Musico v Davenport [2003] NSWSC 977
In the Equity Division of the Supreme Court of New South Wales, McDougall J held that an adjudicator's determination under the New South Wales security of payment Act, as amended, is open to judicial review for jurisdictional error, including jurisdictional error of law, or for denial of natural justice, but not for non-jurisdictional error of law, and quashed a determination on both grounds [19], [40], [43], [45], [54], [109], [124], [145].
What the court decided
Grosvenor served a payment claim for $1,544,181.30 on 12 June 2003 [3]. Musico's payment schedule, based on the Architect's progress certificate, asserted that Musico owed nothing [4], [71]. On 18 July 2003 the adjudicator, Mr Davenport, determined that Grosvenor was entitled to be paid $712,757 [8]. An adjudication certificate was issued and filed, taking effect as a judgment [10], [11]. Execution was stayed on conditions pending these proceedings [143]. His Honour applied the Building and Construction Industry Security of Payment Act 1999 as amended by the Building and Construction Industry Security of Payment Amendment Act 2002 [19].
The first question was whether relief under section 69 of the Supreme Court Act 1970 lay against an adjudicator [22]. Though not final, an adjudicator's determination binds the parties [26], [27]. Apart from any privative effect of the Act, such relief would lie in principle [32]. The prohibitions in section 25(4)(a) do not extend beyond an application to set aside the judgment [37]. Section 30 concerns personal liability and shows no intention to exclude review [38]. It follows that the Act does not exclude the Court's power of review [39].
Grosvenor appeared to accept review on jurisdictional grounds, though more narrowly than Musico [43]. An adjudicator must afford natural justice, whose content depends on the circumstances and the legislative scheme [45]. Being closely analogous to an expert by whose determination the parties have agreed to be bound, an adjudicator does not commit jurisdictional error merely by erring in law in deciding issues of law [51], [52]. It is otherwise if the error causes the adjudicator to make one of the jurisdictional errors identified in Craig v The State of South Australia [52]. Relief lies for jurisdictional error, including jurisdictional error of law on the face of the record, but not for non-jurisdictional error, which the scheme of section 25(4) excludes [54], [55].
His Honour examined the asserted errors of law because some showed jurisdictional error and, in case non-jurisdictional error were reviewable, set out his conclusions on all of them [64]. Mr Davenport erred in law in holding clause 10.02 inapplicable without finding the contract terminated [78]. He also erred in treating the progress certificate as vitiated because it was unsigned, and in concluding that the payment could not be determined under the contract [89], [99]. He then purported to determine the amount under section 9(b), although the contract made express provision [100]. These errors meant he failed to have regard to the relevant contract provisions and to exercise his jurisdiction [119]. Musico therefore showed jurisdictional error of law, but no other jurisdictional error [124].
Grosvenor appeared to concede that the reasons impugned in the first four complaints had not been specifically raised in the adjudication application or by Mr Davenport under section 21(4)(a) [105]. An adjudicator minded to decide on a ground neither party has advanced must give the parties notice [107]. Whether that applies depends on the matter and its significance [59]. Musico's complaints that it had no chance to answer the reasoning on the contract's certification clause, the unsigned certificate and the Architect's supposed abrogation and conflict of interest, as well as the liquidated damages date, were made out [102], [109]. The complaint about the conclusion that the payment could not be determined under the contract stood with the first [110]. A complaint about the finding that liquidated damages were a penalty was withdrawn [103]. The additional complaints, which had been debated in the application and response, failed [104], [111].
An adjudicator may reach non-binding conclusions on questions of law [114]. The slip rule complaint failed: the power is permissive and the evidence suggested he had considered the request [121], [123]. Whether material beyond the record may be examined to show jurisdictional error was left open [120].
Setting aside the judgment was not a true alternative, as arguments of denial of natural justice or jurisdictional error would, on his Honour's view, be precluded there [130]. Nor was a stay a true alternative to certiorari [131]. Certiorari would be effective, and in any event another adjudicator could be nominated [133], [134]. Musico had been denied the chance to meet "crucial, although unheralded, steps" in the reasoning, so relief did not depend on guessing the outcome [137]. Contesting the adjudication, or seeking unrelated corrections, was not acceptance of the determination [141], [142]. His Honour quashed the determination made on 18 July 2003 [145]. He said he would hear the parties on consequential relief and costs [146].
Why it matters
This single-judge decision confined review of an adjudicator's errors of law to jurisdictional error, a distinction his Honour said is easier to state than to apply [46], [54]. A determination resting on a significant point that nobody argued or raised is exposed to being quashed. The judgment applied the New South Wales Act as amended in 2002 [19]. Readers should check later appellate authority and the current legislation, including in Victoria.
Numbers in square brackets are paragraph numbers of the judgment. This note summarises a decided case for education and is not legal advice. See how the notes are written.