Court of Appeal Probuild decision re-establishes the legal position of adjudicator's determination

The recent Court of Appeal decision of Shade Systems Pty Ltd v Probuild Constructions (Aust) Pty Ltd (No 2) [2016] NSWCA 379 (Shade Systems) re-establishes the position an adjudicator's determination is liable to be quashed following the commission of a jurisdictional error by the adjudicator, but not following the commission of a mere non-jurisdictional error.

Our August 2016 Insight addressed the first instance decision of Emmett AJA in Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd [2016] NSWSC 770 (Probuild). In this decision his Honour found an adjudicator's determination made pursuant to the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act) remained subject to review for non-jurisdictional error of law on the face of the record.

The Court of Appeal's treatment of the SOP Act continues to pay close attention to the 'mischief' which the legislation is designed to remedy and reflects that, in light of this mischief, it would be inappropriate to adopt a narrow and pedantic interpretive approach. It also confirms the interpretation of the SOP Act in New South Wales on this point is consistent with recent decisions in South Australia (where Emmett AJA's reasoning was not adopted)1 and Western Australia (notwithstanding the differences in that State's security of payment regime).2

Consequently, future consideration of judicial review under the SOP Act will remain focused around the possible commission of a jurisdictional error and whether there remain to be discovered any new grounds of jurisdictional error.

Recap: The Probuild litigation

The first instance decision in Probuild arose out of a payment claim dispute between two parties: Probuild, the head contractor, and Shade Systems, a subcontractor. Upon receipt of a payment schedule from Probuild, Shade Systems objected to the payment schedule and applied for adjudication. The adjudicator determined the claim in favour of Shade Systems and awarded an amount payable to Shade Systems that was more than the scheduled amount.

Probuild then sought orders in the Supreme Court quashing the adjudicator's determination arguing, amongst other grounds, the adjudicator had committed errors of law in arriving at his findings. Emmett AJA agreed, holding that the determination contained errors of law 'on the face of the record' and quashing the determination under s 69 of the Supreme Court Act 1970 (NSW). In summary, his Honour held the regime set up by the provisions of the SOP Act did not explicitly exclude the possibility of review for error of law on the face of the record.

Emmett AJA's decision was unexpected because the earlier cases of Brodyn v Davenport (2004) 61 NSWLR 421 and Chase Oyster Bar v Hamo [2010] NSWCA 190 had limited the scope of review of determinations made under the SOP Act to circumstances involving either 'essential preconditions' or jurisdictional error. Emmett AJA did not refer to Chase Oyster Bar in substance and addressed Brodyn by suggesting Hodgson JA's findings in that case in relation to the SOP Act were unnecessary for the decision and, therefore, obiter.

Shade Systems appealed this decision to the Court of Appeal, which handed down a unanimous decision in its favour on 23 December 2016.

Reasoning of the Court of Appeal

Giving the authoritative judgment Basten JA centred his discussion around the extent to which the SOP Act cut across the power of the Court to grant certiorari (an order quashing a decision), as set out in s 69 of the Supreme Court Act 1970 (NSW), in the absence of a privative clause in the SOP Act which expressly excluded this power.

Probuild had argued the Court should apply existing principles of statutory interpretation to the SOP Act which would operate in its favour.3 This argument was rejected by Basten JA who identified competing positions both for and against the availability of review for error of law on the face of the record. To resolve this issue, his Honour turned to the cases.

In his discussion of the leading decisions in relation to the SOP Act (and its analogues in other jurisdictions), Basten JA found:

  1. the SOP Act provides a coherent, expeditious and self-contained scheme for resolving payment disputes (at [59]);
  2. the remedial nature of the SOP Act is well-understood and reflects a legislative intention that any risks associated with payment under a construction contract ought not be borne by the contractor (or subcontractor as the case may be) (at [66]); and
  3. the coherent and expeditious scheme referred to above would be undermined if review were available for non-jurisdictional error of law on the face of the record (at [67]).

The validity of Brodyn

Probuild had also sought to attack the Brodyn decision (which significantly restricted the available grounds for review of an adjudicator's determination) on two grounds. Firstly, that it did not sufficiently distinguish between jurisdictional and non-jurisdictional error of law in referring to 'essential pre-conditions'; and secondly the findings were merely obiter and should not be followed.

On these points Basten JA held:

  1. any deficiencies in the Brodyn decision were either clarified or corrected by the later decision in Chase Oyster Bar, which affirmed that review of an adjudicator's determination remained available in circumstances involving jurisdictional error; and
  2. Hodgson JA's reasoning on the relevant point in Brodyn was, in some senses, necessary to decide that case and, therefore, was not obiter. Additionally, Brodyn had already guided many decisions at first instance and, from a practical standpoint, was good law.

The author is grateful for the assistance of Adam Murphy, Lawyer, in preparing this Insight.

1 Maxcon Constructions Pty Ltd v Vadasz (No 2) [2016] SASC 156.
2 Laing O'Rourke Australia Construction Pty Ltd v Samsung C&T Corporation [2016] WASCA 130, [102].
3 Specifically, the doctrine set out in The Owners of the Ship 'Shin Kobe Maru' v Empire Shipping Company (1994) 181 CLR 404 and the 'principle of legality' - see for example Attorney-General for the Northern Territory v Emmerson (2014) 253 CLR 393.

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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.

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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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