Statutory Adjudication in Hong Kong: Challenges & the Australian Experience
Proposed Adjudication Regime
- Hong Kong is considering joining those countries that have opted for the fast-track system for expediting interim payment in the construction industry known as ‘security of payments’ and ‘adjudication’.
- With this, we will see a new dynamic in relations between principals and contractors, contractors and sub-contractors, and everyone and consultants (who have emerged as among the most prolific and enthusiastic users of the legislation).
- The abandonment of ‘pay when paid’, and the adoption of ‘pay first, argue later’ and the determination of entitlements on a ‘quick and dirty’ basis with little regard to the procedural structures found in contracts, is likely to have a breathtaking effect.
- With the changes to the way that the industry operates, we are also likely to see a change to the way that the Courts approach these particular kinds of issue. If the experience of other countries is a guide, we are also likely to see an evolution in that approach, as the Court develops its own attitude to the operation of the regime, and its own response to the inevitable teething issues that almost certainly will emerge.
- We have already seen the characteristics that the proposed Security of Payments regime may take, and have considered the process that is likely to be required, with a rigorous approach to record-keeping and the like.
- There is, in general terms, three phases to this regime. The initial phase dealing with making and responding to payment claims. The second phase is adjudication of those claims. The third phase is judicial implementation and challenge. All of them must be considered to appreciate the scheme as a whole.
- Our focus is will be on the second and third phases, adjudication and the relationship of the Courts (and to some extent arbitrators). In the light of the experience in other countries such as Australia, we can speculate how that relationship may develop.
The Scheme and the Culture Change to the Industry
- The system originated with the UK’s Housing Grants Construction and Regeneration Act 1996 that introduced a statutory scheme to deal with progress payments, namely the use of ‘payment claims’ and ‘adjudication’.
- The scheme operates in parallel to the progress payment regime under most building contracts. To that extent, they operate simultaneously, and because of this, there is a substantial degree of interaction between the effects of the two.
- It was intended to bring about a change in the operation of the building industry. That change was one that focused upon documentation, and with an emphasis on cash flow and expediting payments.
- Building disputes are notoriously costly, lengthy, and complicated. It is very often too much for smaller (and not so small) contractors, who operate on tight profit margins and who depend upon regular cash payments to continue to operate and to pay workers.
- Sometimes, unscrupulous principals and contractors use the complexity and the cost of the system to delay payment – either for the own advantage or to put heavy, and sometimes unbearable, pressure on sub-contractors to compromise their entitlements, rather than battle through the court or arbitration for their proper entitlements.
- This not only gives a social price, but with the economic collapse of sub-contractors, overall projects are put at risk to the economic detriment of all.
- That being said, in bringing about a cultural change, there is always a necessary period of upheaval and adjustment. As has been the case in Australia, the scheme itself is likely to develop and to evolve. It is necessary to understand the underlying elements and tensions within it in order to be best prepared to meet those challenges.
- This expedited payment process originated in the UK, however as the idea of this expedited payment process moved east around the globe, it changed to reflect the different cultural and business contexts, and different priorities.
- In considering the different schemes, particularly in the light of trying to anticipate the way the scheme will be implemented and will evolve in Hong Kong, it is important to recognise the differences between them, as well as the similarities.
- In practice, whilst Hong Kong will, no doubt, borrow and learn from the experiences of other countries, the scheme that is ultimately adopted and adapted here will reflect the unique characteristics of the Hong Kong construction industry.
- The differences between these developments might best be seen in the comparisons between what are called the ‘East Coast’ model and the ‘West Coast’ model that are seen in the Australian legislation.
- The so called ‘West Coast’ model, which is seen in the Western Australian Construction Contracts Act 2004, has tended to follow the UK model. In that regime, the scope for claim is much wider and the types of dispute that can be dealt with is broader and encompassing. In the UK, adjudication is a much more involved process, sometimes even involving the conduct of hearings, with adjudicators making determinations about a wide range of issues.
- In the June 2015 Consultation Document issued by the Development Bureau of Hong Kong Special Administrative Region (Consultation Document), at para 5, it indicates that the statutory regime in the UK gives rise to the widest rights for adjudication.
