Major Projects & Construction 5 Minute Fix No 130: adjudicators and submissions, delays as nuisance, half-truths in land sales, rectification

Adjudicator’s failure to “consider” submissions amounts to jurisdictional error: an exception or a new trend?

The courts have long been reluctant to set aside an adjudication determination for jurisdictional error relating to an adjudicator’s failure to refer to and "consider” submissions in their reasons or by a failure to give adequate reasons for the determination.

The decision by the New South Wales Supreme Court (Justice Parker) in Martinus Rail Pty Ltd v Qube RE Services (No 2) Pty Ltd (No 2) [2024] NSWSC 1223 however departs from that trend, finding that a failure by the adjudicator to ”consider” submissions in his reasons in accordance with his statutory obligations under section 22(2) of the Building and Construction Industry Security of Payment Act 1999 (NSW) amounted to a jurisdictional error.

Qube, the head contractor, sought to set aside two adjudication determinations made in favour of its subcontractor, Martinus, for jurisdictional error, in which it advanced 37 complaints about various parts of the determinations. Qube’s primary argument was that the determinations “were so riddled with jurisdictional errors” that the determinations should be set aside entirely. A repeated complaint involved the adjudicator’s failure to consider Qube’s response to Martinus’ claim (or the supporting evidence referred to in those submissions).

The Court did not accept every complaint made by Qube on the basis that not every failure by an adjudicator to consider a submission will be a jurisdictional error for the purposes of the Act, noting that:

• there must in fact be a failure by the adjudicator to consider the submissions, and it is up to the Court to infer from the adjudicator’s written determination that either:
• the adjudicator did not in fact consider the submissions; or
• there is an explanation as to why, having considered the submissions, the adjudicator nevertheless did not refer to them; and
• a contravention of section 22(2) can only amount to a jurisdictional error if it is material in the relevant sense.

Ultimately, the Court partially set aside the determinations for jurisdictional error on the basis that the adjudicator failed in his reasons to consider submissions made by Qube, contrary to the obligations under section 22(2) of the Act. Justice Parker noted, in drawing the relevant inferences from the reasons why the adjudicator has not referred to submissions, that the Court is to consider:

• the apparent substance of the submissions made. If the submissions are relevant to the issues which the adjudicator has addressed, the adjudicator would refer to those submissions in their reasons.
• the weight given to the submissions by the parties. The more detailed and significant the submissions, the less likely an adjudicator would fail to refer to them.
• the probability that an adjudicator would have drawn the conclusion or made the determination reached in their reasons if they had considered the submissions made.
• the tight deadlines under which an adjudicator is to determine the adjudication under the Act, in conjunction with the particular circumstances of the case. Justice Parker noted that it would be “absurd” to think that the Court would adopt the same approach for the drawing of the relevant inference where an adjudicator was dealing with only a single claim involving a single issue as it would if the adjudicator in a separate adjudication was dealing with multiple claims involving multiple issues under the same timeframe. In the present case, while the adjudication comprised multiple claims and issues for the adjudicator to consider, the adjudicator had 19 weeks to determine the adjudication. Justice Parker therefore did not consider the time constraints on the adjudicator to be so extreme so as to prevent him from either dealing with Qube’s submissions, or explaining why he did not consider it necessary to do so in his reasons.

It will be interesting to see whether this decision will form a new trend in the way we see Courts draw inferences from an adjudicator’s failure to refer to submissions, or if this decision simply represents an exception to the rule in which the Court in fact found it possible to infer that the adjudicator had failed to consider submissions.

In either case, there is no doubt that further developments in these proceedings are on the horizon.

Unforeseen utilities delays not a nuisance

The NSW Court of Appeal, in Transport for NSW v Hunt Leather Pty Ltd; Hunt Leather Pty Ltd v Transport for NSW [2024] NSWCA 227 allowed an appeal in favour of Transport for NSW (TfNSW) overturning the Supreme Court’s decision that TfNSW was liable in private nuisance for losses to the businesses along the route of the Sydney Light Rail.

The primary judge initially found that significant delays to the Sydney Light Rail Project due to the discovery of unanticipated utilities along the light rail construction corridor constituted a private nuisance. This was established by reference to the scheduled occupation of “fee zones” set out in an amended Initial Delivery Program (Amended IDP) which the plaintiffs argued set out the acceptable length of occupation. Any occupation exceeding periods outlined in the Amended IDP were found to be an unreasonable interference with the respondents’ enjoyment of their property.

On appeal, TfNSW challenged the finding that the businesses suffered an interference which was both substantial and unreasonable. The Court of Appeal agreed with TfNSW and held that the plaintiffs failed to demonstrate the nuisance was unreasonable by particular reference to what would have been reasonable steps to take to mitigate such nuisance. The Court stated that the unreasonableness of the delay should not be judged by reference to the estimates in the Amended IDP, because:

• the Amended IDP could not be regarded as a reasonable estimate of construction time for any particular fee zone as it did not account for inclement weather, the discovery of unknown utilities and their treatment or various other contingencies; and
• the plaintiffs failed to establish that it was possible for TfNSW to have complete knowledge of the unknown utilities.

