Construction Progress Payments – High Court Upholds Adjudicator’s Determination

The High Court in Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd [2018] HCA 4 has finally laid to rest a longstanding dispute over the finality of an adjudicator’s determination under the Building and Construction Industry Security of Payment Act 1999 NSW (SOP Act). The SOP Act, which has parallel legislation in all other Australian states and territories, provides for an adjudication process for claimed payments in the construction industry. Over the years, questions have arisen as to the scope of judicial review over the adjudicator’s’ determinations.

Background to this case

  • Shade Systems and Probuild were parties to a construction contract. In December 2015, Shade Systems served Probuild with a claim for a progress payment. Probuild claimed that Shade Systems was not entitled to a payment as it owed Probuild liquidated damages.
  • Shade Systems applied for adjudication of its payment claim and was successful. The adjudicator ordered an amount payable by Probuild on the basis that liquidated damages can only be calculated after either “practical completion” or “termination of the subcontract”.
  • In 2016, the Supreme Court of New South Wales found that the adjudicator had made “an error of law on the face of the record” or a “non-jurisdictional error” and found in favour of Probuild.
  • Shade Systems then appealed the Supreme Court’s decision in the NSW Court of Appeal. The Court of Appeal overturned the primary judge’s decision on the basis that the Supreme Court did not have jurisdiction to overturn an adjudicator’s determination for a “non-jurisdictional error”.
  • Probuild then appealed to the High Court.

The High Court of Australia

The High Court unanimously dismissed the appeal and upheld the decision of the adjudicator. The Court held that being able to review adjudication determinations containing errors of law would frustrate the very intention of the SOP Act, which is to progress construction related payments quickly and efficiently.

The High Court found that although the SOP Act does not explicitly exclude the jurisdiction of the Supreme Court to make an order to quash an adjudicator’s determination for “non-jurisdictional error”, “the Act evinces a clear legislative intention” to do so. The Court emphasised that the purpose of the SOP Act was to allow adjudicators to determine the merits of a claim “expeditiously and in a self-contained fashion”.

“Non-jurisdictional errors of law” are dealt with under section 32 of the SOP Act, which states that:

“where it is contended that an adjudicator has made an error of law within jurisdiction, resulting in a progress payment that is inadequate or excessive, the dispute may be resolved through civil proceedings under the construction contact. If necessary, a restitution order can be sought”.

Outcome of the decision for construction industry participants

The SOP Act gives adjudicators power to make binding determinations in relation to construction contracts.

Adjudicators’ decisions can only be directly appealed on grounds where it is alleged that, based on jurisdiction, the adjudicator did not have the legal authority to make the decision in the first place.

The Probuild decision means that an adjudicator’s determination made within the scope of the adjudicator’s jurisdiction, cannot be directly appealed for an error of law. That said, having regard to section 32 of the SOP Act, disputes arising from construction contracts can be issued and determined under fresh civil proceedings.

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