- The other end of the spectrum is identified as the statutory regimes in Singapore and New South Wales, Australia, see the Building & Construction Industry Security of Payment Act 1999 (NSW), see para 6 of the Consultation Document. These regimes set up the fast track for dispute resolution. They focus upon cash flow, and their processes tend to get to the point very quickly. This is the so-called ‘east coast’ model.
- The regime contemplated for Hong Kong “falls somewhere between the approach taken by the UK and Singapore/New South Wales”, see para 7 of the Consultation Document.
- This will pose challenges as well as opening up opportunities for refinement of the system as it is ultimately adopted in Hong Kong.
- There is, however, a word of warning. One of the challenges is the fact that the different statutory regimes tend to use similar, or event exactly the same, language and terminology. Payment claims, adjudication, and the like. Great care needs to be taken when considering and applying foreign authorities.
- With the differences in the legislation, case law from different jurisdictions should be considered and used very carefully and selectively. In Australia, for example, UK authorities are of limited use. In Musico v Davenport  NSWSC 977 (31 October 2003), McDougall J said:
“ I should say that both Musico and Grosvenor made extensive reference to English and Scottish decisions, dealing with the equivalents in England and Scotland of the Act. I have not referred to those decisions because there are substantial differences between the scheme and text of the Act and the scheme and text of the legislation considered in those English and Scottish decisions. Nonetheless, those decisions may be said to confirm two things. Firstly, in general, they confirm that judicial review is in principle available. Secondly (and this is particularly relevant to the second issue), they suggest that the courts should not be quick to intervene.”
- In Australian Remediation Services v Earth Tech Engineering  NSWSC 362 (14 April 2005), McDougall J at  went further, suggesting that because of the differences in the legislation, the English authorities are of relatively little assistance.
- Perhaps this goes a little far.
- This is not to say that foreign authorities are not useful or that they should not be consulted, but merely to reflect that each jurisdiction has, to a degree, taken their own path, in the light of unique legislative regimes, and that no two should be expected to be the same.
- The New South Wales approach to Security of Payments was taken in the light of the experience in the UK, and modified it. In my view, these jurisdictions that have adopted and modified the original UK approach bear careful consideration.
- To that end, we might expect a uniquely Hong Kong approach to these issues, and we should expect that Hong Kong will take its own path.
- On the topic of applying other authorities to adjudication, a further word of caution is required. Although the language of the Security of Payment process bears a similarity to the language of contractual disputes and arbitrations, the regimes and the processes are likely to be quite different. This is an important factor to consider, particular where arbitrators often act as adjudicators and practitioners work in both.
- In order to avoid confusion, even subtle or subconscious confusion or the application of inapplicable principles, I generally prefer to avoid using the same dialogue and the same terms. For example, I tend to avoid calling an adjudication determination an ‘award’ and avoid calling statutory payment claims, ‘progress claims’.
A PRINCIPAL’S PROCEDURES TO DEAL WITH AN ADJUDICATION REGIME
- The challenge to adopting and applying a security of payments system is to not see it as a challenge at all.
- In one sense, as a statutory scheme, the security of payments regime is likely to reflect large entity / institutional processes – the way that institutions make and document decision making very well.
- It is a scheme that relies heavily on paper – although it reflects the practical limitations of detail in documentation and the fact that everyone knows what the project is, and what the claim is all about. It has a formulaic process, with hard dates and criteria that must be complied with.
- On the other hand, application of the scheme can be difficult for some larger or institutional entities. The scheme is very hard on dates and time-frames, with no room for delay. And is unforgiving of internal processes and procedures that do not conform to those timeframes. It supposes that the decision makers are those that are at the forefront of the process.
- The response to a payment claim, at the very outset of the process, can call for ‘high level’ decisions, and an ability to commit in ways that impact a range of interests and ‘stakeholders’. Those decisions can have long-lasting effects. Sometimes, policy issues are involved.
- In almost every case, urgent decisions are called for on the basis of very imprecise and unclear information. There is not the time to evaluate and to verify. It is often necessary to vest lower levels of the hierarchy with greater levels of authority than is normally the case. This kind of decision making and activity is not something that bureaucracies tend to do well.
- One of the features of the process, for principals, is accepting the uncertainties of the process and the need to make decisions based upon incomplete information. This can be uncomfortable.
