The Courts have long recognised the potential for litigated challenges to adjudications to frustrate the key objective of the Building and Construction Industry Security of Payment Act 1999 (NSW) (Act), namely: the promotion of ‘cash-flow’ in the construction industry through the prompt and efficient resolution of payment disputes.
The NSW Court of Appeal decision in Shade Systems1 was a win for contractors and the cash-flow objectives of the Act, confirming that non-jurisdictional errors of law are mistakes that an adjudicator is entitled to make and, alone, not sufficient to invalidate an adjudication determination. The Court of Appeal’s view is that courts should only intervene if satisfied that the determination is infected by jurisdictional error, a relatively narrow scope for challenges.
The war though is far from over.
Firstly, special leave of the High Court, to appeal the Shade Systems decision, has been sought. Until that application is decided, there remains the prospect that the absence of an express privative clause2 in the Act results in the grounds for review of adjudication determinations extending beyond jurisdictional error.
Further, just two days prior to the Shade Systems decision, the stocks of respondents were boosted by the landmark High Court decision in Southern Han3. That decision confirmed that the existence of a reference date supporting a payment claim is a jurisdictional fact, reopening the gate to ‘reference date’ challenges which the Court of Appeal had closed a year before4.
Southern Han also confirmed that reference dates will not accrue after either the valid exercise of the ‘take out’ rights under an AS4000-1997 contract (consequent upon alleged substantial breach by the contractor) or termination of the contract (unless there is a clear intention to the contrary expressed in the contract).
These findings raise the stakes quite dramatically in relation to reference date arguments in adjudication applications, particularly in the case of disputes involving alleged ‘take out’ or termination.
They also raise the stakes when it comes to drafting contracts, as section 8(2)(a) of the Act provides parties with a rare degree of control, through the contract, on the operation of the Act5.
Cash-flow needy contractors have an opportunity to improve on the industry standard monthly claim by provisions for frequent reference dates (weekly, fortnightly etc) and for the continued accrual of reference dates post termination or suspension.
Conversely, respondents seeking to limit their exposure to payment claims can, through appropriate drafting, restrict the number of contractual reference dates with more confidence and shut down exposure to claims under the Act and adjudications upon termination or suspension of contractual payment obligations.
It may be that a High Court decision overturning the Court of Appeal decision in Shade Systems and opening up adjudication determinations to review for non-jurisdictional error of law could be a catalyst for amendments to the Act. The possibility exists of NSW parliament intervening. Including a privative clause in the Act and/or amending the definition of 'reference date’ so as to simplify its operation would seem consistent with the objectives of the Act. These issues may also figure in the Federal review into security of payment legislation (see here). Stay tuned!