The Courts have long recognised the potential for litigated
challenges to adjudications to frustrate the key objective of the
Building and Construction Industry Security of Payment Act
1999 (NSW) (Act), namely: the promotion of 'cash-flow'
in the construction industry through the prompt and efficient
resolution of payment disputes.
The NSW Court of Appeal decision in Shade
Systems1 was a win for contractors and the
cash-flow objectives of the Act, confirming that non-jurisdictional
errors of law are mistakes that an adjudicator is entitled to make
and, alone, not sufficient to invalidate an adjudication
determination. The Court of Appeal's view is that courts should
only intervene if satisfied that the determination is infected by
jurisdictional error, a relatively narrow scope for challenges.
The war though is far from over.
Firstly, special leave of the High Court, to appeal the Shade
Systems decision, has been sought. Until that application is
decided, there remains the prospect that the absence of an express
privative clause2 in the Act results in the grounds for
review of adjudication determinations extending beyond
Further, just two days prior to the Shade Systems
decision, the stocks of respondents were boosted by the landmark
High Court decision in Southern Han3. That
decision confirmed that the existence of a reference date
supporting a payment claim is a jurisdictional fact, reopening the
gate to 'reference date' challenges which the Court of
Appeal had closed a year before4.
Southern Han also confirmed that reference dates will
not accrue after either the valid exercise of the 'take
out' rights under an AS4000-1997 contract (consequent upon
alleged substantial breach by the contractor) or termination of the
contract (unless there is a clear intention to the contrary
expressed in the contract).
These findings raise the stakes quite dramatically in relation
to reference date arguments in adjudication applications,
particularly in the case of disputes involving alleged 'take
out' or termination.
They also raise the stakes when it comes to drafting contracts,
as section 8(2)(a) of the Act provides parties with a rare degree
of control, through the contract, on the operation of the
Cash-flow needy contractors have an opportunity to improve on
the industry standard monthly claim by provisions for frequent
reference dates (weekly, fortnightly etc) and for the continued
accrual of reference dates post termination or suspension.
Conversely, respondents seeking to limit their exposure to
payment claims can, through appropriate drafting, restrict the
number of contractual reference dates with more confidence and shut
down exposure to claims under the Act and adjudications upon
termination or suspension of contractual payment obligations.
It may be that a High Court decision overturning the Court of
Appeal decision in Shade Systems and opening up
adjudication determinations to review for non-jurisdictional error
of law could be a catalyst for amendments to the Act. The
possibility exists of NSW parliament intervening. Including a
privative clause in the Act and/or amending the definition of
'reference date' so as to simplify its operation would seem
consistent with the objectives of the Act. These issues may also
figure in the Federal review into security of payment legislation
here). Stay tuned!
1. Shade Systems Pty Ltd v Probuild Constructions
(Aust) Pty Ltd (No 2) NSWCA 379
2. Provision excluding the Supreme Court's right to
review for error of law on the face of the record
3. Southern Han Breakfast Point Pty Ltd (in
Liquidation) v Lewence Construction Pty Ltd  HCA
4. Lewence Construction Pty Ltd v Southern Han
Breakfast Point Pty Ltd  NSWCA 288
5. The High Court has found that s8(2)(b) reference dates
(last day of the month) will not arise if the construction contract
in question includes any express provision for the accrual of
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