- For institutional entities, there is a need then to be able to reconcile what has been done based upon the incomplete information, with the correct and complete picture – which can only emerge in time. It is all a question of judgment, where the judgments cannot be closely controlled and specified.
- It can be managed. But the culture and procedure change requires adjustment by both parties, not just the contractor. It may be necessary to re-evaluate procedures, processes, and authority in order to succeed.
Document Management & Preservation
- The key to managing in a security of payments environment is document control and management.
- This does not just mean that masses of paper are generated and then stored. This would not help at all when the time comes to retrieve and process the information. In fact, obsessive collection of information can be counterproductive.
- Collection, collation, and availability is the important feature. When a claim arrives, it must be analysed quickly. The position to be taken needs to be assessed, which usually involves liaison with personnel on site and consideration of the available records. These need to be comprehensible, accessible, and available.
- Documents such as minutes of site meetings, records of variations and instructions, delivery dockets, site movement dockets, records of staff attendances, and the like are crucial.
- There is often a tendency to relaxation on the paperwork, with the emphasis on pressing on with the job (particularly where there is dispute or difficulty) with the intention of tidying up the paperwork later. That approach is fatal in the security of payments regime.
- It is the paperwork that will justify a claim or a basis to resist it, because most of the steps, from preparing a payment schedule response to undertaking adjudication, all turn on the paper that can be provided to justify the case.
- In this respect, managing security of payments in Hong Kong may well pose particular challenges. Because of the mixture of cultures here, the concept of paper recording and of the information to be recorded itself can embrace a range of understandings.
- The nature and extent of document creation, use and retention of documents can reflect a range of cultural issues – as well as the technical and the practical.
- Some parts of a project may involve an extensive stock of information that is not in English. Some of the English language terminology might be very different as between different contractors, suppliers and the like.
- Terms used by a Hong Kong contractor, a PRC supplier, and a US consultant may be similar, but with substantially different consequences and qualifications. The interaction between different cultural issues must be managed. And should be managed before the need to prepare a payment response arises.
Preparation of Payment Responses
- The key to payment responses is the availability of information, access to advice (often legal advice) and access to decision makers who can commit to a position (even if it is the interim decision of security of payments).
- Although the timeframes for payment responses in Hong Kong are likely to be more relaxed than they are in New South Wales, those timeframes are still likely to be much tighter than those administering contracts are currently used to.
- If the Hong Kong scheme is anything like the New South Wales scheme, which is likely, the content and presentation of a payment claim may well be very loose and imprecise. The Courts have tended to be generous, and perhaps indulgent, in their approach to accepting the validity of a payment claim.
- Payment claims are often in very general and short-hand terms. They can tend to use job-specific, and industry specific jargon and technical documents to set out the claims. Some are very short and enigmatic indeed, and may be incomprehensible to a lay person. In Australia, an invoice in the broadest terms can be accepted as a valid payment claim.
- The Consultation Document refers to steps that are contemplated to avoid ambush. In practical terms, ambush is difficult to avoid in most cases. And the steps to counter the capacity to ambush, may well operate counter-productively to the scheme.
- Preparation of a payment response calls for someone to take charge of the process. To analyse and interpret what is being claimed, and to determine the merits of the claim, and what can be said against it. Not all claims are to be rejected, and none should be rejected out of hand.
- The next step is the key point. The payment response must set out, in reasonably clear (but not extensive detail) all the points that are to be raised in justifying either a refusal or a reduction of the claim. Only those points raised in the payment response can be carried into the adjudication.
- The points for rejection cannot be added to later. Any that are missed, fall outside the process, and must be left to the final determination of the dispute.
- There is a tendency then to put every point down in the payment response in opposition to the claim. Preparing this, and setting it out distinctly and concisely, can be a complicated and difficult task.
- In the early days of the adjudication regime, principals set out long and involved payment claim responses. Often without much regard to the merit of the arguments, and often with a fear of leaving anything out. This made a huge case out of every payment claim.
- There are times that this is called for. However, as time has gone on, one senses that there is now more judgment used as to what points to include. With only the strong and easily demonstrated points being raised, and the more speculative and difficult points left out, for agitation at a later date.
