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International Journal of Law in the Built Environment Operational problems and solutions of statutory complex adjudication: stakeholders’ perspectives Samer Skaik,

Article information: To cite this document: Samer Skaik, (2017) "Operational problems and solutions of statutory complex adjudication: stakeholders’ perspectives", International Journal of Law in the Built Environment, Vol. 9 Issue: 2, pp.162-175, https://doi.org/10.1108/IJLBE-03-2017-0009 Permanent link to this document: https://doi.org/10.1108/IJLBE-03-2017-0009

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Operational problems and solutions of statutory complex adjudication:

stakeholders’ perspectives Samer Skaik

School of Architecture and Built Environment, Deakin University, Geelong, Australia

Abstract Purpose – Statutory adjudication was introduced into the security of payment (SOP) legislation as a fast-track payment dispute resolution process with an express object to facilitate cash flow within the construction contractual chain. After more than a decade of the operation of the regime in Australia and Singapore, it becomes apparent that there are many operational problems that jeopardise the intended object of the legislation, particularly in adjudicating complex payment disputes. The aim of this paper is to explore views of the industry stakeholders regarding some operational problems of statutory adjudication of as well as possible solutions. Design/methodology/approach – “Expert interviews” method is adopted to collect the empirical data, involving interviews with 23 practitioners from Australia and Singapore. Findings – The study identified many operational problems jeopardising the attainment of the object of the SOP legislation such as bias of authorised nominating authorities, short adjudication timeframes, inadequate regulations of adjudicators, jurisdictional challenges, involvement of courts and lawyers and complex drafting of the legislation. The study also analysed the views of industry experts with regard to the opportunities for improvement in the operation of the SOP legislation such as following the Queensland model as amended, and introducing a legislative review mechanism and establishing a peer review process. It also suggested specific amendments to make the legislation a more user-friendly. Practical implications – The implication of this study is a better understanding of the most critical problems inherent in statutory adjudication that need serious consideration by the legislatures and policymakers. In addition, the study also provides some practical measures as suggested by the industry practitioners for each identified problem which may stand as a reliable reference for potential reform in the SOP laws. Originality/value – There is inadequate empirical research conducted to investigate problems in the operation of statutory adjudication. The study provides original empirical findings which become much necessary nowadays in light of the dynamic moves towards law reform in SOP laws, particularly in Australia. The study provides some practical measures as suggested by the industry practitioners for each identified problem which may stand as a reliable reference for potential reform in the SOP laws.

Keywords ADR, Adjudicators, Judicial review, Law reform, Security of payment, Statutory adjudication

Paper type Research paper

1. Introduction Statutory adjudication was introduced into the security of payment (SOP) legislation as a fast-track payment dispute resolution process with an express object to facilitate cash flow within the construction contractual chain. After more than a decade of the operation of the regime, it becomes apparent that there are many operational problems that jeopardise the intended object of the legislation, particularly in adjudicating complex payment disputes. The “one-size-fits-all” adjudication scheme has resulted in a mounting swell of complaints and dissatisfaction with the adjudication outcome of larger and/or more complex cases, particularly in Australia (Australian Legislative Reform Subcommittee, 2014; Moss, 2015;

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Received 4 March 2017 Accepted 12 May 2017

International Journal of Law in the Built Environment Vol. 9 No. 2, 2017 pp. 162-175 © EmeraldPublishingLimited 1756-1450 DOI 10.1108/IJLBE-03-2017-0009

The current issue and full text archive of this journal is available on Emerald Insight at: www.emeraldinsight.com/1756-1450.htm

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Wallace, 2013). Adjudicators of such cases often have to grapple with complex legal arguments and large volumes of submissions within very limited timeframes.

The parties to large payment disputes in adjudication typically invest a lot of resources in the adjudication process, including the engagement of lawyers and technical experts to reinforce their positions. This has the tendency to force the adjudication process to drift away from the simple process intended towards a more complex process more akin to curial proceedings with substantial amounts of legal and technical submissions before adjudicators. This provides a challenge to adjudicators of such claims, whereas McDougall J noted that: “[the NSW Act] provides a very limited time for adjudicators to make their decisions on what, experience shows, are often extremely complex claims involving very substantial volumes of documents” [Chase Oyster Bar v Hamo Industries, (2010) NSWCA 190 at [207]-[209] (McDougall J)].

According to the Society of Construction Law Australia, the courts have lost confidence in the adjudication process after seeing “more and more cases where the quality of the adjudication decision making process has been so poor that the courts have been increasingly willing to intervene” (Australian Legislative Reform Subcommittee, 2014). This situation has encouraged aggrieved parties to challenge adjudication determinations by way of judicial review resulting in numerous judicial review applications. This has eroded the original object of the SOP legislation.

