Adjudication determinations are not reviewable for non-jurisdictional errors of law

In our June 2016 issue of Construction, Property & Projects Insights (Issue 4), we discussed the first instance decision of Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd [2016] NSWSC 770, in which the Supreme Court of NSW held that adjudication determinations were subject to judicial review for non-jurisdictional errors of law on the face of the record. 

The decision was appealed by Shade Systems.  The NSW Court of Appeal handed down its decision in Shade Systems Pty Ltd v Probuild Constructions (Aust) Pty Ltd (No 2) [2016] NSWCA 379 late last year and overturned the first instance decision, holding that an adjudicator’s determination was not subject to judicial review for a non-jurisdictional error of law on the face of the record. 

Facts

Shade Systems was a subcontractor to Probuild.  Shade Systems made a payment claim to Probuild under the Building and Construction Industry Security of Payment Act 1999 (NSW) (Act).  Probuild responded with a payment schedule, which indicated that the scheduled amount was $Nil on the basis that it was entitled to deduct liquidated damages due to Shade Systems’ failure to achieve practical completion by the date for practical completion. 

The payment claim was referred to adjudication and the adjudicator found that as practical completion had not been achieved, Probuild was not yet entitled to deduct liquidated damages under the Subcontract.  Accordingly, the adjudicator determined that an amount was due and payable to Shade Systems. 

At first instance

Probuild commenced proceedings in the Supreme Court of NSW seeking judicial review of the determination on two bases:

  • a denial of procedural fairness; and
  • an error of law on the face of the record on the basis that the adjudicator was wrong to conclude that liquidated damages were not payable.

At first instance, Emmett AJA rejected the first challenge and accepted the second.  Accordingly, the adjudicator’s determination was set aside. 

Court of Appeal

Shade Systems appealed to the Court of Appeal. 

It was accepted by both parties that the adjudicator’s determination was based on a non-jurisdictional error of law and that section 69 of the Supreme Court Act, in principle, extended to adjudicator’s determinations.  Therefore, the key consideration for the Court of Appeal was whether the Act precluded the court’s jurisdiction under section 69 of the Supreme Court Act to quash ultimate determinations of a court or tribunal in any proceedings if the determination in question has been made on the basis of an error of law on the face of the record. 

Basten JA (who gave the leading judgment) held that an adjudicator’s determination could not be quashed for a non-jurisdictional error of law.  In coming to this conclusion:

  • Basten JA gave careful consideration to previous decisions of the Courts in NSW (namely Musico v Davenport [2003] NSWSC 977 and Brodyn Pty Ltd v Davenport [2004] NSWCA 394) and in other states, and concluded “relief was not available to quash an adjudicator’s determination other than jurisdictional error”;
  • There was no sufficient reason put forward by Probuild to doubt the correctness of those decisions; and
  • a contrary conclusion would undermine the underlying purposes of the Act, namely:
    • the facilitation of cash flow pending the final determination of the parties’ rights; and
    • displace the transfer of risk from the respondent to the claimant, particularly as even if there was an arguable error of law would give rise to a stay of enforcement.

Accordingly, the appeal was allowed and the adjudicator’s determination was restored. 

Significance

Following the first instance decision, there was concern that there would be greater scope for disgruntled respondents to challenge adjudication determinations based on non-jurisdictional errors of law, and that this would see an influx of challenges in court. 

The decision of the Court of Appeal has gone a long way to alleviate this concern and reaffirm the longstanding view held in NSW that adjudication determinations are only subject to judicial review for jurisdictional errors, and not non-jurisdictional errors of law. 

If you would like further information about case law developments or the Act, please contact Phillip Coady, Executive Director, or Vick Tan, Lawyer, on +61 2 9261 5900.