- This degree of judgment takes time to develop. In the context of a public enterprise, that judgment is usually left to higher management (not usually those who receive progress claims).That will have to change.
- The paperwork and documentation referred to above plays a role at this point, as it firstly informs the decision maker of the true position, secondly, it indicates what can be proven at this time (as opposed to later), and how strong the case is. It is crucial to determining what points to raise – although the paperwork does not make an appearance at the payment response stage.
- It is just as important to know what points have been raised as to know what points have not. If a decision is made to leave one or other point for later, it is important that those points are noted so that they can be used later.
- Sometimes, there is a tendency to focus on the payment response that was prepared in haste to the detriment of the more considered response formulated at a later time.
- So it is important that the decision maker is able to access the records, to make an informed decision as to what points to raise, and then to raise them.
Submissions to the Adjudicator
- If the process is followed thoroughly and systematically at the payment response stage, it will be much simpler to prepare the submissions to the adjudicator. The main points will already be set out in the payment claim response.
- The submissions to the adjudicator are a form of advocacy. In a regime such as New South Wales, they are crucial as there is no other hearing. The submissions must, by themselves, make the case.
- As a form of advocacy, the key is persuasion. The adjudicator will usually have no knowledge of the project, and may not be legally trained, or even trained in any of the disciplines involved in the claim at all.
- In practice, often those preparing the submissions either assume too much, or assume too little. Often the submissions are overly technical, and are very often are rambling and undisciplined.
- An adjudication takes place in a very limited time frame, and the adjudicators are often under a lot of pressure to deal with a vast amount of material in a very short amount of time.
- The best submissions are those that express the case simply, but thoroughly. Tell a story, at neither too high nor too low a level of detail and language. It is important to cross-reference the documents that are attached. Make sure to have statutory declarations and statements available, in clear and comprehensible language. Comprehensive and comprehensible is the key.
- A submission that tells a relatively simple story, with cross-references of the main points to the documents attached, will be the most successful.
- Be careful, however, with the cross-references and with case law. If the document is too dense, it will not be read, or at least read carefully. It must be attractive to be appealing.
Management of the Process (tips to avoid ambush)
- Ambush is an interesting concept in this area. The Consultation Document reflects a concern with ambush, and proposes some kind of scheme for adjudicators to unwind an ambush by disallowing documents that the other party has not seen before the adjudication. It is, with great respect, hard to see how this can work in practice.
- Ambush can come in many forms. To a contract administrator that pays no attention to the project, everything will be an ambush of sorts. The fact of adjudication itself implies a different perception of the claim between the claimant and the respondent.
- It is not always the awareness of a document that is the issue. Very often a document can be made available and bandied about. The important thing is whether or not the other party is aware of the significance of a document. That is where the problem lay, and that is why simply having a black and white test for communication of a document may not be sufficient.
- That facility may also encourage contractors to uselessly bombard principles with every piece of paper that emerges. That is hardly likely to lead to good project administration.
- Ambush can be avoided by a close and sensitive administration of the project. Claims, allegations, or complaints that are made and dismissed out of hand, can have a tendency of coming back as payment claims. Contractors that have struck a hard bargain and are now paying the price, those that feel that they have been treated badly or unfairly, or those that are in difficult financial straits should be monitored carefully. Those are likely to be the source of contentious claims.
- From an institutional point of view, with hierarchical decision makers and the like, what are seen as ambushes (and what might actually be attempts to ambush) may emerge in periods near to holidays, the end of reporting cycles, or the like. A time at which decision makers are known to be on leave, or otherwise distracted, is a critical time at which a claim might be recieved and then neglected.
- In New South Wales, January is usually a period of holiday and slow progress in the construction industry. Payment claims are often lodged in late December or early January, so that with people being on leave, the response can be neglected and a default liability arise that takes a long time and lot of money to rectify.
- This risk can be overcome with the close monitoring of the project - ensuing that someone with sufficient knowledge and authority is always available to deal with claims such as this.
- In one respect, the system in Hong Kong has some challenges to take into account. I usually recommend that a principle start the process for final relief at the time of the adjudication – partly so that costs can be recovered, but mostly because if the adjudication goes against the principal, the situation can be remedied by final relief and there is a bases to have a stay of the adjudication decision.
