Adjudication applications under Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act) are typically fast and furious affairs, with the results eagerly awaited by both parties. In the usual way, the authorised nominating authority will advise the parties that the determination has been made, and will release the determination upon the payment of the adjudicator’s fees permitted by s29 of the SOP Act. Almost universally, the adjudicator’s fees are paid by the applicant in the first instance, being the party expecting to benefit from the process, albeit paid without the benefit of seeing the determination until payment is made. But what happens when the adjudicator determines that he or she has no jurisdiction to determine the application, and orders the applicant to pay the costs of the adjudication application? In the recent decision of Alucity Architectural Product Supply Pty Ltd v Australian Solutions Centre and Paul J Hick [2016] NSWSC 608, one disgruntled applicant found the Court decidedly unimpressed with its attempts to recover fees from the Adjudicator and the Authorised Nominating Authority.

Adjudication Application

Alucity, who had supplied building products to Empire Windows Pty Ltd under an agreement, made a payment claim on 13 October 2014 on Empire Windows, followed by a further payment claim on 22 December 2014, in the sum of $692,626.27. Empire Windows provided a payment schedule to the latter of these claims, indicating the amount owing was negative $424,761.50 or $Nil. Empire Windows contended, amongst other things, that contrary to s13(5) of the SOP Act more than one payment claim had been served in respect to a reference date and, on that basis, the payment claim was invalid.

Alucity subsequently made an adjudication application to Australian Solutions Centre, an Authorised Nominating Authority under the Act which, in turn, nominated the Adjudicator. The Adjudicator in the usual way reviewed the competing submissions set out in the adjudication application and the adjudication response. In this instance, the Adjudicator asked for further submissions from the parties on a number of matters, including what the reference date or dates were under the construction contract. As later observed by the Court, the issues which the adjudication application and adjudication response raised were complex.

The Authorised Nominating Authority advised the parties on 21 April 2015 that the Adjudicator’s determination had been made, and would be released to the parties upon the payment of the requested fees. Alucity accordingly paid those fees.

The Adjudicator determined that “there was no available reference date for the payment claim under consideration, and that because it was a further claim in respect of the same reference date, it was not valid.” On that basis, the Adjudicator found that he had no jurisdiction to determine the matter. The Adjudicator concluded by saying that Alucity had “been wholly unsuccessful” and directed Alucity to pay the Adjudicator’s costs and the Authorised Nominating Authority’s costs.

Alucity Architectural Product Supply Pty Ltd v Australian Solutions Centre and Paul J Hick [2016] NSWSC 608

Alucity commenced proceedings in the Small Claims Division of the Local Court at Waverley, against the Authorised Nominating Authority and the Adjudicator. The proceedings were subsequently transferred to the Supreme Court pursuant to s140(1) of the Civil Procedure Act 2005 (NSW).

Alucity alleged that the Adjudicator and the Authorised Nominating Authority:

  • misrepresented to Alucity that “the adjudication application had been determined” when in fact the Adjudicator had found that he had no jurisdiction, with the result that he had “not made a determination” under the Act, for which Alucity was entitled to restitution in the sum of $10,000 (being the relevant Local Court jurisdictional limit under the Small Claims Division).
  • in the alternative, had engaged in “misleading or deceptive conduct in trade or commerce” under the Competition and Consumer Act 2010 (Cth), for which it was entitled to damages in the amount of $10,000.
  • in the alternative, had committed the “tort of deceit”, for which it was entitled to damages in the sum of $10,000.

Alucity also alleged, as a separate claim against the Adjudicator, that the fees charged by the Adjudicator were unreasonable, for which Alucity was entitled to a refund in the order of $10,000.

By the time matter came to trial in the NSW Supreme Court, Alucity had wisely abandoned all allegations of misrepresentation, misleading or deceptive conduct, and deceit on the part of the Adjudicator and the Authorised Nominating Authority. The Court observed, with some exasperation:

[45] It is not remarkable that these claims, especially the one alleging deceit, were abandoned. What is remarkable is both that they were made in the first place, and that they were abandoned without any explanation…

In its revised claim, Alucity alleged that:

  • it was entitled to restitution of all fees paid because there had been a “total failure of consideration”. If the Adjudicator and the Authority were permitted to retain the fees, they would be unjustly enriched. The argument was put that the Adjudicator never had any entitlement to payment under the Act because he had “no entitlement to payment for doing anything except produce a determination within the meaning of s22 of the Act” which the Adjudicator was not able to do.
  • in the alternative, if the Adjudicator did make a determination within the meaning of the Act, the amount paid to the Adjudicator was unreasonable “in so far as concerns the number of hours claimed” and includes the Authorised Nominating Authority’s fee of $6,450.00.
  • in the alternative, the amount retained by the Authorised Nominating Authority was not a fee which it was entitled to charge under s28(3) of the Act because it was “not for a service provided by the authority in connection with an adjudication application”; and the Authority “has put on no evidence to show that it is such a fee or to show the services allegedly provided to whom or how the amount is calculated”.

Findings

The Court dismissed Alucity’s claim, holding that the various grounds upon which the claim was made were false.

Firstly, the Court held that the Adjudicator did make a determination for the purposes of s22 of the Act, and thus was entitled to payment, irrespective of the issue of invalidity.

[58] Section 22(1)(a) requires the adjudicator to determine the amount of the progress payment (if any) to be paid by the respondent to the claimant. A determination that no amount is to be paid because the claim is invalid is no less a determination than one which determines that no money is payable for some other reason.

Secondly, in relation to the “total failure of consideration” argument, the Court noted that the doctrine applies where there has been a total failure of an agreed return for a payment made under a contract. However, as the Court stated, the respective relationship between the parties, and their rights and entitlements thereunder, were created under statute, not contract. Consideration is not relevant, and no unjust enrichment arises in the circumstances.

As to the reasonableness of the fees charged, the Court was unpersuaded, finding Alucity provided no evidentiary basis for the suggestion that the Adjudicator’s fee was unreasonable, “in so far as the number of hours claimed” is concerned. It provided no basis for any suggestion that the Adjudicator did not spend the hours he claimed, or that his rate was excessive.