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By Richard Cowen & James Morgan, Tucker & Cowen, Solicitors, Brisbane.

The High Court of Australia recently held that courts do not have the power to quash adjudicator’s decisions made under Building and Construction Industry Security of Payment Act 1999 (NSW) (“the Security of Payment Act”) for any non-jurisdictional errors of law on the face of the record.

Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd [2018] HCA 4

In Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd, Probuild responded to Shade Systems’ payment claim with a payment schedule contending that Probuild was owed considerably more for liquidated damages for delay than the amount Shade Systems had claimed.

Shade Systems applied for an adjudication of its payment claim. The adjudicator decided that liquidated damages could not be calculated until practical completion or termination of the construction contract. Shade Systems was awarded most of its claim. That decision was wrong in law.

Probuild sought judicial review of the adjudicator’s decision. The Supreme Court of New South Wales quashed the adjudicator’s decision for the error in law. Shade Systems appealed to the Court of Appeal and was successful. The Court of Appeal set aside the Supreme Court’s decision to quash the adjudicator’s decision. Probuild then appealed to the High Court.

The question for the High Court was whether the Supreme Court had the power to quash an adjudicator’s decision where the adjudicator had jurisdiction to make their decision, but their decision was wrong in law. This question turned on whether the clear legislative intention of the Building and Construction Industry Security of Payment Act 1999 (NSW) was to exclude the Supreme Court’s jurisdiction to make such an order. The majority of the High Court held that was the clear legislative intention of the Act.

The Act did not contain a clear statement to the effect that the Supreme Court could not quash an adjudicator’s decision for an error of law. This was significant given there was “no doubt that recourse to the Supreme Court cannot be taken away by statute even by the clearest of words” (per Gageler J).

However, there were other indicators of the legislative intention that an adjudicator’s decision could not be quashed for non-jurisdictional error of law on the face of the record, namely (per the majority unless stated):

  • The Act was designed to stamp out the practice of delaying payment to subcontractors and suppliers;
  • The procedures under the Act for obtaining an adjudicator’s decision are designed to operate quickly;
  • The Act “permits informal procedures in the conduct of any proceedings to determine an adjudication application” – it would not be consistent with the scheme of the Act “[t]o permit potentially costly and time-consuming judicial review proceedings to be brought on the basis of error of law…”
  • The Act expressly confers on the adjudicator “decision-making authority to err in law” (per Gageler J);
  • The Act deliberately omits any right of appeal from a decision of an adjudicator;
  • The Act expressly provides that in an action to set aside a judgment reflecting an adjudication certificate, the adjudicator’s decision cannot be challenged (per Edelman J); and
  • The Act expressly preserves parties’ contractual entitlements, and so a party is “not left without recourse where an adjudicator errs within jurisdiction in determining the amount of a progress payment”.

Maxcon Constructions Pty Ltd v Vadasz [2018] HCA 5

In Maxcon Constructions Pty Ltd v Vadasz, retention money under the construction contract was to be released to Mr Vadasz following the issue of a certificate of occupancy (and other approvals). The certificate of occupancy (and other approvals) could not issue until other contractors’ work had been completed.

Mr Vadasz’ payment claim sought payment of part of the retention money before the issue of the certificate of occupancy (and other approvals). The adjudicator decided the retention money clause was an ineffective “pay when paid” provision and awarded Mr Vadasz the retention money.

A “pay when paid” provision makes the liability or due date to pay an amount under a construction contract contingent or dependent on the operation of another contract. Under section 16(1) of the Building and Construction Industry Payments Act 2004 (Qld), a “pay when paid” provision has no effect.

Maxcon’s efforts to quash the adjudicator’s decision failed. The Supreme Court of South Australia and the Court of Appeal held the adjudicator had jurisdiction to make the decision. However, both of those Courts held the adjudicator made a non-jursdictional error of law in reaching the conclusion that the retention money clause was an ineffective “pay when paid” provision. Maxcon appealed to the High Court and argued that the adjudicator’s decision could and should be quashed for the non-jursdictional error of law.

The High Court held the adjudicator made no error of law. The issue of the certificate of occupancy (and other approvals) was contingent or dependent on another contract. Consequently, the retention money clause was indeed an ineffective “pay when paid” provision.

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