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[2011] QSC 145
Supreme Court of Queensland
2011-06-02
Atkinson J
Original judgment source is linked above.
CONTRACTS - BUILDING, ENGINEERING AND RELATED CONTRACTS - REMUNERATION - STATUTORY REGULATION OF ENTITLEMENT TO AND RECOVERY OF PROGRESS PAYMENTS - PROGRESS PAYMENTS - where the applicant entered into a subcontract with the first respondent to carry out certain contractual works - where the first respondent served a payment claim on the applicant pursuant to the Building and Construction Industry Payments Act 2004 (Qld) - where the third respondent adjudicator made an adjudication decision in favour of the first respondent - where the applicant argued that the adjudicator failed to properly consider the construction contract and decided a variation claim on a basis which neither party had contended - whether the adjudicator's decision was tainted by an absence of good faith and/or breach of natural justice - whether the adjudication should be set aside
ADMINISTRATIVE LAW - JUDICIAL REVIEW - NATURAL JUSTICE - where the applicant sought declarations that the adjudication decision was void or liable to be set aside and orders that the decision be set aside or be permanently stayed - where the first respondent argued that if the adjudication decision was infected by jurisdictional error that part of the decision could be severed - whether the common law doctrine of severance applied
Building and Construction Industry Payments Act 2004 (Qld), s 7, s 12, s 17, s 18, s 21, s 23(1), s 24, s 26(2), s 29, s 99(2)(b), Schedule 2
Judicial Review Act 1991 (Qld), Schedule 1 Part 2
David & Gai Spankie & Northern Investment Holdings Pty Limited v James Trowse Constructions Pty Limited & Ors [2010] QSC 29, cited
Gantley Pty Ltd v Phoenix International Group Pty Ltd [2010] VSC 106, distinguished
Holmwood Holdings Pty Ltd v Halkat Electrical Contractors Pty Ltd [2005] NSWSC 1129, cited
John Holland Pty Ltd v TAC Pacific Pty Ltd & Ors [2009] QSC 205, cited
Multiplex Constructions Pty Ltd v Luikens and Anor [2003] NSWSC 1140, cited
Northbuild Construction Pty Ltd v Central Interior Linings Pty Ltd & Ors [2010] QSC 95, cited
Northbuild Construction P/L v Central Interior Linings P/L & Ors [2011] QCA 22, followed
Queensland Bulk Water Supply Authority t/a Seqwater v McDonald Keen Group P/L (in liq) & Anor [2010] QCA 7, cited
Queensland Bulk Water Supply Authority v McDonald Keen Group Pty Ltd & Anor [2009] QSC 165, cited
Seabay Properties Pty Ltd v Galvin Construction Pty Ltd [2011] VSC 183, cited
T & M Buckley P/L v 57 Moss Rd P/L [2010] QCA 381, cited
**[1] This dispute concerns the Building and Construction Industry Payments Act 2004 (Qld) ("BCIPA"). The applicant, James Trowse Constructions ("JTC"), applied to set aside a building adjudication decision made by the third respondent, Christopher Wills, on 17 May 2010 in favour of the first respondent, ASAP Plasterers ("ASAP").
[2] The second respondent is a dispute resolution service authorised under s 23(1) of BCIPA to refer an adjudication application to an adjudicator. The third respondent is a registered adjudicator. The second and third respondent did not participate in the hearing to set aside the third respondent's decision.
[3] A thorough overview of BCIPA was provided by White JA in Northbuild Construction P/L v Central Interior Linings P/L & Ors.[1] The object of BCIPA, as defined in s 7, is to ensure that a person is entitled to receive, and is able to recover, progress payments if the person undertakes to carry out construction work under a construction contract or undertakes to supply related goods and services under a construction contract. This object is achieved by granting an entitlement to progress payments whether or not the relevant contract makes provision for progress payments and establishing a procedure that involves -**
**[4] Section 12 of BCIPA entitles a person to a progress payment if the person has undertaken to carry out construction work, or supply related goods and services, under a contract.
[5] To recover a progress payment a person may, under s 17 of BCIPA, serve a payment claim on the person who under the construction contract is liable to make the payment. The claim must identify the construction work or related goods and services to which the progress payment relates, must state the amount of the progress payment that the claimant claims to be payable and must state that the payment claim is made under BCIPA.