- This is not available where all dispute resolution, such as arbitration, is postponed to the end of the project. That can make the interim nature of security of payment relief have far greater significance than in other circumstances.
- There is no simple answer to complex claims other than by maintaining a firmly disciplined approach to the above issues. Again, document control and close and sensitive project control are the key, so that a complex claim, when it comes, can be anticipated, correctly analysed, understood, and responded to.
- With a complex, or very large, claim, there is a lot to be said for preparing the claim for final relief at the same time.
THE ADJUDICATOR’S AWARD – CHALLENGES AND ENFORCEMENT PROCEDURES
- The adjudication regime can be startling for some industry participants. In most instances, an adverse adjudication is enforceable even if it contains some startling and stark error of fact or law. It does not matter.
- There will, most likely, be no appeal.
- Following the overseas jurisdictions, the Hong Kong model is expected to provide that an adjudication determination can be simply registered and made an order of the Court – and thereafter enforced as an order.
- This has the advantage of giving the adjudication, or at least the adjudication certificate, an immediate force and effect. The parties can utilise the procedures available in the Court system to regulate and effect a judgment and compel payment.
- There is, however, a jurisdictional constraint, namely the metes and bounds of the national court. The adjudication system does not have the advantages that an arbitration award has, of being sought to be enforced in other countries as a judgment of those courts.
- The process of international enforcement of an adjudication determination that has become Court judgment and order may be a more complicated process.
- The biggest issue to emerge from adjudication enforcement is: how is the money paid pursuant to adjudication to be recovered? This is a particular commercial problem, as the security of payment regime can have the effect of shifting the risk of insolvency to the principal in each contract relationship.
- Another problem with adjudication emerges from the cost and the fact that the cost of the process is not recoverable. An adjudication can involve an enormous cost, which is dissipated.
- The solution that I advise clients in respect of these issues is to take advantage of the interim nature of the adjudication process. That is, adjudication sits beside the contract processes (and beside the general rights at law). There is no reason why the latter have to wait whilst the adjudication is in play.
- Advantage (for both parties), might be had by triggering the dispute resolution mechanisms in the contract (including, where appropriate, emergency arbitration) and run the processes in parallel. Have the response to the security of payments claim or the adjudication submissions be drafted in line with the Notice of Dispute, and press for either arbitration or court process in relation to that Notice of Dispute, even whilst everyone is waiting for the adjudication to be determined.
- This can cost a little more, but usually not much. It has the advantages of: having a dispute resolution process already in play, which can provide strong support for an application to stay an adjudication judgment order or to get an injunction to preserve the status quo ante.
- And more importantly, if the processes are being run parallel, the cost of the inspections, research, witness statements, and reports can be pressed for in the arbitration or other final relief as being used for those purposes.
- The issue of challenging an adjudication can arise before or after the adjudication is subject of a certificate or registered as a judgment. There are limitations and challenges to both, although it is often better to prevent a judgment from arising than to stop the effect of one.
- The main avenues of challenge – in fact the only ones apart from having final determination of the dispute expedited to intercept the adjudication, are the various avenues of judicial review. This is a discretionary procedure.
- Courts are reluctant to exercise judicial review before or during an adjudication, and will usually refuse to. It is often necessary to seek injunction at one or more stages, usually just after adjudication and before registration.
- The easiest avenue for redress is to seek final determination of the dispute. This might, however, be too late.
- The only other basis is to seek judicial review – in the nature of injunction, declaration, or prerogative relief (such as certiorari or mandamus type claims).
- The term ‘injunction’ is a short and recognisable term used to describe any kind of order made by a Court to either compel someone to do something, or to prevent them from doing that something, whatever the specific terminology that is used.
- There are three phases in the security of payment process in which a Court (theoretically) might be encouraged to become involved.
- Firstly, when a claim is made and there is an assertion that the security of payments regime does not apply to it.
- Secondly, when there is an application for adjudication.
- Thirdly, after the adjudication determination has been made but before it has been implemented.
- In almost every case, attempts to frustrate the process of issuing claims, issuing responses, proceeding to adjudication, and conducting the adjudication have been spectacularly unsuccessful.
