Owen Hayford, ‘Back to the past for dodgy construction payment adjudications: Probuild and Maxcon‘ (23 February 2018)

Owen Hayford and Hannah Stewart-Weeks, ‘Construction contractors beware – common clauses may now be unenforceable after Maxcon Constructions v Vadasz (1 March 2018)

The High Court has dismissed two appeals against decisions of the South Australian Supreme Court (Maxcon) and the New South Wales Court of Appeal (Probuild) on when a court can review an adjudication decision about security of payments legislation. In both of these matters, the primary courts held that an adjudicator had made an error of law in adjudicating disputes over progress payments for construction projects. The NSWCA held that the security of payment legislation removed any judicial power to quash an arbitral decision for that error of law, and the SASCFC held that it was bound to follow the NSWCA ruling. These rulings were upheld by the High Court.

In Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd, the court held that the New South Wales Supreme Court did not have the jurisdiction in the nature of a certiorari to judicially review and overturn the determination of an adjudicator appointed pursuant to the Building and Construction Industry Security of Payment Act 1999 (NSW) (‘the NSW Security of Payment Act’). The NSW Security of Payment Act allows any person carrying out ‘construction work’ on a ‘construction project’ to seek a ‘progress payment’ and sets out a procedure by which a party can recover a progress payment. The purpose of the scheme was to grant an entitlement to a progress payment regardless of whether the construction contract granted such an entitlement, and to enable informal, swift determinations of entitlements. A party who claims to be entitled to a progress payment is able to make a ‘payment claim’. In the event that the payment claim is disputed, the payment claims may be referred to an adjudicator for determination, and the adjudicator must determine the amount to be paid (if any) in light of the terms of the construction contract and the provisions of the NSW Security of Payment Act.

The case arose when Probuild sought to overturn a determination of an adjudicator appointed pursuant to the NSW Security of Payment Act after it was determined that it was liable to pay Shade Systems a progress payment. It sought judicial review of the adjudicator’s decision in the New South Wales Supreme Court, and sought to quash the adjudicator’s decision with relief in the nature of certiorari pursuant to s 69 of the Supreme Court Act 1970 (NSW). The trial judge allowed judicial review and overturned the adjudicator’s decision on the basis that there had been an error of law. Shade Systems successfully appealed to the New South Wales Court of Appeal.

The High Court unanimously upheld the New South Wales Court of Appeal’s decision, and held that the NSW Security of Payment Act had been intended to exclude the jurisdiction of the New South Wales Supreme Court to review the decisions of adjudicators for non-jurisdictional error, notwithstanding that there was no explicit ouster of jurisdiction.

The plurality (Kiefel CJ, Bell, Keane, Nettle and Gordon JJ) held that an order in the nature of certiorari was principally to prevent jurisdictional error, because this enforces the limits of a decision-maker’s limits ([29]). This jurisdiction cannot easily be ousted by statute. By contrast, the jurisdiction to conduct judicial review on the basis of non-jurisdictional error can be ousted by statute ([30]). The NSW Security for Payment Act clearly evinced an intention to oust the jurisdiction to conduct judicial review on the basis of non-jurisdictional error for three reasons. First, it was intended that the legislation enable parties to know where they stood in relation to payments under dispute ([36]). Secondly, the statutory scheme is ‘interim’ and does not finally determine the rights of the parties ([37] – [39]). Thirdly, the procedure under the Act according to which the adjudicator is required to make his determination is intended to be quick, and does not involve detailed consideration of the legal issues ([40] – [41]). Fourthly, the procedure is intended to be informal and legal representation is not required ([42]). Fifthly, other aspects of the scheme reinforce the conclusion that the adjudicator’s decision is not subject, including the fact that the adjudicator’s decision is not subject to appeal ([43]). The plurality thought it was significant that the party contesting the payment was still entitled to take civil proceedings ([44]) and that the contractual entitlements could be established at a later date ([45]). Consequently to permit costly and time-consuming judicial review of non-jurisdictional error would frustrate the purpose of the statutory scheme ([49]).