[6] Under s 18 of BCIPA, if the person upon whom the payment claim is served ("the respondent") wishes to dispute the claim, the respondent must serve a payment schedule on the claimant within the time frame required by the relevant construction contract or within 10 business days after the payment claim is served, whichever is earlier. The payment schedule must identify the payment claim to which it relates and must state the amount of the payment, if any, that the respondent proposes to pay ("the scheduled amount"). If the scheduled amount is less than the amount claimed in the payment claim, the payment schedule must explain why the scheduled amount is less, and if it is less because the respondent is withholding payment for any reason, the respondent's reasons for withholding payment. If the respondent does not serve the claimant with a payment schedule, the respondent becomes liable to pay the claimed amount to the claimant.
[7] A claimant can apply for adjudication of a payment dispute pursuant to s 21 of BCIPA if:**
[8] JTC is a building company that carried out construction works at Kenmore State High School. By a written agreement dated 12 November 2009, JTC entered into a subcontract with ASAP, a plastering contractor, whereby ASAP undertook to supply and install ceilings, partitions and cladding in relation to a new general learning area, Block C, and the existing Block E at Kenmore State High School. ASAP reached practical completion of the works on 26 February 2010.
[9] Certain variations to the contractual works were carried out by ASAP. Of particular significance to this application is variation 24. Variation 24 was issued by ASAP to JTC on 18 February 2010 claiming $27,957.75 (including GST) for the supply of labour and materials relating to the engineer's requiring an upgrade of the metal framing of the walls. On 22 and 24 February 2010, JTC sent emails to ASAP requesting provision of the engineer's instruction for changes to the metal wall framing. ASAP provided JTC with a copy of "Engineering Design Certificate - 2 External Steel Wall Frame" dated 2 December 2009. On 9 March 2010, JTC informed ASAP by email that variation 24 was assessed as "Nil".
[10] On 25 March 2010 ASAP delivered a payment claim under s 17 of BCIPA to JTC seeking total payment of $205,861.77 (inclusive of GST) for its completed construction works and variations of those works to that date. This amount was made up of $96,649.59 (inclusive of GST) for outstanding contract works and $109,212.18 (inclusive of GST) for variations. Attached to the payment claim was a summary of the variations ASAP made to its construction works, the sum of those variations amounting to $101,983.80 (exclusive of GST). The variations were numbered VPR 1 to VPR 29 and included variation 24 referred to earlier.
[11] On that day, 25 March 2010, Andrew Trowse, the director of JTC, sent an email to Jarrod Sierocki and Craig Maidment of ASAP disputing ASAP's summary of its construction work variations. The email is reproduced below:**
Thanks for your payment claim, we will respond appropriately under the bicpa requirements.
For the record at our meeting in our offices on Friday 12/3 craig noted the following points with respect to your submissions -
- vpr 4 - you were to break up the variation into the 2 components of the variation, one being the head contract variation the other being the subcontract component of the work, to date we still have not seen this.
- vpr 7 is nil as it was agreed by yourselves it was a double up of vpr 6
- vpr 12 you were to provide further detail for variation submission
- vpr 18, 19, 21, 22, 23 - undermeasures were all requiring further measurement and explanation and workings and measurement to satisfy the quantity surveyor, to date not one has satisfied the quantity surveyor to my knowledge. (and brian has advised you of this as they occur)
- vpr 24 we still await your revised claim for the claimable portion of this variation under the contract, from your figures provided it might be in the order of $6000 if you can provide sufficient evidence to project services, but bear in mind you have not made a claim until the works have been covered up and you had all but left site.
- vpr 28 is in fact a credit of about $3800 for furring channel that you have not provided.
To this date not one bit of information has been received by this office on any of the required information since you left our offices.
Other variations not listed in the above are in varying stages of approval as project services obtain the information.
Back charges to and against you are also being considered by all parties as submitted.
**[12] In compliance with the procedure set out in BCIPA, JTC served a payment schedule on ASAP on 8 April 2010 disputing the total amount claimed by ASAP and identifying the amount payable as $48,392.30 (the "scheduled amount"). The payment schedule was handwritten, incorrectly dated 3 March 2010, and was required to be read with the email to ASAP from Andrew Trowse sent on 25 March 2010 and a copy of ASAP's variations summary with handwritten comments and markings, both of which were attached to the payment schedule. The payment schedule said that "of a possible $51,890 in variations we will pay $30,000 this month as you will still have some work to do to get paid current claims." On examining the payment schedule and its attachments, JTC appeared to object to payment with regard to several variations said to have been carried out by ASAP including 4, 7, 12, 18, 19, 21, 22, 23, 24, 26 and 28.
