Adjudicators Determination - What happens if the person obliged to pay questions the Validity of the Determination?

23/05/2016

Watson and Watson receive many enquiries relating to the Building and Construction Industry Security of Payment Act 1999 (NSW) (the SOP Act).

The enquiries range over all aspects of the SOP Act including the procedure, disputes, advice.  Richard Watson and the team at Watson and Watson are experienced in all aspects of the SOP Act

Often (more often than should be) the Respondent to an Adjudication Determination (in this case the Contractor) who was being found and was required to pay a sum (the adjudicated amount) to the Subcontractor attempts to resist payment. 

Many of those Contractors in seeking to resist payment engage advisors including Building Consultants and Lawyers to write to the successful Subcontractor asserting that the Adjudication Determination is invalid and that the payment of the Adjudicated amount should not be required.  In those demands the authors invariably

  1. assert that the Adjudicator made a “jurisdictional error”. 
  2. request that the Subcontractor agree to take no action to enforce the Adjudication Determination or seek payment of the amount found payable to the Subcontractor, otherwise they will be met with a Court proceeding. 

Not all demands are followed by Court proceedings if the Subcontractor does not agree to those demands. 

Compliance With Demand Leads To Problems

If the Subcontractor consents to such demand and agrees to take no action on the Adjudication Determination (which we refer to in this Article as the Original Adjudication Determination) problems will occur in relation to future, Adjudication Applications that the Subcontractor may wish to make.

In any subsequent Adjudication Determination the Adjudicator is bound to determine that the value of the work which was subject to the Original Adjudication Determination is the same value that had previously been determined in the Original Adjudication (unless there is a change in the work that has been done the subject of the two Applications).  This is not only a problem for the Subcontractor but is a problem for the Contractor. 

The only effective way to overcome this requirement of the SOP Act is for the original Adjudication to be set aside and declared invalid.  This can only be done in our view by an Order of the Supreme Court of New South Wales. 

Similarly we believe that the Supreme Court of New South Wales should not just rubber stamp the Application to set aside an Adjudication Determination by an Adjudicator just because one of the parties asks for it to be set aside.  The Adjudication Determination is binding until it is set aside. 

In this example if the Contractor wishes to make an Application to set aside the Adjudication Determination so that the Adjudicated Amount is not payable to the Subcontractor almost always the Contractor is required by the Court that the amount determined by the Adjudicator in the Original Adjudication to be paid should be paid into the Court if the Contractor is to obtain a stay of the requirement to make the payment to the Subcontractor pending the Hearing of the Application to set aside the Determination.

Costs

Who should pay the cost of the proceedings before the Supreme Court?

One thing that is for sure is that the Adjudicator who was appointed and gave the decision in the Original Adjudication will not be ordered to pay the Court costs.  That Adjudicator universally indicates to the Court that the original Adjudicator will accept whatever is the decision of the Supreme Court on the basis that the Adjudicator is not obliged to pay the costs of the case.  The parties to a very large degree bear the costs of the Supreme Court proceedings.

The difficulty is that the Subcontractor in this case is only dragged to the Court because the Contractor (whether justified or otherwise) seeks to attempt to set aside the Adjudication Determination. 

The Subcontractor will most likely not be able to determine by itself whether there is a Jurisdictional error which would entitle the Contractor to be successful in the Supreme Court proceedings. 

In many Court cases, the outcome is uncertain. 

Certainly the outcome will not be able to be considered by the Court or an advisor for the Subcontractor until all the evidence is put together.  Only on receipt of the documentation etc could the Lawyer for the Subcontractor advise as to the likely or possible outcomes of the Supreme Court proceedings.  Who should bear the costs if after the documents are available the Subcontractor agrees that there was Jurisdictional error and the Court would likely set aside the Adjudication Determination.  The parties are still left with the difficulties as referred to above namely that the Adjudication Determination is valid until set aside.  The matter is complicated enough and the agreement to try and overcome this (without the Court setting aside the Adjudication Determination) will most likely lead to further confusion, litigation and cost.

There is no clear answer.

Watson and Watson have dealt with this on many occasions.

If you are the successful Subcontractor in an Adjudication Determination and a Contractor has been found to owe you money; and you receive a demand from the Contractor that the Adjudication Determination is void; with the usual request that you take no action to enforce it, you are doomed if you accept that demand.

The team at Watson and Watson have been involved in many of these problematic decisions and mostly they are solved one way or other.

We often advise that you take a more neutral position (neither accepting the demand nor hotly defending the Adjudicator’s Determination) which will make the Contractor further consider its position.

Also this is an opportunity to attempt to resolve all the issues that there maybe between the Subcontractor and the Contractor in particular if the works have been completed.

If you wish to obtain further advice or discuss the matter further please telephone Richard Watson or his Personal Assistant Shereen DaGloria to make arrangements for a discussion concerning your rights and any defences to any claims that may be made.

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