The validity of adjudicators' determinations containing errors of law

• Author: Jeremy K. Coggins
• Position: University of Adelaide, Adelaide, Australia

Introduction

Over the past 15 years, several Commonwealth jurisdictions¹ have enacted legislation which allows parties to a construction contract the right to a statutory adjudication procedure in the event of a payment dispute. Under such legislation the adjudication process is intended to provide a quick and cheap form of dispute resolution, unencumbered by the heavy procedural requirements of more formal dispute resolution methods such as arbitration and litigation. Under the legislation, adjudicators' determinations are provisional in nature, enforceable in the interim up until the time a court judgment or arbitration award is made concerning the relevant disputed matter arising under the construction contract.

Although there are differences between the various Acts with respect to scope of coverage, terminology, physical structure and procedural requirements, a common aim of all the legislation is to get cash flowing in as fair and expeditious a manner as possible down the hierarchical contractual chains that exist on most commercial construction projects.

The first jurisdiction to enact statutory adjudication² was the UK in the form of Part II of The Housing Grants, Construction and Regeneration Act (the “UK Act”)³ enacted in 1996⁴. The second jurisdiction to introduce statutory adjudication was NSW in the form of the Building and Construction Industry Security of Payment Act 1999 (hereafter, referred to as the “NSW Act”), which came into force on 26 March 2000. Following the commencement of statutory adjudication in the UK, the courts were very supportive ( Kennedy, 2007 ) of the new “quick and dirty” (as it is often described) interim dispute resolution process, recognising its primary objective to improve cash flow. As stated by Dyson J:

It is clear that Parliament intended that the adjudication should be conducted in a manner which those familiar with the grinding detail of the traditional approach to the resolution of construction disputes apparently find difficult to accept. But Parliament has not abolished arbitration and litigation construction disputes. It has merely introduced an intervening provisional stage in the dispute resolution process. Crucially, it has made it clear that decisions of adjudicators are binding and are to be complied with until the dispute is finally resolved⁵.

As such the English courts declined to invalidate adjudicators' determinations containing an error of law, as long as the adjudicator had answered the right questions put to him or her by the parties.

In contrast to the English position, the NSW courts' approach towards errors of law in adjudicators' determinations has taken several twists and turns. For the first four years after commencement of the legislation, under its supervisory jurisdiction⁶, the NSW Supreme Court viewed adjudicators' determinations to be susceptible to judicial review by way of relief in the nature of prerogative writs. As such, amongst other types of jurisdictional errors, judicial review was available in relation to error of law on the face of the record. This position changed in the NSW Court of Appeal's 2004 decision in Brodyn Pty Ltd v. Davenport⁷(Brodyn), where the court held that prerogative relief was not available under the NSW legislation, but instead an adjudicator's determination would be held void if it did not comply with certain specified “basic and essential requirements”. Recently, in Chase Oyster Bar Pty Ltd v. Hamo Industries Pty Ltd⁸ (Chase), the NSW Court of Appeal reversed Brodyn, holding that there was no sufficient basis in Brodyn to warrant exclusion of relief in the nature of prerogative writs.

It may, therefore, be seen that the English and NSW courts have adopted different approaches to the judicial review, in general, of adjudicators' determinations. This article considers in detail these different approaches by reviewing the relevant English and NSW case law, and concludes by considering in which jurisdiction an adjudicator's determination containing an error of law is more likely to be enforced.

The English approach

In Bouygues (UK) Ltd v. Dahl-Jensen (UK) Ltd⁹(Bouygues), the adjudicator mistakenly included for full release of retention monies in his valuation of a payment claim when such release was not yet due. The adjudicator's error had a significant effect on the outcome of the determination, resulting in an award to the defendant subcontractor of £208,000 instead of an award to the plaintiff head contractor of £179,000. The Court of Appeal upheld the adjudicator's determination even though the award was wrong, agreeing with the following approach adopted by the court of first instance in relation to the decision of an expert valuer in Nikko Hotels (UK) Ltd v. MERPC Plc¹⁰:

[…] if he has answered the right question in the wrong way, his decision will be binding. If he has answered the wrong question, his decision will be a nullity.

This is a position which accords with the contractual nature of adjudication. As noted by Forbes (2001) :

In legal terms the enforcement of an adjudication is based on the contractual proposition that, if the parties have agreed to leave a dispute to be resolved by a third party such as an adjudicator and be bound by that decision (which is, of course, the position in adjudication), the court will then hold the parties to their mutual promises.

Thus, as long as the adjudicator answers the questions put before him by the parties in a particular dispute, he is within his contractual authority and, hence, is acting within his jurisdiction. As the adjudicator is not a government appointed arbiter, he is not obliged to interpret points of law correctly. He may err on a point of law, as long as such error was committed in the course of attempting to answer a question he was authorised to consider. As Forbes (2001) observes, the relevant principle was expressed in Beaufort Developments (NI) Ltd v. Gilbert-Nash NI Ltd in the following terms¹¹:

The powers of the architect or arbitrator [or adjudicator – Forbes' interpolation], whatever they may be, are conferred by the contract. It seems to me more accurate to say that the parties have agreed that their contractual obligations are to be whatever the architect or arbitrator [or adjudicator] interprets them to be. In such a case, the opinion of the court or anyone else as to what the contract requires is simply irrelevant. To enforce such an interpretation of the contract would be something different from what the parties had agreed.

In O'Donnell Developments Ltd v. Build Ability Limited¹² (O'Donnell) various disputes arose on a project known as “The Cube” in Birmingham, UK. Build Ability had appointed O'Donnell to build the concrete frame for the Cube and arguments arose concerning:

the value of the works; and

the validity of certain deductions made by Build Ability against O'Donnell's account.

In order to calculate the value of the works, the adjudicator requested details of payments made by build ability from O'Donnell up to and including valuation No. 25. The figures supplied by O'Donnell went beyond valuation No. 25. This resulted in the adjudicator making an award of £150,000 less than it ought to have been.

On discovering the adjudicator's error, O'Donnell contacted the adjudicator and asked him to correct this error. Build Ability objected to the correction. The adjudicator considered that he had the power to correct the error and within two days of issuing the original decision issued a revised decision.

Build Ability contended that the adjudicator had no jurisdiction to make a revised decision.

The matter was referred to Mr Justice Ramsey in the Technology and Construction Court. Ramsey considered Bouygues and cited Dyson J who said that:

[…] in deciding whether the adjudicator has decided the wrong question rather than given a wrong answer to the right question, the court should bear in mind that the speedy nature of the adjudication process means that mistakes will inevitably occur, and, in my view, it should guard against characterising a mistaken answer to an issue that lies within that scope of the reference as an excess of jurisdiction.

In O'Donnell, Ramsey J following Dyson's reasoning in Bouygues, held that the adjudicator was giving effect to his first thought and not to a reconsideration of his original decision and refused to give a declaration of “excess of jurisdiction”. Ramsey J took the view that the Court will not look too closely at the content of an adjudicator's decision provided the correct question has been answered.

However, some doubt has been introduced as to the enforceability of adjudicators' determinations containing errors of law by the case of Geoffrey Osborne Ltd v. Atkins Rail Ltd¹³(Atkins). In this case Atkins was employed as main contractor for various railway works. Atkins sub-contracted certain civil engineering works to Osborne. Disputes arose which were referred to adjudication. The adjudicator miscalculated the amount due to Osborne by failing to take into account previous sums certified and paid by Atkins. The magnitude of the error was that the adjudicator's decision would have resulted in Atkins overpaying Osborne by...