It is a frequent problem that a claimant, which obtains a favourable adjudicator’s determination, is disadvantaged from the effect and certainty of that determination if the respondent opts to challenge the determination by invoking lengthy judicial review proceedings. The uncertainty issue was judicially explained by Basten JA who noted that:

Between the date of the determination and the order of the court, no one can be sure whether the adjudicator has failed to determine the application validly. It is only the order of the court which resolves that question [Cardinal Project Services Pty Ltd v Hanave Pty Ltd, (2011) NSWCA 399 at [50] (Basten JA)].

As a result, the claimant will be at considerable risk of not only becoming insolvent but also confidently exercising its statutory right to suspend work in case of non-payment[1]. The consequences of any work suspension may be devastating if the adjudication determination is eventually quashed by way of judicial review. Vickery J observed this dilemma in Hickory Developments Pty Ltd v Schiavello (Vic) Pty Ltd and noted[2]:

A contractor would be seriously inhibited in the exercise of its statutory right to suspend works if it suspected that its payment claim and the adjudicator’s determination made upon it could be vulnerable to attack on technical legal grounds. If the contractor made the wrong call, the consequences of suspending work could be prohibitive.

In addition, the claimant will be more hesitant and reluctant to apply for further adjudications on other payment claims until certainty materialises upon the outcome of the judicial review. The claimant may also compromise its right and be compelled to settle the issue with the respondent so as to avoid the huge expense and delay in going to court to defend the validity of the determination.

The aim of this paper is to explore the views of the industry stakeholders regarding common operational problems associated with the adjudication of complex payment disputes as well as possible solutions.

2. Research method The study adopted an interdisciplinary research (research about law). The interdisciplinary research which is also known as a non-doctrinal legal research is about law, and it usually

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engages empirical data. The interdisciplinary research is concerned with facilitating a future change, either in the law itself or in the manner of its administration, therefore, it is often described as a “law reform research” (Arthurs, 1983). In the UK, the terms “law in context” or “socio-legal research” are often used (Chynoweth, 2008). The “law in context” means how the law works in the real world. This method helps researchers take other matters into account to interpret ambiguous legal rules by viewing them in their proper historical or social context when, for example, evaluating the effectiveness of certain measures in achieving the object of the legislation or examining their need or impact on the construction industry. For this study, the interdisciplinary research method was very essential to explain, predict or even understand the stakeholders’ behaviours in dealing with SOP laws and regulations in which doctrinal legal research falls short (Chynoweth, 2008).

The interdisciplinary research uses empirical data; therefore, it provides vital insights into the law in context. Empirical legal research is valuable in revealing and explaining the practices and procedures of legal, regulatory and dispute resolution systems and the impact of legal phenomena on a range of social institutions, businesses and citizens (Genn et al., 2006). This study selected “expert interviews” as a method of collecting the empirical data. In social research, the use of “expert interviews” as a method of qualitative empirical research has long been popular, as it offers an effective means of quickly obtaining good results (Bogner et al., 2009). Conducting expert interviews can serve to shorten time- consuming data gathering processes, where experts can provide practical insider knowledge and avoid the necessity to interview a wider circle of players (Bogner et al., 2009). “As a method, the expert interview appears to be ‘quick, easy, and safe’ in its application, and it promises to be of good practical value” (Meuser and Ulrike, 2009). This method helped explore various opinions and perceptions regarding the inherent problems in the SOP laws as well as opportunities for improvement.

A purposive sampling method was adopted to identify the potential experts who are experts in many jurisdictions operating SOP regime including Singapore, Victoria, New South Wales (NSW), Queensland and Western Australia (WA). The experts were selected based on their specific experiences relevant to the research area under investigation.

A total of 52 invitations were sent out. Eventually, only 23 out of the 52 experts have participated in the research. That was a satisfactory sample size in accordance with the well- established guidance that the minimum number of interviews needs to be between 20 and 30 for an interview-based qualitative study to be published (Bryman, 2012; Creswell 1998). The 23 interviews were conducted over a period of five months between 28 October 2015 and 23 March 2016. Most of the interviews were conducted by phone being the most convenient way in terms of time and cost. The interview durations varied between 30 minutes to two hours but the majority were completed in one hour. All interviews were recorded with the permission of experts.

The experts mainly belong to two main groups: adjudicators and construction lawyers. Half of the experts have dual roles acting as adjudicators and construction lawyers. Many experts act as advisers for the parties during adjudication or enforcement proceedings. That is quite important, as it ensures that the views of the parties are also considered in the research as conveyed by the interviewed experts. Most of the experts have more than 20 years of experience of dealing particularly with construction disputes and more than 10 years in dealing with statutory adjudication. This high level of experience increases the credibility of the participants’ views due to their broad knowledge and experience in construction disputes. It will also bring relevant, rich and concise views in terms of the research question being investigated. The vast majority of experts either possess legal

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qualifications or both legal and technical qualifications. This is understandable because statutory adjudication is dominated by legally trained professionals.

