Summary
The decision of the South Australian Supreme Court in Goyder Wind Farm 1 Pty Ltd v GE Renewable Energy Australia Pty Ltd & Ors [2024] SASC 108 considers circumstances in which, under security of payment legislation, an adjudicator’s determination will be binding in any subsequent adjudication.
Key takeaways
- Claimants under security of payment legislation are not required to include all delay costs arising from a particular delay event in a single payment claim.
- It remains the case that claims for costs that have already been fully adjudicated cannot be reagitated on a different basis in a subsequent adjudication (confirming the line of authorities on what is sometime called ‘Dualcorp estoppel’).
- Adjudications can only be overturned where there is a jurisdictional error. Jurisdictional error (as distinct from a mere error on the face of the record) is difficult to make out. There is no jurisdictional error even where an adjudicator makes an error in determining whether a claim has already been fully determined in a previous adjudication.
- Given this, seeking injunctions to prevent claims being determined at adjudication may be a less risky approach for respondents (compared with waiting on an adjudication determination that could well be incorrect, but nevertheless cannot be overturned).
Background
- Goyder Wind Farm 1 Pty Ltd (Goyder) entered into engineering, procurement and construction contracts with GE Renewable Energy Australia Pty Ltd and Elecnor Australia Pty Ltd (collectively, GE-Elecnor) for the construction of a windfarm.
- Three payment claims under security of payment legislation were made by GE-Elecnor under the relevant contracts.
- The first two payment claims proceeded to adjudication under the security of payment legislation applicable in SA, the Building and Construction Industry Security of Payment Act 2009 (SA) (the Act)).
- GE-Elecnor’s first payment claim related to delay costs of $15.3 million, comprised of prolongation costs and ‘thickening costs’ arising from certain delay events (which were the subject of extension of time claims EOT 001 and 002) (First Payment Claim).
(Note: ‘Thickening costs’ are costs that are claimable over and above direct costs arising from a delay, including increases in time-related overhead costs.)
- The First Payment Claim went to adjudication. The adjudicator determined that GE-Elecnor:
- were entitled to an extension of time of 118 days in respect of EOT 001 and 002;
- were entitled to prolongation costs; and
- had failed however to establish an entitlement to costs incurred for thickening of indirect resources.
(First Adjudication Determination).
- GE-Elecnor’s second payment claim was for delay costs arising from procurement premiums due to a change in procurement strategy, which change also ultimately arose out of EOT 001 and 002 (Second Payment Claim). GE-Elecnor said that these costs were distinct from those that were the subject of the First Adjudication Determination.
- The Second Payment Claim also went to adjudication under the Act. The adjudicator determined that:
- in the First Adjudication Determination, the adjudicator had not determined the value of the construction work and goods or services that were the subject of the Second Payment Claim;
- section 22(4) of the Act (explained below) was not applicable; and
- GE-Elecnor were entitled to costs of procurement premiums in the amount of $21 million for EOT 001 and EOT 002 (additional to the costs awarded at the First Adjudication Determination) (Second Adjudication Determination).1
- The third payment claim by GE-Elecnor comprised of $20.7 million in respect of further procurement premiums and, again, included a claim for thickening costs (Third Payment Claim).
Section 22(4) of the Act
- Section 22(4) of the Act provides that, if an adjudicator has determined the value of construction work carried out under a construction contract, then in any subsequent adjudication an adjudicator must give that work the same value as was previously determined.12
- The section also applies to related goods and services supplied under a construction contract.
- This provision is replicated in substantially similar terms in other states’ and territories’ security of payment legislation across Australia 3 (with the exception of the Northern Territory which is the only remaining jurisdiction that has not followed the ‘West Coast’ model).
Goyder’s Court proceedings
- Goyder commenced proceedings in the Supreme Court of South Australia to set aside the Second Adjudication Determination.
- In the proceedings Goyder also sought to restrain GE-Elecnor from taking steps to progress the Third Payment Claim to adjudication under the Act (which had not yet occurred).
- Goyder submitted that the adjudicator should have applied section 22(4) in the Second Adjudication Determination, and should have given the work the same value as was previously determined at the First Adjudication Determination.4
- This failure to apply section 22(4) was, on Goyder’s case, a jurisdictional error by the adjudicator, and as such, required an order in the nature of certiorari to quash the Second Adjudication Determination.
