Building Security for Payment Appeals – Security of Payments

21/05/2018

The High Court of Australia has recently affirmed that there are only limited opportunities for appeals against security of payment determinations by adjudicators.

The framework of the security of payment scheme in New South Wales provides a quick process for building contractors including subcontractors and suppliers to obtain payment for their work. The relevant legislation is the Building and Construction Industry Security of Payment Act, 1999 (SOP Act).

Be aware that there are strict provisions including time limits that apply.  There are default provisions against the person or company who receives a payment claim or adjudication application if the appropriate documentation is not served within the appropriate times as provided for in the SOP Act.  The process involves firstly the contractor serving a payment claim, comprising a claim regarding work carried out. The other party for example, the Principal or Owner must then either pay the amount claimed or serve a payment schedule, complying with the provisions of the SOP Act.  The payment claim states the amount that party will pay and if not the whole amount, the reasons for that non-payment. The contractor may if he is dissatisfied with the owner’s response, file an application with an appropriate adjudicator, which application asks the adjudicator to determine whether the owner is liable and for how much.

Once the adjudicator makes his determination, the contractor may file the determination at court, in which case the court may issue a judgment for an amount of money against the owner. If this happens, the owner is liable for the amount of money referred to in the court judgment.

The owner has a right to make an application to have a case heard however usually (but not always) must pay the contractor the amount of the judgment in the meantime.

The security of payments adjudication process is in some ways similar to a court process, in that each side has a chance to put forward its arguments about liability for sums claimed. However an adjudicator does not sit as a court and rules of court do not apply.  The adjudicator makes a decision based on the documentation submitted.

The question arises if one party claims the adjudicator has made an error in his determination in what circumstances can that party appeal or seek a review of that decision?

This question was recently considered by the High Court in the 2018 case of Probuild Constructions (Australia) Pty Limited v Shade Systems Pty Limited. In that case, the builder’s claim had proceeded to determination by the adjudicator. The owner did not agree with the adjudicator’s decision and argued that the adjudicator had made a legal error.  The builder lodged a claim in the Supreme Court and asked the court to find that the adjudicator’s decision was legally incorrect. In so doing, the builder was asking the court to find that in some way, the adjudicator went ‘outside his power’ in deciding the case the way he did.  The adjudicator’s power is different to the power of a judge or court officer. This is because in general terms, where a court makes a legal error, a party can appeal against that legal error.

The NSW Supreme Court has the power to correct an error of law of a court or tribunal in NSW.

The NSW Supreme Court decided that the owner could lodge an appeal of the relevant decision over an error of law.

The High Court in this case looked at the Security for Payment legislation and particularly examined how it operated. It noted that an adjudicator’s decision is not necessarily a final decision.  This is because the parties can still bring civil proceedings in a court over the building contract without being bound by the adjudicator’s decision.  Secondly the court noted that the adjudication procedure is designed to operate and enforce decisions without delay and with quick timelines. This supports the view that the adjudication is not a final determination of the parties’ dispute. The court also said that to allow an appeal process would frustrate this scheme and its quick remedies, by delaying payments to contractors while one or other party appeals to a higher court.

The High Court decided that the Supreme Court was incorrect in holding that the owner could appeal and it held that there was no right of appeal against an error of law in security of payment adjudication cases.

However, there remains one remedy available to a party who disagrees with an adjudicator’s decision. This is that the party can appeal where the adjudicator has made a “jurisdictional error”. This is a different question to whether there was an “error of law”. The result of the High Court’s decision is that it is quite difficult for the parties to take any appeal or review action against an adjudicator’s decision.

In a leading landmark case Chase Oyster Bar v Hamo Industries [2010] NSW CA190 Watson & Watson acted on behalf of the Plaintiff in relation to the question of “jurisdictional error” with a successful outcome for the Plaintiff.  Our experienced Building & Constructions Solicitors can advise you on security of payment issues and all building disputes and can assist with advice on contracts and the resolution of building disputes in all jurisdictions.  Please contact Richard Watson Accredited Specialist Building & Construction or his assistant Shereen Da Gloria to discuss your matter.

This is only a preliminary view and is not to be taken as legal advice without first contacting Watson & Watson Solicitors on 02 9221 6011.