Scope for challenging adjudication determinations made under Security of Payment legislation broadened in NSW

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July 15, 2016

The New South Wales Supreme Court’s recent decision in Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd has the potential to change the face of the Security of Payment regime in New South Wales. The Security of Payment regime is peculiar to building matters and enables disputes to be resolved quickly through adjudication, without having to go to Court.

Probuild and Shade Systems entered into a subcontract whereby Shade Systems was to supply and install external louvres to an apartment complex. Probuild did not make a payment under the subcontract, claiming that they were entitled to liquidated damages that exceeded the amount claimed by Shade Systems. Shade Systems served a payment claim on Probuild and then applied for an adjudication under the Building and Construction Industry Security of Payment Act 1999 (NSW) (“the Act”). The Adjudicator determined that Probuild owed Shade Systems $277,755.03 for a progress payment, plus interest on the payment and 100% of the adjudication fees.

Probuild instituted proceedings in the NSW Supreme Court to quash the adjudication determination on the basis that the Adjudicator committed a jurisdictional error by denying Probuild procedural fairness. Probuild also argued that the Adjudicator incorrectly interpreted the liquidated damages clause of the subcontract in determining that they were not entitled to such damages, and by doing so made a “non-jurisdictional error of law on the face of the record.”

Prior to this case, an adjudication determination could only be reviewed by a Court in circumstances where it could be proved that it lacked the basic and essential requirements for a valid determination (such as the existence of a construction contract or the service of a payment claim), otherwise known as an “error of jurisdictional fact.” 

Justice Emmett AJA decided that previously upheld authorities on the issue did not conclusively determine whether adjudication determinations with non-jurisdictional errors of law on the face of the record errors are amenable to review, thereby making more determinations made under the Act susceptible to judicial review.

The decision is significant because it reduces the utility of adjudication by increasing the risk that those who seek resolution of Security of Payment claims through the adjudication process will have their determination judicially reviewed, that is, appealed to Court. Judicial review is an expensive and lengthy process that may have been otherwise avoidable under the previous interpretation of the law.

On the other hand, parties that consider that their adjudication determination to be wrong at law will now be able to have the decision reviewed by a Court. Before this decision, they did not have the right.

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