Expert Determination under GC21 – when is it binding?

Commercial

This question has been the recent consideration of the NSW Court of Appeal in the decision of Lahey Constructions Pty Ltd v The State of New South Wales [2021] NSWCA 69. The full decision can be read here.

Under GC21, clause 71.8 states:

“Neither party may commence litigation in respect of the matters determined by the Expert unless the determination:

  1. does not involve paying a sum of money; or
  2. requires one party to pay the other an amount in excess of the amount stated in Contract Information item 54, calculated without having regard to:
    • any interest that may be payable; and
    • any amount that has been paid pursuant to the Building and Construction Industry Security of Payment Act 1999 (NSW).”

In the above instance:

  1. Lahey had entered into two contracts with the Department of Education. The threshold for expert determination stated in the contract information was $500,000.00.
  2. In each contract, Lahey and the Department of Education had referred certain matters to expert determination. Whilst the expert determination procedure was ongoing, Lahey served payment claims on the Department of Education regarding certain variation claims and were awarded monies through adjudication under the Building and Construction Industry Security of Payment Act 1999 (NSW).

In the expert determination, the Expert determined as follows:

Contract 1 – Manly Vale Public School

Amount paid to Lahey pursuant to AdjudicationAmount determined by ExpertAmount payable to DoE as determined by Expert
 TOTAL$5,286,616.07$3,772,997.56$1,634,730.55

Contract 2 – Bardia Public School

Amount paid to Lahey pursuant to AdjudicationAmount determined by ExpertAmount payable to DoE as determined by Expert
 TOTAL$7,405,506.54$5,152,071.41$2,253,435.24

Decision in First Instance

The Primary Judge approached the question by treated amounts adjudicated upon and provisionally paid under the Security of Payments Act as finally determined amounts to be adjusted by reference to the expert’s determination. These amounts were not “backed out of” the calculation to determine whether the threshold amount had been exceeded.

Effectively, the primary judge found that because the total amount payable to the Department (being $1,634,730.55 for Manly Vale and $2,253,435.24) was an amount already paid to Lahey by the Department under Adjudication, that when you calculate “without having regard” to that payment, the amount did not exceed the $500,000 threshold and the decision was final and binding.

Findings by Court of Appeal

The NSW Court of Appeal determined that the proper calculation in considering whether a party was entitled to commence litigation was to completely disregard the amount paid pursuant to Adjudication, such that the “determined amount” to be considered against the threshold is the amount determined by the Expert rather than the amount payable to the Department.

Namely, the amount to be considered against the threshold is the amount determined by the Expert being $3,772,997.56 for Manly Vale and $5,152,071.41 for Bardia) not the amount to be reimbursed factoring in payments already made under Adjudication.

This is a common sense decision and reflects the intention of the Building and Construction Industry Security of Payment Act 1999 (NSW) to be an interim measure and not have any consequences on the parties in terms of the final resolution of rights under the Contract.

If you have any queries regarding this article, please do not hesitate to contact us.

Menu