Maxcon Constructions Pty Ltd v Vadasz [2018] HCA 5
Under the South Australian security of payment Act, a retention clause under which release depended on completion of the head contract was a pay when paid provision of no effect, so the adjudicator made no error of law.
What the court decided
The appeal concerned the Building and Construction Industry Security of Payment Act 2009 (SA), which is based on the New South Wales Act [1]. It was heard at the same time as Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd [2018] HCA 4 ('Probuild') [1]. Under a subcontract with Maxcon, a builder, Mr Vadasz, a piling subcontractor, agreed to design and construct piling for an apartment development [6]. Maxcon's payment schedule proposed to pay less than Mr Vadasz claimed, deducting a retention sum and administration charges [10].
Under the subcontract, half the retention was to be released 90 days after "CFO" and the balance 365 days after it [8]. CFO was defined by reference to the certificate of occupancy and other approvals needed for the works to be used in accordance with Maxcon's project requirements [9]. The parties accepted that the works meant the whole apartment development, not merely the piling [20].
The adjudicator held that the retention provisions were pay when paid provisions of no effect under section 12, and allowed the claim in full [11]. The primary judge and every member of the Full Court of the Supreme Court of South Australia proceeded on the basis that the adjudicator had erred in law [3]. The Full Court dismissed Maxcon's appeal by majority, with Hinton J dissenting [3]. The Full Court concluded that, on first principles, the Act did not exclude review for error of law on the face of the record, but it declined to apply that conclusion, following instead a New South Wales Court of Appeal decision to the contrary on the uniform national legislation [14]. The majority held that the error was not jurisdictional [15].
Maxcon's grounds were that certiorari lay for non-jurisdictional error of law on the face of the record, and that the adjudicator had fallen into jurisdictional error [4]. The High Court dismissed the appeal, six Justices accepting Mr Vadasz's notice of contention that the adjudicator had made no error of law [4], [41]. Having upheld that contention, the joint judgment of Kiefel CJ, Bell, Keane, Nettle and Gordon JJ held that the grounds of appeal did not arise [29].
Under South Australian regulations, a certificate of occupancy required a statement by the builder that the work was performed in accordance with documents that included all contract documents [22]. The certificate therefore depended on completion of the whole project in accordance with the head contract [24]. The due dates for release of the retention were dependent on "the operation of another contract" within section 12(2)(c) [25]. The project requirements were found in the head contract, so CFO required completion of that contract [27]. It did not matter that the head contract was not in evidence, because the conclusion did not turn on whether the head contract itself obliged Maxcon to obtain the certificate [28]. The Full Court's view that the certificate was an independent event, outside both contracts, was rejected [26].
Gageler J said that, were the Court bound to reason in strict logical order, he would hold, as the joint judgment did, that the adjudicator's reasons disclosed no error of law [32]. His Honour chose instead to decide whether an error of law in an adjudicator's reasons is enough for certiorari, and whether the error the Full Court found was jurisdictional, which he regarded as the questions of public importance [31]–[33].
The joint judgment added that, for the reasons explained in Probuild, the South Australian Act, like the New South Wales Act, ousts the Supreme Court's jurisdiction to quash a determination by an order in the nature of certiorari for non-jurisdictional error of law on the face of the record [5]. Relief remains available for jurisdictional error by an adjudicator [5]. Gageler J reached the same answer by applying his own reasoning in Probuild [34]. Edelman J reached the joint judgment's conclusion on that question for the reasons he had given in Probuild [41].
Only Gageler J and Edelman J decided whether the error the Full Court had found would have been jurisdictional [37], [41]. Gageler J concluded it would not, because the adjudicator's authority under section 22(1) is not conditioned on a correct application of section 12 [37]. Agreeing with Blue J, his Honour said that section 12 modifies the substantive law applicable to a construction contract, and he rejected Hinton J's contrary view [38]. Edelman J adopted Gageler J's reasons on that question [41].
Why it matters
In my view, solicitors drafting or reviewing subcontract retention clauses should check whether release depends on anything under the head contract rather than on the subcontractor's own work. The decision turned on a particular definition of CFO and on South Australian building regulation, and it should not be read as a rule for every retention clause. On the South Australian Act, a party seeking to quash a determination must show jurisdictional error [5], [34], [41]. The decision did not construe the Victorian Act, whose own terms must be checked.
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.