Insights

In brief - Courts may be moving towards a broader review approach

Adjudicators often get it wrong. Generally, however, the determination can only be quashed if there has been a jurisdictional error. Recent cases shed light on what this means. There are also commercial considerations that affect when you might want to seek to set aside a bad determination.

Lack of time and human error lead to defective adjudication determinations

Alexander Pope once said "To err is human, to forgive divine." He was obviously not a building and construction participant faced with an erroneous adjudication determination and resulting cash-flow issues. In the current economic climate, such a participant would be more likely to say: "To err is human, to forgive is not company policy", and then seek legal advice on an appeal.

It is not surprising that adjudicators sometimes get it wrong. The timeframes in the Building and Construction Industry Security of Payment Act 1999 (NSW) (Act) and other state and territory equivalents are severely truncated. Generally, an adjudicator will have only two weeks to deliver a determination. In that time, he or she will often be submerged under a mass of documentation and asked to emerge with a firm grasp of any number of factually and legally complex claims, and a properly considered decision. There is often insufficient time. Then of course, there is the inevitable fallibility of the human condition.

The problem is that when adjudicators get it wrong, there are often significant cash-flow ramifications for those affected. In this regard, there are very few building and construction industry participants who are not affected by the Act. Last financial year, 780 adjudication applications were made and $167 million was certified as payable in NSW alone. There are very few, therefore, who would not be interested to understand what they can do when faced with a defective adjudication determination. In particular, a key question that arises in this context is whether or not to "appeal" the decision.

No definitive test for determining "jurisdictional error"

Not all adjudication determinations that are wrong are appealable or otherwise reviewable by the courts. The law in this regard is quite dynamic. Until last year, for example, the key authority was Brodyn v Davenport. In that case, the NSW Court of Appeal held that an adjudication determination could be set aside if, amongst other things:
  1. the adjudicator did not make a bona fide attempt to exercise the relevant power
  2. there was a substantial denial of natural justice
  3. there was a failure to comply with one or more basic requirements, such as the:
(a) existence of a construction contract
(b) service of a claim and application
(c) determination by the adjudicator of:
(i) the amount of the progress payment
(ii) the date on which it becomes or became due, and
(iii) the rate of interest payable.
 
In 2010, however, in the case of Chase Oyster Bar v Hamo Industries [2010] NSWCA 190, the Court of Appeal decided that this test was too narrow. Instead, it stated that the proper test for determining if an adjudication decision could be set aside was whether the decision was affected by a "jurisdictional error". However, the Court did not provide a clear test for determining if a decision was affected by a "jurisdictional error".

Instead, the Court stated, quite cryptically, that although "there is no single test or theory or logical process by which the distinction between jurisdictional and non-jurisdictional error can be determined" nevertheless there was a distinction, just as "twilight does not invalidate the distinction between night and day." Unfortunately, however, this does not provide much clarity.

Some indicators of jurisdictional error

In order to shed light on the issue, it is important to have regard not only to Chase Oyster, but also to subsequent cases such as Bauen Constructions and St Hilliers Contracting (which incidentally Colin Biggers & Paisley was involved in). Distilling the essence of these cases, it is arguable that your adjudicator may be found to have fallen into jurisdictional error if he or she:
  1.  makes a mistake about whether he/she has jurisdiction to determine the application or the limits of that jurisdiction (for example because he/she determines that an adjudication application has been served in time when it has not), or
  2. fails to comply with the statutory obligations upon which his/her jurisdiction is based (for example, by disregarding something which the Act requires to be considered as a condition of jurisdiction, or considering something required to be ignored), or
  3. makes a mistake because he/she has not intellectually engaged with the submissions (for example, because the determination gives no intellectual justification for the decision that was made or gives a justification which is arbitrary, capricious or irrational or not open to a reasonable person correctly understanding the meaning of the law under which authority is conferred), or
  4. has effected a denial of natural justice or procedural fairness (for example, because the adjudicator determines an incorrect due date for payment on a basis that was not put forward by either party or put to either party by the adjudicator).
In these situations, you might have an entitlement to "appeal" the adjudication decision. If such an application is successful, the decision will be quashed. As a result, depending upon whether you are the claimant or the respondent, you will either not have to pay the adjudicated amount or will be able to lodge a fresh application for payment. Clearly this can be a significant entitlement with potentially profound cash-flow implications.

Prospects of success and costs need to be considered

This is not to say, however, that you should "appeal" every decision in which you have been the victim of jurisdictional error. It will always be necessary to consider such things as prospects of success, the cost of proceeding with such an application, and any other options available to you.

For example, you might be better off commencing alternative dispute resolution or substantive proceedings in relation to the subject matter of the determination. Each of these considerations needs to be assessed having regard to the particular factual circumstances in your matter. However, such an assessment needs to be made quickly. As with most aspects of the Act, time is of the essence.

It is also important to bear in mind that similar principles apply in other states and territories, such as Queensland, Victoria, Western Australia and the Northern Territory.

Adjudication decisions are likely to be reviewable on broader grounds

Finally, we note that we have referred to the concept of an "appeal" in inverted commas. This is because, strictly speaking, you do not "appeal" an adjudication decision but rather "make an application for relief in the nature of certiorari". The concepts are similar. However, a full explanation of the meaning of "certiorari" could involve an analysis of 2000 year old Latin texts by a Roman jurist born in Tyre, Lebanon, and prerogative writs used after the Norman conquest of England in 1066. That, however, is a story for another day.

One aspect of certiorari is especially noteworthy. The Supreme Court Act 1970 (NSW) provides that certiorari can be used to quash a determination where there is an "error of law" on the face of the record. This means that adjudication decisions may be reviewable on broader grounds than are currently relied upon - for example, where an adjudicator has taken into account an irrelevant consideration, has acted on the basis of no evidence or has reached a mistaken conclusion.

It remains to be seen, however, whether the courts will require such grounds to go to a jurisdictional issue (as per the 2003 cases of Musico and Multiplex) or whether more recent developments (following Chase Oyster v Hamo) are a sign of a broader approach.

One thing is certain. The current twilight presents an opportunity to expand the grounds for review into previously uncharted territory.

This article has been published by Colin Biggers & Paisley for information and education purposes only and is a general summary of the topic(s) presented. This article is not specific legal advice. Please seek your own legal advice for any questions you may have. All information contained in this article is subject to change. Colin Biggers & Paisley cannot be held responsible for any liability whatsoever, or for any loss howsoever arising from any reliance upon the contents of this article.​

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