Holmwood Holdings v Halkat Electrical Contractors & ANOR


Supreme Court of New South Wales – 8 November 2005


Holmwood Holdings Pty Ltd (“Holmwood”), through its construction manager Tricon Projects Pty Ltd (“Tricon”) entered into a construction contract with Halkat Electrical Contractors Pty Ltd (“Halkat”) for electrical works in relation to the refurbishment, renovation and extension of a nursing home.

Halkat submitted a Payment Claim under the Building and Construction Industry Security of Payment Act 1999 (NSW) (“the and rectification of defects.

The claim was referred to Adjudication, the Adjudicator determining that Holmwood was to pay Halkat the sum of $116,598.35 on the basis that he preferred Halkat’s assessment of the works to Holmwood’s, without examination ofHolmwood’s set-off claims. Holmwood then appealed the Adjudication, alleging that the Adjudication was void by reason of the Adjudicator not  having made a bona fide endeavour to perform the function entrusted to him, because the Adjudicator did not apply his mind to a consideration of the claim within the parameters of the Act, and rejected issues raised in the Payment Schedule.


The meaning of bona fide and whether the Adjudicator had acted in good faith.


The Court found that the Adjudicator had not made a bona fide endeavour to perform his functions.


Brereton J at paragraphs 117 to 119 concluded:

[117] “Accordingly, good faith as a condition of validity of the exercise of an adjudicator’s power to make a determination requires more than mere honesty. It requires faithfulness to the obligation. It requires a conscientious effort to perform the obligation. And it does not admit of capriciousness.

[118] Applying that test to the present facts, the [Adjudicator] did not meet its requirements. He was entitled to becritical of Holmwood for having advanced the unmeritorious submissions which it did about misnomer and service.

He was entitled to conclude that the reports relied upon by Holmwood were of no assistance to the extent that they proceeded on an inappropriate basis of valuation. He was also entitled to find those reports to be other than independent (although the same surely had to be said of Halkat’s assessment). But left with Halkat’s claim and Holmwood’s assessment, he was not entitled to fail to evaluate the claim in the light of the payment schedule, and instead simply to accept it on the basis that other and unrelated submissions made by Holmwood were unmeritorious….

[119] In my opinion, when the adjudicator concluded that he was unable to decide for himself the extent and value of work completed, and instead would adopt Halkat’s assessment because Holmwood had made some unmeritorious submissions unrelated to this issue (rather than evaluating the adjudication application and response and the arguments advanced in them, or convening a conference and/or conducting an inspection which might have resolved at least some of those issues), he ceased to make a genuine or conscientious attempt to perform the function entrusted to him of assessing the payment claim, and substituted caprice for conscientious judgment. The quality of his determination in that respect did not differ from one based on a mere like or dislike of a party, based on unrelated conduct of the party. His ultimate determination, which depended upon acceptance in that way of Halkat’s claim, was therefore not the product of a good faith attempt at performing his function, but of caprice.”


This case stands for the proposition that an Adjudicator must act honestly, conscientiously and not capriciously, in determining an Adjudication Application. Further, an Adjudicator’s failure to evaluate a Payment Claim in the context of a payment Schedule and the simple acceptance of only one party’s assessment may demonstrate a failure to act in good faith.

Halkat Electrical Contractors v Holmwood Holdings


Court of Appeal of New South Wales – 28 February 2007


Halkat Electrical Contractors Pty Ltd (“Halkat”) was retained by Holmwood Holdings Pty Ltd (“Holmwood”) as the electrical contractor for a building project. A Payment Claim made by Halkat was referred to adjudication under the Building and Construction Industry Security of Payment Act 1999 (NSW) (“the Act”). The Adjudicator determined that Halkat was entitled to a progress payment from Holmwood of $116,598.35. In determining Halkat’s entitlement, the Adjudicator admitted that he did not have evidence on which he could arrive at a value, but preferred Halkat’s valuation because Holmwood had made unmeritorious submissions elsewhere in its Adjudication Response which reflected on its credibility.

Holmwood brought an application in the Supreme Court to have the determination set aside. The Court found in favour of Holmwood, declaring the determination void on the basis that in preferring one assessment over the other simply because he was more inclined to believe that party, the Adjudicator had acted capriciously and his determination was not made in good faith.

Halkat appealed this decision to the Court of Appeal.


Was the Adjudicator’s determination void on the grounds of lack of good faith?


The Court of Appeal upheld the decision of the trial judge, but found that rather than being void on the basis of a lack of good faith, the determination was void because the Adjudicator, in valuing the claim simply on the basis of which party was more believable, had considered matters which were outside the scope of section 22 of the Act.


Giles JA held [at 26 – 27] that:

“Section 22 of the Act required that the adjudicator determine an adjudicated amount (s 22(1)) by considering particular matters (s 22(2)). The adjudicator had to make a determination, and he did not make a determination if he arrived at an adjudicated amount by a process wholly unrelated to a consideration of those matters. But that is what the adjudicator did. He stated expressly in his reasons that he did not have evidence on which he could independently arrive at the value of the completed work, and that he adopted the appellant’s valuation in preference to that of the respondent because of the respondent’s unmeritorious challenges to the validity of the payment claim.

On the face of the determination, the adjudicator simply did not perform the task required by the Act, and his purported determination was not given greater respectability by the reference to his inclination “to believe the claimant rather than the respondent”: the unmeritorious challenges were not a basis for belief or disbelief, and in any event it was not correct to speak of believing a corporate body. The adjudicator did not comply with an essential precondition to the existence of a valid determination.”


In making a determination, an Adjudicator should confine their consideration to the following matters set out in section 22 of the Act:

(a) the Act,

(b) the construction contract,

(c) the payment claim, together with all submissions (including relevant documentation),

(d) the payment schedule (if any), together with all submissions (including relevant documentation),

(e) the results of any inspection.

And parties should present their claims accordingly.