Uncertainty reigns in recent SOP litigation

Two recent court decisions in NSW and WA indicate a tension in the law and the potential for a radical overhaul of security of payment (SOP) legislation. These decisions also indicate a great deal of uncertainty as to a respondent's grounds to appeal an adverse adjudication determination in a payment dispute. It will be extremely important to monitor further litigation in this area until either of the new or status quo approaches are affirmed.

What has happened

  • The statutory security of payment regimes in force throughout Australia were enacted with the purpose of simplifying disputes in the construction industry and to provide a simplified regime of adjudication in the events of a payment dispute.
  • For that reason, the adjudication regimes established in those acts are reviewable only in a limited sense.
  • In the leading decisions of Brodyn v Davenport (2004) 61 NSWLR 421 and Chase Oyster Bar v Hamo [2010] NSWCA 190, the NSW Supreme Court restricted the review of adjudicators' determinations that were not beyond the boundaries of the adjudicator's authority to decide the dispute (otherwise known as 'jurisdictional error').
  • In Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd [2016] NSWSC 770 (Probuild), Emmett AJA ordered certiorari, for error of law on the face of the record which is a court order which can be made to overturn a prior administrative decision. This represents a potential inconsistency with, and expansion of, the decisions in Brodyn and Chase Oyster Bar.
  • The doctrine of error of law on the face of the record empowers a court to make an order of certiorari if an incorrect legal conclusion appears on the written 'record', in this case the adjudicator's determination.
  • Meanwhile, a very recent decision of the WA Supreme Court of Appeal, Laing O'Rourke Australia Construction Pty Ltd v Samsung C&T Corporation [2016] WASCA 130 (Laing O'Rourke), accepted the status quo position of review only in the event of jurisdictional error, which does not include the doctrine of error of law on the face of the record.
  • The different approaches of these two decisions highlight a possible divergence in security of payment litigation and the potential overturn of longstanding authorities such as Brodyn and Chase Oyster Bar.

Consequences for you

  • If the Probuild decision is endorsed or applied, respondents to security of payment claims will be in a stronger position in relation to their ability to challenge such a claim.
  • Accordingly, respondents should be on notice of a possible new avenue of challenging an adjudicator's determination via litigation.
  • In the absence of further treatment by the courts, all parties to security of payment disputes should be aware of the tension and uncertainty in this area, whether seeking to challenge or settle a security of payment claim or adjudicator's determination.

Background

The Probuild Case

The decision in Probuild arose out of a payment claim dispute between two parties: Probuild, the head contractor, and Shade Systems, a subcontractor. In December 2015, Shade Systems made a payment claim of approximately $324,000 (the December Claim). Probuild then served a payment schedule in response that claimed approximately $1 million in liquidated damages owed to it by Shade Systems as a consequence of delayed completion of the work.

In late January 2016, Shade Systems applied to have the December Claim adjudicated. The Adjudicator made a determination in favour of Shade Systems. Importantly, the Adjudicator disallowed Probuild’s claim for liquidated damages on the grounds that it was Probuild's burden to prove the asserted delays were caused by Shade Systems and that Probuild had failed to discharge this onus.

Probuild then appealed the adjudicator's determination in the Supreme Court, applying for, among other things, an order for certiorari. In a decision that appears to contradict the leading authorities, Emmett AJA made that order.

Emmett AJA concluded that review for error of law on the face of the record was available pursuant to s 69 of the Supreme Court Act 1969 (NSW). In so finding, he addressed the scheme of the Building and Construction Industry Security of Payment Act 1999 (NSW) (the NSW Act) and the leading authority of Brodyn (see above).

In summary, Emmett AJA reasoned that judicial review should only be excluded in the presence of a clear legislative intent, that Brodyn was not technically binding on him, that the privative regime of the NSW Act was inapt to exclude judicial review and that the adjudicator had committed an error of law in reversing the onus of proof in relation to delays.

His Honour ordered that the determination be quashed.

The Laing O'Rourke Case

Meanwhile, the decision in Laing O'Rourke arose from a construction contract between head contractor Samsung C&T Corporation and subcontractor Laing O’Rourke. In March and April 2015, Laing O'Rourke submitted two applications for adjudication pursuant to the Construction Contracts Act 2004 (WA) (the WA Act). The adjudicator’s determinations were issued in mid-2015 and were in Laing O'Rourke's favour. Samsung appealed both determinations in the Supreme Court of Western Australia and its appeal was upheld at first instance, with Mitchell J finding that the adjudicator had committed jurisdictional errors by failing to determine the dispute with reference to the proper clauses of the contract. Samsung appealed Mitchell J's decision.