3. Criteria of complex adjudications The importance of understanding the criteria of complex claims is manifest to diagnose associated problems and investigate possible solutions. Many experts observed a link between the amount in dispute referred to adjudication and complexity of the payment claim. A Victorian adjudicator observed that the larger the payment claim, the more complex is the case because the parties invest in appointing lawyers and provide volumes of detailed submissions including legal arguments and factual documents[3]. He further said that in his experience, parties to adjudication start to engage lawyers when payment claims reach the level of AUS$100,000. A Singaporean adjudicator said the complexity can be identified by jurisdictional challenges, challenges that deal with interpretation of the Act, where the quantum of dispute is large or where the legal issues are complex such as misinterpretation of contract terms[4]. Another WA adjudicator said that the case becomes more complicated if it includes time related costs or expert technical reports[5].

Those views help shape the understanding of the nature of complex claims to assess whether or not the current legislative scheme deals with them effectively. Payment claims of any size could be complex if jurisdictional arguments are raised before adjudicators. However, the likelihood to have jurisdictional challenges may be very limited in the case of small payment claims where respondents find it unfeasible to invest in engaging legal advisors who rely heavily on jurisdictional argument in their defence. This argument reconciles with the findings of an empirical study in WA that larger claims are more likely to involve complex legal issues[6].

4. Identified problems in complex adjudications The interviewed experts shared interesting thoughts on many problems that are usually encountered when complex claims are adjudicated. The main common problems are identified and categorised into the following sub-headings following the analysis of all transcripts.

4.1 Poor quality of adjudication outcome All of the experts have similar views that there are quality concerns with adjudication determinations but have different views about the significance of those concerns. Many of them have mentioned the quick and dirty nature of adjudication which makes it almost impossible for an adjudicator to reach a well-reasoned determination in complex cases. That result can be reconciled with the observations of courts and scholars acknowledging the poor quality of determinations on complex claims [State Water Corporation v Civil Team Engineering Pty Ltd, (2013) NSWSC 1879 at [10] (Sackar J); Shell Refining (Australia) Pty Ltd v AJ Mayr Engineering Pty Ltd, (2006) NSWSC 94 at [25];[26] (Bergin J); Chase Oyster Bar v Hamo Industries, (2010) NSWCA 190 at [207]-[209] (McDougall J); Jacobs, (2014)].

Many experts also claimed that this issue has caused industry dissatisfaction with the adjudication process despite the fact that the process is interim. An official working in the Victorian Building Authority said that the legislative policy calls for “pay now argue later” principle and anything else will be a shift which is unacceptable[7]. Another expert commented: “The question is whether you’re happy enough to say: Well I’ll accept it but move on with my life[8]”. This approach was endorsed by a third expert who raised an interesting argument:

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If the quality of adjudications is improved to the extent that parties know that it’s pretty much as good as they would get from a fully blown trial, and it’ll never be as good, but if parties are assured, commercial parties know that 80 per cent is good then from a commercial point of view that I think would influence them to then say: Are we really going to roll the dice for the remaining 20 per cent[9]?

Another experienced lawyer said:

We have had adjudications that we have lost where I think the adjudicators made a mistake, and we’ve had decisions where we’ve won and we think that we should not have won, but the parties then got on with the real dispute resolution process[10].

Apparently, the industry, which is left with judicial review as the only remedy shows readiness to accept flawed determinations if it is not worth it to challenge them in court. This conforms to the underlying policy of the legislation as to offer rough justice supported by the main object of the legislation to keep cash flowing. This means that it may make sense that this commercial factor should be taken into consideration if alternative remedies are sought. In other words, monetary threshold may be introduced within any alternative remedy scheme such as dual scheme as implemented recently in Queensland or review mechanism as established in Singapore.

4.2 Bias of commercially driven authorised nominating authorities The majority of experts, in the Eastern Australian States, expressed similar views that adjudicators and authorised nominating authorities (ANAs) are commercially driven to produce an outcome that is “claimant friendly” rather than an outcome that is efficient and fair, which negatively affects the outcome. This result is not surprising as many legislatures, acknowledging this problem, have started taking serious measures to counter that effect (Fair Trading, 2015; Moss, 2015). Some experts said that the 2007 reform in Victoria has improved the quality of determinations where the parties can select three ANAs in the contract, and the parties have to go to one of those three which have prevented ANAs from being claimant friendly. An adjudicator raised a concern that the approach taken in Victoria does not work because of the imbalance in bargaining powers[11]. He reiterated that adjudicator’s appointment is flawed because of the conflict of interest, and, if it is fixed as in Queensland, a lot of problems that are undergoing with adjudication across the country can be fixed. Another expert mentioned that most of the respondents do not trust ANAs because they are “claimant friendly[8]”. The owner of a major private ANA rejected the perception of “claimant friendly” ANAs, as it completely twisted the reality and was against the ANA’s commercial interests[12]. He further said that if his ANA thinks there is a bad decision, then the ANA will take action internally after the event. He went on to say that his ANA has no interest at all in defending the standing or reputation of an adjudicator who makes a poor decision.

