The page is intended to provide a brief guide to adjudication in South Australia

The current State of the Legislation in South Australia

The Building and Construction Industry Security of Payment Act 2009 has now commenced.  See the link below for the legislation, including our annotations:

Building and Construction Industry Security of Payment Act 2009 – Annotated

History of the Bills

In 2007, Nick Xenophon MLC (as he then was) introduced a Bill into the Legislative Assembly. In the same year, he was elected to the Federal Senate, and his place in the Legislative Assembly was taken by John Darley, whose 2008 Bill is in essentially the same form as the 2007 Bill. The Darley Bill was based on the NSW Act, but introduced a number of changes to bring the legislation somewhat more into line with adjudication practice elsewhere in the world, including the right for parties to agree on the identity of the adjudicator and extending the time for decision from 10 business days to 15 business days.

Comparison of Darley Bill vs NSW Act

Tom Kenyon’s Bill was introduced on 5th March 2009.

Its 2nd reading in the Legislative Council started on 19th November: a statement was inserted into the Hansard record unread.  Curiously, the statement appears not to relate to the version of the Bill that was before the House, since the statement said that the legislation excluded domestic contracts, and the detailed explanation of amendments omitted all mention of the crucial clause 7 of the Bill. The debate was adjourned.  Query if the very limited parliamentary time left this session will allow sufficent opportunity for the Bill to progress further (particularly since the political process currently seems to be more focussed on the issue of the Premier’s relationship with Michelle Chantelois).

The Kenyon Bill is based on the NSW model, but with some twists:

  • The legislation will have to compete with the Workers Liens Act, which is to stay in place,
  • The leglislation will include domestic contracts,
  • The parties are to be forbidden from agreeing upon the identity of their adjudicator.

In the first week of December 2009, further amendments were made excluding domestic contracts, and the bill passed

The Debates

See here for a digest of Hansard

Workers Liens

There is of course some degree of overlap between the objective of the 19th century Workers Lien legislation (still in force in South Australia) and the more recent trend towards adjudication. Both are concerned with protecting the rights of contractors and subcontractors to be paid, although their methods are very different (the liens route encourages litigation, whereas adjudication avoids it).

The question of the interaction between the two was recently live in the Northern Territory.  In August 2002, a well-researched and considered discussion paper was prepared by the Northern Territory Department of Justice Review Team dealing with the review of the old Workmen’s Liens Act and the new security of payment legislation elsewhere. The recommendation made, which was followed by the government, was to take the opportunity to repeal the Workers Liens legislation at the same time as introducing adjudication on the Western Australian model.

Is Adjudication a good idea in principle?

The overwhelming evidence from other jurisdictions is that adjudication is effective, especially the West Coast model, in reducing the burden of dispute to the construction industry. See Adjudication Down Under.

East Coast Model or West Coast Model for South Australia?

There are some significant differences between the models which operate on the east and west coasts of Australia.

The East coast model (NSW, Victoria and Queensland) emphasises default. If the paymaster fails to get his paperwork in on time, and in the stipulated form, then the contracting party (usually a subcontractor) gets paid the full amount of his claim, regardless of whether it is really due or not. The West coast model (WA and NT) follows the more successful UK and NZ path: there is more limited interference with party autonomy to make whatever contractual arrangements the parties like, and the emphasis of the adjudication is much more to achieve a fast, economic and fair evaluation of what is really due.

The East Coast model has spawned a sub-industry of for-profit private companies who control the appointment of adjudicators, and a very significant amount of snip-off litigation, as adjudication losers take court proceedings to challenge a process they regard as fundamentally unfair. See 10 Days in Utopia and the MBA Submission.

Who should be the Adjudicators?

There is strong evidence that parties should be free to agree the identity of their adjudicators if they want to.  In practice, the parties are much more likely accept an adjudication result from someone they have both agreed as both independent and competent.    Further, allowing the parties to agree encourages the development of a cadre of good adjudicators, whose reputation can be established by making decisions that are perceived by the parties as being fair. Conversely, under the “no agreement” system, there is no such incentive, and instead the evidence suggests a forum shopping mechanism, whereby claimants will go to the Adjudicator Nominating Bodies whose nominees’ decisions are typically the most pro-claimant.

In practice, the evidence is that, under systems which allow the parties to agree the identity of their adjudicators, the parties will often so agree in the larger cases, and less often in smaller cases. Usually, it is the parties’ lawyers, who are acquainted with the better known adjudicators, who advise on the choice.

The privateer ANBs are, of course, deeply opposed to allowing the parties this freedom, since their income depends on their retaining the power to nominate, and of course take a significant cut of the fee. They argue that allowing the parties to agree their own adjudicator will lead to head contractors forcing their own “tame” nominees on their subcontractors. But the evidence from the UK is that this does not happen to any material degree in practice, and in any event, the risk can be addressed by the NZ formula of allowing agreement only after a particular dispute has arisen.

How long should the adjudication take?

The East coast model allows 2 weeks. The WA system allows 4 weeks. The UK system allows 4 weeks, readily expandable to 6 weeks.

The SA Act allows 3 weeks.

Experience of these various systems suggests that the slightly longer periods are preferable, in order to give the adjudicator a reasonable chance of hearing what the parties have to say and making a considered decision. All of the variants are massively less than the typical timescale of litigation.

When will it happen?

The legislation everywhere has proceeded on the basis that it applies only to contracts entered into after the commencement date. This has meant a relatively slow start to the take up of adjudication.

The SA Act commenced December 2011, so in 2012 should see a widespread impact.