Adjudications under the Security of Payment scheme – good faith or bad faith?

Adjudications under the Security of Payment scheme – good faith or bad faith?

By Chris Sydes

November 28, 2018

A recent decision of the NSW Court of Appeal has once again highlighted the difficulties faced by parties seeking to overturn determinations made by adjudicators under the Building and Construction Industry Security of Payment Act 1999 (NSW) (“the Security of Payment Act)  by way of judicial review.

This follows the decision of the High Court of Australia handed down in February 2018 in which the Court held that the Security of Payment Act ousted the jurisdiction of the Supreme Court to review and quash an adjudicator’s determination for non-jurisdictional errors of law  (see Probuild Constructions (Aust) Pty Ltd v. Shade Systems Pty Ltd & anor [2018] HCA 4).

In the Probuild case, the High Court held that, although the Security of Payment Act did not contain an express provision that the jurisdiction was ousted, the scheme of the Act disclosed an intention by the legislators that a review by the Courts would not be available having regard to the fact that the Act creates an interim entitlement that is determined informally, summarily and quickly, and then summarily enforced without prejudice to the common law rights of the parties.

On 20 November 2018 the Court of Appeal handed down its decision in Goodwin Street Developments Pty Ltd v. DSD Builders Pty Ltd [2018] NSWCA 276 in which the Court, in dismissing an appeal, upheld a determination made by an adjudicator awarding a builder an amount of $265,510 in respect of a progress claim made under the Security of Payment Act.

Goodwin Street Developments Pty Ltd (“the owner”) and DSD Builders Pty Ltd (“the builder”) were parties to a construction contract. On 19 March 2018 the owner purported to terminate the contract.

On 30 April 2018 the builder served a payment claim on the owner requiring payment of the sum of $727,256. On 14 May 2018 the owner served a payment schedule in response to the payment claim of $0, stating that the builder owed it a substantial sum for rectification of defective works and damage, and replacement of stolen items.

The builder applied for adjudication of the payment claim. The adjudicator provided her determination on 15 June 2018, awarding the builder $265,510. The owner commenced proceedings in the Supreme Court seeking to have the determination quashed, with the primary judge dismissing those proceedings.

The key issue on appeal was whether the adjudicator’s determination was invalid for want of good faith. The owner claimed that the lack of good faith was established by the adjudicator’s failure to apply section 10(1)(b) of the Security of Payment Act which sets out the means by which construction work is to be valued, including the cost of rectifying defective work.

The Court of Appeal held that the adjudicator’s determination was not invalid for want of good faith. The Court held that the obligation of adjudicators to act in good faith should not be conflated with an obligation to “grapple with” and form a view on all matters which they are required to consider. Although bad faith cannot be comprehensively defined, in this context it required something equivalent to “willful blindness or conscious maladministration”. The Court found that there was nothing approaching bad faith in the case before it.

This case demonstrates the difficulties faced by parties who may be adversely affected by an adjudicator’s determination and contemplating a judicial review of that determination.

 

Pigott Stinson can assist you with disputes arising under the Security of Payment scheme.  For more information, please contact Chris Sydes at c.sydes@pigott.com.au.

This article is intended to provide general information in summary form on a legal topic, current at the time of publication.  The contents do not constitute legal advice and should not be relied on as such. Formal legal advice should be sought in specific circumstances.