is not satisfied by offsetting an amount due to the other party, unless the parties agree otherwise.
  • Section 45(3) only prevents things said or done in an adjudication being used in subsequent proceedings dealing with the merits of a dispute; therefore, it does not prohibit the use of such material in proceedings that are seeking judicial review of an adjudication determination (or, by inference, a subsequent adjudication).

Background

In this case, Justice Pritchard considered four main issues:

  • whether a party can apply to the WA Supreme Court for a declaration that an adjudicator's determination is invalid;
  • what process a court should follow when reviewing an adjudicator's decision to not dismiss an adjudication application under s32(2)(a) of the Act ;
  • whether natural justice requires an adjudicator to consider arguments that are not raised, or are raised but are poorly articulated; and
  • whether the existence of alleged set-offs is a ground for refusing leave to enforce.

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The facts

The contractor, Austral Constructions Pty Ltd, entered into a contract with the subcontractor, Cape Range Electrical Contractors Pty Ltd, for it to provide electrical services and for the design, supply and installation of electrical and communications services for an accommodation village at the Rio Tinto Koodaideri Mine in Western Australia.

A payment dispute arose between the two companies regarding the payment of several invoices submitted by Cape Range. Cape Range applied for adjudication of the payment dispute under the Act.

The adjudicator delivered a determination in favour of Cape Range in the amount of $327,114 (the determination). Austral did not pay this sum by the due date. Cape Range sought an order that the determination be enforced as a judgment. Austral also sought a declaration, in separate proceedings commenced by writ that were joined to this action, that the adjudicator's determination was invalid and of no force or effect.

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The decision

Operation of s46(3) of the Act

Cape Range argued that Austral could not challenge the determination's validity by way of an application for declaratory relief, as this was excluded by s46(3) of the Act. It was submitted that the only valid challenge to an adjudicator's determination was an application for a prerogative writ.2 Justice Pritchard held, confirming the decision in Perrinepod Pty Ltd v Georgiou Building Pty Ltd 3, that s46(3) of the Act was not a privative clause and, consequently, other avenues by which an adjudicator's determination may be reviewed are available. Therefore, Austral was able to pursue judicial review by way of an application for declaratory relief.

Jurisdictional facts: s31(2)(a)(i)-(iv) of the Act

Justice Pritchard referred to, and built upon, the reasoning of the Court of Appeal in the Perrinepod decision, finding that the criterion in s31(2)(a)(i)-(iv) should be regarded as jurisdictional facts. Her Honour took the reasoning in Perrinepod further and considered whether s31(2)(a)(ii), which requires an application for adjudication to be prepared and served in accordance with s26, was a jurisdictional fact in the 'broad' sense4 or the 'narrow'5 sense. Her Honour held that s31(2)(a)(ii) should be regarded as a jurisdictional fact in the 'broad' sense. This means that any challenge to an adjudicator's dismissal or determination, which relates to his or her opinion of whether the criteria in s31(2)(a)(ii) has been met, is confined to inquiring whether the adjudicator's conclusion:

  • was so unreasonable that no reasonable decision-maker would have reached that conclusion;
  • was reached by misconstruing the Act;
  • took into account irrelevant considerations or failed to take into account relevant considerations; or
  • manifested serious irrationality or illogicality.6

Such a challenge will not involve the Supreme Court making factual investigation as to whether that section was actually complied with.

Jurisdictional error and procedural fairness

Austral argued that the adjudicator had denied it procedural fairness, by ignoring material placed before him relating to its set-off claim. Her Honour was not persuaded that the adjudicator failed to 'engage in a bona fide exercise of his powers' when considering the set-off claim. The set-off claim was inadequately articulated and, given this, it was reasonable for the adjudicator to find the claim an irrelevant consideration in the context of the payment dispute.7 Her Honour found that natural justice does not require an adjudicator to address arguments that are 'not expressly raised or discern arguments where they are not adequately articulated'.

Set-off

Austral argued that leave should not be granted for the determination to be enforced as a judgment because it had a contractual right to set-off other monies owed by Cape Range.

Her Honour found that the obligation in s39 of the Act to 'pay an amount under a determination' should be understood as meaning 'to give money',8 by reference to the other references to the words 'pay' and 'paid' in the Act;9 and the statutory objectives of adjudication.

Therefore, a determination to make payment cannot be resisted by attempting to set-off other monies by way of contractual set-off provision.

Admissibility of evidence placed before an adjudicator in other proceedings

The court considered whether the prohibition in s45(3) of the Act, which makes '[e]vidence of anything said or done in an adjudication' inadmissible, applied to proceedings where the Supreme Court was dealing with an application for prerogative relief.10

It was noted that the intention of s45(1) of the Act was that the parties to a contractual dispute retain their entitlement to resolve the dispute in another forum after an adjudication. As the opening words of s45(3) mirror those of s45(1) of the Act, it follows that it is only in such subsequent proceedings that material placed before an adjudicator will be inadmissible. The prohibition did not apply to proceedings that sought judicial review of the validity of an adjudication determination.11

Footnotes
  1. Cape Range Electrical Contractors Pty Ltd v Austral Construction Pty Ltd, [2012] WASC 304.
  2. The Act, at [25].
  3. [2011] WASC 217.
  4. Above n1 at [73]: a jurisdictional fact is narrow where the exercise of power is contingent upon the actual existence of the state of affairs which constitutes the jurisdictional fact.
  5. Above n1 at [75]: a jurisdictional fact is broad where the exercise of power is conditioned upon the mental state of the decision-maker which requires the decision-maker to form an opinion or be satisfied of the existence of a state of affairs.
  6. Above n1 at [125].
  7. Above n1 at [144].
  8. Above n1 at [153].
  9. Above n1 at [154].
  10. Above n1 at [39].
  11. Above n1 at [42].

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