[13] ASAP applied for adjudication of the building payment dispute on 23 April 2010. On 4 May 2010, JTC submitted its adjudication response. On 17 May 2010 the third respondent, Christopher Wills, delivered his adjudication decision in favour of the first respondent in the amount of $167,522.32 and fixed the date for payment as follows: "10 days after the submission of the payment claim dated 25th March 2010, which I calculate to be 12th April 2010." The adjudication certificate issued on 27 May 2010.
[14] JTC applied pursuant to s 128 of the Supreme Court Act 1995 (Qld) or alternatively, the inherent jurisdiction of the court, for a declaration that the decision of the adjudicator is void or liable to be set aside. The applicant then sought orders that the adjudication decision be set aside or be permanently stayed. Eleven grounds were set out in the originating application. They were:**
"(a) The Third Respondent failed to make a bona fide attempt to consider whether the First Respondent had complied with clause 9 of the subcontract or the terms of the contract generally.
(b) The Third Respondent failed to make a bona fide attempt to consider or apply clause 9 of the subcontract or the terms of the contract generally.
(c) The Third Respondent failed to take into account and/or failed to make a bona fide attempt to consider the Act and/or the Applicant's submissions regarding the variations the subject of the adjudication and in particular, in the context of clause 9 of the subcontract and the First Respondent's failure to comply with that provision of the subcontract.
(d) The Third Respondent denied the Applicant natural justice by basing his decision (or a part thereof) in respect of the matters concerning variation 24 on arguments not raised by either party, without providing the parties with an opportunity to provide submissions.
(e) The Third Respondent failed to take into account and/or failed to make a bona fide attempt to consider the payment schedule submitted by the Applicant/or the Applicant's submissions when determining the matters in the table set out on page 12 of the Adjudication Decision.
(f) The Third Respondent failed to give reasons or adequate reasons for his decision to exclude amounts paid by the Applicant from his determination.
(g) Further and in the alternative to (f) the Third Respondent denied the Applicant natural justice by basing his decision (or a part thereof) in respect of the matters concerning the sum owing by excluding amounts paid by the Applicant based on arguments not raised by either party, without providing the parties with an opportunity to provide submissions.
(h) The Third Respondent failed to take in account and/or failed to make a bona fide attempt to consider the Act and/or the terms of the subcontract and/or the Applicant's submissions regarding the issue of backcharges.
(i) By reason of the matters raised in 1(a) to 1(h) above, the statutory conditions for the existence of a valid adjudication decision do not exist.
(j) By reason of the matters in 1(a) to 1(h) the above, the Third Respondent committed jurisdictional error in proceeding to determine the adjudication.
(k) Alternatively, by proceeding in the manner set out above, the Third Respondent took into account a matter that fell outside section 26(2) of the Act."
**[15] In submissions, JTC argued that to succeed in its application to set aside the adjudicator's decision, all that had to be shown was that the adjudicator did not make a genuine attempt to apply BCIPA and to understand and apply the contract between JTC and ASAP. JTC asserted in its oral and written submissions that two errors were made by the adjudicator justifying the setting aside of his decision. In doing so it refined the rather repetitive grounds set out in its application.
The grounds on which an adjudication may be set aside
[16] Part 3 Division 2 of BCIPA is one of the enactments to which the Judicial Review Act 1991 (Qld) does not apply.[2] To justify setting aside an adjudicator's decision therefore there would have to be a jurisdictional error. As White JA observed in Northbuild Construction P/L v Central Interior Linings P/L at [78]:**
"After Kirk v Industrial Court (NSW) (2010) 239 CLR 531; [2010] HCA 1, the exclusion of Pt 3 Div 2 [of BCIPA] from the Judicial Review Act is limited to review of decisions not infected by jurisdictional error. Even before Kirk (and Craig (1995) 184 CLR 163; [1995] HCA 58) longstanding authority demonstrates that a prohibition against challenging an administrative decision would be interpreted to mean a decision not infected by jurisdictional error."[footnote omitted]
**[17] White JA in Northbuild at [79]-[80] gave examples of ways in which adjudication might be infected by jurisdictional error:
(1) where the adjudicator departed from the only matters the adjudicator might consider in reaching a decision, being the provisions of BCIPA, the terms of the construction contract, the payment claim and response and all submissions properly made;
(2) where the adjudicator, in departing from that list, considered, for example, what the adjudicator regarded as "a fair thing";
(3) where the adjudicator truly disregarded a claimant's submissions.
