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17 Jun 2016

Adjudication determinations under SOPA may be quashed for non-jurisdictional errors of law

The NSW Supreme Court has significantly expanded the potential bases available to challenge adjudication determinations under the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act) to include non-jurisdictional errors of law on the face of the record.

This decision is likely to have wide-ranging ramifications for all participants in the construction industry, including reducing the utility to contractors of pursuing adjudication.

Prior to Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd [2016] NSWSC 770, the relevant case law in NSW suggested that adjudication determinations were not amenable to review for non-jurisdictional errors of law on the face of the record.

The adjudication in Probuild and the Court's reasoning

The adjudication determination related to Shade Systems' payment claim for $324,334.26 and Probuild's claim for liquidated damages in the sum of $1,089,900. The adjudicator determined that Probuild was not entitled to the liquidated damages that it had claimed.

In the Court proceedings, the Head Contractor asserted that the adjudicator's determination in relation to liquidated damages was not in accordance with the proper interpretation of the contract, and constituted an error of law on the face of the record. The Head Contractor argued that the adjudication determination should therefore be quashed pursuant to the jurisdiction granted by section 69 of the Supreme Court Act 1970 (NSW).

Justice Emmett held that the adjudicator had wrongly assumed that the onus was on Probuild to demonstrate that the failure to achieve practical completion by the date for practical completion was caused by default on the part of Shade Systems, and that was an error of law on the face of the record of the proceedings leading to the determination.

In the 2004 case of Brodyn Pty Ltd v Davenport, the NSW Court of Appeal held that adjudication determinations were not amenable to judicial review for either jurisdictional errors of law or non-jurisdictional errors of law on the face of the record. This position was inconsistent with later decision of the High Court in Kirk v Industrial Court of New South Wales (2010) 239 CLR 531 which held that State Supreme Courts had a constitutionally protected jurisdiction to review decisions for jurisdictional error of law.  In light of that decision, the NSW Court of Appeal later held in Chase Oyster Bar that judicial review could be sought in relation to jurisdictional errors of law but did not determine whether judicial review could be obtained in relation to non-jurisdictional errors of law.

Last year, in the Court of Appeal decision in Lewence Construction Pty Ltd v Southern Han Breakfast Point Pty Ltd [2015] NSWCA 288, Justice Sackville suggested that a non-jurisdictional error on the face of the record could be subject to review. However, those comments were made in obiter.

Justice Emmett considered both Brodyn and Kirk, and concluded that the observations made by Justice Hodgson in Brodyn as to whether relief by way of judicial review is available under section 69 of the Supreme Court Act were strictly obiter dicta and the question therefore remains open.

Considering the question afresh, Justice Emmett found that in order to exclude the power of judicial review under section 69 of the Supreme Court Act, the legislation would have to use "express language or at least a clear and unambiguous implication". Justice Emmett found that there was nothing sufficient in the SOP Act to constrain the Court's power and accordingly, the Court does have jurisdiction to review non-jurisdictional errors of law on the face of the record made under the SOP Act.

Justice Emmett consequently ordered that the adjudication determination be quashed.

Interestingly, his Honour also made an order to remit the matter to the adjudicator for further consideration. This last order is unusual in the context of the SOP Act, given that the SOP Act does not contemplate the adjudicator being given a second opportunity to make a determination after the expiry of the time for making a determination under section 21(3) of the SOP Act.

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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.