Legal Insights

Security of Payments - appeal costs and reviewability of adjudication determinations in Victoria

By Paul Woods, Ben McLeod & Branevan Shankumar

• 10 September 2020 • 6 min read

A little known feature of the judicial process is that where a party gets a favourable judgment, but then loses on appeal, it may be entitled to be compensated by the State for the costs of the appeal, through an ‘indemnity certificate’ issued under the Appeal Costs Act 1998 (Vic) (ACA).

The underlying rationale for the regime is that a party who wins a case in Court, only to find that the Court of Appeal (for example) reverses the original decision, should not have to bear its costs of the appeal. The decision as to whether a party is entitled to an indemnity certificate under the ACA is entirely within the discretion of the Court. The ACA applies to ‘appeals’ from decisions of ‘courts’ - both words defined broadly.

The entitlement of a party to get an indemnity certificate was recently considered by the Supreme Court of Victoria in Radman v Open Plan[1] in the context of a quashed adjudication determination made under the Building and Construction Industry Security of Payment Act 2002 (SOP Act).

Radman also considered the extent to which adjudication determinations may be reviewed by a superior Court in Victoria.

The Facts

With some limited exceptions, the SOP Act does not apply to domestic building disputes. A payment dispute between Open Plan (a builder) and the Radmans (owners) led to the appointment of an adjudicator under the SOP Act, who issued an adjudication determination. Radman then commenced proceedings in the Supreme Court seeking to quash the determination on the basis that the domestic building contract in question was outside the jurisdiction of the SOP Act (the Adjudicator had wrongly determined that the Radmans were ‘in the business of building residences’).

A week before the hearing date, the parties consented to the Court making orders quashing and declaring void the adjudication determination, and requiring Open Plan to pay Radman’s costs of the proceeding, but also that Open Plan be granted an indemnity certificate under the ACA (for its costs associated with Radman’s application to Court).

The Court therefore needed to consider whether it had jurisdiction to make an order for appeal costs to be paid to Open Plan, and if so why the order should be made.

Decision

The Court determined that Open Plan was entitled to be paid its costs of the proceeding, under ACA principles. It was satisfied that:

  • an adjudicator appointed under the SOP Act came within the meaning of ‘court’ as defined in section 3 of the ACA
  • Radman’s application to the Court for judicial review of an adjudication determination under the SOP Act was an ‘appeal’ as defined in section 3 of the ACA
  • the agreed consent orders (pursuant to which the Adjudicator’s determination was quashed) constituted success for Radman, within the meaning of section 4(1) of the ACA
  • there were no underlying factors to persuade the Court not to exercise its discretion to grant an indemnity certificate under the ACA.

The Court also commented on the grounds on which a person affected by an Adjudicator’s determination under the SOP Act may seek to have it set aside in Court. This is interesting because it throws light on a critical difference between appeals about adjudication determinations in New South Wales and Victoria.

In Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd[2], the High Court clarified that it was not open to a party to seek judicial review of an adjudication determination under the New South Wales SOP Act for a ‘non-jurisdictional error of law’ (i.e. an error of law about the adjudicator’s jurisdiction to hear and determine the adjudication application). This means that in New South Wales, there is no ability to appeal simply because an adjudicator may have misunderstood and misapplied the law or the contract. An appeal is only available for errors relating to the adjudicator’s jurisdiction.

But in Radman, His Honour Justice Digby made the following observation at [29]:

The plaintiffs’ underlying proceeding… sought review and decision by this court, as the relevant superior court, on a question of law concerned with the jurisdiction of the Adjudicator in proceedings under the SoP Act. In this regard … the scope of legitimate grounds for judicial review in relation to an adjudication determination under that SoP Act are confined to species of error of law including jurisdictional error, want of procedural fairness, and in Victoria, material error of law on the face of the record.

Summary

There are two clear takeaways from this case.

Appeal costs claimable for unsuccessful party on appeal

First, subject to the discretion of the Court, a person who gets a favourable adjudication determination which is later quashed by the Court in a judicial review application, may be entitled to an indemnity certificate under the ACA permitting it to recover its costs of the judicial review proceeding from the State.

Reviewability of a material error of law

Second, the Court’s observation that it is open to a party in Victoria to seek judicial review in respect of a ‘material error of law on the face of the record’ establishes a clear difference to the position in New South Wales as clarified by the High Court in Shade Systems.

It is to be noted that the Court referred to appeals being available for ‘material’ errors of law by adjudicators. It remains to be seen what types of errors will qualify as ‘material’. Something more than a trifling or inconsequential error will likely be needed. Potentially, an erroneous interpretation of a critical clause in a building contract, which leads an adjudicator to an incorrect conclusion with a significant, adverse financial impact for a respondent, will be a ground for appeal in Victoria.

Our team regularly advises on rights and obligations under the Building & Construction Industry Security of Payment Act 2002 (Vic). We have prosecuted and defended numerous adjudications under the legislation, including acting for the successful applicant in one of Victoria’s largest adjudications ($20m plus) in late 2018.

We strive to ensure clients, whether respondents or claimants, understand their rights under the Act and the depth of experience in our team means we can mobilise quickly and effectively for our clients.

[1] [2020] VSC 318

[2] [2018] HCA 4

Would you like to discuss this case, or need assistance with making or responding to any claims arising under the SOP Act?

Please contact the Construction & Projects Team.

By Paul Woods, Ben McLeod & Branevan Shankumar

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