The NSW Supreme Court has exercised its discretion to sever part of an adjudication determination affected by a jurisdictional error under section 32A of the Building and Construction Industry Security of Payment Act 2002 (NSW) (SOP Act), and provided guidance on the operation of the section.
Under section 32A of the SOP Act, the Supreme Court is empowered
to set aside the whole or part of an adjudicator's
determination as part of an adjudication application made under the
SOP Act. Before this section came into force in 2019, a finding of
jurisdictional error would result in the entire adjudication
determination being set aside.
In Ceerose Pty Ltd v A-Civil-Aust Pty Ltd (No
2) [2023] NSWSC 401 the Court set aside part of an
adjudication determination which contained jurisdictional errors,
and confirmed the portions of the determination that were not
affected by those jurisdictional errors.
Background
The defendant made two payment claims under two separate contracts.
Under the first contract, the defendant issued a payment claim for $3,556,466.80. The plaintiff served a payment schedule with a scheduled amount of $895,595.50. Under the second contract, the defendant issued a payment claim for $327,492.67, for which the scheduled amount was zero.
Two adjudication applications were lodged.
Challenge
The plaintiff challenged the validity of the determinations on the grounds that the adjudicator made a series of jurisdictional errors. In an earlier judgment, the Court found that five of the nine grounds were made out in relation to the first adjudication determination, and that one of the grounds alleged was made out in the second adjudication determination.
The Court remarked that it would be inclined to exercise its discretion to make an order under section 32A of the SOP Act, and gave the parties the opportunity to make submissions regarding the Court exercising this power.
Relevant sections
"22 Adjudicator's determination
(1) An adjudicator is to determine -
- the amount of the progress payment (if any) to be paid by the respondent to the claimant (the adjudicated amount), and
- the date on which any such amount become or becomes payable, and
- the rate of interest payable on any such amount.
(3) The adjudicator's determination must -
- be in writing;
- include the reasons for the determination (unless the claimant and the respondent have both requested the adjudicator not to include those reasons in the determination); and
- be served by the adjudicator on the claimant and the respondent.
32A Finding of jurisdictional error in adjudicator's determination
- If, in any proceedings before the Supreme Court relating to any matter arising under a construction contract, the Court makes a finding that a jurisdictional error has occurred in relation to an adjudicator's determination under this Part, the Court may make an order setting aside the whole or any part of the determination.
- Without limiting subsection (1), the Supreme Court may identify the part of the adjudicator's determination affected by jurisdictional error and set aside that part only while confirming the part of the determination that is not affected by jurisdictional error".
Competing approaches
The parties agreed on which parts of the adjudication determination should be severed, however they were in dispute about the corresponding amount that should be severed. The defendant argued that the amount to be severed was the amount in dispute for the relevant item (that is, the gap between the claimed amount and the scheduled amount). The plaintiff argued that the amount to be severed was the entire adjudicated amount for the relevant item.
The Court found that severing the amount in dispute was the preferred approach because:
- the plaintiff had accepted some amount lesser than the defendant had claimed was due
- had the adjudicator not fallen into error, the adjudicator would have at least awarded the accepted amount
- the plaintiff can't contend that the adjudicator should have amended a lesser amount without error
- if the adjudicated amounts were instead severed, the plaintiff would be better off than if the adjudicator had determined the dispute without error.
Extent of the power
Each party had requested that differing parts of the adjudicator's reasons for determination be set aside.
The Court noted that the power was to set aside the part of the determination affected by jurisdictional error. The Court turned to section 22(1) to examine the elements of an adjudicator's determination, namely the amount to be paid, the date payable and the rate of interest. The reasons are only to be 'included in' the determination, which the Court read as not forming part of the determination itself. Further, the expression 'reasons for determination' introduced a distinction between the reasons and the determination.
Accordingly, the Court did not consider that the power under section 32A extended to severing parts of the reasons.
The Court was further reluctant to make orders dissecting the reasons because the legal effect of a determination comes from the matters in section 22(1).
Fees
The Court found the determinations were affected by jurisdictional error because it was likely inferred that the adjudicator's apportionment of the fees 80/20 was based on the "relative successes and failures of the parties" in the adjudication. The Court ordered that for both adjudications, each party was to equally share in the payment of the adjudicator's fees.
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