High Court rejects judicial review in the Probuild and Maxcon decisions - what does this mean in the residential space?
The recent High Court decision in Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd  HCA 4 (Probuild) has affirmed the position that had previously been understood to apply for many years in NSW, that judicial review of an adjudication determination under the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOPA) is available for jurisdictional error, but not for non-jurisdictional error of law on the face of the record.
This means that parties to adjudications in the residential space, such as owners corporations and developers, left discontent by erroneous adjudication determinations, will continue to have very limited options by way of challenge, remembering that the SOPA exemption for residential building work only carves out contracts with principals for work on premises on which the principal is or proposes to be resident.
On the other hand, it is good news for those down the contracting chain who can continue to take comfort in the narrow scope for challenge to adjudication determinations.
The High Court similarly held in Maxcon Constructions v Vadasz (Maxcon) that adjudication determinations made under the South Australian Security of Payment legislation were not subject to review for non-jurisdictional errors of law on the face of the record.
This decision could also have significant implications for head contractors when structuring their retention sums as security as the performance security requirement may be considered a ‘pay when paid’ provision. In Maxcon, the subcontract provided that the subcontractor’s retention sum could only be released upon the head contractor obtaining a certificate of occupancy. The adjudicator held that this provision was void and constituted a "pay when paid" provision within the meaning of the South Australian Security of Payment legislation. The reason being that the issue of the certificate of occupancy was subject to the head contractor completing the building works under the head contract.
The High Court affirmed that:
- the adjudicator’s determination regarding the prohibition against ‘pay when paid’ provisions does not amount to jurisdictional error; and
- the adjudicator did not err in law in determining that the retention provisions were 'pay when paid provisions'.
What are the implications?
The Probuild and Maxcon decisions put beyond doubt that the courts do not have jurisdiction to quash adjudication determinations for non-jurisdictional errors of law on the face of the record.
The decisions also demonstrate the risks inherent within adjudications under SOPA. If an unsuccessful party believes the adjudicator was in error in interpreting the meaning of a term of the contract, the error cannot reviewed by the courts.
Head contractors should carefully consider if the performance security requirements in their subcontracts could be construed as ‘pay when paid provisions’, for instance if the retention sum is to be retained by the head contractor during the defects liability period under the head contract.