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Valentine’s Day Delivers an Unsurprising End to a Long Journey

CASE NOTE: PROBUILD CONSTRUCTIONS (AUST) PTY LTD V SHADE SYSTEMS PTY LTD [2018] HCA 4

On Valentine’s Day (14 February 2018), the High Court of Australia handed down its decision in the case of Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd [2018] HCA 4.

This case concerned an appeal by Shade Systems of the decision by the Court of Appeal, and in particular a determination as to the question of whether the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOPA) excluded the ability of the Supreme Court to quash a determination of an adjudicator, where the adjudicator made an error which was not a jurisdictional error.

The High Court dismissed the appeal and confirmed that the Supreme Court only has jurisdiction to quash an adjudicator’s determination for jurisdictional errors.

WHAT THE CASE IS ABOUT

The case can be summarised as follows:

  1. Probuild entered into a subcontract agreement with Shade Systems for the supply and installation of external louvres for an apartment complex;
  2. On 23 December 2015, Shade Systems served a payment claim for $294,849.33 (excluding GST);
  3. On 11 January 2016, Probuild served a payment schedule, which scheduled that no amount was payable. The primary reason cited for withholding payment was Probuild’s entitlement to set off liquidated damages in the amount of $1,089,900.00, on the basis that Shade Systems failed to reach practical completion by the “Date for Practical Completion” in the subcontract;
  4. Shade Systems subsequently lodged an adjudication application, where the adjudicator determined that Shade Systems were entitled to payment in the sum of $277,755.03 (including GST); and
  5. The adjudicator rejected Probuild’s claim for liquidated damages on the basis that liquidated damages could not be calculated until either “practical completion” (being actual completion of the works) or termination of the subcontract.

APPEAL TO THE SUPREME COURT

Probuild appealed the adjudicator’s decision to the Supreme Court of New South Wales and sought an order under section 69 of the Supreme Court Act 1970 (NSW), being an order quashing the determination of the adjudicator.

The Supreme Court made the order sought by Probuild on the basis that the adjudicator erroneously considered that:

  1. No entitlement to liquidated damages arose until practical completion or termination of the subcontract; and
  2. Probuild needed to demonstrate that Shade Systems were at fault for the delay for which it claimed liquidated damages.

APPEAL TO THE COURT OF APPEAL

Shade Systems then appealed the decision of the Supreme Court to the Court of Appeal. The Court of Appeal upheld the appeal and determined 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.

HIGH COURT’S DECISION

Probuild then appealed the Court of Appeal’s decision by special leave to the High Court. The High Court dismissed the appeal and said that the decision of the Court of Appeal was correct.

The High Court made some helpful statements about the purpose of the SOPA, including the following:

  1. The SOPA was enacted to enable prompt recovery of progress payments;
  2. The SOPA is not concerned with finally and conclusively determining the entitlements of parties to a construction contract;
  3. As described in earlier cases, any decision made by an adjudicator was made on an “interim” basis;
  4. The SOPA acknowledges and preserves parties’ contractual entitlements by operation of section 32 of the SOPA, which states that in any proceedings before a court or tribunal arising under a contract, the court or tribunal must allow for, and make such orders as it considers appropriate, including an order for restitution of amounts paid (i.e. repayment of sums of money);
  5. Cash flow is the “lifeblood of the industry” and any interruption to this may result in the risk of financial failure;
  6. The SOPA points to the exclusion of the jurisdiction of the Supreme Court to review and quash an adjudicator’s determination for non-jurisdictional errors of law, taking into consideration the following:
  • a determination itself does not give rise to any issue estoppel (i.e. that an issue in a cause of action has been decided finally) for the purposes of civil proceedings under a construction contract;
  • the SOPA defers the final determination of contractual rights to a different forum;
  • the clear legislative intention is to ensure that the statutory entitlement under Part 3 of the SOPA can be determined and enforced with minimal delay;
  • a non-jurisdictional error of law may have serious consequences, but those consequences are dealt with by section 32 of the SOPA (i.e. the dispute may be resolved through civil proceedings under the construction contract where a “restitutionary” order can be sought); and
  • private law proceedings as contemplated by section 32 of the SOPA cannot be expected to be less convenient than judicial review proceedings.

WHAT TO TAKE AWAY

The decision of the High Court is good news for claimants (head contractors and subcontractors) as it limits the grounds of appeal of an adjudication decision (i.e. there is no appeal on the basis of non-jurisdictional errors of law) and reinforces the “pay now argue later” object of the SOPA.

An aggrieved party can still commence civil proceedings in relation to the construction contract and recover for example, sums which it has paid in connection with an adjudication determination.

Respondents (principals and head contractors) are again reminded that a payment schedule and adjudication response must be prepared as thoroughly as possible in defence of payment claims, and must include the grounds upon which the claimant has not complied with the requirements of the SOPA.

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