By Scott Higgins, Partner
Respondents across NSW (and other states) will be roused by two key findings by the NSW Supreme Court in the case of Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd  NSWSC 770 (‘Probuild decision’):
- Judicial review and relief is available to quash an adjudication decision where an adjudicator has made an error of law on the face of the record, with no requirement to prove that there is a jurisdictional error; and
- The two errors of law in this case, sufficient for the adjudication to be quashed, related to a misapplication of the contract by the Adjudicator, Doron Rivlin, in his rejection of the respondent’s claim for liquidated damages.
On the first point, prior to the Probuild decision, it was thought that only jurisdictional errors would give rise to grounds for judicial review of adjudications under the Building and Construction Industry (Security of Payment) Act 1999 (“the Act”). Therefore, if the decision stands, it presents a seminal shift in the law in NSW (and possibly other States given it considers High Court authority).
On the second point, set-offs for liquidated damages are commonly advanced as a defence in adjudications by respondents with limited success. The Probuild decision clarifies that they are fair game and also reinforces that when considering any defence of set-off, adjudicators need to correctly interpret the contract.
Judicial review for mere errors of law
In NSW, the scope for judicial review was significantly narrowed in 2004 by the Court of Appeal in Brodynto what Hodgson JA described as non-compliance with the ‘basic and essential requirements of the Act’. This effectively put an end what had been referred to as a ‘tsunami of litigation’ regarding the Act.
Then in 2010 the High Court decision in Kirk reaffirmed the Supreme Court’s power to review decisions of inferior Courts or bodies with judicial authority. This seemingly opened the door to a challenge to Brodyn, which happened shortly thereafter in Chase Oyster Bar. In that case, the NSW Court of Appeal applied Kirk to confirm that judicial review for all ‘jurisdictional errors’ was available and not simply the ‘basic and essential requirements’ identified in Brodyn.
The Court of Appeal in Chase Oyster Bar did not determine whether non-jurisdictional errors of law were also reviewable. In a Court of Appeal decision last year, Justice Sackville made some comments in obiter that even non-jurisdictional errors on the face of the record may be reviewable. It was probably not an insignificant fact that Emmett JA was also sitting on the Court of Appeal in this matter.
Emmett AJA in Probuild directly considered this point and determined that, in the absence of clear words in the Act to exclude the overarching jurisdiction of the Supreme Court under section 69(3) of the Supreme Court Act 1970 (NSW), errors of law on the face of the record are reviewable.
Liquidated damages and set-off defences in adjudications
In the Probuild decision, the NSW Supreme Court has effectively upheld the right of respondents to successfully rely upon liquidated damages and set-off provisions to reduce amounts claimed in adjudications. Emmett AJA held that the adjudicator:
- wrongly concluded that liquidated damages only accrued after the date of practical completion – when the relevant contractual clause clearly provided that they accrued after the date for practical completion; and
- wrongly assumed that the respondent was required to demonstrate that the claimant’s failure to achieve practical completion was caused by a default of the claimant’s own making – when the contract clearly placed the onus on the claimant to demonstrate an entitlement to an extension of time.
Based on his Honour’s findings that judicial review of a non-jurisdictional error by an adjudicator is available and that the Adjudicator in this instance had committed an error of law on the face of the record, his Honour ordered that the adjudication decision be quashed and remitted back to the Adjudicator for further consideration and determination according to law (something that is unusual due to the strict requirements of time governing the adjudication process).
In the rough and ready world of fast-tracked adjudication under the Act, errors of law by adjudicators are, unfortunately, commonplace. Unless the Probuild decision is overturned on appeal (an appeal has been foreshadowed), otherwise not followed or is reversed by legislation, there is the potential for a very significant increase in judicial challenges to adjudications.
The Act established a legislative apparatus to encourage the quick (and interim) flow of cash in favour of claimants. Such broad availability of review will inevitably undermine this underlying policy of the Act. However, advocates for respondents will point out that if it discourages private ‘Authorised Nominating Authorities’ (ANAs) and their adjudicators from elevating the pursuit of cash flow to claimants over correct contractual interpretation, then it is a decision worth celebrating.
Whatever one’s view of the Probuild decision, claimants will certainly be more circumspect about proceeding to adjudication of a claim, particularly in circumstances where a respondent has provided reasonably cogent reasons for withholding or setting-off payment under a contract. Contractual provisions for dispute resolution (which provide for a final and binding resolution) will once again appear a comparatively attractive option (in terms of costs, time and certainty outcome).
The Act is presently under review by the NSW Government and the wise heads at Fair Trading will no doubt be considering the implications of the Probuild decision and whether amendments are required to the Act to reverse the impact of the decision and avoid another potential tsunami of litigation.
Also being considered are major revisions to the system of ANA and adjudicator accreditation (like the recent Queensland amendments) and the benefits of aspects of the ‘West Coast model’. All of these things will need to be delicately considered if we are to achieve a system that is more fair and balanced, includes appropriate avenues for judicial review whilst not abandoning the core underlying principle of promoting interim payments.