Thanks for Nothing

dead plantWell drafted security of payment legislation would provide that if the claimant makes an application for adjudication, and the adjudicator decides that there is no jurisdiction, then the claimant should pay the adjudicator’s fees. But the legislation in Australia does not currently say that. By way of example, section 30 of the Building and Construction Industry Security of Payment Act 2009 (SA) provides that an adjudicator is entitled to be paid for adjudicating an adjudication application. It might well be thought that that means a valid adjudication application.

Similarly, if anything is agreed by way of fees between the adjudicator in the parties, a sensible agreement might include the same provision.

But what is the position where an adjudicator spends a considerable amount of time considering  what purports to be an adjudication application, and then concludes that there was never a valid payment claim, and hence no adjudication application, or adjudication within the jurisdiction conferred by the Act? As the High Court said in Southern Han Breakfast Point v Lewrence Construction [2016] HCA 52 at [44]:

There is no dispute between the parties that service of a payment claim under s 13(1) of the [NSW] Act is an essential precondition to taking subsequent steps in the procedure set out in Pt 3 of the Act. There is accordingly no dispute that, unless a payment claim answering that description is served, there can be no adjudication application and hence no adjudication within the jurisdiction conferred by s 22 of the Act. That shared understanding of the relationship between s 13(1) and s 22 is undoubtedly correct.

That passage does cast a shadow of a doubt over the decision in Alucity Architectural v Australian Solutions Centre [2016] NSWSC 608. In that case, the facts were that the claimant purported to make a payment claim, and what purported to be an adjudication application, and a purported adjudication was commenced. The adjudicator found that there was no available reference date for the payment claim under consideration, such that there was no valid payment claim, and he had no jurisdiction to determine the application.

An adjudicator is in some difficulty in these circumstances. If he simply announces to the parties that he has no jurisdiction, then it is not obvious that he has any entitlement to payment. And so in the Alucity, what happened was that the ANA wrote to the parties saying that the adjudication application had been determined, and that it would be released upon payment of the adjudicator’s fees of $16,555. The claimant – Alucity – paid, and was understandably disappointed by what it received. It claimed the money back, and that claim was determined by Hammerschlag J, who said that Alucity could not have the money back.

The case was argued on the basis of total failure of consideration, and perhaps unsurprisingly, the court found that there was not a total failure of consideration, because both the adjudicator and the ANA had done what they were asked to do. Further, it was found not fairly to lie in Alucity’s mouth to suggest that its adjudication application had not been adjudicated[1]. The first of these findings is perhaps surprising in light of English authority[2]; the second is more understandable. But it is worth taking a step back.

Suppose that the adjudicator had released his finding, and then sought payment. Would he have been entitled to payment under the Act? Very probably not, in the light of the Southern Han dictum: if the adjudication is a nullity, then the statutory right of an adjudicator to be paid for the adjudication surely falls away. And so the only way an adjudicator is likely to get paid in those circumstances, absent a relevant agreement, is by withholding until payment of the fee is made.

That is the tricky bit. If the adjudicator (or the ANA on the adjudicator’s behalf) pretends that a determination has been made, when in fact the adjudicator is saying that he has no jurisdiction to make a determination, then there is, one might think, something rather misleading about such pretence. The comfort that adjudicators have been drawing from Alucity comes from paragraph 58 of the judgment:

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 monies payable for some other reason.

There must be some doubt as to whether this analysis was ever right, and query whether it can withstand the analysis at paragraph 44 of Southern Han. There is a substantial difference between an adjudicator declining to determine what money, if any, is payable pursuant to the adjudication because the purported adjudication is a nullity, and an adjudicator determining on the merits, pursuant to a valid adjudication, that nothing is payable.  The point here is not that there is anything new about this – it has been made in a number of cases – but that is has now come from the High Court.

A charitable view might be that, even if that paragraph 58 has not now been overturned by the High Court in Southern Han, it is obiter, in that the real meat of the decision in Alucity lies in the estoppel point. Having asserted the validity of the process by making the adjudication application, it is understandable that Alucity should have been estopped from then denying the validity of the process in its claim for repayment of the fees. And of course, in any event, a claim for restitution – based on total failure of consideration or otherwise – is a claim in equity, and Alucity’s claim was hardly meritorious, as Hammerschlag J pointed out at paragraph 73:

Far from being any injustice, unfairness or in equity in the authority and the adjudicator been permitted to retain what they had been paid, there would be injustice, unfairness and inequity, were Alucity to be given any restitution.

Alucity was a claimant. What would the position be if the respondent had paid the whole or part of the adjudicator’s fee? In those circumstances, a respondent’s claim for the repayment of the fee would be much more meritorious. But interestingly, the Alucity decision itself would represent somewhat stony ground for a respondent. Hammerschlag J suggested at paragraph 65 that there could be no failure of consideration because there was no contract. But equity is a flexible thing, and if restitution is available because a party has not done anything required of it by a contract, why should it not also be available if a party has not done the thing required of it by a statute? It seems clear that recovery is possible where other statutory bases for requiring payment such as taxes or levies are demonstrated to be without foundation.[3]

In Alucity, the  claim for repayment was initially made on alternative grounds: misrepresentation, damages for misleading or deceptive conduct and deceit. All of these alternative grounds were abandoned, and were roundly criticised by Hammerschlag J[4]. But they may have been much better founded if they had been made in the context of a claim for repayment by a respondent.

What should a respondent do if challenging a finding by an adjudicator, on the basis that the adjudicator did not have jurisdiction. It is not normal in the circumstances but for the applicant to seek repayment of any sums it may have paid to the adjudicator by way of fees, but it is not impossible that an application for judicial review against the claimant in the adjudication might be accompanied by a claim for repayment of fees against the adjudicator.

