Probuild Constructions (Aust) p/l v Shade Systems p/l [2018] HCA 4

Thirteen judges have proceeded on the basis that Shade Systems’ adjudication determination was wrong at law. Why then have twelve of their Honours required the builder to pay it?

Probuild subcontracted Shade Systems for louvres on an apartment development in Chatswood. Systems served Probuild with a payment claim. Probuild’s payment schedule asserted a set off for a higher amount in liquidated damages for failure to complete before the subcontract’s date for practical completion. Systems applied for security of payment adjudication. The adjudicator rejected Probuild’s set off on the basis that liquidated damages could not be calculated until either practical completion (being actual completion of the works) or termination of the subcontract.

Let’s start by identifying what the Supreme Court Act enables the Court to do, namely, to quash a decision where the decision maker has made an error of law on the face of the record. This power may be ousted by a statute that includes what is known as a privative clause. The Building and Construction Industry Security of Payment Act 1999 (NSW) contains no express privative clause.

Therefore, the question for the High Court was whether, “absent an express statement but read as a whole, the Security of Payment Act has that effect.”[1] If so, the Supreme Court is left with its power to quash a decision that is made in excess of jurisdiction of the decision maker, or, to put it another way, a jurisdictional error, thus enforcing the limits of the decision-maker’s functions and powers. In doing so, it matters not whether the decision impugned is otherwise right or wrong at law.

In the High Court, Probuild contended that Supreme Court could quash an adjudication determination for error of law on the face of the record that is not a jurisdictional error. The security of payment legislation, so the High Court has pronounced, evinces a clear legislative intention to exclude the jurisdiction of the NSW Supreme Court to quash an adjudicator’s determination for non-jurisdictional error of law on the face of the record,[2] because:

  1. The Act was enacted “to reform payment behaviour in the construction industry”.[3]
  2. The Act is not concerned with finally and conclusively determining the entitlements of parties to a construction contract.[4]
  3. Interruption to the cash flow of a person carrying out construction work is apt to create the risk of financial failure. Consistently, the adjudication procedure is designed to operate quickly, with those time frames not being conducive to lengthy consideration of detailed submissions on all questions of law.[5]
  4. The Act permits informal adjudication procedures.[6]
  5. Other aspects of the scheme reinforce the conclusion, such as the deliberate absence of a right of appeal from an adjudicator’s determination, the facility of the adjudication certificate which may be filed as a judgment debt and the respondent’s disentitlement to bring a cross‑claim against the claimant, to raise any defence in relation to matters arising under the construction contract or to challenge the adjudicator’s determination should it choose to bring proceedings in relation to the determination as well as the requirement that the respondent must pay into court security the unpaid portion of the adjudicated amount pending the final determination of those proceedings.[7]

Separately, Gagelar J captured the essence of majority view,[8] “[t]he principal statutory object … would be thwarted were mere error of law made by the adjudicator in the interpretation of the contract to vitiate the determination and thereby to render it liable to be quashed or declared invalid by the Supreme Court” concluding[9] that, “[t]he general supervisory jurisdiction of the Supreme Court to make an order in the nature of certiorari for error of law on the face of the record is displaced by the affirmative conferral of decision-making authority to err in law.”

Edelman J[10] observed that in an action to set aside judgment based on a determination, the fact that the Act says that “the respondent is not entitled to challenge the adjudicator’s determination … would be effective to exclude certiorari for non-jurisdictional error of law”.

Probuild’s practical implication

For NSW and for South Australia, the High Court has given security of payment its intended effect. Commercially, it’s brutal:

A non‑jurisdictional error of law may have serious consequences … the dispute may be resolved through civil proceedings under the construction contract … The risk that the party placed at an advantage by an underpayment or overpayment may later become incapable of meeting such an order is a risk that is assigned to the other party. “[11]

Perhaps less eloquently, if you are on the paying side of a wrong decision, you can sue for the return of the money after you’ve paid it but it’s your bad luck if the claimant can’t repay you. It is the parliament that has invested adjudication with this commercial power. If the pendulum has swung too far it’s now a matter for the legislature (and not the Court) to reset.

Since the 2003 decision in Musico the construction community has endured an array of case law that has grappled with what should happen when an adjudicator gets the decision wrong. This whole saga must appear as a strange legal distraction to the commercial community. A payment claim for under $300,000 that was made in December 2015 has taken until February 2018 to determine. Can it therefore be said that the security of payment legislation has achieved its objective? Presumably, if they are not already tired of litigation, the parties will now need to seek a final determination on the underlying dispute.

Future challenges to adjudication outcomes are now more likely to focus on jurisdictional elements of statutory process rather than issues of legal relevance to the parties’ dispute. They will provide little guidance to parties trying to resolve their differences. Unless the Parliament decides to make a change, the opportunity for timely authoritative statements on substantive law is now lost.

“For centuries, common law courts engaged in a power struggle with Parliaments over the meaning to be given to clauses that purported to restrict judicial review for errors made by a decision maker.”[12] After 14 of those years Palmer J’s words in Multiplex Constructions Pty Ltd v Luikens and Anor [2003] NSWSC 1140, have proven prophetic:

“pay now, argue later”.