The Supreme Court of NSW recently made orders quashing a $2.9m adjudication determination issued under the SOP Act in Acciona v Holcim relating to the Sydney Light Rail Project.

The decision reiterates the importance of procedural fairness in Adjudication Applications under the SOP Act, and is a reminder for parties to ensure that the applications, responses and submissions deal with the bases supporting their respective positions.

At a higher level, the decision is a warning to avoid a “cookie-cutter” approach to contracting and to instead take the time to understand each project’s performance and administration requirements before ensuring that these are worked into the contractual regime.


The Court: Supreme Court of New South Wales
The Case: Acciona Infrastructure Australia v Holcim (Australia) Pty Ltd [2020] NSWSC 1330 (Acciona v Holcim)
The Act: NSW Building and Construction Industry Security of Payment Act (1999) (SOP Act)


Background

On 9 September 2016 Acciona and Holcim entered into a Goods Supply Agreement (GSA) for the supply and delivery of concrete as part of the Sydney Light Rail Project. Under the GSA, Acciona would order concrete from Holcim by issuing a Purchase Order (PO). The GSA stated that upon the issue of a PO, a separate contract would come into existence on the terms in the GSA.

During the Project, Acciona issued Holcim with approx. 12,500 POs, and Holcim directed 36 payment claims to Acciona.

On 28 May 2020 Holcim directed payment claim 36 to Acciona totalling $3.76m (Payment Claim 36) which included newly claimed works, earlier works, charges, and works in payments claims 30 to 34.

In response, on 12 June 2020 Acciona served payment schedule 36 which valued the new works at $250k, but stated a scheduled amount of nil due to set-offs.

On 26 June 2020 Holcim lodged an Adjudication Application for Payment Claim 36 (Application), and on 3 July 2020 Acciona lodged its Adjudication Response (Response). The Adjudicator subsequently provided an adjudication determination (Determination) requiring Acciona to pay Holcim $2.9m, plus interest and 100% of the adjudication fees.

The Proceedings

Acciona commenced Supreme Court of NSW proceedings against Holcim and the Adjudicator seeking orders that the Determination be quashed for six reasons, ie that the Adjudicator:

  1. had no jurisdiction because there was no valid payment claim or adjudication application as Payment Claim 36 claimed for work under two or more contracts;
  2. failed to consider Acciona’s contention that the Adjudicator lacked jurisdiction;
  3. did not afford Acciona procedural fairness by finding a contractual basis for valuing progress payments not relied upon by Holcim, or the subject of submissions;
  4. did not afford Acciona procedural fairness by failing to give Acciona advance notice of the Adjudicator’s intention to rely on previous payment schedules;
  5. did not afford Acciona procedural fairness by rejecting Acciona’s contention that it could not properly assess Holcim’s claims because it had not been provided with delivery dockets, and making credit findings against Acciona’s witness, on bases not put by Holcim, the subject or submissions, or advance notice; and
  6. failed to discharge the statutory task of satisfying herself that Holcim had substantiated its claims.

Determination

His Honour dealt found for Acciona on the basis that:

  1. the Adjudicator did not have jurisdiction to determine the Application because Holcim’s payment claim included amounts under multiple contracts arising under a master supply agreement;
  2. Acciona had been denied procedural fairness because the Adjudicator decided the Application on a basis different from that advanced by Holcim, and made adverse credit findings against Acciona that were not advocated by Holcim, without notifying Acciona and giving it the chance to be heard; and
  3. The Adjudicator had failed to discharge her duty to satisfy herself that the work claimed by Holcim had been done and of its value.

In finding for Acciona, His Honour’s dealt with each of Acciona’s six reasons as follows:

Contention Decision
No Jurisdiction
Adjudicator had no jurisdiction because there was no valid payment claim or adjudication application because Payment Claim 36 claimed for work under two or more contracts. His Honour upheld this contention and found that each time Acciona placed a purchase order (PO), a separate contract for discrete work came into existence.
Payment Claim 36 included a number of POs, and therefore a number of contracts, and did not constitute a valid payment claim.
Adjudicator failed to consider Acciona’s contention that she lacked jurisdiction. His Honour did not uphold this contention but did find that the Adjudicator was bound to consider Acciona’s submission that she did not have jurisdiction and satisfy herself that there was jurisdiction.
Procedural Fairness
Adjudicator did not afford Acciona procedural fairness by finding a contractual basis for valuing progress payments not relied upon by Holcim, or the subject of submissions. His Honour upheld this contention and found that it is a denial of natural justice if an adjudicator decides the case on a basis different from that advocated by the parties without notifying them of the intention to do so and allowing them to be heard.
Adjudicator did not afford Acciona procedural fairness by failing to give Acciona advance notice of her intention to rely on previous payment schedules. His Honour did not uphold this contention because the Adjudicator paid attention to Payment Schedule 36 as well as the previous payment schedules which were before her. However, His Honour also found that the adjudicator’s approach of treating Acciona and Holcim’s previous dealings as admissions was erroneous because in many instances Acciona accepted earlier amounts on an “on account only” basis.
Adjudicator did not afford Acciona procedural fairness by rejecting Acciona’s contention that it could not properly assess Holcim’s claims because it had not been provided with delivery dockets, and making credit findings against Acciona’s witness on bases not put by Holcim, or the subject or submissions or advance notice. His Honour upheld this contention and found that natural justice required the Adjudicator to give Acciona advance notice that she was considering making adverse findings which had not been advanced by Holcim, and giving Acciona the chance to deal with them.
Statutory Obligation
Adjudicator failed to discharge the statutory task of satisfying herself that Holcim had substantiated its claims. His Honour upheld this contention and found that Holcim bore the onus of establishing its claim, including facts not disputed by Acciona. A fact is not established just because a party does not dispute it and the Adjudicator had a duty to satisfy herself that the work claimed had been done and its value.

His Honour subsequently made orders that the Determination is void, the Determination be quashed, the money paid into Court by Acciona (and any interest) be paid out to it, and Holcim to pay Acciona’s costs.

Take Away

This decision reiterates the importance of affording the parties procedural fairness in an adjudication application. Parties to an adjudication can assist an adjudicator by ensuring that their applications, responses and submissions cover the relevant bases supporting their contentions. This will minimise the risk of the adjudication determination being set aside.

Adjudicators should also ensure that they give the parties to the adjudication notice of their intentions and considerations, and ensure that the parties are afforded an opportunity to deal with them.

This decision also highlights the importance of ensuring that the contractual regime between parties is suitable for the works being carried out. Whether or not it works to be carried out under master agreements should fall under separate contracts or not depends on factors relevant to that project.

When deciding the best contractual regime for a particular project, the parties should understand the performance and administration requirements for that project, including factors such as the nature of the works (eg material supply v detailed design works), the anticipated quantum of the works (eg minor works v major works), as well as the expected lifetime of the agreement (eg. fixed-term or ongoing).

Morrissey Law + Advisory has significant experience in Security of Payment matters, Adjudication Applications & Responses, and the SOP Act.

If you require any advice or assistance regarding Adjudication Application or Response preparation, service, and compliance with the SOP Act, please don’t hesitate to get in touch here.

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