06 Oct 2010

Doors edge open for challenges to SOP Act adjudication determinations in NSW

Since the NSW Court of Appeal's decision in Brodyn, owners and principals have often found the court room door firmly shut when seeking to challenge an adjudication determination for non-compliance with the Building and Construction Industry Security of Payment Act 1999 (NSW) (the SOP Act). Now, following a new decision from the Court of Appeal, the door may be slowly edging open - but it is not yet fully ajar.

While some are already suggesting that the NSW Court of Appeal's decision in Chase Oyster Bar v Hamo Industries [2010] NSWCA 190 heralds a new era of greater court review of adjudication determinations under the SOP Act, it is not clear that this will in fact be the result.

An adjudicator's failure to comply strictly with one of the many procedural rules and timeframes prescribed in the SOP Act will not necessarily mean that a court can quash the resulting determination.

Only failure to comply with any of those requirements that are a condition of an adjudicator's exercise of the statutory power to determine the amount of a progress claim - in other words, committing a jurisdictional error - will lead to certiorari being available to quash the determination.

Key points

The key points arising from the decision are:

  • A purported adjudication determination of an application which does not comply with section 17(2)(a), which deals with a claimant's duty to notify the respondent of its intention to apply for an adjudication within 20 days after the due date for payment (and not previously identified as a "basic and essential requirement" in the Brodyn sense) of the SOP Act will not be a valid determination and may be quashed by a court.
  • The ability of the courts to review and quash adjudication determinations (by means of a remedy called certiorari) will ultimately depend on the identification of "jurisdictional error" on the part of the adjudicator (in other words, an error by the adjudicator as to existence of his or her statutory authority to determine the amount of a progress payment).
  • Chase Oyster Bar suggests that the scope to challenge adjudication determinations successfully is greater than previously thought based on Brodyn. This will become clearer as future decisions identify those requirements which constitute "jurisdictional facts" and consequently give rise to "jurisdictional error" where they have not been complied with.

The ability to challenge an adjudication determination prior to Chase Oyster Bar

Until now, the decision of the NSW Court of Appeal in Brodyn Pty Ltd v Davenport(2004) 61 NSWLR 421 was the leading authority applicable to an owner/principal seeking redress from an adjudication determination which did not comply with all the requirements of the SOP Act.

In Brodyn, Justice Hodgson held that a purported adjudication determination that did not comply with any of what were described as "basic and essential requirements" would be void.

Justice Hodgson set out the following list as examples of "basic and essential requirements":

  • The existence of a construction contract between the claimant and the respondent, to which the SOP Act applies.
  • The service by the claimant on the respondent of a payment claim.
  • 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 this 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.

While this list was non-exhaustive, leaving open the possibility that further "basic and essential requirements" might subsequently be identified, Justice Hodgson found that compliance with other "more detailed requirements" of the SOP Act was not essential to the existence of a valid determination.

Importantly, in the case of an adjudication that was not void, Justice Hodgson found that the remedy of certiorari was not available to quash the determination (a declaration by the court and an injunction restraining enforcement was available in respect of an adjudication that was void).

This meant in effect that owners/principals could basically only challenge determinations in cases where the determination was void for failure to comply with a "basic and essential requirement".

The decision of the Court of Appeal in Chase Oyster Bar

Chase Oyster Bar clarifies the position following Brodyn in relation to court review of adjudication determinations.

The NSW Court of Appeal emphasised that the remedy of certiorari will still be available to quash a determination that fails to comply with other requirements of the SOP Act that do not constitute "basic and essential requirements", provided that the adjudicator has committed a "jurisdictional error".

The concept of "jurisdictional error" is where a decision-maker makes an error that is in relation to a fact that gives rise to its ability to make the decision in question. Such facts are sometimes referred to as "jurisdictional facts".

For example, in Chase Oyster Bar, the requirement of notice of the applicant's intention to apply for adjudication within the 20 day period specified in section 17(2)(a) is an example of a jurisdictional fact - without this fact being established, the adjudicator has no statutory authority to make a determination.

Implications for owners/principals and contractors

The key question in the immediate aftermath of Chase Oyster Bar is therefore how to identify which requirements of the SOP Act will give rise to jurisdictional error, and thus make certiorari available, if they are not complied with. Chase Oyster Bar makes it clear that there will be jurisdictional error in the case of:

  • failure to comply with any of the "basic and essential requirements" identified in Brodyn; or
  • failure by an applicant to comply with section 17(2)(a).
Future decisions will assist principals and owners to identify other requirements which may give rise to jurisdictional error if they are not complied with.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.