Shopkeeper v Builder decided 24 September 2010

30/03/2016

Introduction

1. A decision of the NSW Court of Appeal has cast new light on the issue of whether the Supreme Court has the power to review a determination of an adjudicator made pursuant to s. 17(2) of the Building and Construction Industry Security of Payment Act 1999 (the Act).

2. The Shopkeeper and Builder were parties to a construction contract under which the Builder was obliged to perform fit out work at the Shopkeeper’s Bar at the Chatswood shopping centre in Sydney. 

3. The Builder made a Payment Claim under the Act.  The Shopkeeper failed to serve a Payment Schedule in response and the Builder sought to have the Payment Claim adjudicated pursuant to s. 17 of the Act.  Section 17(2) of the Act provides that an adjudication application “cannot be made” unless a notice is served within 20 business days following the due date for payment.  No such notice was served within the period set out in the Act by the Builder.

4. The Adjudicator later found, notwithstanding that the Builder’s notice was served more than 20 business days after the due date for payment, that he was satisfied the notice had been served in accordance with the time requirements of the Act.  The Adjudicator went on to make a determination that the Builder was entitled to be paid the amount claimed.

5. The Shopkeeper then applied to the Supreme Court, inter alia, for declaratory relief in respect of the Adjudicator’s determination.  In particular, the Shopkeeper sought relief in the nature of certiorari to quash the determination made by the Adjudicator.  The principal thrust of the Shopkeeper’s application was that the Adjudicator had no jurisdiction to hear an application which had not been commenced in accordance with s. 17 of the Act.

The decision at first instance

6. The difficulty faced by the Shopkeeper in such an application is that it cut directly across the line of authority established by Brodyn Pty Ltd v Davenport (2004) 61 NSWLR 421 (Brodyn).  In Brodyn the Court of Appeal held that relief in the nature of certiorari was not available for jurisdictional error of law.  Later decisions have adopted the reasoning in Brodyn to the extent that a finding by an adjudicator of a matter stipulated by s.17(2)(a) of the Act was within the power of an adjudicator to make and that an erroneous finding made in good faith was not a basis for concluding that the determination was void.

7. The Shopkeeper argued that the reasoning in Brodyn had been eroded by the recent High Court decision in Kirk v Industrial Relations Commission of NSW (2010) 239 CLR 531 (Kirk).  The High Court confirmed in Kirk that it is beyond the legislative power of the states to restrict a state Supreme Court’s power to grant certiorari in relation to jurisdictional error.  It was submitted on behalf of the Shopkeeper that in light of the approach taken in Kirk, Brodyn should no longer be followed.

8. When the matter came before McDougall J in the first instance, his Honour considered it was appropriate that the “Kirk” issue be referred to the Court of Appeal for determination.  Accordingly, the matter was referred to the Court of Appeal for the determination of three discrete questions, which can be summarised as follows:

1. Whether the determination of the Adjudicator that he could hear and determine the Builder’s adjudication application should be set aside or quashed for jurisdictional error?

1. Whether in light of Kirk the decision in Brodyn should not be followed (limited to issues of jurisdictional error and jurisdictional review arising from the Act)?

1. Whether the Act, insofar as it expressly or impliedly limits the power of the Supreme Court to review an adjudicator’s determination for jurisdictional error, is inconsistent with the requirements of the Constitution that there be a State Supreme Court with jurisdiction to grant relief in the nature of certiorari.

The Court of Appeal’s decision

9. Put simply, the Court answered the questions removed to it in favour of the Shopkeeper.  In respect of the first question, Basten JA (with whom Spigelman CJ and McDougall J expressly agreed) preferred to answer in a manner which did not assume that the adjudicator had made the determination in question.  In his Honour’s view, the adjudicator’s finding in relation to the notice purportedly served pursuant to s.17(2)(a) of the Act was without legal consequence and could not be quashed or set aside.  At all events, Basten JA determined that the Supreme Court, in the exercise of its supervisory jurisdiction, has power to judicially review the determination of an adjudicator and has the power to grant relief in the nature of certiorari and set the determination aside.

10. Each of Spigelman CJ, Basten JA and McDougall J had something to say on this issue and whilst there was some divergence in approach, their Honours respective reasoning can be reduced to the following points:

1. Their Honours considered an issue central to the availability of judicial review was the nature of the function of an adjudicator appointed under the Act; and whether the adjudicator was “…exercising public power, relevantly, a statutory power” (at [10]).  The Court was unanimous in its view that an adjudicator exercised statutory or governmental powers.

1. Whether the essentiality of the time limit specified in s.17(2)(a) was such that it gave rise to a jurisdictional fact.  Basten JA and McDougall J reasoned that the manner in which the Act operates; the clear and precise specification of time stipulations and other requirements to be observed within the Act’s legislative scheme; and the imposition of such a mandatory regime regardless of any contract between the parties meant that compliance with the time limit specified in s.17(2)(a) was an essential condition for a valid adjudication application (and thus a jurisdictional fact).

