Appealing Security of Payment legislation adjudication determinations - Chase Oyster v Hamo

This article considers the decision of the New South Wales Supreme Court of Appeal in Chase Oyster v Hamo. The case is authority for the supervisory jurisdiction of courts being available to quash determinations by adjudicators for jurisdictional error. The adjudication determination considered in Chase Oyster was made under the Building and Construction Industry Security of Payment Act 1999 (NSW). Review of adjudication determinations by a court for jurisdictional error would most likely also be available under the Building and Construction Industry Security of Payment Act 2009 (SA).

The decision of the New South Wales Supreme Court of Appeal in Chase Oyster v Hamo (2010) 78 NSWLR 393 (Chase Oyster) has significant implications for the review of adjudication determinations made pursuant to the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act), legislation on which the Building and Construction Industry Security of Payment Act 2009 (SA) is based.

Previously, the decision of the New South Wales Supreme Court of Appeal in Brodyn Pty Ltd t/as Time Cost and Quality v Davenport (2004) 61 NSWLR 421 (Brodyn) limited the circumstances in which an adjudication determination could be challenged to when the determination lacked any of the "basic and essential requirements" for a valid determination. The "basic and essential requirements"included:

Justice Hodgson found that compliance with other "more detailed requirements" of the Act was not essential to the existence of a valid determination and importantly, that certiorari was not available to quash a determination (Mason P and Giles JA agreeing).

Chase Oyster has expanded the basis on which an adjudication determination can be challenged, holding that certiorari is available to quash an adjudication determination, including if the determination does not comply with "more detailed requirements" of the Act. Chase Oyster is authority for the proposition that whether an adjudication determination can be challenged will depend on whether the adjudicator has committed a "jurisdictional error".

Facts of Chase Oyster

Chase Oyster Bar ('Chase') contracted with Hamo Industries ('Hamo') for Hamo to carry out fitout work. Hamo served Chase with a payment claim due 13 January 2010. Chase did not provide a payment schedule in response to the claim. Accordingly, Chase became liable to pay the claim by 13 January 2010 (s 14(4) of the Act).

Chase did not pay, and Hamo referred the matter to adjudication. Section 17(2)(a) of the Act provides that an application for adjudication cannot be made unless the claimant has notified the respondent, within 20 business days immediately following the due date for payment, of the claimant's intention to apply for adjudication. Hamo did not give notice until 11 February 2010, more than 20 business days following the due date for payment. Nonetheless, an adjudication application was made and the adjudicator determined that Hamo was entitled to payment of the amount claimed, plus interest.

Before the trial judge, Chase submitted that compliance with s 17(2)(a) of the Act was essential if the adjudicator were to have jurisdiction and thus the adjudicator's finding amounted to jurisdictional error.

Legal issues

Three questions were referred to the Court of Appeal:

1. Whether the adjudicator's finding that the application could be heard should be set aside or quashed for jurisdictional error due to the adjudicator's incorrect conclusion that the claimant had complied with the requirements of s 17(2)(a).
2. Whether the decision in Brodyn was incorrectly decided so far as it held that:
3. The Supreme Court of New South Wales was not required to consider and determine the existence of jurisdictional error by an adjudicator in reaching a determination under the Act.
4. Certiorari was not available to quash or set aside a decision of an adjudicator under the Act.
5. The Act expressly or impliedly limited the Supreme Court's power to consider and quash an adjudication determination for jurisdictional error by an adjudicator in reaching a determination under the Act.
6. Whether the Act, so far as it limits the power of the Supreme Court to review an adjudicator's determination for jurisdictional error, is inconsistent with the requirement of the Constitution that there be a State Supreme Court with jurisdiction to grant relief in the nature of certiorari.

Decision of the Court of Appeal in Chase Oyster

The Court of Appeal held that:

1. Determinations by adjudicators are open to be quashed for jurisdictional error.¹
2. The Supreme Court, in exercise of its supervisory jurisdiction, has power to:

• determine that:
  • an adjudication application has not been made in compliance with s 17(2)(a) of the Act;² and
  • the determination of the adjudicator, made in the absence of a valid adjudication application, is invalid;³ and
  • grant relief in the nature of certiorari and set a determination aside.⁴ Accordingly, Brodyn was in error to the extent that it held otherwise.

3. The Act did not limit the power of the Supreme Court of New South Wales to review an adjudication determination for jurisdictional error.⁵

Reasoning - Jurisdictional error

The Court stated that if there was no jurisdictional error, there was no basis on which the Court could interfere with the adjudication.⁶ A jurisdictional error is an error as to the presence of a factual condition necessary for a valid exercise of power.

The Court held that the adjudicator's decision was vitiated by jurisdictional error as s 17(2)(a) creates a jurisdictional fact that must be established prior to the adjudicator having jurisdiction to hear an application.⁷ If notice is not given in time, the jurisdictional fact will not be established.

Specifically Justice McDougall held that:

"[T]he requirement set out in s 17(2)(a) is a condition of the right to make an adjudication application, and satisfaction of that condition is an element of the jurisdiction of the adjudicator — the power of the adjudicator to determine the application in accordance with s 22(1). Put shortly, the giving of notice in time is a jurisdictional fact."⁸

Spigelman CJ took a slightly different approach to come to the same conclusion. His Honour held an adjudicator does not have jurisdiction to hear an application which does not comply with s 17(2)(a), as the purpose of the Act - "to ensure prompt resolution of disputes about payment" - indicates compliance with time limits is crucial.⁹ Failing to issue a notice in time breached an essential condition necessary for an adjudicator to validly exercise power, and so constituted a jurisdictional error.

Basten JA agreed with Spigelman CJ and McDougall J.¹⁰

As notice was not given by Hamo within the requisite time period, the power to determine compliance with s 17(2)(a) was not given to the adjudicator and compliance had to be determined on the basis of facts found by the Court.¹¹

Significance of the Decision

Chase Oyster has overturned the decision in Brodyn that an adjudication determination cannot be quashed, but nevertheless preserved the list of what are "basic and essential requirements" for a valid adjudication determination.

The approach in Brodyn focused on whether the "basic and essential requirements" of the Act had been met in determining whether an adjudication determination is valid. In contrast, Chase Oyster has a broader focus, and is based on whether a jurisdictional error has been committed by the adjudicator. Essentially, a provision of the Act can constitute a jurisdictional fact, but not constitute a "basic and essential requirement" as termed in Brodyn.

As the time period within s 17(2)(a) is a jurisdictional fact, claimants should be conscious of applicable time deadlines for making adjudication applications. Whether other time requirements under the Act are also jurisdictional facts is yet to be determined.

Adjudicators should take care to ensure their adjudication determinations are validly made under the Act.

Chase Oyster did not attempt to categorise what requirements under the Act fall within the scope of a jurisdictional error besides a failure to comply with the "basic and essential requirements" identified in Brodyn and a failure to comply with s 17(2)(a) of the Act. Accordingly, whether a failure to comply with other requirements of the Act is a jurisdictional fact and falls within the scope of "jurisdictional error" will depend on what is decided in future cases.¹²