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Courts Cannot Overturn Building & Construction Decisions Based on Non-Jurisdictional Errors

On Valentine’s Day 2018 the High Court handed down a significant decision affecting the building and construction industry.  This particular decision has defined the parameters of the court’s powers with regard to overturning an adjudicator’s determination made pursuant to the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOPA).

In short, the High Court has determined that the courts do not have the power to overturn an adjudicator’s determination based on a non-jurisdictional error of law on the face of the record.  What this effectively means, is that unless an adjudicator has made an error of jurisdiction in his/her determination, a court has no power to overturn that ruling.

In turn, adjudicators are now able to make determinations knowing that any incorrect interpretation of a building contract will not be subject to judicial review.

Taking this into consideration, Coleman Greig Lawyers advises that it is of paramount importance that all parties applying for adjudication ensure that their T’s are crossed and I’s are dotted, as they will have no recourse to the courts in the event of receiving an unfavorable decision based on a non-jurisdictional error of law.

Facts of the case:

The decision was handed down in the matter of Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd [2018] HCA 4.

The relevant facts of the case were as follows:

  • Probuild Constructions (Aust) Pty Ltd (Probuild) and Shade Systems Pty Ltd (Shade Systems) were parties to a building sub-contract.
  • In December 2015, Shade Systems served on Probuild a claim for a progress payment under SOPA in the sum of $294,849.33 (excluding GST).
  • Probuild served a payment schedule disputing Shade Systems’ claim and contended that it was entitled to a set off in the sum of $1,089,900 for liquidated damages.
  • Shade Systems applied for adjudication, and the adjudicator in turn determined Probuild to pay $277,755.03 for the progress payment.
  • Probuild applied to the Supreme Court of NSW seeking an order quashing the determination of the adjudicator.  At first instance, the primary judge granted the order, finding that there was an error of law and ruled that the adjudicator incorrectly considered that no entitlement to liquidated damages arose until practical completion or termination of the subcontract.
    Further, the court determined that it was an incorrect consideration on the part of the adjudicator that Probuild needed to demonstrate that Shade Systems was at fault for the delay for which the liquidated damages were claimed.
  • Shade Systems appealed against the decision to the Court of Appeal.  The only question considered on appeal was – “whether the Court’s power under section 69(3) of the Supreme Court Act 1970 (NSW) to quash a determination for a non-jurisdictional error of law on the face of the record was available in the case of SOPA adjudications determinations or whether Parliament had intended that it be excluded”.
  • The Court of Appeal overturned the primary judge’s decision and found that the jurisdiction of the courts was ousted.  Probuild subsequently appealed to the High Court.

Decision of the High Court:

The High Court ultimately agreed with the Court of Appeal.  The majority of the court ruled that SOPA demonstrates a clear parliamentary intention to exclude the Supreme Court’s ability to make a judgment overturning any adjudicator’s determination based on a non-jurisdictional error of law on the face of the record.

The High Court held that “A non-jurisdictional error of law may have serious consequences.  But those consequences are dealt with by s 32 of the Security of Payment Act” (paragraph 51).  The court clarified that the erroneous decision of an adjudicator could be resolved through civil proceedings under the building contract and if necessary, a restitutionary order can be sought.

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