Have the floodgates been opened for judicial review under the SOP Act? The impact of the Probuild decision for payments under the security of payment legislation

The impact of the Probuild decision for payments under the security of payment legislation

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Publication August 2016

Introduction

In NSW, the adjudication processes under the construction industry “Security of Payments” legislation1 (SOP Act) is perceived by many in the industry as being unfairly skewed in favour of the claimant including a perception of bias, given that the legislation allows the claimant to select the adjudicator and forum.2 As a result, unsuccessful respondents have had limited opportunity to challenge adjudicator’s decisions through judicial review, even in circumstances where there has been a clear error of law in the adjudicator’s determination. This has led to claimants successfully obtaining the immediate benefit of a favourable adjudication determination until such time (if at all) that a final decision in respect of the contractual dispute is determined.

However, the recent NSW Supreme Court decision in Probuild3  by Justice Emmett AJA opens the door on judicial review for errors of law, potentially giving greater scope to a respondent to avoid immediate payment of an adjudication determination with which it does not agree.

Facts

In late 2015, Shade Systems served a payment claim on Probuild under the SOP Act. In response, Probuild served a payment schedule stating that it did not propose to make any payment to Share Systems on account of Probuild being entitled to liquidated damages in excess of the claimed amount. At adjudication, the adjudicator found in favour of Shade Systems and required Probuild to pay the relevant progress payment.

Probuild subsequently filed a Summons with the Supreme Court seeking that the determination of the adjudicator be quashed on a number of bases, including that the adjudicator had committed an error of law on the face of the record, in incorrectly rejecting Probuild’s claim for liquidated damages.

Shade Systems argued that, even if an error of law had been committed by the adjudicator, judicial review is not available under the SOP Act for an error of law on the face of the record.

Decision

Emmett AJA held that it was open for the Court to consider errors of law in reviewing the adjudication determination and that the adjudication determination should be quashed with the matter of the adjudication to be remitted to the adjudicator for further consideration and determination.

In reaching his decision, Emmett AJA focused his analysis on the general right of the Supreme Court to “quash the ultimate determination of a tribunal in any proceedings, if that determination has been made on the basis of an error of law”.4  He noted that tension had arisen in the context of determinations under the SOP Act, as the orthodox view was that the SOP Act purported to exclude the right of judicial review for an error of law as respondents were not entitled “to challenge the adjudicator’s determination”.5

His Honour noted the decision of Hodgson JA in Brodyn6  was often cited in support of a contention that the SOP Act appeared strongly against the availability of judicial review on the basis of non-jurisdictional error of law. However, his Honour determined that he was not bound to follow the decision in Brodyn in light of the view that Hodgson JA’s “observations” in Brodyn were not strictly binding and, further, that the High Court decision of Kirk7  had put the decision of Brodyn in doubt.

Emmett AJA gave consideration to the reasons for the assumption that the scheme of the SOP Act is that the determination by an adjudicator will be final in respect of a progress payment, but considered that there was nothing in the SOPA Act that directly addresses the possibility for judicial review in respect of an adjudicator’s determination. Relying on observations made in Chase Oyster,8  Emmett AJA resolved that only clear and unambiguous language in the SOP Act could constrain the Supreme Court’s general right to quash determinations on the basis of errors of law. While the SOP Act did use the phrase “challenge the adjudicator’s determination”, this was considered to be limited to challenges as to whether certain factors under the SOP Act were applied correctly in a determination, and not the broader question as to whether a determination suffered a fundamental and fatal error of law

Where are we at now?

The decision of Emmett AJA, if followed9, will represent a major shift in the application of the SOP Act in New South Wales. Despite the concerns raised in the Collins Report regarding the perception of bias towards claimants, the intention of the SOP Act has largely always been about promoting cash flow through the contractual chain. The availability of judicial review due to an error of law gives dissatisfied respondents another weapon in delaying payment until such time that an adjudicator’s determination has been reviewed.  

Conversely, the decision may be seen by others within the industry as restoring the balance somewhat back to respondents who are the recipient of an adverse decision, especially in circumstances where that decision may have arisen as a result of an error of law by the adjudicator.

Whether a balance can be reached between the two positions remains to be seen.   However, in the meantime it will be interesting to watch whether the decision in Probuild will result in the judicial review floodgates being flung open in circumstances where one party is aggrieved with an adjudicator’s determination.  


Footnotes

1
Building and Construction Industry Security of Payment Act 1999 (NSW)

2
A point noted by Mr Bruce Collins QC in the Final Report arising out of the Independent Inquiry into Construction Industry Insolvency in NSW [page 72].

3
Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd [2016] NSWSC 770

4
Supreme Court Act 1970 (NSW) s 69(3).

5
Building and Construction Industry Security of Payment Act 1999 (NSW) s 25(4)(a)(iii).

6
Brodyn Pty Ltd v Davenport (2004) 61 NSWLR 421.

7
Kirk v Industrial Court of New South Wales [2010] HCA 1; (2010) 239 CLR 531

8
Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd (2010) 78 NSWLR 393,

9
Noting that the decision is a first instance decision of the Supreme Court.


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