1. Spigelman CJ, on the other hand, found that s.17(2)(a) did not invoke a jurisdictional fact and preferred the view that s.17 was not addressed to the adjudicator and was not a matter which he was directed to “determine” within s. 22(1) of the Act.  His Honour concentrated more on the structure and language of the Act’s legislative scheme.  In particular, Spigelman CJ focused on the fact that the legislative scheme “…strongly suggests that Parliament intended the time limits to operate precisely in accordance with their terms” (at [50]) as a foundation for his Honour’s finding that there had been jurisdictional error.

1. Each of their Honours agreed that the powers given by the Act to an adjudicator to determine an adjudication application (set out in s.22 of the Act) do not include the power to determine whether a claimant has complied with s.17(2)(a) of the Act.

11. In that light, their Honours formed the view that determinations by adjudicators appointed under the Act are amenable to orders in the nature of certiorari.  As Basten JA put it: 

“… the adjudicator’s conclusion that the adjudication application was valid depended either on a miscalculation of the period identified in s. 17(2)(a), or a misreading of the statute.  If the error fell into the former category, the conclusion was one which not only lacked support in, but was inconsistent with, the primary facts as found.  If in the latter category, the error involved a misconstruction of the statute in relation to the conferral of authority.  On either view, the error was jurisdictional and is one in respect of which this Court can intervene.” (at [103])

12. In relation to the second question dealing with the decision of Brodyn, the Court exercised a considerable degree of circumspection.  Basten JA considered that Brodyn: “…may not have decided the matters identified…in such broad terms as is there assumed.” (at [106])  In any event, his Honour considered the propositions set out in the question to be wrong; and dispensed with the Brodyn/Kirk question by commenting that the conclusions embodied in the question “…do not follow from some reconsideration of the law required by Kirk” (at [106]).  Nevertheless, Basten JA answered the question in the following manner:

“To the extent that Brodyn Pty v Davenport held, in relation to an adjudication application which was not in compliance with s 17(2)(a) of the Act, the matters set out in the question at a, b and c, it was in error.” (at [108])

13.  Spigelman CJ approached the Brodyn question by interpreting in some detail the decision of Hodgson JA in Brodyn, in particular the adoption by Hodgson JA of an “essential pre-conditon test” at the expense of an assessment as to whether an error by an adjudicator is jurisdictional or non-jurisdictional.  Spigelman CJ was of the view that the distinction between jurisdictional and non-jurisdictional error has been placed by recent High Court authority “…at the centre of Australian administrative law jurisprudence” and “…in a manner which is not consistent with the reasoning in Brodyn, on one view of that reasoning.” (at [29])  His Honour also commented that the significance of Kirk is that “it has given the distinction a constitutional dimension in State law, to the same general effect as had earlier been established for Commonwealth law.” (at [29])

14.  McDougall J analysed the decisions of Brodyn and Kirk in some detail and ultimately came to the view that the question should be answered in the manner proposed by Basten JA.

15. Question 3 was readily disposed of by the Court.  Spigelman CJ considered that, in one sense the issue had been clarified by Kirk.  However, his Honour, like Basten JA and McDougall J was of the view that it was unnecessary in this case to call upon the authority of Kirk.  That was so because their Honours were unanimous in finding that the privative provision embodied in s.25 of the Act operates only in a very limited area and could not be construed as ousting the Supreme Court’s supervisory jurisdiction; nor does it contain any express provision denying the availability of certiorari.

Conclusion

16. Leaving aside the complexities of the Court of Appeal’s analysis of the issues of administrative law raised by this case, the decision contains some important implications for the building and construction industry.  For instance, it is tolerably clear that it is no longer the case that an adjudicator’s determination is not amenable to judicial review for jurisdictional error.

17. Accordingly, where the time limits imposed by the Act are not adhered to by a party and an adjudicator errs in that regard, the aggrieved party now has a right to apply to the Supreme Court for a review of the adjudicator’s decision.  A situation which no doubt only reinforces the need for critical observance of such time limits.  Whether or not this means the opening of flood gates remains to be seen.  The issue, it appears, was certainly on the mind of Spigelman CJ as the following remark seems to indicate:

“As Hodgson JA recognised in Brodyn, the purpose of the legislative scheme is best served by restricting the scope of intervention by the Courts.  I do not believe that there will be frequent occasion for such interference – perhaps after a transitional period – once it is realised in the building industry that punctilious compliance with each specific time limit is required if a builder is to have the benefit the scheme established by the Act.” (at [55])

18.  Not much reading between those lines is required to gain the impression that, flood gates or not, the Supreme Court will be robust in its rejection of adjudications which fail to adhere to time limits or where time limits have been incorrectly calculated.

19. There are other jurisdictional requirements for the provisions of the Building and Construction Industry Security of Payment Act to apply and particularly for a claim to be made based on a Payment Claim or an Adjudication Application to be made.