In early 2018, the High Court of Australia handed down the landmark cases of Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd  HCA 4. The case regarded the reviewability of adjudicator determinations under the Building and Construction Industry Security of Payment Act 1999 (NSW), which has comparable counterparts in other states and territories in Australia, including the ACT (the SOP Legislation). The decision has serious ramifications for those making payment claims under SOP Legislation. Ultimately, the High Court decided that errors of fact (as opposed to errors of law) made by an adjudicator under the security of payment regime are not reviewable or capable of being quashed by courts.
Jurisdictional Errors & Non-Jurisdictional Errors
Non-jurisdictional errors are commonly known as ‘errors of fact’. As the colloquial description suggests, they are errors that do not involve a question of law, but rather as simply factual points which an adjudicator may decide upon, albeit wrongly. If an adjudicator makes an ‘error of fact’ it will not affect their power or authority to make a decision.
However, if an adjudicator makes a jurisdictional error (that is, an ‘error of law’), it means that he or she may lack the power or authority to have made the determination in the first place. Given this, and notwithstanding the intended binding effect of the SOP Legislation, jurisdictional errors can be quashed by the courts.
This said, the distinction between non-jurisdictional error and jurisdictional error is not always clear cut. Much turns on the body making the determination, and the legislative framework underpinning the decision and empowering the decision maker. This difficult distinction has plagued judges for many years.
The facts of Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd:
Probuild Constructions subcontracted Shade Systems to supply and install external louvres for an apartment development. Shade served on Probuild a ‘payment claim’ under the NSW SOP Legislation. In response Probuild provided a ‘payment schedule’ which denied liability on the basis that a higher amount of liquidated damages was payable in Probuild’s favour in relation to delays of Shade in its works.
The adjudicator rejected Probuild’s liquidated damages claim on the basis that liquidated damages could not be calculated until either practical completion (of the works) or termination of the subcontract, and concluded that Probuild was to pay Shade under the claim.
Probuild sought to quash the determination of the adjudicator on the basis of non-jurisdictional errors, meaning that they contained errors of fact, namely that the adjudicator mistakenly considered that:
- there was no entitlement to liquidated damages arose until practical completion or termination of the subcontract; and
- that Probuild needed to demonstrate that Shade was at fault for the delay for which it claimed liquidated damages.
The question for the High Court in this case was this: Are errors of fact/non-jurisdictional errors in decisions under the SOP Legislation reviewable by the courts?
The court’s findings
Ultimately, the High Court held that adjudicator determinations under the SOP Legislation are not reviewable by courts, even if such determinations do contain errors of fact.
The majority held that although the SOP Legislation does not expressly prohibit courts from reviewing non-jurisdictional error, the Act does not intend to permit such review either. Thus, to allow the courts to intervene over factual arguments would conflict with the overarching objectives of the SOP Legislation.
In reaching this conclusion, the High Court specifically took into account:
- the overarching objectives of the SOP Legislation are expediency and efficiency in dispute resolution, and does not encourage ‘lengthy consideration by an adjudicator of detailed submissions on all questions of law’;
- the SOP Legislation provides for informal procedures to determine an adjudication application;
- there is no intended right of appeal from the determination of an adjudicator under the SOP Legislation; and
- the SOP Legislation nevertheless preserves parties’ abilities to enforce contractual rights and defers final determination of these rights to alternative forums.
- Courts are still able to review or quash determinations affected by jurisdictional errors of law, such as those where the decision maker does not have authority to decide the matter or where ‘basic and essential requirements which are preconditions to a valid adjudicator’s determination’ are absent. Logically this makes sense: an adjudicator ruling on an issue not intended to be adjudicated under the SOP Legislation, cannot be protected by the binding intentions of the SOP Legislation.
- This finding makes it harder for those dissatisfied with an adjudicator’s determination, to challenge and review it. Those who are dissatisfied with the determination of an adjudicator under the SOP Legislation should seek to identify a jurisdictional error in the determination in order to seek review, instead of taking issue with a mistake of fact by the adjudicator.
- However, the SOP Legislation does not diminish the ability of the parties to enforce their contractual rights, including where an adjudicator has erred in determining the amount of a progress payment. As such, an aggrieved party will be able to seek recourse from the courts by bringing a separate proceeding under contract. Though whilst that slower legal process turns its wheels, any amount awarded by an adjudicator generally can be called upon by a winner in the security of payments regime.