The views of experts around this sensitive issue is quite enlightening in the sense that someone could argue that most of the adjudicators who do not get enough referrals may tend to be claimant friendly to help their ANA get more business which would in turn mean better opportunities for them to get more referrals. This would be the case whether or not the ANA itself is for-profit ANA. This argument means that abolishing for-profit ANAs only may not be the best option to address the bias concerns. Rather, a single governmental appointment system similar to the system implemented in Queensland may stand as a better and more effective remedy. However, those perceptions would need further research which is beyond the scope of this study.

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4.3 Short adjudication timeframes Many experts addressed the short adjudication timeframes as a major factor contributing to poor quality determinations. One expert said that the high number of applications made for judicial review in NSW to challenge poor determinations is due to adjudicators being too time stressed to make appropriate decisions[11]. Another one disagreed that the 10-day period is too tight and said that adjudicators should not accept appointments if they have not got the time to take on cases[13]. The same expert also referred to the fees charged by adjudicators, which are in the range of AUS$3,000-AUS$3,500 per day, that make the adjudication too expensive for the parties if a longer time is granted. A Victorian adjudicator observed that the 10 business days are never enough for experienced adjudicators to consider all matters raised[3]. Another adjudicator mentioned that the current average timeframes to adjudicate complex claims in Queensland is 47 days[11]. This duration seems too long for what is intended to be a quick and interim process.

There is a general consensus that tight adjudication timeframes are the main cause for the poor quality (Society of Construction Law Australia, Australian Legislative Reform Subcommittee, 2014; Jacobs, 2014). Some experts blamed adjudicators for accepting to adjudicate complex cases. However, it may be difficult for an adjudicator, who spent a considerable time on a case, to resign half way through the process in order not to lose his or her fees (Wallace, 2013). However, other experts said that timeframes may not be an issue for senior adjudicators in most of the cases and suggested that if the parties opt to adjudicate very complex and large payment claims, adjudicators may not accept appointment unless both parties agree to grant reasonable additional time as may be requested by the adjudicator.

4.4 Inadequate regulation of adjudicators Many experts observed the poor selection of competent adjudicators and their inadequate training. A lawyer practicing in Queensland observed that electricians were appointed to determine very complex building disputes involving tens of millions of dollars and very complex legal issues[11]. Another one said that most of the adjudicators do not have the skill sets to deal with jurisdictional challenges[8]. A well experienced lawyer and adjudicator practicing in various jurisdictions had a strong view about the quality of adjudicators by saying that there are a lot of people who should not be adjudicators, but most of them are dealing with small matters and they never get to courts. The owner of a major ANA said that many adjudicators, despite having great experience and qualifications, cannot write good determinations that soundly tell the legal story in a way that parties can understand[12]. Another practicing lawyer and adjudicator said that there are unhealthy practices in WA that many adjudicators come from other States and claimed that quality is being jeopardized, as it is difficult for an adjudicator being an expert in six States[5]. He went on to say that in his experience, continual professional development (CPD) arrangement may not be an effective measure to improve the quality because it is difficult to convince adjudicators to change how they operate. In contrast, another expert found that imposing mandatory and effective CPD schemes will definitely help improve the quality of adjudication outcome[14].

Most of those views are informative and novel. They provide not only a better understanding of the impact of lack of regulations in the appointment and eligibility of adjudicators but also a proof that many adjudicators are under-performing for different reasons (as mentioned above), and they are not supposed to practice. This critical area would need further investigation which is beyond the scope of this study.

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4.5 Jurisdictional arguments Many experts identified another problem with the operation of statutory adjudication as being that adjudicators are required to deal with jurisdictional arguments, a task for which they are not adequately trained. They further claimed that some jurisdictional arguments can be too complex to be dealt with by adjudicators with insufficient legal training. One expert said that many adjudicators with legal backgrounds find it too complex to deal with quantification, construction programme or quality standards of construction works[13]. Another one said that “almost all cases that come before an adjudicator is, first of all, objection to jurisdiction, and in case that fails, that then goes on to deal with the merit[10]”.

