Australia: A new frontier for Security of Payments regime

The Supreme Court of NSW recently expanded the ability of a respondent to challenge an adjudication determination, in the decision of Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd.

Probuild started proceedings in the Supreme Court seeking to set aside an adjudication determination which favoured Shade Systems on the grounds that the adjudicator made an error of law on the face of the record.

The adjudicator determined that Probuild couldn't rely on a liquidated damages clause in a contract to avoid paying Shade Systems - by serving a payment schedule with a nil payment - as Probuild needed to prove Shade Systems was in default. Probuild was liable to pay the amount of $277,755 without any reduction for liquidated damages.

The Court found that the adjudicator's interpretation of the liquidated damages clause was incorrect. Under the old regime, it wouldn't have been a jurisdictional error as has been ordinarily required. Justice Emmett Aja found that the Supreme Court had the power to judicially review an adjudication determination, contrary to the existing position, as the Act contained no language excluding the Court from doing so.

The Supreme Court set aside the determination, referring it back to the adjudicator to determine the matter in accordance with the law.

What does this mean?

It may not be a 'one size fits all' cure for the construction industry as not all determinations will be subject to a review however, it does pave the way for a new order to prevail in the Security of Payments regime.

Applications to quash a determination can now be made on the basis of an error of law on the face of the record, which will lead to an increase in applications. The Court also extended the reach of the Act by allowing the decision to be referred back to the adjudicator.

Only time will tell whether such a decision, if it survives, will regenerate confidence in the Security of Payments regime which has for the most part been found to favour applicants of adjudications.

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