Case Studies

Adjudicators’ Determinations under the Building and Construction Industry Security of Payments Act 1999 (NSW): High Court Decision in Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd

The High Court has recently held that an adjudicator’s determination pursuant to payment claims and schedules served in accordance with the Building and Construction Industry Security of Payments Act 1999 (NSW) (Act) may not be appealed on an error of law that is not related to a jurisdictional error.

The effect of this decision is that, provided the adjudicator has been validly appointed, then what that adjudicator determines is binding on the parties and not appellable in a court of law.  If a dispute remains between the claimant and the respondent concerning the subject matter of the adjudication, that and any other issues can be the subject of court proceedings at a later date, where a restitution order and set off can be sought when determining the final rights and obligations under the construction contract.

The Act

The object of the Act is to ensure that a person carrying out construction work or who undertakes to supply related goods and services, is entitled to receive, and is able to recover progress payments during the performance of construction work: section 3(1) of the Act.

The Act prescribes a strict, time critical process by which claims, schedules and adjudication applications can be made.  In the event a payment claim heads to an adjudication, the adjudicator must make a determination as to:

  1. The amount of the progress payment;
  2. The date on which it became or becomes payable;
  3. Rate of interest payable (if applicable)

The adjudicator is restricted to a prescribed, limited set of factors in coming to a determination.

Probuild Facts

Probuild Constructions (Aust) Pty Ltd (Probuild) and Shade Systems Pty Ltd (Shade) were parties to a subcontract under which Shade supplied and installed external louvres for an apartment development.

Shade served Probuild with a payment claim in the amount of $294,849.33 excluding GST, being a progress payment under the subcontract.

Probuild served a payment schedule on Shade indicating it was not going to pay the progress claim because it was entitled to a set off for liquidated damages (in the amount of $1,089,900) due to the delay in performance of those works.

Shade then sought adjudication of the payment claim.  The adjudicator determined that because calculation of the liquidated damages amount could not be made until practical completion of the works had taken place or termination of the subcontract had occurred, Probuild was required to pay the progress payment, albeit in a reduced sum of $277,755.03 including GST.

Probuild sought an order in the nature of certiorari from the Supreme Court of New South Wales to quash the adjudicator’s determination, claiming the determination was incorrect due to an error of law.  At first instance, it was held that the Act did not exclude the jurisdiction of the Supreme Court in respect of an order in the nature of certiorari for error of law and the adjudicator’s determination was quashed for non-jurisdictional error of law.

However, on appeal by Shade, 5 appellate judges held that the Supreme Court did not have jurisdiction to quash an adjudicator’s determination for an error of law on the face of the record.  The High Court has now affirmed the decision of the New South Wales Court of Appeal.

Reasoning

In determining the construction of the Act, the High Court looked at several factors.  These included:

1)      The overarching purpose of the Act to reform payment behaviour in the construction industry and ensure subcontractors and suppliers are paid quickly;

2)      The fact that the Act is not concerned with finally and conclusively determining the entitlements of parties of a construction contract;

3)      The speed with which the timetable runs in a claim under the Act supports the overarching purpose of the Act;

4)      The informality of the procedures when determining an adjudication application – there is no entitlement to legal representation for an adjudication application;

5)      There is no right of appeal to an adjudicator’s determination.  Upon issue of a certificate of adjudication, it may be filed in a court of competent jurisdiction as a debt due and payable and no cross-claim may be brought nor a defence filed in respect of the adjudicator’s determination.

6)      The right to enforce rights and obligations under the original construction contract is not barred for all time by the adjudication determination.  The absence of appeal rights in respect of the adjudication determination does not act as an issue estoppel in respect of proceedings under the construction contract.  In other words, each party’s contractual rights are preserved and can be enforced at a later time.

Taking these factors into consideration, the High Court held that parliament’s intention was for appeals to courts of law for non-jurisdictional errors of law to be unavailable.

Implications

This decision is helpful to subcontractors and suppliers serving claims on head contractors, as an adjudication determination can only be overturned if it can be established that the adjudicator did not have the jurisdiction to make the determination in the first place.

It also has the effect of deferring any disputes over the entire contractual relationship of disputes to the end of the construction contract (either by way of completion or early termination).  This allows the parties to concentrate on the actual construction and allows all issues in dispute to be litigated at once.

It is also a reminder for claimants to ensure the adjudication process is followed strictly as respondents will be homing in on jurisdictional error as a way of overturning adjudicator’s determinations.  Likewise for respondents, it is important to look at whether the adjudicator has committed any jurisdictional error, as that is now the sole way of potentially overturning an adjudicator’s determination.

 

Contact:

Clement Lo

Associate

(02) 9318 6420

clement.lo@surrypartners.com.au

 

Peter English

Director

(02) 9318 6411

peter.english@surrypartners.com.au