NSW Court of Appeal – Security of Payment Act did not permit review of an adjudicator’s determination other than for jurisdictional error

by Dentons


Landmark NSW Court of Appeal Decision

The Supreme Court at first instance had determined that an adjudication determination could be remitted to the adjudicator for re-determination for non-jurisdictional error.

In a further landmark decision in the area of security of payment, the NSW Court of Appeal in Shade Systems Pty Ltd v Probuild Constructions (Aust) Pty Ltd (No 2)[2016] NSWCA 379, has unanimously reversed the decision of the Supreme Court at first instance. The Court of Appeal upheld the long-held legal principle that adjudication determinations are only permitted to be reviewed in circumstances where there has been an allegation of jurisdictional error but not for non-jurisdictional errors by the adjudicator.

What does the case mean?

The Court of Appeal’s decision provides certainty that the courts will only be permitted to review an adjudicator’s determination for limited jurisdictional errors but not otherwise.

This means that a party will have no basis to apply to the court to set aside an adjudicator’s determination for factual or legal errors in nature of non-jurisdictional errors (such as, an erroneous interpretation of a contractual provision, as was alleged in the Shade Systems decision).

The facts

The appellant was the respondent’s subcontractor, undertaking building work. On 23 December 2015, the appellant served a payment claim on the respondent pursuant to the provisions of the Building and Construction Industry Security of Payment Act 1999 (NSW) (Security of Payment Act). The respondent issued a payment schedule on 11 January 2016 alleging that no money was owing to the appellant. The dispute was then referred to an adjudicator under the Security of Payment Act. The adjudicator delivered his determination on 15 February 2016, allowing the claim for a progress payment in an amount of AU$277,755.

The respondent sought to have the determination reviewed in the Equity Division of the Supreme Court, alleging a denial of procedural fairness in the adjudication process (constituting a jurisdictional error) and also errors of law which appeared from the adjudicator’s written reasons. The primary judge (Emmett AJA) rejected the claim of procedural unfairness. He held that the supervisory jurisdiction was, nevertheless, available to review non-jurisdictional errors of law on the face of the record. Such error being established, the judge proceeded to make orders quashing the adjudicator’s determination and remitting the matter to the adjudicator for further consideration and determination according to law.

The appellant appealed to the Court of Appeal, submitting that there was no power to intervene in a case where the only errors identified were non-jurisdictional errors of law. The appellant said that long recognised and binding authority in the Court of Appeal, including Brodyn Pty Ltd v Davenport (2004) 61 NSWRLR 421 and Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd (2010) 78 NSWLR 393 supported that conclusion.

The respondent did not accept that there was binding authority to that effect, but said that if those cases had that effect, it sought to reopen those decisions. A five judge bench was constituted to address the issue raised.

Allowing the appeal, the Court of Appeal held unanimously that the Security of Payment Act did not permit review of the determination of an adjudicator other than for jurisdictional error.
In terms of the challenge to the decision in Brodyn, Basten JA states in his judgment at [79]-[83] that leave to re-argue would be necessary to re-open the decision. In saying this, he reinforced the statement of Giles JA in Downer Construction (Australia) Pty Ltd v Energy Australia (2007) 69 NSWLR 72 that a challenge of the principles set down in Brodyn is a matter for the High Court, emphasising Brodyn, and in turn Downer Construction, have led to countless matters being determined on the basis of those decisions. That review is simply not available for non-jurisdictional error of law on the face of the record.

Basten JA goes on to say at [85] that to permit relief to quash an adjudicator’s determination, on a ground other than jurisdictional error, would undermine the underlying purposes of the Security of Payment Act and the scheme revealed by the structure of the Act. He goes on to say that the adjudicator in this instance, had the requisite authority to determine the scope and operation of the contract, the provisions of which are a mandatory consideration prescribed by s 22(2)(b) of the Act. Any errors in construing the contract identified by the judge at first instance provided no basis for judicial review.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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