Australia: The High Court Of Australia Will Examine Security Of Payment Legislation For The First Time

Last Updated: 5 September 2016
Article by Glen Warwick and Kon Nakousis

The High Court of Australia has granted special leave to appeal a decision of the New South Wales Court of Appeal (NSWCA) that upheld an adjudication determination under the Building and Construction Industry Security of Payment Act 1999 (NSW). The granting of special leave means that the High Court will for the first time consider the statutory adjudication regime in Australia, including in the particular the scope of the power of the courts to quash a determination for jurisdictional error.

The dispute

The dispute concerns an adjudication application and determination under the Building and Construction Industry Security of Payment Act 1999 (NSW) (Act).

In December 2014, Lewence Construction Pty Ltd (Lewence) obtained a successful adjudication determination under the Act against Southern Han Breakfast Point Pty Ltd (Southern Han).

However, Lewence had already purported to accept Southern Han's repudiation of the relevant construction contract and it considered that the contract had come to an end in October 2014.

Southern Han challenged the determination in the New South Wales Supreme Court (NSWSC) arguing that the adjudicator had committed a jurisdictional error because no reference date had arisen for the purposes of the Act. It said that the contract had been repudiated, so no reference date could have arisen, and that the existence of a reference date was essential to giving the adjudicator the jurisdiction to make a determination under the Act.

At first instance, the NSWSC considered the question of whether a reference date had arisen to be a jurisdictional fact. The court ruled that without a reference date, an applicant has no entitlement to serve a payment claim under the Act. As the relevant contract had come to an end, Lewence had no reference date available to it to make a claim under the Act.

Lewence appealed this decision to the NSWCA arguing that the question of whether a reference date had arisen was not a jurisdictional fact that may be determined by the court on judicial review. Southern Han filed a notice of contention, seeking to affirm the primary judgment.

The NSWCA overturned the first instance decision and upheld the adjudicator's determination finding that the existence of a reference date was not a jurisdictional fact that may be the subject of judicial review and upheld the adjudicator's determination.

The issues

Southern Han sought and has been granted special leave to appeal the decision of the NSWCA on the following two grounds:

  1. whether the existence of a "reference date" is a jurisdictional fact (for which an erroneous finding will give rise to jurisdictional error); and
  2. whether a determination may be quashed for non-jurisdictional error on the face of the record.

The first issue

The dispute between the parties as to the first issue is with respect to the interpretation of the Act. The parties' submissions and the previous decisions disclose a tension between Sections 8 and 13.

Southern Han contends that the right to progress payments is expressed to arise "on and from each reference date" under Section 8 of the Act and is therefore subject to the statutory pre-condition of a reference date having arisen. Accordingly, the existence of a "reference date" is an essential precondition to the entitlement to payment.

However, Lewence contends that, consistent with the reasoning adopted by the adjudicator and the NSWCA, a reference date is not a statutory pre-condition for the entitlement to payment under the Act. Rather a payment claim may be served (and a subsequent adjudication application may be determined) when made by a person "who is or who claims to be" entitled to a progress payment pursuant to Section 13 of the Act. Accordingly, the question of whether a reference date has arisen is merely a question that is required to be determined by an adjudicator, and is not a jurisdictional fact that may be determined by a court on judicial review.

This tension and the competing interpretations of Sections 8 and 13 of the Act have arguably given rise to divergent lines of authority in New South Wales and Queensland. Both states have similar security of payment legislation.

The second issue

In respect of the second issue, Southern Han contends that a determination may be quashed for non-jurisdictional error on the face of the record. It considers that where an adjudicator makes an error of law, such as the misinterpretation of the relevant construction contract, such an error gives rise to a jurisdictional error, which renders the determination liable to be quashed. It submits that the line of authority consistently relied upon to by the NSWCA to reject this position (albeit in other proceedings) is inconsistent with High Court authority, and it otherwise relies upon two other first instance decisions of the NSWSC (including the decision in Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd [2016] NSWSC 770 that was the subject of our update here).

Lewence argues that this issue is uncontroversial, in the sense that are no authorities contrary to the position adopted by Southern Han, but that it did not provide a proper basis for special leave in any event. It has asserted that its principal defences against Southern Han's position will be based on matters pertaining to the contract and to the face of the record, as opposed to the underlying legal principle.

Comment

When handed down, the High Court's decision will be of great significance to the Australian construction industry and those who are frequently required to interact with security of payment legislation. In recent months, courts across Australia have been grappling with the extent to which parties may challenge adjudication determinations, and some states have developed inconsistent lines of authority that has given rise to uncertainty to those companies who operate nationally.

This case will provide the High Court its first opportunity to consider security of payment legislation and to provide parties with guidance as to the scope of the power of the courts to quash a determination.

Clyde & Co's Global Projects and Construction team will update you when the High Court hands down its decision.

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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