The owner of a major ANA said that his ANA only appoints legally qualified adjudicators if jurisdictional arguments are raised[12]. He also said that if the jurisdictional arguments are only raised in the adjudication response where the adjudicator was appointed for his technical competences, then the ANA encourages that adjudicator to withdraw without charging a fee to appoint a qualified adjudicator. He further said that there is no regulation governing that issue, and it is only a matter of good practice. He went on to say that some law firms and some preparers usually have a ready list of 10 to 12 jurisdictional issues, and, therefore, they usually raise the same jurisdictional objections. On the other hand, the same expert gave an interesting example as to the different approaches of adjudicators in dealing with jurisdictional issues by saying:

The most common complaint by parties is not so much on jurisdiction but it is because they reckon that the adjudicator charged too much. The adjudicator wrote 140 numbered paragraphs on issues or jurisdiction which another adjudicator could have dismissed with 3 paragraphs. So, the first adjudicator was going out of his way to write a book in relation to the issues.

Apparently, there are some real practical problems associated with the jurisdiction of adjudication where the legislation falls short to tackle them adequately, as mentioned above, even in Queensland where some amendments were introduced to encourage better practices in dealing with the jurisdiction of adjudicators. For instance, the amendments did not impose any duty on adjudicators to avoid unnecessary expenses in dealing with jurisdictional challenges.

4.6 Delaying tactics A leading lawyer and adjudicator mentioned delaying tactics as another significant problem that undermines the object of the SOP legislation[15]. He explained that if there is a large amount involved, the respondent will do anything to delay payment such as challenging the adjudication determination in the Supreme Court. He went on to say that the rate of interest is usually very small compared to what the respondent is making by using the money on other contracts or investing it in the short-term money market, so, even if the respondent loses the application to Supreme Court, it will still make money, simply because it is holding the money longer. He also mentioned another advantage for respondents in taking the claimant to the Supreme Court is that a subcontractor who desperately needs money may become insolvent before any court ruling is made for the respondent to pay. A WA lawyer agreed with this and explained the sort of pressure that lawyers face when respondents challenging adjudications by quoting one of them saying: “If you win, my client will fold his company. If you lose, my client will keep his company going and get legal costs off you[5]”.

Another practicing adjudicator in Victoria claimed that the number of challenged adjudications in court is not a good indicator of the quality of adjudication determinations because many respondents have got to do something to avoid paying while they are in the context of time to negotiate an overall settlement of much bigger disputes[13]. He further

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added that whether or not a determination is appealed is not solely decided by lawyers thinking about whether or not they are going to win. A practicing lawyer explained the approach of respondents in playing that game by saying “the respondent might be saying: Well, if the decision comes back at $800,000 I might play my jurisdiction card but if it comes back less I’m very happy with the decision. I’ll just keep it in my top pocket[16]”.

These views uncover many unacceptable practices exploiting the loop holes in the legal system which enable respondents to challenge any adjudication determination by way of judicial review without having to pay the adjudicated amount in court. Until the time of writing no measures have been taken or proposed to address this major problem that frustrates the object of the SOP legislation.

4.7 Judicial intervention One of the identified problems that was repetitively mentioned by the experts is the court involvement in adjudication process. Most of the experts believe that judicial intervention in statutory adjudication creates a significant barrier against securing smooth cash flow within the industry as intended by the SOP legislation. An adjudicator explained the nature of the emerging problems by saying:

After Kirk,[17] courts started to interfere with the conduct of adjudicators using judicial review to expand the notion of jurisdictional errors. I think it is a quite contrary to the intent of Parliament. This has inhibited companies using adjudication because they feel it will end up in court. It is an inhibiting factor and claimants start to say why not to litigate or arbitrate straight away and what is the point if adjudication is always prone to judicial review despite being an interim measure. A body of case law has been built up which is so complex that an average engineer or QS can’t understand[18].

A construction lawyer in Queensland said that judicial intervention effectively frustrated the operation of the Act in Queensland, as the court is too slow to hear and make judgments and subcontractors will need to wait for their money until then[19]. Another expert said that only the big matters get to the court, and most of them fairly involve senior adjudicators[15]. That view was shared by another expert who said that a party will never invest money in engaging lawyers and experts to defend its case in the Supreme Court unless there is substance which should be a minimum of AUS$50,000[11]. A lawyer clarified the losses incurred by winning claimants when they try to enforce the determination in court:

A respondent will let a claimant commence legal proceedings, and then offer to pay the adjudication amount. Then, there would be a negotiation about what extra interest and what legal fees, but by that stage, the claimant is so desperate that it will probably forgo interest and legal fees to get its money[5].