- The courts have tended to the view that, the regime having been implemented with the express purposes of facilitating cash flow, and in the express knowledge that the process will have a superficiality to it, and that toes are likely to be stepped upon, that that object and those characteristics should be respected. And, accordingly, that the Courts should stay out.
- This reflects the modern judicial trends in non-interference with arbitral processes and arbitral awards, and in non-interference with expert determination processes, mediations, reference reports, and expert conclave processes. Often the same rhetoric emerges.
- The general, modern, view is that the Court should leave the process mandated by the Act to play itself out, and thereby preserving the product of that process, the arbitral determination, whose merits or deficiencies will be sorted out in due course, and in time.
- Again, this is a reflection of the view that the legislature deliberately wanted to implement a process that is different to the normal curial resolution of disputes, and the policy underlying the Act, and the process that emerges, should be left to play itself out.
- That being said, depending upon the approach that the Courts are taking at the time, it is always necessary to consider carefully whether the claims for the operation of the Act, and the attempts to trigger its process – either at the claim or adjudication phase, have been properly effected.
- That is:
- is the work or the contract really subject to the Law?
- Is it construction work in whatever definitions might be adopted?
- Is the documentation correct, or is it adequate to meet the criteria specified in the Law? (How literal a compliance with the Law have the Courts required?)
- Has it been served properly, and have all the time limitations been respected?
- Has the application for the appointment of an adjudicator been done correctly?
- Is the adjudicator qualified, in meeting the criteria specified by the Law?
- Is the adjudication being conducted in the way mandated by the Law?
- Has ‘natural justice’ or ‘procedural fairness’ (at the appropriate level – which is arguable itself) been sufficiently observed?
These are the kinds of question that are sometimes called jurisdictional issues.
- If a Court is to be encouraged to become involved in the early stages of a security of payment dispute (the making of a claim or the adjudication process), the basis will almost certainly be on the basis of a jurisdictional issue. That is, some argument that the process has gone so wrong, that to allow it to go ahead will lead to an incurable prejudice – money or opportunity wasted than cannot be recovered. It would almost certainly have to be an extreme case.
- The Consultation Document refers to the Court’s ability to refuse to enforce an adjudicator’s decision when made without jurisdiction, see para 2 of Chapter 6, or where there has been a ‘serious breach’ of natural justice.
- If the process is expected to be rough justice and if time-limits are intentionally tight, the Court will not expect niceties to be observed, and will tend to overlook them. The arguments are always: that the procedure is necessarily interim and do not dispose finally of rights (whose position is, in most cases preserved for disputation after the adjudication process), and that the expenditure of money is necessarily less than a full blown litigation.
- Not every error will give rise to a proper claim for challenge. It is expected that in Hong Kong, as with most other jurisdictions, the adjudicator will be enabled to determine his/her own jurisdiction. There are going to be limits, but is not at all clear what they will be.
- The NSW Courts have been very circumspect as to what they recognise as jurisdictional requirements of the claim process and jurisdictional error by adjudicators.
- As the Consultation Document reflects, at para 2 of Chapter 6, the Courts “can enforce adjudicator’s decisions, even if it is apparent that they are legally or factually wrong.”
- However, a case may involve a security of payment claim and consequent adjudication that will cost a fortune. And a claim might be made and paid to a contractor that is of such questionable financial strength that payment may never be recovered.
- These arguments have been raised (and dismissed) before. However, it may be a matter of scale, and the possibility of a successful application for injunction should never be overlooked.
- That being said, in Australia at least, the applicant for any such relief is almost always required to provide security for the claimed amount (as a means of securing the case and providing a disincentive to use the judicial review or injunction process as a means of delaying payment, contrary to the Law.
- Because the security of payment regime is seen as its own creature, a statutory adjunct to the parties’ rights under the contract and an interim process designed expressly not to interfere with rights, there has been a general intolerance of taking time and expending resources in having a Court become involved. The security of payment regime is seen as a ‘new’ set of rights that have a statutory origin and statutory operation.
- It would be interesting to see how the interaction between the security of payments regime and the arbitration practice pans itself out, given that even the most expeditious procedures may be eclipsed by the change in circumstances brought about by security of payments.
