High Court Confirms Limited Scope of Potential Challenges to Security of Payment Adjudications

Building & Construction Law, Commercial Litigation 4/07/2019 by Sam Roberts

In Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd [2018] HCA 4 the High Court affirmed the decision of the NSW Court of Appeal that the availability of judicial review to quash an Adjudication Determination under the Building and Construction Industry Security of Payment Act 1999 (NSW) (“the Act”) was limited to cases of jurisdictional error.

In doing so the High Court held that Courts do not have do not have a power to review an Adjudication Determination for non-jurisdictional errors of law on the face of the record.

Facts

On 14 October 2014 the parties entered into a contract pursuant to which Shade Systems Pty Ltd (“Shade Systems”) agreed to supply and install external louvres to the façade of a property at Chatswood as a subcontractor to Probuild Constructions (Aust) Pty Ltd (“Probuild“).

On 23 December 2015, Shade Systems served a Payment Claim on Probuild in the amount of $289,849.33 plus GST pursuant to the provisions of the Security of Payment Act. On 11 January 2016 Probuild served a Payment Schedule alleging that no money was owing to Shade Systems, primarily on the basis that an amount of $1,089,900 was payable by it to Probuild as liquidated damages under the contract.

The dispute was referred to an adjudicator under the Act on 25 January 2016, with the Adjudicator rejecting Probuild’s claim for liquidated damages “on the basis that liquidated damages could not be calculated until either “practical completion” (being actual completion of the works) or termination of the subcontract” [at 22].

Supreme Court Application for Review

Probuild applied to the Supreme Court for a review of the Adjudicator’s Determination, alleging both a denial of procedural fairness in the adjudication process (which constituted a jurisdictional error) and errors of law which appeared in the Adjudicator’s written reasons (which constituted non-jurisdictional errors of law).

The claim of procedural unfairness was rejected, however, the trial Judge held that:

  1. The supervisory jurisdiction of the Supreme Court was available to review non-jurisdictional errors of law on the face of the record, and
  2. Because such an error had been established by Probuild in connection with the Adjudicator’s findings with respect to the payment of liquidated damages, the Adjudicator’s Determination should be quashed.

Court of Appeal

Shade Systems appealed to the Court of Appeal, with the only question on appeal being, “whether the Security of Payment Act excluded the jurisdiction of the Supreme Court to make an order in the nature of certiorari for error of law on the face of the record“.  The Court of Appeal of the Supreme Court of New South Wales found that the jurisdiction was ousted, and overturned the primary Judge’s decision.

High Court Decision

The High Court ultimately agreed with the Court of Appeal, with the majority finding that:

The Security of Payment Act evinces a clear legislative intention to exclude the jurisdiction of the Supreme Court to make an order in the nature of certiorari to quash an adjudicator’s determination for non-jurisdictional error of law on the face of the record.

In reaching its decision and rejecting Probuild’s argument that allowing the Adjudicator’s decision to stand, given that it was erroneous, was “manifestly absurd”, the High Court identified that the Act:

  • was “enacted to reform payment behaviour in the construction industry” and provide Claimants with the ability to recover progress payments promptly;
  • is “not concerned with finally and conclusively determining the entitlements of parties to a construction contract“;
  • provides very short timeframes which are “not conducive to lengthy consideration by an adjudicator of detailed submissions on all questions of law“;
  • permits informal procedures in the conduct of an Adjudication, such as a conference of the parties; and
  • deliberately omits any right of appeal from an Adjudicator’s Determination.

Relevantly, the Court observed that:

“A non-jurisdictional error of law may have serious consequences. But those consequences are dealt with by s 32 of the Security of Payment Act. The limited exclusion of review does not irrevocably entrench the consequences of an erroneous determination. Where it is contended that an adjudicator has made an error of law within jurisdiction, resulting in a progress payment that is inadequate or excessive, the dispute may be resolved through civil proceedings under the construction contract. If necessary, a restitutionary order can be sought.”

Summary

In essence the High Court has held that the Act empowers Adjudicators to make valid Determinations despite the Determination being based on an incorrect legal interpretation of the relevant Construction Contract.

Therefore, non-jurisdictional errors committed by Adjudicators when making Determinations may not be subject to judicial review and instead would need to be addressed in separate Court proceedings as anticipated by Section 32 of the Act.

However, the Supreme Court may still quash an Adjudicator’s Determination for jurisdictional error.

Call Now to speak to an Expert Security of Payments Lawyer.

By Sam Roberts

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