Another expert claimed that judicial review is a major backwards step because it increases the cost forcing many adjudicators to put more protective materials in their determinations[5]. This observation reconciles with the comments made by Bergin J regarding the “catch-all” statements used by some adjudicators to fend off an allegation that they have failed to consider a relevant matter.(Shell Refining (Australia) Pty Limited v A J Mayr Engineering Pty Limited, (2006) NSWSC 94) at [25];[26] (Bergin J). Another lawyer explained how costly the involvement of courts in adjudication is by saying: “You can have two applications at different forums; one application to enforce the award and another application to quash the award or to set it aside[10]”. He further said that in WA, it is quite possible that you get two different judicial officers considering the same matter. Another one said: “the legal costs of running an application to set aside a decision would have to be five times more than the actual adjudication preparation[20]”. He added that normally, the

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losing party of a challenged case would be required to pay 70 per cent of the other party’s costs and that percentage increases to 90 per cent as indemnity costs if the conduct of the losing party was bad.

Experts have different opinions with regard to the effectiveness of judicial review avenues in preventing injustice in adjudication and improving the quality of adjudication outcome. Some experts mentioned that the object of the legislation has been undermined as judges, who have no construction experience, used to examine very fine legal and administrative issues in adjudication determinations. Another expert said that “different judges have different opinions on the same thing and they are always keen to push their own opinions”[5]. He further said that he prefers to keep any appeal within the local civil tribunal of three to four members rather than court. In contrast, some experts advocated that the availability of judicial review has clarified some ambiguities in the application of the legislation and provided directions for adjudicators to better deal with cases. A practicing lawyer found good benefits of having judicial review and argued that adjudicators, by reading the published court decisions, have learnt to improve their reasoning, and there is no doubt that adjudicators now are a lot better at not falling into a jurisdictional error because there have been many published decisions about what is jurisdictional error and what is not[19].

The above results confirm that judicial intervention, being excessive, tends to be a problem rather than a necessity for the smooth operation of the SOP legislation. This shift requires some novel smart measures that maintain the supervisory powers of supreme courts over adjudication whilst keeping the majority of challenge applications away from judicial system by, for example, introducing an alternative arrangement that provides a more convenient remedy (Skaik, 2017).

4.8 Involvement of lawyers The vast majority of experts believe that the whole lifecycle of the adjudication process becomes dominated by lawyers. A government official said that a lot of people retain counsel in Victoria and most of issues are legal[7]. A Victorian adjudicator commented on the legislative amendments made in 2007, namely, the raft of exclusions and introduction of the complex review mechanism within the legislation which eventually led to the fact that technical people get out of the process and lawyers become dominant hijacking the system [13]. A WA lawyer explained the root of the problem by saying:

One of the problems caused by judicial reviews is that it’s thrown up so much more case law that if you don’t – if you aren’t legally represented or you are legally represented by a lawyer that’s not a construction law specialist then whatever chance you have is going to be significantly diminished[5].

The involvement of lawyers does not reconcile with the purpose of the SOP legislation[21] that was primarily devised to help vulnerable class of subcontractors. Those subcontractors are faced with a piece of legislation that is not user-friendly. Also, those subcontractors will not be able to cope with the tremendous dynamic case law on adjudication when they prepare or defend their claims. They are left with no option but to engage lawyers to handle their claims where none of the legal costs will be recovered even if they get a favourable adjudication decision. Eventually, the cost incurred on being involved in the adjudication process may eat up a major portion of the adjudicated amount making the process less viable and attractive to many small players in the industry.

5. Solution/mitigating measures The analysis of industry stakeholders about some necessary mitigation measures to address the above problems can be categorised under the following main sub-headings.

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5.1 Follow Queensland model as amended Many experts mentioned the recent reform in Queensland that aimed to improve the quality of adjudicators as an ultimately positive step towards improving the quality of adjudication decision-making and fairness. Accordingly, a construction lawyer in Queensland noted that removing the bias in the process in Queensland has effectively improved the quality of adjudication decisions[19]. However, the owner of a major ANA addressed a significant drawback in the recent amendments and argued that the adjudication process of complex claims in Queensland now takes up to six months (if started before Christmas) which contradicts the interim and rapid nature of adjudication[12].

5.2 Improve the regulation of adjudicators and authorised nominating authorities A construction lawyer viewed that the best way to improve the adjudication outcome is to improve the quality of adjudicators rather than improving the process of adjudication[8]. Another adjudicator suggested to increase the minimum standards for adjudicators, so only competent and well experienced adjudicators can practise[22]. A senior adjudicator noted that the quality could be improved if the number of accredited adjudicators is reduced[14]. He justified that by saying:

When I ran an authorised nominating authority I kept my panel reasonably small because it seemed to me you have an obligation to give people at least ten to fifteen adjudications a year. Accordingly, there will be no reason for them not to maintain their private reading, get their skills up and attend seminars or do whatever. So, there are adjudicators who do two or three adjudications a year, and that is very dangerous.