Staying for a moment with the South Australian numbering, section 31 (1) of the Act provides that an adjudicator is not personally liable for anything done or omitted to be done in good faith in exercising the adjudicator’s functions, or in the reasonable belief that the thing was done or omitted to be done in the exercise of the adjudicator’s functions. Would this provision protect the adjudicator against a claim for repayment of fees? That is a moot point, but probably not.[5] And what would the response of the adjudicator be to such a claim being included in the quashing application? For good reason, it is normal for adjudicators to merely enter a submitting appearance in quashing applications, but that practice might well change if adjudicators are to face the prospect of having to repay the fees that they have charged if the adjudication is quashed.

As I have previously noted, John Murray is presently charged by the Federal Government with a review of this legislation, with a view of some federal uniformity. As a small point of detail, it might be sensible in any new legislation to include a statutory provision obliging a claimant, in the event that an adjudicator decides that there is no jurisdiction or adjudication determination is quashed by the court, to pay to the respondent any amount that the respondent may have contributed to the adjudicator’s or ANA’s fees. The alternative solution – that the adjudicator and/or ANA should have to repay the fees in those circumstances – would be both harsh and inconvenient, at any rate in the absence of any want of good faith.

 

[1] At [61].

[2] In PC Harrington Contractors Ltd v Systech International Ltd [2012] EWCA Civ 1371, the adjudicator had released his decisions (there was a series of three of them)  without payment of his fee, and he claimed his fee nothwithstanding that his decisons had been quashed for breach of natural justice. Overturning a first instance judgment, the Court of Appeal unanimously held that the adjudicator was not entitled to any fee. The Master of the Rolls said:

  1. … the adjudicator had no discrete entitlement to his fees and expenses for the ancillary and anterior functions that he performed. I should add that I accept the submission of Mr Bowling that these functions, which included making directions, considering the papers and so on, had no discrete value to the parties.  Even the adjudicator’s decision on the jurisdiction issue to which I referred at para 3 above was of no value in itself.  It did not produce a decision which was binding in any future adjudication: it is well established that an adjudicator does not have inherent power to decide his own jurisdiction: see Coulson, Construction Adjudication (2nd edition) at para 7.09.  
  2. I return to the question: what was the bargained-for performance? In my view, it was an enforceable decision.  There is nothing in the contract to indicate that the parties agreed that they would pay for an unenforceable decision or that they would pay for the services performed by the adjudicator which were preparatory to the making of an unenforceable decision.  The purpose of the appointment was to produce an enforceable decision which, for the time being, would resolve the dispute.  A decision which was unenforceable was of no value to the parties

Policy considerations

  1. …I can see no basis for holding that Parliament must have intended that an adjudicator who produces an unenforceable decision should be entitled to payment.  

Similarly, Davis LJ said:

  1. [The Scheme] expressly stipulates that the adjudicator shall decide the matters in dispute. But where, as here, an adjudicator delivers a decision which is entirely unenforceable then he will not have decided the matters in dispute.

  1. I therefore would conclude in the present case that the adjudicator is not entitled to be paid any fees. He has not produced an (enforceable) decision which determines the matters in dispute: which is what this contract required of him before his entitlement to fees arose.

 

[3] See, for example, Goff & Jones:

Lord Browne-Wilkinson  put a similar principle thus in Woolwich Equitable Building Society v IRC [1993] A.C. 70:.

Administrative action must be constrained by the rule of law, and bodies invested with state power must adhere to the limits of the jurisdiction conferred on them, to protect citizens from state depredations:

“[W]here the parties are on an unequal footing so that money is paid by way of tax or other impost in pursuance of [an ultra vires] demand by some public officer, these moneys are recoverable since the citizen is, in practice, unable to resist the payment save at the risk of breaking the law or exposing himself to penalties or other disadvantages.”

 

[4] At [82] – [85]. It is worth noting that there was a bit of history here. Philip Davenport (he of Brodyn v Davenport fame) was both solicitor and counsel for Alucity, and had previously featured before Hammerschlag J as a defendant in other litigation. Mr Davenport has not since been silent; see ACLN #168 p 32 and #172 p 40.

[5] At any rate, if the Scottish authority of Stork Technical Services (RBG) Ltd v Ross [2015] ScotCS CSOH_10A were to be adopted. In that case the immunity clause was contractual, not statutory, but was in similar form. Significant sums had been paid to the adjudicator on account, but his decision was then quashed as being in breach of natural justice. The Outer House found that the engagement of the adjudicator had been made with the adjudicator’s law firm,  of which the adjudicator was a mere employee, and accordingly the claim for repayment of fees should have been made against that firm. But the immunity clause would have been no bar to recovery:

[37]      I did hear argument on two aspects on which I feel able to express a view.  The first of these was whether a claim for repayment by the pursuers based on breach of contract was precluded by clause 10.0 of the Adjudicator’s Agreement, excluding liability for anything done or omitted by Mr Ross in discharge of his functions as adjudicator unless the act or omission was in bad faith.  In my opinion it is not.  Clause 10.0 is apposite, in my opinion, to exclude a claim by the pursuers for damages in respect of any loss which they might have sustained as a consequence of an act or omission of Mr Ross, such as an expense or liability incurred to a third party.  It has no application to any separate entitlement that the pursuers may succeed in establishing to the return of money paid by them to Mr Ross as consideration for the determination by him of the parties’ dispute, including in particular the issuing of an enforceable judgment.

One thought on “Thanks for Nothing

  1. Parliament and Judges have always had problems with logic and time based decisions, probably from a failure to read maths or sufficient science fiction.

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