- The Court’s reluctance to become involved in the adjudication process and before it, disappears once the adjudication determination emerges, but certain salient features of the Courts’ interplay with security of payment remain.
- Once the adjudication determination is made, Courts tend to be more amenable to considering jurisdictional error and acting on it.
- The level of scrutiny is still relatively slight and the scope for indulgence in the approach of the adjudicator is still broad, but the attitude has seemed to be that if the process had been allowed to operate and has operated, then the Law’s function has been fulfilled and the strong motivation for restraint is no-longer necessary.
- To that end, if an attack is to be made upon an adjudication determination, the Courts might be approached to intervene albeit with protections. In some (rare) cases, this might extend to restraining the successful party from registering the determination or taking steps towards enforcement. This has not tended to be popular.
- More popular has been to allow judgment to be entered (as mandated by the legislation) and then to stay the judgment until the challenge to the adjudication is determined. In that case, again, almost inevitably, the price of the stay and injunction is paying the amount determined into Court or having it otherwise secured.
- Even in this relatively relaxed regime, injunction is not to be had for the taking and a relatively compelling case should be made out.
- It is in judicial review that the differences between the various systems and various approaches to the security of payment regime come to the fore.
- In Australia, the legislature has taken steps to shut down the scope for judicial involvement or review of the adjudication process. And it is not just the legislature that took this view.
- In Brodyn Pty Ltd t/as Time Cost and Quality v Davenport & Anor  NSWCA 394 (3 November 2004), the NSW Court of Appeal adopted a construction of the legislation that was very restrictive of court review. The Court found that the intention of the legislation was that judicial review was not available except in certain very closely defined circumstances.
- These did not include ordinary error of law or, obviously, error of fact. The only scope for involvement was for jurisdictional error, and even then, the jurisdictional issues were very closely contained by reference to the concept of basic requirements and essential terms (which were narrowly construed) and a bona fide attempt by the adjudicator (which was construed widely).
- Hodgson JA said:
51 I agree with McDougall J that the scheme of the Act appears strongly against the availability of judicial review on the basis of non-jurisdictional error of law. The Act discloses a legislative intention to give an entitlement to progress payments, and to provide a mechanism to ensure that disputes concerning the amount of such payments are resolved with the minimum of delay. The payments themselves are only payments on account of a liability that will be finally determined otherwise: ss.3(4), 32. The procedure contemplates a minimum of opportunity for court involvement: ss.3(3), 25(4). The remedy provided by s.27 can only work if a claimant can be confident of the protection given by s.27(3): if the claimant faced the prospect that an adjudicator's determination could be set aside on any ground involving doubtful questions of law, as well as of fact, the risks involved in acting under s.27 would be prohibitive, and s.27 could operate as a trap.
55 In my opinion, the reasons given above for excluding judicial review on the basis of non-jurisdictional error of law justify the conclusion that the legislature did not intend that exact compliance with all the more detailed requirements was essential to the existence of a determination: cf. Project Blue Sky Inc. v. Australian Broadcasting Authority  HCA 28; (1998) 194 CLR 355 at 390-91. What was intended to be essential was compliance with the basic requirements (and those set out above may not be exhaustive), a bona fide attempt by the adjudicator to exercise the relevant power relating to the subject matter of the legislation and reasonably capable of reference to this power (cf. R v. Hickman; Ex Parte Fox and Clinton  HCA 53; (1945) 70 CLR 598), and no substantial denial of the measure of natural justice that the Act requires to be given. If the basic requirements are not complied with, or if a purported determination is not such a bona fide attempt, or if there is a substantial denial of this measure of natural justice, then in my opinion a purported determination will be void and not merely voidable, because there will then not, in my opinion, be satisfaction of requirements that the legislature has indicated as essential to the existence of a determination. If a question is raised before an adjudicator as to whether more detailed requirements have been exactly complied with, a failure to address that question could indicate that there was not a bona fide attempt to exercise the power; but if the question is addressed, then the determination will not be made void simply because of an erroneous decision that they were complied with or as to the consequences of non-compliance.
- Despite numerous attempts to unsettle this approach. It hung on, and was, albeit reluctantly, followed around the country.