Issues
The Court was required to determine:
- whether the three payment claims by Goyder constituted a singular claim for the same delay costs and an abuse of process;
- whether the adjudicator should have applied section 22(4) of the Act in the Second Adjudication Determination; and
- if so, whether the adjudicator’s failure to do so was a matter of jurisdiction meaning the Second Adjudication Determination should be set aside.
Decision
Whether the payment claims constituted a singular claim and an abuse of process
- As to prolongation costs and procurement premiums:
- The Court agreed that the EOT 001 and EOT 002 claims arose from a ‘common underpinning cause’, being late site access by reason of delays in obtaining necessary approvals.5
- However, the Court was satisfied that the delay costs claimed in the First Payment Claim and Second Payment Claim pertaining to EOT 001 and EOT 002 (that is, the prolongation costs and procurement premiums) did not constitute a singular claim for the same work that must be brought in a single claim, and did not overlap.6
- As such, there was no abuse of process and the Court dismissed Goyder’s application for review of the Second Adjudication Determination.
- As to thickening costs however:
- The Court found that there was an overlap in the thickening costs claimed in the Third Payment Claim with the claimed amount for thickening costs that had been rejected in the First Adjudication Determination.
- Raising thickening costs again was considered to be a re-agitation of the same costs, which the legislation ‘manifests an intention to preclude’.7 This follows the line of authority on re-agitation of determined claims being an abuse of process (see, in particular, 8).
- Consequently, the Court held that this aspect of the Third Payment Claim was invalid and that the adjudicator lacked the jurisdiction to address it. Accordingly the Court was prepared to make orders in relation to this invalid aspect of the Third Payment Claim.9
- The Court also held that the operation of the contract did not require that delay cost claims for prolongation, thickening and procurement premiums must be made in a singular claim.<10
Whether the adjudicator failed to apply section 22(4) of the Act, and the consequences of any failure
- Given the Court’s finding that the costs with respect to the First Payment Claim and Second Payment Claims were separate, the Court held that section 22(4) did not apply to the Second Adjudication Determination.11
- Notwithstanding the finding that section 22(4) did not apply, the Court had regard to authorities considering whether an adjudicator’s failure to apply section 22(4) would amount to a jurisdictional error (which would render the determination void), or a mere non-jurisdictional error (or error on the face of the record, which would not render the determination void12).
- An important distinction considered by the Court was whether application of section 22(4) is an essential pre-condition to the exercise of the adjudicator’s function.13
- The Court held that section 22(1) of the Act confers authority on an adjudicator to make a valid determination notwithstanding that it may be based on a legally erroneous interpretation of the contract.14
- In coming to that conclusion, the Court found that the conferral of such decision-making authority to err in law ‘displaces the general supervisory jurisdiction of the Court to make an order in the nature of certiorari for error of law on the fact of the record’.15As such, it was the Court’s opinion that:
It would frustrate the operation and purposes of the scheme to allow potentially costly and time consuming judicial review proceedings to be brought on the basis of error of law on the face of the record regardless of whether an adjudicator exceeded the limits of their statutory functions and powers. Thus, the jurisdiction to make an order in the nature of certiorari to quash a determination for error of law on the face of the record is excluded.16
- The Court held that the preferable construction for section 22(4) is that it falls for consideration in the course of the adjudicator’s decision-making process in determining the amount of any progress payment to be paid.
This article was written by John Vozzo, Partner, Noel Williams, Associate, and Lara Centofanti Law Clerk.
1 Ibid at [51].
2 Building and Construction Industry Security of Payment Act 2009 (SA) s 22(4).
3 Building and Construction Industry (Security of Payment) Act 2009 (ACT) s 24(4); Building and Construction Industry Security of Payment Act 1999 (NSW) s 22(4); Building Industry Fairness (Security of Payment) Act 2017 (QLD) s 87(2); Building and Construction Industry Security of Payment Act 2009 (TAS) s 25(5); Building and Construction Industry Security of Payment Act 2002 (VIC) s 23(4); Building and Construction Industry (Security of Payment) Act 2021 (WA) s 38(6).
4 Ibid at [76].
5 Ibid at [133].
6 Ibid at [133], [161].
7 Ibid at [176].
8 Dualcorp Pty Ltd v Remo Constructions Pty Ltd [2009] NSWCA 69; (2009) 74 NSWLR 190
9 Ibid at [258].
10 Ibid at [139].
11 Ibid at [161].
12 See especially Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd [2018] HCA 4; (2018) 264 CLR 1
13 Ibid at [183].
14 Ibid at [181].
15 Ibid, citing Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd [2018] HCA 4; (2018) 264 CLR 1 at [83].
16 Ibid at [179].