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The NSW Court of Appeal has ruled that an adjudicator's determination may only be subject to review for a jurisdictional error of law under the Building and Construction Industry Security of Payment Act 1999 (NSW) in the decision of Shade Systems Pty Ltd v Probuild Constructions (Aust) Pty Ltd (No 2) [2016] NSWCA 379 (Shade Systems), handed down in late December 2016. Consequentially, parties who fall victim to a non-jurisdictional error of law made by an adjudicator will not be entitled to have a determination set aside. Instead they will have to rely upon their contractual and other legal rights to resolve disputes outside of the Security of Payment Act.

Background

Shade Systems was contracted to complete works for Probuild. It made a payment claim and in turn Probuild provided a payment schedule, which stated that Shade Systems was not entitled to the amounts claimed. This was because a greater amount was owed from Shade Systems to Probuild for liquidated damages, due to its failure to complete the works by the date for practical completion. The payment claim was referred to adjudication and the adjudicator made a determination in Shade Systems' favour finding that, as Shade Systems had not yet achieved practical completion, Probuild's claim for liquidated damages had not yet materialised. The adjudicator also made an observation that, for Probuild to establish an entitlement to liquidated damages, it would need to demonstrate that the delays in achieving practical completion were the fault of Shade Systems.

Probuild sought to have the adjudicator's determination set aside. In the initial proceedings (Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd [2016] NSWSC 770), the Supreme Court quashed the determination. Emmett AJA found that the adjudicator's positions on the operation of the liquidated damages provisions of the contract were errors of law that appeared in the determination, such that the Court had jurisdiction to grant relief by way of judicial review. The Court's jurisdiction in this regard is governed by section 69 of the Supreme Court Act 1970 (NSW), which grants the Court power to quash the ultimate determination of a court or tribunal, if that determination has been made on the basis of an error of law that appears on the face of the record of the proceedings.

Shade Systems appealed to the Court of Appeal. In the appeal proceedings both parties accepted that the adjudicator's finding was a non-jurisdictional error of law and that section 69 extended, in principle, to adjudication determinations. The question on appeal was whether a non-jurisdictional error of law on the face of the record could allow the Court to quash the adjudicator's determination.

Court of Appeal's consideration of the grounds for review

In coming to a conclusion on the question at hand, the Court considered previous decisions that had opened up uncertainty around whether an adjudicator's determination could be quashed for non-jurisdictional error. It is important to note the distinction between a jurisdictional error for the purposes of the Security of Payment Act and a non-jurisdictional error of law—the former is an error concerning how the Act applies and the latter is an error of law occurring while correctly applying the Act.

In 2003, in Musico v Davenport [2003] NSWSC 977, McDougall J concluded that an adjudicator's determination could not be quashed for non-jurisdictional error. In 2004, Hodgson JA's leading judgment in Brodyn Pty Ltd v Davenport [2004] NSWCA 394 stipulated that judicial review of adjudicators' determinations was precluded, unless:

  • there had been a failure to comply with the "basic and essential requirements" of the Act
  • the determination was not a bona fide attempt to exercise the powers granted under the Act, or
  • there was a substantial denial of the measure of natural justice required under the Act.

In 2010, in Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd [2010] NSWCA 190, the grounds for judicial review of a determination were expanded (if the effect of Brodyn was to preclude as much) to include where there had been a jurisdictional error of law.

In handing down the decision in Shade Systems, Basten JA (who gave the leading judgment) acknowledged that as the purpose of the Act is to facilitate short term cash flow to contractors and that adjudication is not a final determination of the parties' legal rights, the coherent and expeditious procedure provided by the Act would be undermined if a determination could be subject to judicial review for any error of law. Basten JA went on to state that, if such review was available, even an arguable error would provide a basis to seek a stay of enforcement, potentially displacing the transfer of cash flow risk that the Act creates. Accordingly, the Court allowed the appeal, with the effect that the adjudicator's determination was reinstated.

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