Martin CJ, of the Court of Appeal, referred to the High Court authorities of Kirk v Industrial Relations Commission of New South Wales (2010) 239 CLR 531 and Craig v The State of South Australia (1995) 184 CLR 163 in relation to the difficulty of identifying the loci of jurisdictional and non-jurisdictional error, and the relevance to that distinction of whether the forum was best characterised as a ‘court’ (with jurisdiction to commit errors of law) or a ‘tribunal’ (in which any error of law is a ground for certiorari). In light of those principles, and bearing in mind the remedial nature of the WA Act, his Honour held that the errors identified by the trial judge were a ‘misconstrual’ of the contract which did not amount to jurisdictional error.

Discussion

Laing O'Rourke does not consider the decision in Probuild as the latter was handed down two months after argument was heard in the former. Nevertheless, Martin CJ took a different approach to Emmett AJA, saying, at [102], that an appeal for judicial review of an adjudicator’s decision must be dismissed if the adjudicator is found to have acted within his or her jurisdiction (which is consistent with the NSW Court of Appeal's decisions in Brodyn and Chase Oyster Bar). This necessarily precludes review for errors of law on the face of the record, which is a species of non-jurisdictional error.

However, it is arguable that Emmett AJA’s conclusion regarding the availability of certiorari is more consistent with the observations of the High Court in Wingfoot Australia Partners Pty Ltd & Anor v Eyup Kocak & Ors (2013) 252 CLR 480, which related to a Victorian statutory medical panel. The Court noted at [25] that:

[W]here error of law on the face of the record is not excluded by statute as a basis for making an order in the nature of certiorari, and where an error of law on the face of the record is found, an order in the nature of certiorari can be made …

Readers should note that the power and simplicity of this dictum may weigh in favour of applying Probuild when the issue is next litigated.

We expect that these decisions will receive further attention in the near future and will issue further updates as required.
 

Steven Blanch

I strive to deliver excellent results for my clients. My clients' success is then my success.

Steven Blanch Partner

Steven is the Group Leader of Henry Davis York's Projects Group, which includes the legal teams for Construction & Major Projects; Environment & Planning; Real Estate; and Technology & Procurement.

Steven has over 17 years' experience advising government agencies, statutory authorities, financial institutions, developers and construction companies in construction, engineering and infrastructure law. His particular passion and focus is transport infrastructure.

Steven specialises in tailoring contractual arrangements to suit the needs of the individual project. Steven's experience includes drafting the suite of contracts for Public-Private Partnership (PPP) arrangements, Build Own Operate and Transfer (BOOT) projects and Design Construct and Maintain (DCM) agreements, as well as numerous other project delivery alternatives. He also has considerable experience in drafting alliance contracts, Design and Construction (D&C) contracts, joint venture agreements and all associated documentation.

Steven's particular expertise is transport infrastructure, having worked as in-house counsel in public and private sector organisations devoted to the development, construction, maintenance and operation and rail and road infrastructure.

Steven represents his clients in contentious construction-related matters, successfully acting on their behalf in litigation and arbitration, conciliation, adjudication, expert determination and mediation.

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Alex Whiteside

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Alex Whiteside Partner

Alex specialises in providing advice to the construction, infrastructure and mining sector. Alex focusses on providing advice during the delivery, completion and disputes phases of projects.

Alex acts for construction contractors, equipment suppliers and government entities and has extensive experience in drafting and negotiating project documentation, ranging from the Australian Standard suite of contracts through to project specific and PPP documentation.

Alex has a particular focus on disputes, including expert determination, adjudications, arbitration and Court proceedings. Alex has acted for clients in a broad range of construction and mining disputes including scope and variation claims, design, defect and delay/prolongation claims, injunctions and security of payment adjudications and appeals. Alex has significant expertise in Supreme Court actions in the Technology and Construction List.

Alex has completed secondments in the legal teams of Lendlease, Transport Infrastructure & Services and Sydney Trains.

Alex commenced his career advising insurers in relation to professional indemnity insurance policy coverage and claims.

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