In fact, the Court recognised it would have been unreasonable, given the “extraordinary” use of the roads, to require TfNSW to excavate the entire road and footpath to identify all utilities and subsequently resurface them for the sole purpose of developing an accurate programme. This would have caused additional interference with the plaintiff’s enjoyment of their land and would not have reduced any subsequent interference during construction. Therefore the plaintiff failed to establish the unreasonableness of the nuisance through a failure to demonstrate that what would have been reasonable would have resulted in reduced interference.

However, the Court of Appeal was explicit in stating that its decision to overturn the first instance judgment was heavily reliant upon the specific facts of this case, rather than trying to “discern and apply some other all-embracing criterion of liability in the common law”.

Are litigation funding fees recoverable?

The plaintiffs/respondents cross-appealed, challenging the trial judge’s finding that they were not entitled to a 40% “uplift” on their judgment award to cover the fee of the litigation funder. The Court of Appeal rejected the plaintiffs’ submission on the basis that the costs of litigation funding was not a foreseeable loss caused by the nuisance, but rather a voluntary act of the particular plaintiffs.

High Court appeal

A special leave application has been filed with the High Court with the plaintiffs claiming that the Court of Appeal erred in its decision. Further details on this to come.

NSW Court of Appeal considers disclosure obligations and “half-truths” in the sale of land

Claims for misleading and deceptive conduct or false or misleading representations in breach of section 18 of the Australian Consumer Law (ACL) are common in construction disputes, particularly if a party fails to disclose significant site information (such as contamination).

In 191 Bells Pty Ltd v WJ & HL Crittle Pty Ltd [2024] NSWCA, the NSW Court of Appeal examined allegations that the vendor of a property engaged in misleading or deceptive conduct in failing to disclose contamination to the purchaser before the purchaser entered into a put and call option for the relevant land. Whilst in a land sale context, the situation is similar to construction contract tender processes where tenderers are required to make their own investigations before submitting their bids.

The purchaser alleged that the vendor breached section 18 of the ACL in two respects:

• by making a positive misrepresentation in disclosures made in a draft contract of sale. The purchaser characterised the disclosures that were made as to the condition of the land as conveying a “positive misrepresentation” that there were no other matters affecting the land; and
• non-disclosure “in circumstances where there was a reasonable expectation of disclosure”. According to the purchaser, it had a reasonable expectation of disclosure because it had made known to the vendor that it intended to develop the land and was conducting due diligence under its Exclusivity Agreement with the vendor.

The Court of Appeal affirmed the primary judge’s decision that the clauses contained within the Exclusivity Agreement were not enough to amount to a reasonable expectation of disclosure. In particular, where the Exclusivity Agreement required the vendor to:

• “allow” the purchaser to have access to information, this did not give rise to a duty to “provide” that information; and
• assist the purchaser in the due diligence process “as far as possible”, this did not impose a positive obligation of disclosure for anything potentially relevant “or even anything that might be understood to be of interest in relation to” the due diligence process. Instead, it qualified the extent of assistance to be provided.

The decision highlights the pivotal role that contract interpretation can play in determining the outcome in reliance cases.

NCAT’s approach to “reasonable course to adopt” when deciding on competing rectification options

In Easy Trades Australia Pty Ltd v The Owners – Strata Plan No. 3844 [2024] NSWCATAP 194, the Appeal Panel of the New South Wales Civil and Administrative Tribunal (NCAT) considered what would be the “reasonable course to adopt” for rectifying damages for defective work.

The dispute arose in relation to a contract between the builder (Easy Trades) and the owners corporation for the construction of an external staircase. The owners corporation claimed compensation for efflorescence staining on brickwork as a defect, seeking recovery of the cost to demolish and reconstruct the external staircase structure.

At first instance, the Tribunal preferred the owners corporation’s expert’s evidence that the only way to rectify the defect was to demolish and reconstruct the entirety of the face brick balustrade wall, rather than the builder’s proposed method of removing face mortar, cleaning bricks and adding new mortar.

On appeal, to provide parties with a final decision, the Tribunal decided to exercise all the functions of the Tribunal at first instance to determine the matter. The Tribunal followed Bellgrove v Eldridge [1954] HCA 36 which required the Tribunal to make findings as to which of the rectification methodologies proposed would:

• produce conformity with the contract; and
• be a reasonable course to adopt.

The Tribunal cited Tabcorp Holdings Pty Limited v Bowen Investments Pty Limited [2009] HCA 8 in clarifying that in considering whether a course of action is reasonable to adopt “the test of unreasonableness is only to be satisfied by fairly exceptional circumstances”.

The Tribunal found that the demolition and rebuild methodology would produce conformity with the contract. This methodology was a reasonable course to adopt (in preference to the builder’s alternative proposal) because it was not an “exceptional circumstance” for the Owners Corporation to have the face brick balustrade wall reconstructed with “due care and skill in accordance with AS3700-2018”.