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Door Closes on Challenges to Decisions of Adjudicators

The question of when a decision of an Adjudicator can be set aside was revisited by the Court of Appeal in the judgement Shade Systems Pty Ltd v Probuild Constructions (Aust) Pty Ltd (No 2) [2016] NSWCA 379 delivered on 23 December 2016 (“the Probuild case”).

In a unanimous judgment, the Court of Appeal confirmed that an Adjudicator’s determination can only be set aside for jurisdictional error and not for non-jurisdictional errors of law.

This judgment overturns the earlier decision of the NSW Supreme Court which had opened the door for potential challenges to the determinations by Adjudicators to include non-jurisdictional errors of law.

That door has now been closed by the Court of Appeal.

 Key Facts

The Probuild case initially arose out a challenge made by Probuild to a determination by an Adjudicator in respect of a payment claim totalling $324,334 made by Shade against Probuild under the Building and Construction Industry Security of Payment Act NSW (1999)(the SOP Act).

In its Payment Schedule; Probuild argued that no money was owing because Shade had failed to complete the works by the date for practical completion and was liable to pay Probuild liquidated damages for an amount more than the payment claim

Shade argued that as practical completion had not been achieved and the contract had not been validly terminated the calculation for liquidated damages could not be undertaken.

The Adjudicator agreed with Shade and determined that liquidated damages were not payable and that the amount of $277,755 was payable by Probuild.

Probuild applied to the Supreme Court for orders to set aside the determination of the Adjudicator which included amongst others; grounds that the Adjudicator had made errors of law in his findings.

 What did the Supreme Court decide?

Emmett AJA  of the Supreme Court who heard the matter found that the Adjudicator did make errors of law in his reasoning.

In particular and in dealing with the claim by Probuild for liquidated damages; His Honour said:

A fair reading of the Adjudicator’s reasons indicates that he assumed, wrongly, 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. That was an error of law and it appears on the face of the record of the proceedings leading to the Determination.”

His Honour held that the security of payment regime did not explicitly exclude the ability of the Court to set aside an Adjudicator’s determination for error of law on the face of the record.

Accordingly, His Honour set aside the Adjudicator’s Determination.

The Court of Appeal

Shade appealed to the Court of Appeal and argued on the basis of Brodyn Pty Ltd v Davenport (2004) 61 NSWRLR 421 and Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd [2010] NSWCA 190; that the Court did not have power to intervene in an Adjudicator’s Determination where the only errors were non jurisdictional errors of law.

The issue for the Court of Appeal therefore was whether an error of law on the face of the record was sufficient to allow the Court to set aside the award of the Adjudicator.

In a unanimous decision the Court of Appeal held that the Security of Payment Act did not permit review of the determination of adjudicator otherwise than for jurisdictional error and allowed the Appeal.

The reasoning of the Court of Appeal

In reaching its decision the Court of Appeal considered the power of the Court to quash a decision of an Adjudicator as set out in section 69 of the Supreme Court Act 1970 (NSW) and the purpose of the SOA Act.

The leading judgment was delivered by Basten JA who said:

  • the coherent and expeditious procedure provided by the SOP Act would be undermined if the determination of the Adjudicator were to be subject to judicial review for any error of law which might be identified in the reasons given by the adjudicator [67].
  • even if judicial review were available, even an arguable error would provide a basis for the respondent to seek a stay of enforcement, potentially displacing the transfer of cash flow risk which has been established under the SOP Act [66 and 67].

Accordingly, the Court allowed the appeal and held that the primary judge was in error in concluding that the supervisory jurisdiction of the Court extended to quashing a decision of the adjudicator on the basis of error of law on the face of the record.

As a result of the decision; the determination of the Adjudicator was reinstated.

What does the decision mean?

The decision of the Court of Appeal resolves the uncertainty around the question as to whether an adjudicators determination could be set aside for non-jurisdictional error which in the context of the SOP Act; is an error of law made by an Adjudicator while applying the Act.

In its unanimous 5 judge decision the Court of Appeal has confirmed that the only basis to set aside a determination of an Adjudicator is in the case of a jurisdictional error which is an error concerning how the Act applies.

Unless there is a successful appeal to the High Court; the decision of the Court of Appeal is not good news for principals and head contractors as the decision limits the grounds upon which an Adjudicators determination can be reviewed.

Absent jurisdictional error, Principals and Head Contractors will be required to pay amounts determined by Adjudicators even if the Adjudicator wrongly applied the law or misinterpreted the contract.

See separate related article on recent High Court Decision.

This communication is sent by Kreisson Legal Pty Limited (ACN 113 986 824). This communication has been prepared for the general information of clients and professional associates of Kreisson Legal. You should not rely on the contents. It is not legal advice and should not be regarded as a substitute for legal advice. The contents may contain copyright.

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