Allowed to err: High Court rejects judicial review of adjudication determinations

Commercial Directions

The High Court of Australia has handed down two landmark decisions on the Building and Construction Industry Security of Payment Act 1999 (NSW) (the NSW Act) and the Building and Construction Industry Security of Payment Act 2009 (SA) (the SA Act). The High Court unanimously decided that judicial review is not available for non-jurisdictional errors of law in adjudication determinations.

The two cases, Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd [2018] HCA 4 and Maxcon Constructions Pty Ltd v Vadasz [2018] HCA 5, posed the question of whether the relevant Supreme Courts have power to intervene and review an adjudicator’s decision where the adjudicator makes a non-jurisdictional error of law on the face of the record. Maxcon v Vadasz also considered whether a retention provision was an invalid ‘pay when paid’ provision.

In dismissing the appeals, the High Court confirmed the informal nature of both Acts, and emphasised that ‘cash flow is the lifeblood of the construction industry’.

Significance

Both decisions are significant for the building and construction industry.

Probuild v Shade Systems has clarified that adjudicator’s decisions will only be open to review where the adjudicator has done something outside his or her jurisdiction. Errors of law, such as wrongly interpreting a contract, are not reviewable. This is a positive outcome for all subcontractors, who will have their cash flow protected. For owners, developers and head contractors, it is a reminder to provide thorough payment schedules and to actively participate in the adjudication process. Any decision will be difficult to overturn until contractual rights are pursued on a final basis.

Maxcon v Vadasz has arguably expanded the definition of ‘pay when paid’ provisions. Owners, developers and head contractors will need to carefully review their contracts to ensure that retention provisions are still enforceable.

Probuild v Shade Systems

Moray & Agnew Newcastle acted for Shade Systems in this case before the High Court.

Probuild and Shade Systems were parties to a contract whereby Shade Systems agreed to supply and install external louvres for an apartment complex in the Sydney suburb of Chatswood. Shade Systems submitted a payment claim pursuant to the NSW Act, which proceeded to adjudication. In making his determination, the adjudicator wrongly interpreted a liquidated damages provision of the contract – committing a ‘non-jurisdictional error of law on the face of the record’.

Probuild applied to the NSW Supreme Court for judicial review of the adjudicator’s decision, seeking to have the decision overturned. At first instance, the Supreme Court determined that it did have power to intervene and review the decision. Shade Systems appealed to the NSW Court of Appeal, where five judges unanimously overturned the Supreme Court decision and found that the Court did not have power to intervene.

Probuild then appealed to the High Court. In dismissing the appeal, the High Court found:

  1. the power of the Supreme Court to review non-jurisdictional errors can be ousted by statute;
  2. for a statute to oust the Supreme Court’s power, that intention must be clearly expressed in the legislation;
  3. the NSW Act was enacted to ‘reform payment behaviour in the construction industry’ and to ‘stamp out the practice of developers and contractors delaying payment to subcontractors and suppliers’;
  4. the right to payment under the NSW Act is interim and underpinned by the understanding that ‘cash flow is the lifeblood of the construction industry’;
  5. the NSW Act permits informal procedures and promotes speedy and effective resolution of payment disputes; and
  6. to permit costly and time-consuming judicial review proceedings on the basis of error of law on the face of the record would ‘frustrate the operation and evident purposes’ of the NSW Act.

Maxcon v Vadasz

Maxcon engaged Mr Vadasz to design and construct piling for an apartment development. The contract required Mr Vadasz to provide security by way of cash retention, which could only be released after the certificate of occupancy and other approvals were achieved to enable the works to be lawfully used in accordance with Maxcon’s project requirements. Mr Vadasz submitted a payment claim pursuant to the SA Act, which proceeded to adjudication. The adjudicator determined that the retention provision was an invalid ‘pay when paid’ provision.

Maxcon commenced judicial review proceedings in the Supreme Court of South Australia. At first instance, the Court found that the adjudicator had made an error in deciding that the retention provisions were invalid, but that the error was not a jurisdictional error and accordingly, not reviewable. Maxcon appealed to the Full Court of the Supreme Court, who agreed that the adjudicator had made an error, however the error was not jurisdictional and not open to review.

Maxcon appealed three questions to the High Court:

  1. Did the adjudicator commit an error of law, in determining that the retention provisions were invalid ‘pay when paid’ provisions?
  2. If so, is judicial review available for a non-jurisdictional error of law?
  3. If not, was the error of law a jurisdictional error?

The High Court found that the adjudicator was right to conclude that the retention provisions were ‘pay when paid’ provisions, because the release of retention was dependent on completion of the head contract. Accordingly, there was no error, and no need to consider the other issues in the appeal.

However, Justices Gageler and Edelman decided that it was a matter of public importance to nonetheless give answers to the two further questions. They stated that, for the reasons given in Probuild v Shade Systems, given that there is no material difference between the NSW Act and the SA Act, judicial review is not available for non-jurisdictional errors of law. They further concluded that incorrectly determining whether a provision is a ‘pay when paid’ provision is not a jurisdictional error, so cannot be reviewed.

Authored by Sarah Hammond, Associate, Newcastle.


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