[18] On the hearing of the application to set aside the adjudicator's decision, JTC contended that the adjudicator's decision was tainted by an absence of good faith and/or breach of natural justice.
[19] According to the applicant, the adjudicator's failure to pay regard to a relevant consideration, clause 9 of the contract in reaching his decision (the "first error") demonstrated an absence of good faith and/or breach of natural justice and suggested that the decision was a result of the lack of a genuine attempt to exercise the adjudicator's power in accordance with BCIPA.
[20] In response to these submissions, the respondent argued for a narrow approach to questions of good faith. For there to be an absence of good faith, it was suggested that the weight of authority supported the notion that there must be personal fault and a conscious intent to be "recreant to his/her duty" on the part of the adjudicator. Applying this narrow test, the respondent said that the decision was not infected by an absence of good faith.
[21] In John Holland Pty Ltd v TAC Pacific Pty Ltd & Ors [2009] QSC 205 at [21], Applegarth J adopted the earlier comments of P Lyons J in Queensland Bulk Water Supply Authority v McDonald Keen Group P/L & Anor [2009] QSC 165 at [32]- [33]:**
"His Honour surveyed authorities to the effect that a condition of validity of the exercise of an adjudicator's power is that the adjudicator act in good faith. His Honour concluded:
'It may be correct to say that a decision which displays an extreme degree of unreasonableness akin to that described in Associated Provincial Picture House Ltd v Wednesbury Corporation, is not a decision for the purposes of s 26 of the Payments Act. Otherwise, I do not consider an adjudicator's decision purporting to be made under the Payments Act will be invalid if it is not 'reasonable'. The Payments Act seeks to provide a mechanism for obtaining a decision which will be quick, but in a sense, provisional. It does not seem to me, consistent with the general object and tenor of the Act, to impose a requirement of 'reasonableness'.
I am therefore of the opinion that the test advanced on behalf of QBWSA is too widely formulated. If the broad test for good faith is to be adopted, then what is required is a genuine attempt to exercise the power in accordance with the provisions in the Payments Act. Specifically, in relation to a consideration of the construction contract, what is required is a genuine attempt to understand and apply that contract.'
In arguing this matter the parties agreed that his Honour's reasons state the appropriate test to be adopted, and I respectfully adopt his Honour's view." [footnotes omitted]
[22] The decision of P Lyons J referred to by Applegarth J was the subject of an appeal in Queensland Bulk Water Supply Authority t/a Seqwater v McDonald Keen Group P/L (in liq) & Anor [2010] QCA 7. Holmes JA wrote the leading judgment, with which Fraser JA agreed (Fryberg J agreed to the orders but expressly declined to state a view on whether the narrow or wide approach to questions of good faith under BCIPA should be adopted). Her Honour said at [31] - [32]:
"The learned primary judge took as his starting point for considering QBWSA's attack on the adjudication the condition identified as essential for validity in Brodyn Pty Ltd t/a Time Cost and Quality v Davenport: a bona fide attempt by the adjudicator to exercise his power under the legislation. The parties were at odds as to the test by which the good faith requirement was to be assessed. The learned judge rejected MKG's contention that he should act on the test for good faith formulated in a number of Federal Court decisions, which focused attention on the actual state of mind of the decision-maker, requiring personal fault and a conscious intent to be 'recreant to his duty'. Those cases, his Honour noted, involved review of decisions under the Migration Act 1958 (Cth), and could be regarded as a product of construction of that Act, which contained a privative clause requiring particular consideration of whether the decision in question was capable of challenge.
The statutory context in which the minimum requirements for a valid decision under the Payments Act fell to be determined was different: the adjudicator's decision had an interim quality. His Honour preferred the broader approach advanced by QBWSA: what was required of the adjudicator was a genuine attempt to exercise his power in accordance with the Payments Act provisions, and in considering the construction contract, a genuine attempt to understand and apply it. But on either approach, the adjudicator's decision was not void on the ground that he had not acted in good faith."[footnotes omitted]
[23] After discussing Brodyn and the relevant Federal Court authorities Holmes JA went on, at [51], to express a preference for a narrow approach to good faith:
"I incline to the view that the absence of good faith may not be the exact converse of bad faith, and I agree with the learned primary judge that the content of what is required may vary according to context. But I am not entirely convinced of the significance his Honour attributed to the context here, and, more particularly, to the interim character of the arbitrator's decision. In that context, of the Payments Act which is designed to provide an expeditious mechanism for payment, and which allows of further proceedings, unaffected by the arbitrator's decision, to determine the parties' contractual rights, I think there is a good deal to be said for a narrow approach to questions of good faith. However, as will emerge from what follows, I agree with the learned primary judge that on either test, QBWSA has not demonstrated a want of good faith on the adjudicator's part."
