Security of Payment insight #6: Approaching the court

Applying to the court to overturn an adjudicator’s determination

Jurisdictional error

Adjudication determinations will only be overturned if the Court finds that the adjudicator made a jurisdictional error in making his or her determination.

The legislation confers jurisdiction on third party adjudicators with conditions on how an adjudicator must make decisions. For example, that the adjudicator makes a determination in respect of a payment claim and that the adjudicator only consider submissions in an adjudication response which have been made in a payment schedule. If the adjudicator purports to wield power beyond the power conferred on the adjudicator under the legislation, his or her decision will be infected with a jurisdictional error and liable to be overturned.

A very much non-exhaustive list of issues which may affect the adjudicator’s jurisdiction are:

  1. if there was no ‘construction contract’;[1]
  2. if the payment claim is invalid, perhaps because:
  3. if the adjudication application was not properly made (perhaps because it was made out of the time proscribed under the Act);
  4. if the adjudicator failed to provide reasons for his or her determination;
  5. if the adjudicator failed to determine the amount payable;
  6. if the adjudicator failed to consider submissions made by one party (and therefore failed to provide procedural fairness to that party);[3]
  7. the adjudicator otherwise denied one party natural justice (perhaps because the adjudicator determined the matter on a basis not advanced by either party).[4]
  8. it was served out of time;
  9. it failed to identify the construction work;
  10. it was not served in respect of a “reference date” (pre-Oct 2019 amendments) or there were two payment claims served in respect of that reference date (where only one could be served);[2]
  11. There is some distinction in jurisdictional errors where an assumed fact, going to the core of the adjudicator’s jurisdiction, is wrong. That is, the adjudicator’s jurisdiction may depend on the fact existing (e.g. the fact asserted being a fact; being true and correct) or simply that the adjudicator forms the requisite lawful opinion that the fact exists and is correct (whether it is or not).[5] Whether a payment claim is served within the 12 months required by the Act has recently been held to be a creature of the second category as described above; that is, that the adjudicator simply needs to satisfy himself or herself of the fact (although in due course, such a fact could, in fact, be no fact at all).[6]
  12. A jurisdictional error need not be raised in the adjudication submissions, to the extent it is able to be identified in advance (e.g. where the payment claim is said to be invalid).
  13. Also note that there is some element of ‘materiality’ in a jurisdictional error. If the jurisdictional error is insignificant in that it does not materially affect the decision the adjudicator made, it may not necessarily attract an order for the determination to be overturned.[7]

Non-jurisdictional error of law

  1. A jurisdictional error is distinguished from a non-jurisdictional error of law on the face of the record. A non-jurisdictional error of law is an error made by an adjudicator with respect to the parties’ rights under the contract, for example. If an adjudicator erroneously determines that a party has a particular entitlement, such an error is an error is an error of law for which the adjudicator has the jurisdiction to make; there is no scope to seek to quash the adjudicator’s determination (or part of that determination as now provided under the October 2019 amendments).

