Challenging adjudicators' determinations in NSW just got harder

Challenging an adjudicator's determination in New South Wales under the Building & Construction Industry Security of Payment Act 1999 (NSW)just became more difficult following two important decisions by the Court of Appeal.

In Brodyn Pty. Ltd. t/as Time Cost and Quality v Davenport [2004] NSWCA 394 and Transgrid v Siemens [2004] NSWCA 395, the Court of Appeal overturned a line of previous cases which set out wide grounds for challenging adjudicators' determinations.

Starting with Musico v Davenport [2003] NSWSC 977, there have been approximately 50 cases in which the NSW Supreme Courtwas asked to quash adjudicators' determinations on the basis that the adjudicator, in making the determination, had "committed" a "jurisdictional error". That is, it was claimed that (in reaching the determination) the adjudicator exercised or purported to exercise power which was beyond his or her authority (or jurisdiction). In those cases, the courts had accepted that an adjudicator's determination could be challenged for jurisdictional error and the determination quashed pursuant to section 69 of the Supreme Court Act. Jurisdictional error was said to have arisen where, for example, the adjudicator's determination had not dealt with the question remitted for adjudication, had not taken into account something which the Act required to be taken into account, had determined a question not remitted for adjudication or was one which the adjudicator had no power to make.

The Court of Appeal has now held that the lower courts had cast the net too widely. The correct approach, it says, is to ask whether a requirement under the Act was intended by Parliament to be an essential pre-condition for the existence of an adjudicator’s determination. If those essential pre-conditions do not exist, then the determination is void, not merely voidable.

The Court of Appeal said that it was not appropriate under the scheme of the Act to seek an order in the nature of certiorari for jurisdictional error. Relief from an adjudicator's determination can still be sought, but this will be on the more limited ground of seeking a declaration that the determination is void and the granting of an injunction. The potential grounds identified by the Court of Appeal for challenging an adjudicator's determination will be:

• if the basic requirements of the Act are not complied with (see below);
• if a purported determination is not a bona fide attempt by the adjudicator to exercise the power granted under the Act; or
• if there is a substantial denial of natural justice (such as a failure to receive and consider the respondent's submissions).

The basic and essential requirements of the Act which need to be complied with include those relating to:

• the existence of a construction contract between the claimant and the respondent, to which the Act applies;
• the claimant must serve a payment claim on the respondent;
• the making of an adjudication application by the claimant to an authorised nominating authority;
• the reference of the application to an eligible adjudicator, who accepts the application;
• the determination by the adjudicator of a valid application, by determining the amount of the progress payment, the date on which it becomes or became due and the rate of interest payable, and the issue of a determination in writing.

The list above might not be exhaustive.

Strict compliance with the other detailed requirements in the Act is not essential to the existencea valid determination. If, however, a question is raised before an adjudicator as to whether more detailed requirements of the Act have been strictly complied with, and the adjudicator doesn’t address that question, it may indicate that there was not a bona fide attempt by the adjudicator to exercise the power. If, however, the question is addressed by the adjudicator, then the determination will not be void simply because the adjudicator wrongly decides that those requirements were complied with, or is wrong about the consequences of non-compliance.

By way of an example of the effect of the Court of Appeal decisions, prior to those decisions, if an adjudicator failed to determine the amount payable in accordance with the terms of the contract in circumstances where the contract provided for the method of valuation, the determination could have been quashed by the court for jurisdictional error. Following these Court of Appeal decisions, that error would not make the determination void, and so the parties would just have to accept the determination.

Through approximately 50 decisions, the Supreme Court of NSW had set out extensive guides for applicants, respondents and adjudicators as to the matters which must be considered to ensure compliance with the Act. The Court of Appeal's decisions have overruled a number of those decisions. As a consequence, it is expected that there will be an increase in the adjudicator's responsibilities given the narrowing of the potential grounds for review by the court. It is also expected that there may be a fresh round of challenges to adjudicators' determinations where applicants attempt to flesh out the grounds referred to by the Court of Appeal.