[24] These decisions were considered by PD McMurdo J in David & Gai Spankie & Northern Investment Holdings Pty Limited v James Trowse Constructions Pty Limited & Ors [2010] QSC 29. His Honour said at [19] - [20]:
"In Queensland Bulk Water Supply Authority v McDonald Keen Group Pty Ltd & Anor, P Lyons J rejected a submission that to be valid, an adjudicator's decision must also be reasonable. In his view, the statement of Giles JA in Downer Construction (Australia) Pty Ltd v Energy Australia that 'a reasonable but erroneous decision by the adjudicator does not invalidate the decision' is not authority for the proposition that reasonableness is required. In the view of P Lyons J, it may be correct to say that a decision which displays 'an extreme degree of unreasonableness' in a Wednesbury sense would not be a decision for the purposes of s 26 of the Act. In the present matter, counsel for the applicants did not argue that there was any requirement of reasonableness. At times during his oral argument, counsel referred to the unreasonable conclusions of the adjudicator. But he made it clear that this was submitted as a basis for inferring a lack of good faith, in the sense of the absence of a genuine attempt to decide the questions according to the Act and the contract.
In the same case, P Lyons J compared what was described as the broad test for good faith with the stricter approach argued there by the respondent. Under the broad test, what was required was a genuine attempt to exercise the power, and specifically in relation to a consideration of the contract, a genuine attempt to understand and apply that contract. Under the approach argued by that respondent, an absence of good faith would be established only by a conscious and wilful disregard of the adjudicator's statutory duty. Under this approach mere recklessness in the exercise of the power might not be sufficient. His Honour found it unnecessary to resolve that debate although he favoured the former approach. In dismissing an appeal against this judgment, Holmes JA preferred the latter approach. In the present matter, the same argument was not made for this respondent. It is common ground here that the applicants must establish no more than that the adjudicator did not make a genuine attempt to apply the Act and to understand and apply the contract. I go then to the alleged errors of the adjudicator, which are said to demonstrate the absence of good faith in that sense." [footnotes omitted]
[25] At first instance in Northbuild Construction Pty Ltd v Central Interior Linings Pty Ltd & Ors [2010] QSC 95, Martin J observed at [11]:
"In summary, what is required of an adjudicator is that he or she make a genuine attempt to understand and apply the relevant contract and to exercise the power in accordance with the Act. Queensland Bulk Water Supply Authority t/as Seqwater v McDonald Keen Group Pty Ltd (in liq) [2010] QCA 7."
[26] On appeal from that decision in Northbuild Construction P/L v Central Interior Linings P/L & Ors, White JA considered the "requirement of good faith" in some detail at [81]-[96]. Her Honour commenced with the cautionary note:
"The phrase 'bona fide attempt' or 'acting in good faith' describes an implied condition of validity for discretionary decisions. Although the articulation of good faith has been regularly employed, a definition has proved elusive, no doubt due to its chameleon qualities and depending very much on the context." [footnotes omitted]
[27] Her Honour referred to the two schools of thought that have emerged from the more recent cases - "whether there is a dichotomy between 'good faith' and 'bad faith' or whether there is some middle ground."[3] The tests are described as broad (as by Brereton J in Holmwood Holdings Pty Ltd v Halkat Electrical Contractors Pty Ltd [2005] NSWSC 1129) or narrow (as in Queensland Bulk Water Supply Authority t/a Seqwater v McDonald Keen Group P/L (in liq) & Anor [2010] QCA 7). Her Honour then referred to a number of Federal Court decisions which refer to the absence of good faith/presence of bad faith in the context of the Migration Act 1958 (Cth). Her Honour concluded at [96]:
"The discussion in Minister for Immigration and Citizenship v SZMDS concerning the relationship between jurisdictional error in respect of reasoning which is 'clearly unjust', 'arbitrary', 'capricious' and 'Wednesbury unreasonable' demonstrates that attaching these descriptors to the good faith debate possibly adds little more than did the original understanding of good faith in the review of statutory decision making meaning that the power must be exercised honestly for the purpose for which it was given. As the New South Wales Court of Appeal did in Holmwood, the enquiry should focus more on whether the adjudicator has performed the function demanded by the Payments Act and less on pursuing elusive synonyms, keeping always in mind that the legislative intent dictates a person with recognised expertise in the area be selected for the task by an informed body and this, necessarily, facilitates the rapid decision making required."[footnotes omitted]
**[28] My approach, therefore, will be to consider whether there has been a jurisdictional error because of a failure to perform the function required of the adjudicator by BCIPA which includes relevantly for these proceedings, the duty to consider only the matters set out in s 26(2) of BCIPA and to accord natural justice in doing so.
