The jurisdictional error under Building and Construction Industry Security of Payment Act 1999 (NSW)

EXECUTIVE SUMMARY

The Supreme Court of NSW decision in Martinus Rail Pty Ltd v Qube RE Services (No 2) Pty Ltd¹ serves as a reminder as to when a Building and Construction Industry Security of Payment Act 1999 (NSW) (SOPA) determination might be set aside for jurisdictional error, and the process adopted by the Court to consider whether a jurisdictional error has occurred.*

BACKGROUND

The proceedings concerned two construct only contracts between a head contractor (Qube) and a sub-contractor (Martinus) for works on the Moorebank Intermodal Terminal Project in Western Sydney.

There were significant delays to the Martinus works, which Martinus claimed arose due to Qube’s late provision of designs and inability to grant timely access to site. Qube disputed Martinus’ claims and eventually terminated the contracts for cause and convenience.

Martinus commenced two SOPA adjudications for approximately $81 million arising from the contracts’ payment claims.

The adjudicator, after a lengthy deliberation of 132 days, determined that progress payments of approximately $70 million plus interest should be made under the contracts, and that Qube should pay the costs of the adjudications.

Qube commenced proceedings and sought to set aside the determinations on the grounds of alleged jurisdictional error, most notably, a failure to consider key submissions made by Qube in response to Martinus’ claims.

DID JURISDICTIONAL ERROR OCCUR?

The Court found that jurisdictional error was established.

The adjudicator failed to consider submissions of Qube in contravention of s 22(2) of SOPA, resulting in the partial setting aside of $22.7 million of the determinations, with the balance of approximately $47.3 million still payable.

In reviewing the adjudicator’s determinations, the Court considered the following factors relevant to a finding of jurisdictional error:

1. Failure to refer to submissions: in the determinations, the adjudicator had not made reference to the submissions of Qube in question;
2. Tight timeframes: while the Court stated that the tight timeframes under which adjudications normally operate was a relevant consideration, in this instance, this factor was of little weight as the issues in question were important and the adjudicator had 19 weeks to consider the submissions of the parties;
3. Weight of submissions: the relevant submissions of Qube were of apparent weight. The Court stated that the more extensive a submission is, and its apparent weight, the less likely that adjudicator would have considered the submissions so inconsequential that they did not call for mention; and
4. Adjudicator’s statements: the Court found that the adjudicator made several statements consistent with him not having considered the submissions, stating it was ‘highly unlikely that the adjudicator would have expressed himself in that way if he had considered the submissions’.

Having found the adjudicator, on the balance of probabilities, did not consider the submissions in question, the Court considered whether that failure was material.

In applying principles from the High Court’s decision in LPTD v Minister for Immigration,² the Court stated the test was ‘not demanding’ in that all that needs to be demonstrated is the possibility, not being ‘fanciful or improbable’, of a different outcome.

Here, the failure to consider Qube’s submissions was material. The Court found that had they been considered, there was a real possibility that the adjudicator could have seen matters differently and rejected Martinus’ claim.

KEY TAKEAWAYS

This case provides further guidance on the factors a Court will consider when determining if jurisdictional error has occurred with the context of SOPA.

In circumstances where it can be established, factually, that an adjudicator has failed to consider key submissions and it was not ‘fanciful or improbable’ that a different outcome would have occurred, jurisdictional error may be established.

*The case is currently the subject of an appeal to the Court of Appeal (NSW). At the time of writing, the appeal judgment has not yet been handed down. A further article discussing the expected appeal judgment will follow in the next instalment of this two-part series.

This article waswritten by Lucas Keogh, Partner, Rhys Moran, Senior Associate, and Edward Wong, Solicitor.

¹ (No 2) [2024] NSWSC 1223.
² [2024] HCA 12.