NSWSCA considers bad faith in SOPA adjudications
A recent decision of the New South Wales Supreme Court of Appeal in Goodwin Street Developments Pty Ltd v DSD Builders Pty Ltd  NSWCA 276 considers the requirements for a finding that an adjudicator’s determination of a payment claim under the Building and Construction Industry Security of Payment Act 2002 (NSW) (the Act) was invalid for lack of good faith.
Goodwin Street Developments (the Owner) and DSD Builders (the Builder) entered into a construction contract which was ultimately terminated by the Owner. The Builder served a payment claim on the Owner in the amount of $727,256. In response, the Owner served a payment schedule in the amount of $0 on the basis that the Builder owed it a substantial sum for rectification of defective works (amongst other things). The Builder applied for adjudication of the payment claim and the adjudicator awarded the Builder $265,510. The Owner commenced proceedings to have the adjudicator’s determination quashed, the primary judge dismissed the proceedings, and the Owner appealed to the New South Wales Supreme Court of Appeal.
The only ground pursued by the Owner on appeal was that the adjudicator failed to value the estimated costs of rectifying defects and, therefore, had failed to have regard to the mandatory requirements of section 10(1)(b). On that basis, the Owner argued that the adjudicator failed to value the construction work in good faith.
Basten JA (Leeming and White JJA agreeing) held that a failure by the adjudicator to ‘have regard to’ the estimated cost of rectifying the defective work would not amount to a lack of good faith. The Court discussed a number of authorities and found that for bad faith to exist there must be something equivalent to “wilful blindness” or “conscious maladministration”, and that “an allegation of bad faith on the part of a decision-maker is a serious matter involving personal fault and should not be made lightly”.
The Court held that the adjudicator had, in any event, had regard to the estimated cost of rectifying the defective work in making the relevant award.
Accordingly, the Court dismissed the appeal.
A full copy of the decision can be found here.