Australia: Back to the Future? A Shift in the Scope of Challenging an Adjudicator’s Determination under the Building and Construction Industry Security of Payment Act

The New South Wales Court of Appeal's decision in Chase Oyster Bar v Hamo Industries [2010] NSWCA 190 (Chase) has altered the judicial power of review in relation to an adjudicator's determination made under the Building and Construction Industry Security of Payment Act 1999 (NSW) (Act).

The adjudication process

An adjudicator can be appointed by an authorised nominating authority under the Act to determine a dispute falling within the ambit of the Act.

Typically, the steps leading to an adjudicator making a determination are as follows:

• the claimant (usually the party hired to provide construction-related services) serves a payment claim upon the respondent;
• the respondent then has 10 business days to serve a payment schedule either affirming or disputing the amount claimed;
• should the respondent provide a payment schedule for a lesser amount than the payment claim, the claimant has 10 business days to make an adjudication application;
• if the respondent fails to provide a payment schedule, the claimant can seek to recover the amount claimed as a judgment debt under section 15 of the Act, or notify the respondent of its intention to make an adjudication application within 20 days of the due date for payment;
• in either of the scenarios for adjudication outlined above, the respondent then has 5 business days to provide an adjudication response or 2 business days following the adjudicator's acceptance of his or her appointment;
• the adjudicator then has 10 business days after accepting the application to deliver a determination.

The tight timeframes outlined above are in keeping with the legislature's intention that the Act is meant to prevent the starvation of cashflow for builders, subcontractors and the like.

Challenging an adjudicator's determination

The New South Wales Court of Appeal's decision in Brodyn Pty Ltd v Davenport (2004) 61 NSWLR 421 (Brodyn) was the leading authority for determining the scope to challenge an adjudicator's decision. The Court set down the following tests, being whether the adjudicator failed to:

• comply with the "basic and essential requirements" of the Act; and/or
• failed to exercise power in "good faith" or with "natural justice".

The "basic and essential requirements" were identified by as being:

• the existence of a construction contract (or related arrangement); service by the claimant on the respondent of a payment claim;
• making an adjudication application by the claimant to an authorised nominating authority;
• acceptance of the adjudication application by an eligible adjudicator; and
• determination by the adjudicator of the amount of the progress payment, the date which it becomes due and the rate of interest payable.

The effect of Brodyn was that exact compliance with all requirements of the Act were not essential. Failure to comply with all requirements of the Act would not invalidate a determination provided there had been compliance with the "basic and essential requirements". Since Brodyn, challenging an adjudication determination for non-compliance with the Act has been very difficult, and the majority of challenges unsuccessful.

Distinguishing Brodyn

Kirk v Industrial Relations Commission [2010] HCA 1

In February, the High Court handed down its decision in Kirk v Industrial Relations Commission [2010] HCA 1 (Kirk), in which it was asked to consider whether the Supreme Court had the power to review a decision of the Industrial Relations Commission.

The High Court reaffirmed the Supreme Court's power to review decisions of inferior Courts or bodies with judicial authority, such as authorised nominating authorities. The High Court importantly held that state legislature could not take away a state Supreme Court's power to review errors of jurisdiction.

What is jurisdictional error?

In the context of the Act, jurisdictional error will occur where there is a failure by the adjudicator to identify compliance with those aspects of the Act that are necessary towards the adjudicator making determination. These elements include whether a claimant or respondent had complied with the Act's requirements. However, because of Brodyn and its relatively flexible approach to "basic and essential requirements", strict jurisdictional error did not generally result in the adjudicator's determination being overturned.

Chase Oyster Bar v Hamo Industries [2010] NSWCA 190

As a result of the High Court's reasoning in Kirk, it was probably only a matter of time before Brodyn was challenged. This occurred in Chase.

Chase distinguishes Brodyn by extending the ambit of challenge to an adjudicator's determination.

The parties entered into a construction contract for fitout work at the "Chase Oyster Bar" in Chatswood Chase. On 31 December 2009, Hamo served a payment claim under the Act, the due date for the payment claim being 13 January 2010. Chase failed to serve a payment schedule in response and failed to pay the amount claimed by Hamo.

Hamo made an adjudication application under s17 of the Act. Hamo served notice under s17(2)(a) but outside the required 20 business day period for which the Act provides. Hamo then lodged an adjudication application.

The adjudicator determined Hamo was entitled to the claimed amount and interest, and determined that Hamo had given notice within the time limits provided under section 17(2)(a).

Chase commenced proceedings in the Supreme Court seeking a declaration that the adjudicator's determination was void on the basis that the adjudicator did not have jurisdiction due to Hamo's failure to comply with the notice requirements under section 17(2)(a), and accordingly any finding by the adjudicator amounted to jurisdictional error, citing Kirk.

The Supreme Court referred the decision to the Court of Appeal for determination of three questions:

1. whether the determination by the adjudicator that he had jurisdiction to determine the adjudication application should be set aside or quashed for jurisdictional error in circumstances where he incorrectly concluded that Hamo had complied with the notice requirements under section 17(2)(a);
2. whether in light of Kirk, the decision in Brodyn should not be followed or was decided incorrectly insofar as it held that the Supreme Court was not entitled to determine the existence of jurisdictional error and quash an adjudicator's determination on this basis or, make orders in the nature of certiorari (granting relief in circumstances of a breach of legislation); and
3. whether the Act, by expressly or impliedly limiting the Supreme Court's power to review an adjudicator's determination for jurisdictional error, is inconsistent with the requirement of the Constitution that there be a state court with jurisdiction to grant relief in the nature of certiorari.

In answer to these questions, the Court of Appeal held that:

• determinations by adjudicators can be reviewed by a Supreme Court if there is non-compliance with the requirements of the Act and if found to be invalid, set aside; and
• Brodyn should not be followed insofar as it limited the power of a State Supreme Court to determine the existence of jurisdictional errors, or make orders in the nature of certiorari; and
• the Act does not limit the power of the New South Wales Supreme Court to review an adjudicator's determination for jurisdictional error.

Summary

Chase effectively returns claimants and respondents to a pre-Brodyn situation and it is likely that there will now be an increased number of challenges to determinations asserting jurisdictional error or non-compliance with the Act. Hopefully, it will not again result in the "tsunami of litigation" that existed pre-Brodyn.

Implications

Parties (ie. claimant or respondent) must ensure that they comply with the strict procedures and time frames under the Act. Failure to comply may invalidate an adjudication application or determination. It remains to be seen whether this decision poses a threat to the quick enforcement of the adjudication process under the Act.

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