Right application but wrong issue: adjudicator rules outside of jurisdiction

The recent High Court case of Anderson v Swindells  [2018] NZHC 1803 has reminded us that adjudicators determining disputes have to conform to the principles of natural justice – specifically, the requirement that a decision-maker must only decide matters put before them.

Principles of pay now argue later

The case was decided in the context of the Construction Contracts Act 2002 (CCA). The CCA is broadly in place to facilitate progressing projects without undue delays being caused by disputes between parties. One of the key features is the “pay now – argue later regime” in which a contractor issues a payment claim to a principal for works done. If the Principal disputes the amounts in the payment claim, it can issue a payment schedule in response and pay this amount rather than the claimed amount. The parties can then refer disputes over payment (and other matters) to adjudication which is a fast-tracked dispute resolution mechanism available under the CCA.

What was the question and what was the answer?

In this case, the Contractor, McDowall Renovations Limited (McDowall) claimed that Anderson, the Principal, owed it money under a building contract. Anderson denied that it owed any money to McDowall claiming that it was entitled to withhold payment for a number of reasons:

  • The amounts claimed related to work that was unnecessary
  • Incorrect materials had been provided
  • It had been charged twice for the same materials
  • It was entitled to damages for delays

Unconvinced, McDowall referred the matter to adjudication to decide whether it was entitled to monies claimed. The adjudicator decided for McDowall, holding that Anderson was liable to pay the full amount to McDowall by reason that Anderson failed to pay when a payment claim was served on them, and no payment schedule was provided in response.

Anderson applied to the High Court seeking judicial review of the adjudicator’s decision. The principal ground for review raised by Anderson was that the adjudicator’s determination was made without jurisdiction. Anderson argued that the adjudicator failed to address and determine the matter which had been referred to adjudication – that is, to determine the correct amounts payable to McDowall (if any). The adjudicator instead based the determination on an entirely different matter which was not the subject of the dispute or raised by either party.

Natural justice and jurisdiction

Justice Paul Davison found in favour of Anderson holding that the adjudicator acted without jurisdiction as the issue of the parties’ compliance with the “pay-now argue later regime” was not at issue in the dispute. It is a fundamental requirement of natural justice that parties be given the opportunity to be heard in relation to the matter that a decision-maker is to decide. Because the adjudicator had decided on a different issue, the parties were not given this opportunity and not given what they were entitled to under the principles of natural justice.

There is a high legal threshold to be met before the judiciary will interfere with, or judicially review, adjudication determinations given that the objective of the CCA is to provide a fast-track means of enabling contractors to secure payments due under construction contracts. However, the case confirms that judicial review will be available for cases where an adjudication has been undertaken in a manner that significantly breaches the principles of natural justice, or where there is an error of law.

Adjudications open to appeal

This judgment serves as a reminder that it is necessary that adjudicators ensure they are deciding the issues before them because, despite the adjudicator in this case correctly applying the “pay now-argue later regime”, the adjudicator was not asked to decide this matter. This case can provide assurance that parties will still have recourse to another forum in the event that an adjudicator erred in law or did not observe natural justice principles.

For advice on the pay-now argue later regime or adjudications under the CCA, contact one of our experts.

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