Australia: Adjudication determinations - a new era in challenges?

In brief - Error of law on the face of the record found to be an available ground to quash an adjudication determination, but availability of remittal to adjudicator later questioned

Parties considering whether to challenge an adjudication determination based on an error of law on the face of the record should be mindful of two recent New South Wales Supreme Court decisions. Whether judges will follow the Probuild Constructions decision and order remittal to adjudicators is open to question.

Error of law on the face of the record considered in Probuild Constructions and Richard Crookes Constructions

In June 2016 the Supreme Court of New South Wales in Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd [2016] NSWSC 770 ordered the quashing of an adjudication determination under the Building and Construction Industry Security of Payment Act 1999 (NSW) on the basis of an error of law on the face of the record and that the adjudication application be remitted to the adjudicator for further consideration and determination according to law.

However, earlier this month the Supreme Court in Richard Crookes Constructions Pty Ltd v CES Projects (Aust) Pty Ltd [2016] NSWSC 1119 brought into question the availability of a remittal to an adjudicator for reconsideration in these circumstances. (Declaration of interest: Colin Biggers & Paisley acted for Richard Crookes Constructions in this case.)

Probuild's deduction of liquidated damages rejected by adjudicator

In October 2014, Probuild, as head contractor, entered into an agreement with Shade Systems, as subcontractor, for the supply and installation of external louvers to the façade of an apartment complex in Chatswood, NSW.

Following service by Shade Systems of a payment claim under the Act in the amount of $324,334.26 in December 2016 and Probuild's service of a payment schedule (in which $Nil was scheduled for payment after taking into account a significant deduction for liquidated damages), Shade Systems applied for adjudication of the payment claim and, in doing so, reduced the amount of its claim to $214,680.88.

The adjudicator rejected Probuild's deduction of liquidated damages and determined that $277,755.03, being an amount higher than the reduced claim in the adjudication application, was payable to Shade Systems.

Probuild commences proceedings to quash adjudication determination

In February 2016, Probuild commenced proceedings in the Supreme Court to quash the adjudication determination under section 69 of the Supreme Court Act 1970 (NSW).

Probuild contended that the determination should be quashed on the basis of an alleged denial of procedural fairness and, alternatively, on the basis of an error of law on the face of the record in relation to the adjudicator's approach when rejecting liquidated damages.

Shade Systems contended that there was no denial of procedural fairness (or, if there was, that relief should be refused) and that judicial review was not available for error of law on the face of the record.

Error of law on the face of the record as basis for judicial review considered by Court

After finding that there was no denial of procedural fairness in the circumstances of the case, his Honour Emmett AJA turned to a detailed consideration of whether judicial review was available for error of law on the face of the adjudication determination.

His Honour considered:

Although the generally understood view until this decision was that judicial review of adjudication determinations was available only where there was a demonstrated jurisdictional error of law, his Honour found that there was nothing in the Act which operated to exclude the Court's jurisdiction to grant judicial review under section 69 of the Supreme Court Act. His Honour rejected Shade Systems' submission to the effect that Brodyn was binding authority for the proposition that judicial review of adjudication determinations was limited to jurisdictional errors.

Adjudication determination quashed for error of law on the face of the record

His Honour concluded (at [74]) that "...judicial review...is available to quash a determination made by an adjudicator where an error of law that leads to an adjudicated amount that is different from the amount that would have been determined but for the error of law appears on the face of the record."

His Honour found that the adjudicator made an error of law on the face of the determination in that the adjudicator wrongly assumed that Probuild had the onus of demonstrating that Shade System's failure to achieve practical completion by the date for practical completion was caused by Shade System's default, and that if the error had not been made, Probuild's claim for liquidated damages may have been allowed (with the consequence that the adjudicated amount in the determination would have been $Nil).

Upon finding that there was an error of law on the face of the record , His Honour ordered that the adjudication determination be quashed and that the adjudication application be remitted to the adjudicator for further consideration and determination according to law.

Availability of remittal to adjudicator for consideration and determination questioned

On 5 August 2016, the decision of his Honour McDougall J was handed down in Richard Crookes Constructions Pty Ltd v CES Projects (Aust) Pty Ltd.

In opposing the interlocutory injunction sought by Richard Crookes Constructions to restrain the enforcement by CES Projects of an adjudication determination, CES Projects submitted, in reliance on the Probuild decision, that the determination should be remitted to the adjudicator for reconsideration if his Honour was minded to declare the adjudication void.

His Honour observed that, while an order for remittal to the adjudicator was proposed in Probuild, no reasons were offered in the decision as to why a remittal to the adjudicator for reconsideration was available. Presumably, his Honour made this observation in circumstances where the time period within which an adjudicator is to determine an adjudication application under section 21(3) of the Act would have expired long before the order for remittal.

Challenges to adjudication determinations may increase, but will judges order remittals?

It is to be expected that respondents to adjudication applications will seek to rely on Probuild in challenging adverse adjudication determinations on the basis of errors of law on the face of the record and that this will result in an increase in the number of challenges to the Supreme Court.

It remains to be seen, however, whether other judges at first instance will follow or otherwise seek to distinguish Probuild when considering challenges to determinations based on asserted errors of law on the face of the record. Careful consideration should therefore be given when considering whether a challenge to an adjudication determination is to be made based on an error of law on the face of the record.

It is also to be expected, as occurred in the Richard Crookes case, that a party to an adjudication determination that is the subject of a challenge may seek to have the adjudication application remitted to the adjudicator for further consideration and determination. It appears more likely, considering the observations of his Honour McDougall J in this case, that other judges may be reluctant to order remittal to adjudicators where determinations are ordered to be quashed.

Charles Brannen
Construction and engineering
Colin Biggers & Paisley

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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