Commercial Litigation Property Lawyers

Proud History, Bold Future, Since 1834

Immunity From Error: The High Court Protects Security of Payment Adjudicators

In February 2018 the High Court delivered two judgments which confine the role of all Courts in reviewing determinations of adjudicators which are made under the Security of Payment legislation operating in most Australian states, including Tasmania.

The Building and Construction Industry Security of Payment Act 2009 (Tas) is based primarily upon legislation introduced in New South Wales in 1999, and also adopted in other Eastern seaboard states, South Australia and the Australian Capital Territory. Central to the legislation is a quick and ‘rough and ready’ dispute resolution procedure in which claims for payment are determined by an adjudicator within a two week or so period.

In part because of the tight timeframes and confined procedure (almost all adjudications are determined on written submissions, without any other interaction with or before the adjudicator), the Courts have allowed adjudicators considerable latitude in their determinations.

A body of law has developed which recognises that adjudication determinations can be set aside by a Court where a jurisdictional error is committed: that is, an error in the process leading to adjudication, an error by the adjudicator, or a substantive denial of natural justice, which takes the process outside what the legislation allows. Courts have no capacity to review a determination for merits error, or to substitute their own decision for what a Judge thinks an adjudicator should have done.

The High Court held unanimously in Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd [2018] HCA 4 that if an adjudicator commits an error of law, a Court has no capacity to intervene and set the adjudicator’s determination aside because of that error – however bad, profound or far-reaching the error may be. The High Court found that as a matter of interpretation, and inferred parliamentary intent, the security of payment legislation excluded Courts’ usual capacity to review for error of law. The High Court contemporaneously delivered its judgment in Maxcon Constructions Pty Ltd v Vadasz [2018] HCA 5, applying its reasoning from Probuild (which concerned the New South Wales legislation) to the analogous South Australian Security of Payment statute.

Unless an error of law is an error going to a matter of jurisdiction, a Court may not intervene – leaving the erroneous determination to survive, and potentially requiring the payment of a very large sum of money. Security of Payment legislation is said to ‘shift the risk of insolvency’, meaning payments must be made under that Act even if the recipient is an insolvency risk.

Tasmania is the only state in which Security of Payment legislation applies to payment disputes involving residential home owners. But the Probuild decision has another consequence in Tasmania.

The still under-used Residential Building Work and Dispute Resolution Act 2016 (Tas) contains an adjudication process, which can be used by parties involved in a dispute about defects in residential construction work. The High Court’s decision in Probuild may well apply to the Residential Building Work and Dispute Resolution Act as well as the Building and Construction Industry Security of Payment Act 2009, affecting an even greater share of cases.

The High Court’s decision leaves parties with only one opportunity to obtain a legally correct determination from a security of payment adjudicator: the time at which submissions are put for that adjudicator to consider. Adjudicators are frequently called upon to interpret a contract or apply matters of case law, and the High Court’s decision in Probuild makes it imperative that adjudication submissions include all necessary content to assist the adjudicator to arrive at the correct outcome. There is no second chance, even where millions of dollars are at stake.