01 March 2018

Can you appeal an adjudicator's security of payment determination?

Whether you can appeal an adjudication determination under the security of payment legislation depends on the type of error made by the adjudicator.


What types of errors can be challenged?

This question has been troubling construction lawyers for years.  The fact that an adjudicator makes an error does not necessarily mean that the determination can be set aside.

For current purposes, there are three relevant categories of error:

  • Obvious jurisdictional errors. A jurisdictional error can result in a determination being set aside.
  • Obvious non-appellable errors. There are certain types of error that are recognised as obviously non-appellable.
  • Errors that don’t fall within either of the above categories.

Obvious jurisdictional errors

A jurisdictional error occurs where the adjudicator does something they are not empowered to do, or where they fail to do something they are required to do.

For example, an adjudicator cannot issue an adjudication determination unless there has first been a valid adjudication application.  A valid adjudication application cannot be made unless the requirements of the Act have been satisfied.  This means that there must be:

  • a construction contract covered by the Act;
  • an available 'reference date';
  • a valid payment claim; and
  • a valid adjudication application.

If the adjudicator makes a mistake about any of these matters, this will likely involve a ‘jurisdictional error’ and normally be a sufficient basis to have the determination set aside.

Once the adjudication process is underway, the adjudicator must adhere to the procedure in the Act. 

For example, the adjudicator must consider the provisions of the Act, the provisions of the Act, the payment claim, the payment schedule and the results of any inspection carried out by the adjudicator. 

The adjudicator must also follow the rules of procedural fairness.  For example, the adjudicator cannot communicate exclusively with only one party.  If the adjudicator seeks further submissions, the parties must be given the same opportunity to advance their case.

If the adjudicator fails to consider the matters which he or she is required to consider under the Act, or considers other matters which are not permitted, or if the adjudicator fails to afford the parties procedural fairness, that is likely to amount to a jurisdictional error and result in any determination being capable of being set aside.

Security of Payment

Obvious non-appellable errors

Just as there are some types of error that have been established as jurisdictional and therefore appellable, there are other types of error that are obviously not.

For example, if the adjudicator makes an incorrect finding of fact - that particular work was done (or not done), or that particular delays were caused (or not caused) by a particular person – that would generally not be a sufficient basis for challenging a determination.

Even if the adjudicator makes a blatant error of law – for example, by misinterpreting or misapplying a contract term – then, provided there has not been a jurisdictional error, that error of law will not be a sufficient basis for any resulting determination to be set aside. 

The courts have taken this position as they consider that is how the legislation was intended to be applied.  That is, the intent of the legislation is to give priority to fast payments down the contracting chain – even if that means principals or head contractors have to make over-payments from time to time.

Other errors

In theory, it sounds easy enough to characterise an error as either jurisdictional or non-jurisdictional (and therefore appellable or non-appellable).  There is a growing body of cases to help make the necessary classification.

At the margins however, there will continue to be difficult assessments to be made. 

For example, the adjudicator must consider the terms of the contract and any failure to do so will be a jurisdictional error.  But what degree of consideration is required? 

In the Shade Systems case, the adjudicator put his mind and devoted significant attention to the issue, but nonetheless made a mistake.  But what would have happened if the adjudicator had given the matter only momentary consideration and reached a conclusion that no reasonable person could have made, with anything more than a cursory glance?

The Shade Systems decision brings a much greater degree of certainty about the situations in which a challenge to an adjudication determination will succeed.  Indeed, most types of error will neatly fall into one category or the other (jurisdictional or non-jurisdictional).  However there will continue to be cases that sit at the margins, and it will be those cases that will continue to attract judicial attention.

Type of Error
Can the determination be set aside?
Considering and then incorrectly rejecting a party’s submission about a question of fact (eg the quantum or value of work performed)
ie Futurepower Developments Pty Ltd v TJ & RF Fordham Pty Ltd
No
Incorrectly interpreting a liquidated damages provision
ie Probuild v Shade Systems
No
Incorrectly deciding that a clause amounts to a paid-when-paid provision
ie Maxcon v Vadasz
No
Incorrectly deciding that there was an available reference date to which the payment claim could relate
ie Southern Han Breakfast Point v Lewence Construction
Yes
Issuing a determination in respect of a contract that is not covered by the Act (eg a contract outside the jurisdiction)
ie Castle Constructions v Ghossayn Group Pty Ltd
Yes
Issuing a determination in respect of a claim made by a head contractor in NSW that was not accompanied by a valid supporting statement
ie Kitchen XChange v Formacon Building Services
Yes
Failing to consider a party’s submissions adequately
ie Laing O’Rourke v H&M Engineering and Construction
Yes
Failing to consider the terms of the contract
ie Musico v Davenport
Yes
Failing to consider the terms of the Act
ie Chase Oyster Bar Pty Ltd v Hamo Industries
Yes
Failing to make a bona fide attempt to exercise the relevant power in ‘good faith’
ie Halkat Electrical Contractors v Holmwood Holdings
Yes
Issuing a determination after the time allowed in the Act
ie Mt Lewis Estate Pty Ltd v Metricon Homes Pty Ltd
No
Incorrectly determining that a payment claim had been validly served
ie Southern Han Breakfast Point v Lewence Construction
Yes
Issuing a determination in respect of an application that was made after the time allowed by the Act
ie Chase Oyster Bar Pty Ltd v Hamo Industries
Yes
Issuing a determination where the procedural conditions for making an adjudication had not been satisfied
ie Chase Oyster Bar Pty Ltd v Hamo Industries
Yes

Editor’s Note: This blog post was updated in early 2018 following the High Court decision in Probuild v Shade Systems.

Construction lawyer

About the Author

Greg Henry | Principal

Greg is a principal at Turtons and a senior commercial lawyer who acts for a range of clients mainly in the construction and technology sectors. Greg advises on both transactional and contentious matters.


greg.henry@turtons.com | (02) 9229 2904

About Turtons

Turtons is a commercial law firm in Sydney with specialist expertise in privately owned construction and technology businesses.

Greg Henry | Principal

Author

Greg Henry | Principal

greg.henry@turtons.com

Greg is a principal at Turtons and a senior commercial lawyer who acts for a range of clients mainly in the construction and technology sectors. Greg advises on both transactional and contentious matters.


greg.henry@turtons.com | (02) 9229 2904

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