Seeking to overturn an adjudicator’s determination

  1. If a jurisdictional error is suspected, the aggrieved party can apply to the Supreme Court, Equity division, Technology & Construction List, to quash the determination. Such a proceeding is commenced with a Summons and List Statement.
  2. The plaintiff applicant will commence against the party who succeeded at adjudication (as first defendant) and the adjudicator will be joined as a passive second defendant (and file a submitting appearance only).[8] The plaintiff (usually the respondent in the adjudication process) will usually seek an urgent interim order to restrain the defendant from enforcing the adjudicator’s determination, pending resolution of the plaintiff’s proceeding to quash the determination as a whole. That interim order is sought using a notice of motion filed at the same time as the originating process.
  3. If the court is to order a restraint on the judgment debtor enforcing the judgment, the court may also order that the applicant pay the determined amount (in the adjudication) into court, as well as give an undertaking as to damages, pending a decision on whether the adjudicator committed a jurisdictional error. The payment into court is required by section 25(4)(b) of the Act as security and it is rare that the usual order for payment will not be adopted.[9]
  4. The content of the Summons and the List Statement is set out below.
    1. The Summons should set out the interim relief sought, usually being for an interim injunction such that the respondent cannot:
      1. request an adjudication certificate under section 24 of the Act;
      2. file any adjudication certificate as a judgment debt;
      3. commence any enforcement proceedings;
    2. The Summons should also set out the final relief sought, usually that:
      1. the determination is void or is quashed;
      2. there be a permanent injunction from the defendant being able to request an adjudication certificate in respect of the determination and commencing enforcement proceedings on any judgment debt; and
      3. costs and any other order as the court deems fit (as is usual).
    3. The accompanying List Statement must follow the court precedent, which includes prescribed headings, and should set out:
      1. the nature of the dispute (eg, whether the adjudication determination is valid or infected with jurisdictional error);
      2. the issues likely to arise (being the specific questions for the court to address such as whether procedural fairness was afforded to the plaintiff, probably being the respondent in the adjudication process);
      3. the contentions, which should include a summary of:
        1. the project, the construction contract and the parties;
        2. the payment claim and the payment schedule;
        3. the adjudication application and the adjudication response, and what each party contended in the adjudication application and adjudication response in respect of the contentious issues the subject of the court Summons;
        4. the adjudication determination and a summary of the reasons stated in the adjudication determination;
        5. the grounds on which the plaintiff says the determination is void;
      4. a short note that mediation is not appropriate in circumstances where the matter concerns a question of law only (insofar as it relates to the adjudicator’s jurisdiction, not to be confused with whether the determination contains an error of law) and also a note that there is nothing appropriate for referral on the same basis.
  5. Draft orders should be prepared setting out the interim orders sought together with a hearing date and some procedural orders for provision of documents to be served.
  6. The court will either decide that the adjudicator’s determination is infected with a jurisdictional error, in which case the adjudicator’s determination will be null and void, as if it was never made. If the construction contract was entered into after October 2019, the most recent version of the legislation will apply and the Court has an express power under section 32A(2) of the Act to set aside only the part of the adjudicator’s determination which was infected with the jurisdictional error. In that circumstance, there will be an order for the money paid by the plaintiff into court (which was to pend the decision), to be repaid to the plaintiff (or part thereof).
  7. If however the plaintiff is unsuccessful in its application to overturn the adjudication determination, an order will be made for the payment of those funds to the first defendant.
  8. It is not uncommon for the unsuccessful plaintiff, at this point, to foreshadow an application for a stay of payment of those funds (essentially being a stay of enforcement), perhaps on the grounds that the first defendant has solvency concerns. The October 2019 amendments prevent a party in liquidation from being entitled to press an adjudication or enforce an adjudication determination (new section 32B). However the October 2019 amendments are silent in respect of if insolvency is suspected; it only applies to corporates in liquidation.[10]
  9. Costs orders will be made in the usual course, but for the avoidance of doubt note that the second defendant adjudicator won’t have a costs order made against him or her.

The trend of approaching the Court

  1. Generally, the number of applications to the courts has been reasonably steady over the past five years or so. If anything, it has been on the slight decline, perhaps by reason of the High Court authority with respect to the availability of judicial review for non-jurisdictional errors of law.[11] The number of security of payment decisions reported by the Supreme Court of New South Wales over time, generated from imperfect data,[12] is below:

An alternative: suing for the money back

  1. For non-jurisdictional errors, the available recourse is to commence ordinary proceedings to seek to recover the funds which the plaintiff was required to pay under the adjudication determination. That is, the respondent in the adjudication proceeding will be the plaintiff in a fresh proceeding in the Technology & Construction List of the Supreme Court of New South Wales. A Summons and List Statement are to be filed and served and the proceeding will progress through the ordinary process of the T&C List.
  2. The Summons will merely set out the final relief sought. There is no need to seek any interim relief because the respondent will already have been required to abide the adjudicator’s decision by making the payment of the amount determined to be owed by the adjudicator.
  3. In the List Statement, the plaintiff’s contractual entitlement to the monies (or any other cause of action) should be set out as well as details of the circumstances of the payment pursuant to the adjudication determination.
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