The Court of Appeal in New South Wales has handed down its judgment in Chase Oyster Bar v Hamo [2010] NSWCA 190.  The case has potentially far reaching effects, since it has decided that adjudicator’s decisions are susceptible to review by way of certiorari.

In order to understand the impact of the decision, and how it came about, it is useful to start by imagining a visit to the hairdresser.  Instead of allowing you to pay by cash, the hairdresser says that he will send you a bill, and he does so, for the ludicrous figure of $100,000.  He also endorses the bill with a note saying that it is a payment claim under the security of payment legislation.  You ignore the bill, thinking it is a joke, and the hairdresser goes to adjudication.  The adjudicator awards the full $100,000, on the basis that you have failed to put in a payment schedule on time.

In this somewhat ludicrous example, it is fairly easy to see what the correct legal analysis should be.  The arrangement you had with your hairdresser was not a construction contact, and so the security of payment legislation was never enlivened, and the adjudicator had no jurisdiction at all.  The adjudication is, quite simply, a nullity and of no legal effect.  That is the legal analysis which is normally applied around the world.

However, in 2004 the Court of Appeal of New South Wales took a slightly different line inBrodyn v Davenport.  Instead of analysing the question in terms of whether or not the adjudicator had jurisdiction, the court spoke of five “basic and essential requirements” and said that it is only if those requirements have not been met that the adjudicator’s decision can be impugned.  This approach opened the door to the notion that the adjudicator could himself make a binding determination as to at least some aspects of whether or not he had jurisdiction.  In the field of arbitration, this concept, known as Kompetenz-Kompetenz, has been around for a while, and in that context it makes a good deal of sense, particularly internationally.  Where parties enter into contracts in jurisdictions where the legal system is not regarded as reliable, it makes sense that they should be held to their bargain of having disputes resolved by a trusted independent arbitral system, without the risk of a court undermining the process by interfering with jurisdictional issues.  In the case of adjudication, however, there are good policy reasons why adjudicators should not be permitted to make binding decisions as to their own jurisdiction:  adjudicators appointed under the East Coast system often have no professional qualifications, are likely to be biased in favour of the claimant, and in the absence of a payment schedule, are enjoined to disregard the respondent’s defences.  Go back to the hairdressing example; if you ended up on the wrong end of an absurd adjudication decision when there was never any legal right to an adjudication at all, you would not be predisposed to accept a ruling by the adjudicator that he did have jurisdiction.

In the Chase Oyster Bar case, the jurisdictional issue arose out of section 17 of the New South Wales Act, which requires that a claimant must give his notice of adjudication within 20 business days of the due date for payment of what he is claiming.  It was evident from the findings of the adjudicator that the claimant had missed this 20 day deadline, but he nevertheless decided that he did have jurisdiction and proceeded to make a decision accordingly.  The respondent challenged the decision in the Supreme Court.

At first instance, the case was heard by Justice McDougall, a highly experienced New South Wales Supreme Court judge.  He was constrained by the fact that he was bound by the rather curious formulation of the Court of Appeal in Brodyn v Davenport, and so he ordered that the case go to the Court of Appeal, which would not be bound by the previous decision, and Justice McDougall sat again as part of that Court of Appeal.

All the Court of Appeal had to do, was to restate the well-established general position; that if the adjudicator did not in fact have jurisdiction, because the claimant had missed the 20 day deadline, and declare the adjudication process a nullity.  But instead, the Court of Appeal took a different course and decided that decisions of adjudicators are susceptible of review by certiorari.

Certiorari is, along with prohibition and mandamus, is one of the old forms of prerogative writ.  It is a procedure whereby the courts can exercise some control over the machinery of government.  Where some government agency or tribunal has abused its powers, the court can, in certain circumstances, review the exercise of those powers, and if there has been an abuse, can overturn the administrative action.

One of the main grounds for certiorari is that of jurisdiction – if a government agency or tribunal has purported to do something that it is not legally empowered to do, the courts can overturn it by way of certiorari.  But certiorari goes further than this, and can overturn decisions where there has been an error of law, or where the government agency or tribunal has taken account of the wrong material, or where it finds that no reasonable tribunal could have reached such a conclusion, or where there was no evidence on which the conclusion could have been reached.  By deciding that certiorari is available by way of review of adjudicator’s decisions, the court has apparently handed respondents a fairly sizable armoury of potential challenges to adjudicator’s decisions.

Why has the court taken such a surprising path?  It may well be no more and no less than a reaction by the courts to rein in the perceived unfairness and abuse in the East Coast model of adjudication.  That system is so inherently offensive against legal principle – and also so commercially damaging – that it is hardly surprising that the courts would eventually want to take such a course.  The reaction is one that this firm had predicted some time ago.

The likelihood is that the Chase Oyster Bar decision will be applied throughout the East Coast, including South Australia if and when the security of payment legislation is enlivened in South Australia (there is already Victorian authority for the proposition that judicial review is available there).  A more interesting question is how the decision will be treated on the West Coast, where a much fairer evaluative adjudication system has proved both popular and successful (there is authority there that judicial review is not available; but query if that line will hold).  Evaluative adjudication has proved a huge success around the world, and it would indeed be unfortunate if this reaction against the East Coast default model should cause the baby to be thrown out with the bath water.

Robert Fenwick Elliott