Summer of section 69: non-jurisdictional errors of law under the Security of Payment Act have had the best days of their lives

The decision of the unanimous five-judge bench in Shade Systems Pty Ltd v Probuild Constructions (Aust) Pty Ltd (No 2) [2016] NSWCA 379 overturns the Supreme Court’s decision to quash an adjudication determination for non-jurisdictional errors of law on the face of the record.

The Court of Appeal decision also affirms its earlier decision in Brodyn Pty Ltd v Davenport (2004) 61 NSWLR 421, which has been followed in numerous decisions of the Supreme Court of NSW (and in courts of other states and territories).

Court of Appeal’s decision

The question in this case was whether the Supreme Court can exercise its supervisory jurisdiction to quash an adjudicator’s determination for errors of law on the face of the record.  There was no dispute between the parties that:

1. the adjudicator had made errors of law in his adjudication determination; and
2. the errors of law were not jurisdictional errors.

Under section 69(3) of the Supreme Court Act 1970 (NSW) (SC Act), the Supreme Court has a supervisory jurisdiction empowering it to quash determinations of courts and tribunals that include errors of law on the face of the record.

Section 69(5) of the SC Act provides that section 69(3) of the SC Act (power to quash determinations for error of law on the face of the record) does not “affect the operation of any legislative provision to the extent to which the provision is…effective to prevent the Court from exercising its powers to quash or otherwise review a decision.”

In essence, the Supreme Court can quash a determination of a court or tribunal (including an adjudication determination) unless there is a legislative provision that prevents the Court from doing so.

Ultimately, the Court of Appeal found that the Supreme Court cannot exercise that jurisdiction to quash adjudication determinations if there are only errors of law on the face of the record and that there must be jurisdictional error for the Court to intervene.

The Court of Appeal’s decision considered the tension between section 69(3) of the SC Act and the Security of Payment Act.  In arriving at its decision, the Court of Appeal observed the following.

1. The Security of Payment Act does not provide for an appeal mechanism, which supports the view that errors of law (other than jurisdictional errors of law) should not be subject of review by Courts.  On the other hand, there is no section of the Security of Payment Act that expressly precludes the Supreme Court from reviewing adjudication determinations for errors of law on the face of the record (as apparently contemplated by section 69(5) of the SC Act).  To resolve this tension, the Court of Appeal considered the content, structure and practical operation of the Security of Payment Act.
2. The procedure provided for by the Security of Payment Act would be undermined if the Supreme Court could review adjudication determinations for errors of law on the face of the record.  The effect of such reviews would be to stifle the objects and purpose of the Security of Payment Act, which is to provide a quick mechanism for payment disputes and maintain cashflow in the construction industry.
3. Section 25(4) of the Security of Payment Act provides that an adjudication determination cannot be challenged and allowing an appeal under section 69(3) of the SC Act would be inconsistent with the Security of Payment Act, but the Court concluded that this was a relatively weak factor.
4. The consistent approach of courts in New South Wales (and other states) has been to follow the decision in Brodyn that adjudication determinations cannot be quashed only for errors of law on the face of the record.  The Court of Appeal concluded that no sufficient reason has been put forward to doubt the decision in Brodyn (as to there being any ground other than jurisdictional error to quash an adjudication determination).

The Court of Appeal found that there was a legislative intention by the scheme of the Security of Payment Act that adjudication determinations would not be subject of review for non-jurisdictional errors of law.

Obiter comments in Lewence put to bed

Interestingly, the five-judge bench of the Court of Appeal in Shade Systems was entirely different to the composition of the three-judge bench of the Court of Appeal in Lewence Constructions Pty Ltd v Southern Han Breakfast Point Pty Ltd [2015] NSWCA 288.  The Lewence decision was handed down in September 2015.

The Lewence decision, which was not referred to in Shade Systems, was overturned by the High Court on 21 December 2016, but not for reasons going to the difference between the issue of jurisdictional error and non-jurisdictional error.

In the Lewence Court of Appeal decision, obiter comments were made to the effect that adjudication determinations could be quashed for errors of law on the face of the record.  That decision was made by their Honours Emmett JA (the judge at first instance in Shade Systems), Ward JA and Sackville AJA.

In Lewence:

• Emmett JA made no reference to quashing the determination for an error of law on the face of the record, however (as noted above) Emmett JA was the judge in first instance in Shade Systems who determined that adjudication determinations could be quashed for errors of law on the face of the record.
• Ward JA said at [71]:

“This Court was not taken to adjudicator’s reasons to suggest that there was any error of law on the face of the record in relation to the existence of an available reference date.”

It is implicit in the above that her Honour considered such an argument was available to quash an adjudication determination.

• Sackville AJA said at [126]:

The footnote at [1] referred to section 69 of the SC Act, which sets out the supervisory jurisdiction of the Supreme Court to quash court or tribunal proceedings that include an error of law on the face of the record.  Accordingly, his Honour clearly envisaged that adjudication determinations could be quashed for errors of law on the face of the record.

Having regard to the above, on a purely speculative basis, there may have been a different outcome in Shade Systems if the Court of Appeal bench had been comprised of different judges.

Summary

Unless there is a jurisdictional error of law, an adjudication determination will not be quashed by the Supreme Court.  That is so even despite errors of law by an adjudicator in their determination.  This decision, like Brodyn, is likely to be followed in states and territories with similar legislative regimes (all states and territories except the NT and WA).

There is clearly some divergence of opinion within the Court of Appeal on this issue and the Court of Appeal in Shade Systems has placed great significance on the objects and purposes of the Security of Payment Act evincing an intention for section 69(3) of the SC Act not to apply to adjudication determinations.  There is clear acknowledgement in the Shade Systems decision of the tension between section 69(3) of the SC Act and the purpose of the Security of Payment Act.

The unanimous five-judge verdict in Shade Systems is a clear signal that the Court of Appeal does not want to or see the need to tinker with the precedent established in Brodyn (and the volume of authority that has followed that decision).

It appears that High Court intervention will now be required before errors of law on the face of the record mean that an adjudication determination can be quashed by courts in New South Wales.  The High Court first intervened in security of payment legislation on 21 December 2016.  In that decision, the High Court adopted a literal and plain English interpretation (rather than purposive) interpretation of the Security of Payment Act.  A similar approach to reviewing the Court of Appeal’s decision in Sun Shades may result in adjudication determinations being reviewable for non-jurisdictional errors of law.  However, until the High Court intervenes, non-jurisdictional errors of law under the Security of Payment Act have had the best days of their lives.