On the other hand, the owner of a major ANA said that the better solution is to ensure that the ANA is required under the Code of Conduct to take greater attention to the standard of quality of the work performed by adjudicators after the event (not during or before) and that if it is proven that the ANA is not performing those duties to the standard that can be reasonably expected then the appropriate processes can be followed in terms of the authorisation of the ANA[12]. He said that as part of the internal peer review process, where many flaws are found in the determination, it is likely that the errant adjudicator undergoes further training or engages in a mentoring arrangement when adjudicating further cases. He further said that if the adjudicator’s performance does not improve, he or she will be disqualified to receive further referrals.

5.3 Improve the drafting of legislation Some experts criticised the current drafting of legislation and calls for better drafting of legislation and making the legislation more consistent to improve the quality of determinations. A construction lawyer and adjudicator said the poor quality of determinations is caused by the poor drafting of legislation and he gave an example of the improvement in the Queensland model which, he said, has reduced the number of Supreme Court challenges significantly[11]. A Victorian adjudicator criticised the complex drafting of the Victorian Act[13]. In addition, he proposed that reference dates should be up to the adjudicator to determine and should be by the end of each month. He went on to suggest that a legislative amendment is needed to ensure that all construction contracts be registered to use the Act.

An adjudicator said that there are 15 different timelines in the Act making it too complex and not user friendly to vulnerable subcontractors who are not sophisticated enough to be able to work through the timelines[4]. Another adjudicator agreed and viewed the lack of education as another barrier deterring small subcontractors from using adjudication by saying:

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I think that the system ought to be helping smaller contractors get paid because they’re often the ones that get done over. On the other hand, a lot of them don’t have the management skills. They aren’t terribly good with their invoices or their contracts and they don’t like having an argument with the boss because they might not get another job and they’re then left without money for six months. They’re the ones that need help but the help that they need is probably business training and management skills rather than this particular system[23].

A senior adjudicator said that harmonising the legislation in Australia is worthwhile[14]. Many experts favoured the West Coast model over the East Coast model for its simplicity. One practicing adjudicator in WA said:

At least in WA, what you’ve got is fairly simple legislation that perhaps doesn’t solve all of the problems can arise, and the more you try and solve particular problems, the more complicated it get, and there’s a value in having a simple system. . . even if it doesn’t work well always, there’s a value in having a fairly simple system. It’s a trade-off and it’s hard to get that balance between simplicity and comprehensiveness[23].

5.4 Introduce legislative review mechanism Many experts suggested to introduce a legislative review mechanism of erroneous determinations. They look at the review mechanism as a quality assurance, quality control or a peer review process. One adjudicator said that there is always a need to offer another set of eyes to build confidence in the system[22]. An academic[9]. noted that the experience in Singapore tells that the mere existence of a review mechanism and possibility seems to improve the chances that an adjudication will be done well. He meant that the fear of having a peer say that the determination was made incorrectly may of itself lead to greater quality. This statement was endorsed by a Singaporean adjudicator who acted as a review adjudicator on many occasions[4]. Another one said that essentially there has to be some check on the adjudicators exercising jurisdiction and performing their process properly because even adjudicators who are also practicing lawyers have been taken on judicial review, and they have got it wrong[24].

Some experts supported the idea of introducing a review mechanism in other jurisdictions such as NSW but raised concerns regarding its disadvantages, as it will add more delays and costs to adjudication process. A construction lawyer from Queensland suggested: “if you did have a review process it should be in the legislation and it’s a precondition to a court review[19]”.

A construction lawyer said the review mechanism will be redundant if a court review is followed afterwards[19]. Another one said it would be of no value if we could actually get to the point where adjudicators are producing better-quality decisions and making their decisions on proper basis that people objectively can understand[8].

5.5 Establish peer review scheme A construction lawyer suggested to provide the adjudicator with the power to get his or her decision peer reviewed before releasing to the parties where both parties should share the cost of the peer review[19]. He gave an example of the International Chamber of Commerce’s internal court that it reviews all arbitration awards before they are published, but it cannot alter the tribunal’s decision and its main role is to make suggestions. Another adjudicator practicing in WA proposed that if parties want a merits review of the adjudicator’s decision; they should pay a fee to have a senior adjudicator nominated to have another look at the case[10]. A construction lawyer agreed with the approach of independent peer review by saying:

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The idea of an independent body reviewing adjudication determinations and seeing whether adjudicators can maintain their ticket is also an idea that attracts me, because that does not add a review process for the parties, but it does tell the adjudicators that somebody is going to be looking over their shoulder and seeing whether or not they actually apply well-expressed logic and reasoning.