- This approach was, much later, modified, but only because of a quirk in the Australian Constitution. In Kirk v Industrial Court of New South Wales  HCA 1; (2010) 239 CLR 531, the High Court said that the state legislatures did not have the constitutional capacity to remove or restrict the state supreme courts’ powers of judicial review for jurisdictional error (a wider power than that given to the Court in Brodyn).
- This relaxation of the restriction on judicial review was applied to the security of payments regime in Chase Oyster Bar v Hamo Industries  NSWCA 190 (24 September 2010).
- The principal grounds for judicial review in Australia at present is jurisdictional error and denial of procedural fairness and such other conduct as to render the purported arbitration not, in truth, a legitimate attempted exercise of the jurisdiction.
- This digression is important because bringing judicial review on the basis of this limited and highly technical basis of jurisdictional error, rather than merely for error of law limits the scope of judicial review substantially. And it remains a distinct feature of Australian jurisprudence.
- The approach to judicial review, and to judicial review decisions in the UK is different to Australia. In the early 1980s, the UK abandoned this restriction to jurisdictional error, and embraced a broader basis of judicial review based upon simple error of law.
- Given that Hong Kong might follow the east coast model of security of payments legislation, it may well follow the New South Wales approach in Brodyn, of interpreting the security of payments legislation as restricting the access to judicial review, either to the very limited basis set out in Brodyn, or a slightly broader, but still restrictive basis of judicial review based upon jurisdictional error as it is following Chase.
- If that is the case, then the UK authorities on judicial review generally, and on adjudication in particular, may have to be treated with extreme care (at least in this aspect of judicial review). Consideration might usefully be had of the Australian authorities on the point – of which there are many.
- No matter which way is taken, the task of usefully identifying, pleading, and arguing a claim of error of law is a technical and complex exercise. This alone should discourage frivolous claims. With the scope limited to jurisdictional error, the task becomes more difficult.
- To add to the disincentive for frivolous claims, the Courts have insisted upon two further features of judicial review claims. Firstly, the Court insists that the amount in dispute be paid into court. Secondly, it will ordinarily expedite such hearings – and give short shrift to those that do not present a cogent case.
- These add to the challenges. In practical terms, one can see the desirability of the Court providing disincentives to standing in the way of the proper and swift operation of the scheme (to delay it would be to defeat it). But also in practice, there is a scope for injustice, and the albeit narrow grounds for judicial review have proven to be a reasonable restraint on the system.
- The security of payments regime is intended to, and will, bring about a culture shift in the construction industry. In most cases for the better.
- There will, however, be a need for a thoughtful and observant approach to contract administration, and close attention to the quality and collection of documentation.
- There will be a need for rapid decision making, and for those dealing with claims to have the authority to decide how to deal with them, and the information to enable those decisions to be informed and decisive.
- Those dealing with claims must be confident that they can make those decisions, even in a context of incomplete information.
- From the perspective of governments, this may mean some organisational change. But this is not necessarily a bad thing.
- The important thing to remember is that the security of payment regime only provides for interim payments. Apart from the outlay of money, nothing is binding, and any difficulties can be corrected in due course.
- The Courts’ approach to the Hong Kong security of payments regime can only be speculated, since the legislation will be a unique hybrid of other jurisdictions’ systems, and the approach of foreign courts will necessarily be qualified. The Hong Kong judiciary are very likely to develop their own approach.
- Injunctions are difficult to get at any time in respect of the security of payment process, although easier once the process has been allowed to operate and the adjudication determination has been made and registered.
- Any injunctive or other process is likely to require a strong case of jurisdictional error (including a breach of natural justice), strong case for merit, and the provision of security or payment of the amount claimed into Court.
- Enforcement is a relatively straight forward exercise, involving registration of the adjudication determination. However, there is scope to provide some protection in the case of an adjudication that has gone wrong.
- The primary relief against an adjudication is judicial review. This is not to be taken for granted at the best of times. The Court is likely to take a special and even more restrictive approach to judicial review of adjudications.
- In most cases, this might well be limited to instances of jurisdictional error and denial of procedural fairness.
- This will mean that to run judicial review, the case will have to be strong, the arguments clear, and having a healthy documentary record will only assist in this.
- Do not underestimate or forget the availability of final relief, or of pursuing that final relief as a parallel to adjudication. This has tactical and cost advantages.
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