Building and Construction update: The High Court’s gift to adjudication claimants on Valentine’s Day

Feb 22, 2018

On 14 February, the High Court of Australia dismissed appeals to review non-jurisdictional errors of law in New South Wales and South Australia in two separate cases — Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd [2018] HCA 4 (Probuild) and Maxcon Constructions Pty Ltd v Vadasz [2018] HCA 5 (Maxcon).

Probuild and Maxcon — The High Court’s decisions

The High Court of Australia held that determinations of adjudicators under the Building and Construction Industry Security of Payment Act 1999 (NSW) (NSW Act) and the Building and Construction Industry Security of Payment Act 2009 (SA) (SA Act) cannot be judicially reviewed by Courts where the determinations contain mere errors of law (or fact) on the face of the record.

The landmark decisions of Probuild and Maxcon affirm that where an adjudicator makes an erroneous determination of law and/or fact that is nevertheless within the adjudicator’s jurisdiction and power under the relevant legislation, the determinations (albeit interim) can no longer be challenged, at least in NSW and SA. Unsuccessful parties (often respondents not claimants) must commence fresh proceedings in the normal course to recover amounts paid under an adjudicator’s determination subject of the error of law or fact.

However, adjudication determinations under the NSW Act and SA Act (and all other States and Territories) may still be judicially reviewed and set aside by courts where an adjudicator acts beyond the limits and scope of its power under the relevant security of payment legislation (jurisdictional error) or fails to afford the parties natural justice. An example of the former might be where an adjudicator has no jurisdiction to make a determination under the relevant legislation because the payment claim subject of the claimant’s adjudication application or the application itself is invalid under the legislation.

Background and analysis
Probuild
The facts

In Probuild, the alleged non-jurisdictional error of the adjudicator was significant. The Claimant (Shade Systems) had issued a payment claim for the sum of $294,849.33 (excluding GST). The Respondent (Probuild) issued a payment schedule in response with a scheduled amount of $0.00 as it had set off a considerably higher amount of $1,089,900 for liquidated damages under the subcontract entered into by the parties. The adjudicator determined that liquidated damages could not be calculated until either ‘practical completion’ (being actual completion of the subcontract works) or termination of the subcontract, that is, liquidated damages had not crystallised.

High Court in Probuild (NSW)

The High Court held that although the NSW Act contains no express provision preventing judicial review for error of law on the face of the record, upon examination of the text, context and purpose of the NSW Act, the Act evinces a clear legislative intention to exclude the jurisdiction of the court to set aside an adjudicator's determination for non-jurisdictional error of law.

The High Court placed emphasis on the purpose of the NSW Act security of payment regime to provide a ‘speedy and effective means of ensuring cash flow to builders’, and also pointed out that the erroneous determination of an adjudicator was not final in nature, and the parties remained free to correct the outcome of such determinations by way of civil proceedings, and therefore the parties’ underlying contractual rights remained unaffected. Accordingly, Probuild’s entitlement to liquidated damages under the subcontract subsisted, but would need to commence separate proceedings to recover same if the entitlement was proven.

Maxcon
The facts

In Maxcon, the adjudicator determined (and which was challenged by Maxcon) that a clause in the subcontract entered into by the parties that provided Vadasz’s (subcontractor) retention could only be released once Maxcon (head contractor) had obtained a certificate of occupancy for the building was void as a 'pay when paid' provision (which makes the liability of a party to pay money contingent on itself being paid money by another party) under Section 12 of the SA Act.

High Court in Maxcon (SA)

Applying the reasoning in Probuild, and because of the similarities of the SA Act to the NSW Act, the High Court held that the provisions of the SA Act ousted the Supreme Court's jurisdiction to make an order in the nature of certiorari to quash (set aside) an adjudicator's determination for error of law on the face of the record that is not a jurisdictional error.

The High Court upheld the decision of the Full Court of the Supreme Court that the determination of an adjudicator regarding the prohibition against ‘pay when paid’ provisions does not amount to jurisdictional error and is therefore not reviewable by the courts.

In any event, the High Court also held that the adjudicator had not made a jurisdictional error and agreed with the adjudicator’s determination that the subcontract clause governing retention was void as a ‘pay when paid' provision, effectively because release of retention was dependent upon a certificate of occupancy being obtained under the head contract, which was not directly a requirement of the subcontract and the subcontractor’s work under the subcontract.

Impact in Victoria and other States and Territories

Given the approach taken by the High Court in Probuild (and Maxcon), it is necessary to look at the relevant security of payment legislation (and other relevant law) in the other States and Territories to understand what (if any) application the High Court’s recent decisions have more broadly across Australia.

In Victoria, Section 28R of the Building and Construction Industry Security of Payment Act 2002 (Vic) (Vic Act) only provides that a respondent may not challenge an adjudication determination (or a review determination) if the claimant has obtained an adjudication certificate and has commenced proceedings to recover the amount of the certificate, thereby leaving it open for the respondent to challenge an adjudicator’s determination (including for errors of law as well as jurisdictional errors) prior to the claimant obtaining the certificate and commencing such proceedings.

In addition, under Section 85 of the Constitution Act 1975 (Vic), the Supreme Court of Victoria is vested with unlimited jurisdiction to review decisions/determinations made under any Act, including the Vic Act, unless expressly excluded. Section 51 of the Vic Act only alters or varies Section 85 of the Constitution Act 1975 (Vic) in respect of Section 28R of the Vic Act (in the limited respect noted in the paragraph immediately above) and Section 46 of the Vic Act (which relates to the limited personal liability of an adjudicator).

Similarly, Section 43 of the Building and Construction Industry (Security of Payment) Act 2009 (ACT) also allows for a review for a manifest error of law.

In Queensland, Tasmania, Western Australia and the Northern Territory, whether the security of payment legislation allows judicial review for errors of law (and fact) on the face of the record (or non-jurisdictional errors) will depend upon an examination of the text, context and purpose of the relevant security of payment legislation in those States and that Territory, as set forth by the High Court in Probuild and Maxcon.

What you need to know

For now, the law in NSW and SA is at least settled that adjudication determinations in those States are unreviewable (at least on an interim basis) unless the adjudicator makes an error relating to the limits and scope of the adjudicator’s power under the NSW Act and SA Act (a jurisdictional error) or does not afford the parties natural justice.

The position in Victoria is different where judicial review for non-jurisdictional error of law on the face of the record is permitted and is not affected by the recent High Court decisions. In ACT, the High Court decisions would appear to support that non-jurisdictional errors of law can be reviewed (given s.43 above). The Victorian position can only be altered by statutory amendment which may come in the form of specific amendments to State and Territory legislation or perhaps one day through the nationalisation of security of payment legislation for the building and construction industry, which is still a topic heavily debated and far from becoming a reality.

To read in full the High Court decisions, click on the links below:

More information

For more information, or to discuss any of the issues covered in our Building and Construction update, please contact Damien Simonetti, Senior Associate, on (03) 8600 0708 or dsimonetti@kcllaw.com.au, or Darren Cain, Principal Lawyer and Head of KCL Law’s Building and Construction practice, on (03) 8600 8835 or dcain@kcllaw.com.au.

Author

For information on the author, Damien Simonetti.

BACK