Gageler J and Edelman J agreed with the plurality but expressed their reasons in separate judgments. Gageler J noted that an order in the nature of certiorari had historically not been considered as applicable to bodies other than inferior courts ([61] – [70]) but that the availability of orders in the nature of certiorari had been expanded to other bodies and decision makers in the mid-twentieth century. However, the extent to which superior courts can review the decisions of non-judicial bodies for non-jurisdictional error has been limited ([71] – [77]). The NSW Security of Payment Act evinced an intention to empower an adjudicator to make a determination, notwithstanding that it is legally erroneous, and this cannot be reviewed by a superior court ([80] – [83]). Edelman J also canvassed the historical background ([91] – [97]) and noted that courts had generally taken a narrow view of ouster of judicial review (even non-jurisdictional review) but that it was not necessary for express words to be used ([98]). His Honour noted that according to the traditional narrow approach, the appeal would have been allowed and the jurisdiction to conduct judicial review of non-jurisdictional errors would have been retained ([99] – [100]). However, the application of the principle has variable applicability depending on the nature of the statute, and in this instance the narrow approach should be applied weakly ([101] – [103]). If the narrow approach is applied weakly, then it is evident that jurisdiction to conduct non-jurisdictional review is ousted, first because Parliament would not have intended to create a race to court where the beneficiary of a payment certificate seeks to file it in court and the other party seeks to set it aside ([105]) and secondly, there is a strict timetable without any right to appeal ([106]). Consequently the NSW Security of Payment Act, by implication based upon a background legislative assumption, immunised from judicial review any non-jurisdictional error of law on the face of the record ([108]).

In Maxcon Constructions Pty Ltd v Vadasz, the court likewise held that the South Australian Supreme Court did not have the jurisdiction in the nature of a certiorari to judicially review and overturn the determination of an adjudicator appointed pursuant to the Building and Construction Industry Security of Payment Act 2009 (SA) (the SA Security of Payment Act), which was based upon and in substantially similar terms to the NSW Security of Payment Act.

The case arose when Vadasz served a payment claim on Maxcon, Maxcon deducted a retention sum from the payment, and Vadasz sought adjudication of the claim. The adjudicator held that the provisions in the contract pursuant to which Maxcon sought to retain the retention sum were “pay when paid” provisions which were invalidated by the SA Security of Payment Act. Section s 12(2)(c) of the Security of Payment Act provides that a “pay when paid” provision of a construction contract is a provision that “makes the liability to pay money owing, or the due date for payment of money owing, contingent or dependent on the operation of another contract.” Maxcon sought to judicial review of the adjudicator’s decision in the South Australian Supreme Court on the basis of error of law. The trial judge held that there was an error of law but that the adjudicator’s reasons were not part of the “record” for the purpose of certiorari. The Full Court of the Supreme Court of South Australia held that the reasons were part of the “record” and that on first principles, the SA Security of Payment Act did not exclude judicial review for non-jurisdictional error, but they were bound to follow the reasoning of the New South Wales Court of Appeal in Shade Systems Pty Ltd v Probuild Constructions (Aust) Pty Ltd (No 2) [2016] NSWCA 370.

Again, the High Court dismissed the appeal. The plurality (Kiefel CJ, Bell, Keane, Nettle and Gordon JJ) held that the adjudicator had been right to conclude that the provisions of the contract were “pay when paid” provisions because the due dates for payment of the retention sum were dependent on something unrelated to Mr Vadasz’s performance, namely, the completion of the head contract, which in turn would have enabled a certificate of occupancy to be issued ([16] – [25]). Accordingly there was no error of law, and no need to consider the other issues raised in the appeal.

Again, Gageler J and Edelman J delivered separate judgments. Gageler J did not consider that the question of whether the contractual provisions were “pay when paid” provisions was necessary to answer, although he would have come to the same conclusion as the plurality ([32]). Moreover, the SA Security of Payment Act did not allow for judicial review for non-jurisdictional error for precisely the same reasons as those expressed in Maxcon ([34]). Finally, the error of law was not a jurisdictional error in any case because there was no suggestion that the authority to adjudicate was conditioned upon a requirement that the adjudicator correctly apply s 12 of the SA Security of Payment Act ([35] – [39]). Edelman J agreed with Gageler J that the adjudicator had not committed an error of law, but that it was necessary to explain his reasoning on the other questions raised by the appeal ([40] – [41]). His Honour found that the SA Security of Payment Act excluded non-jurisdictional judicial review for the same reasons he had expressed in Maxcon ([41]), and that the error of law was not a jurisdictional error in any case, for the same reasons expressed by Gageler J ([41]).