The owner of a major ANA said that his ANA has very robust internal review systems. He explained that if the ANA has concerns about the quality of adjudication, then it is usually activated through a complaints system and internal peer review process following the release of determinations[12]. He explained about the peer review mechanism, which usually takes 15 business days, by saying:

Our reviews are being conducted and always done by at least two senior adjudicators and they do them separately, so we get two reports on the matter that’s the subject of a complaint, and those reports are prepared with iron curtains so that neither adjudicator sees the report of the other senior adjudicator, so they’re quite independently prepared and if they both agree then it makes my life easier. If they don’t agree then that makes my life more difficult. It’s a very robust system that we have and it’s also very expensive and time consuming, but it’s a system that we’ve had in operation for some time which all of our adjudicators are familiar with because they’re required to sign up to it when they come on board our panel.

5.6 Introduce a construction court A construction lawyer practicing in Queensland claimed that there is often judges that are not suitable for construction law disputes, giving the decisions. He suggested that there should actually be a specific couple of judges, appointed to do construction law matters, as it works in England. He went on to say that in England, there is a lot better construction law decisions coming out than its counterparts in Australia in terms of quality of reasoning[19]. This view was supported by the owner of a major ANA who said that poor decisions of some judges (who have no construction background) significantly influence the judicial system where parties need to wait for months until a more experienced judge within the industry comes to correct it[12].

6. Conclusion Despite the general consensus that statutory adjudication has helped many vulnerable subcontractors and suppliers get timely payment, this empirical study demonstrated that the legislation is ineffective at delivering quality outcomes in the adjudication of complex payment disputes. The study found that the parties are usually investing in adjudication by appointing legal advisers and/or technical experts if considerable monetary amount is the subject of dispute which results in a more complex payment dispute. The parameters of complexity in adjudication were also identified which include the nature and size of the dispute, the amount in dispute, inclusion of expert reports, raising legal arguments regarding jurisdictional issues and contract interpretation.

The study identified many operational problems jeopardising the attainment of the object of the SOP legislation such as bias of ANAs, short adjudication timeframes, inadequate regulations of adjudicators, jurisdictional challenges, involvement of courts and lawyers, and complex drafting of the legislation. The study also analysed the views of industry experts regarding the opportunities for improvement in the operation of the SOP legislation such as following the Queensland model as amended and introducing review mechanism or peer review process. It also suggested specific amendments to make the legislation a more user-friendly. The implication of this study is a better

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understanding of the most critical problems inherent in complex statutory adjudication that need serious consideration by the legislatures and policymakers. In addition, the study also provides some practical measures as suggested by the industry practitioners for each identified problem which may stand as a reliable reference for potential reform in the SOP laws.

Notes

1. The risk of such suspension was well noted in Brodyn v Davenport (2005) NSWCA 394 at [51] (Hodgson JA).

2. [2009] VSC 156; 26 VR 112 [47].

3. Senior adjudicator and construction lawyer based in Victoria.

4. Accredited adjudicator and independent arbitrator based in Singapore.

5. Adjudicator and Construction lawyer based in Western Australia.

6. A survey of 22 adjudicators in Western Australia carried out by Yung et al found that while larger claims are not by virtue more complex, they have a greater potential to involve complex points of law – see Yung et al., above fn 322, p 61.

7. Legislative Advisor at the Victorian Building Authority (VBA).

8. Construction lawyer based in South Australia.

9. Senior academic with law background based in Victoria.

10. Barrister and solicitor based in Western Australia.

11. Senior adjudicator and construction lawyer based in Queensland.

12. Senior adjudicator and owner of a major authorised nominating authority in the Eastern Australian States.

13. Senior adjudicator with quantity surveying background based in Victoria.

14. Senior adjudicator practicing in NSW and Queensland.

15. Senior adjudicator and construction lawyer based in NSW.

16. Arbitrator, adjudicator and mediator based in Victoria.

17. In Kirk vs Industrial Relations Commission of New South Wales (2010) HCA 1, it was held at [100]: “Legislation which would take from a State Supreme Court power to grant relief on account of jurisdictional error is beyond State legislative power. Legislation which denies the availability of relief for nonjurisdictional error of law appearing on the face of the record is not beyond power.”

18. Senior adjudicator, arbitrator and construction lawyer based in Western Australia.

19. Construction lawyer based in Queensland.

20. Senior Associate practicing in Queensland and Victoria.

21. In many jurisdictions, the SOP legislation prohibit legal representation.

22. Senior adjudicator based in Victoria.

23. Senior adjudicator, arbitrator, mediator and construction lawyer based in Western Australia.

24. Construction lawyer based in WA.

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Corresponding author Samer Skaik can be contacted at: [email protected]

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