[29] Section 26(2) of BCIPA requires an adjudicator in deciding an application to consider only the following matters:**
"(a) the provisions of this Act and, to the extent they are relevant, the provisions of the Queensland Building Services Authority Act 1991, part 4A;
(b) the provisions of the construction contract from which the application arose;
(c) the payment claim to which the application relates, together with all submissions, including relevant documentation, that have been properly made by the claimant in support of the claim;
(d) the payment schedule, if any, to which the application relates, together with all submissions, including relevant documentation, that have been properly made by the respondent in support of the schedule; and
(e) the results of any inspection carried out by the adjudicator of any matter to which the claim relates."
[30] The first error was said to be the adjudicator's failure to consider clause 9 of the subcontract.
[31] The contract between JTC and ASAP made provision for the claiming of progress payments. Clause 9 of the subcontract between ASAP and JTC is set out below. The grammar, spelling and numbering is reproduced from the original.**
"(a) The Sub Contractor will submit its progress claims to the Builder on the 25th Day of the Month.
(b) The progress claim shall be fully set out and must contain
(i) details of the work carried out by the sub contractor up to and including the date the subcontractor submits its claim; and
(ii) such other information as the builder may reasonably require, including if requested by the builder, a signed statutory declaration that all subcontractors, contractors, and employees have been paid all amounts due in respect of the Works to the date of the progress claim.
(iii) On receipt of a progress claim the Builder, must subject to this Subcontract:
(iv) Section 67U of the Queensland Building Services Authority Amendment Act provides that a building contract that is a "subcontract" within the meaning of Part 4A of the Act is subject to the following provisions:
(i) Within 35 days after the contracted party submits a claim under the contract for its payment; or
(ii) If a shorter time is agreed under the contract - within the shorter.
(ii) Adequate evidence in writing that all insurance cover required under this Contract has been taken out and that the policies are current in all respects.
(iii) A Certificate or Statement in writing that the Sub- Contractor has complied with the laws referred to in clause 6 hereof.
(c) Before becoming entitled to the final payment under this Contract including any variations the Sub-Contractor shall in addition to complying with the requirements of sub clause above, and has provided all documents required for certification of the works, and subject always to clause 9, sign a Deed of Release certifying that he agrees to the final Contract Sum as stated on such Deed and that upon payment of the said sum be shall release the Contractor from all further claims thereunder.
(h) Notwithstanding the foregoing the Contractor may deduct from progress payments payable to the Sub-Contractor, not more than the percentage stated in the Second Schedule hereof to the limit of the amount stated in the Second Schedule hereof and such monies so deducted shall be retained by the Contractor and held by him until any defects liability period under the Head contract shall have expired or until thirty days after the issue by the Architect of his Final Certificate under the Head Contract and final payment having been made (whichever is the later) and the Contractor shall at the request of the Sub-Contractor notify him of the date of issue of any such certificate in lieu of the Bank Guarantees."
**[32] JTC said that in its email to ASAP on 25 March 2010 it requested ASAP to provide certain information about parts of the progress claim, however, notwithstanding the request, ASAP failed, refused or neglected to provide the information required and proceeded to refer the matter to adjudication. According to the applicant, in so doing ASAP failed to satisfy clause 9 of the contract.
[33] The applicant submitted that properly construed, clause 9 imposed a condition precedent to the making of a valid progress claim. The reference date[4] had not arrived or was ineffective because of ASAP's failure to provide JTC with the information requested and its failure therefore to comply with clause 9. The applicant submitted that clause 9 was not considered by the adjudicator in making his decision.
[34] In relation to the applicant's submissions that the payment claim was ineffective because of ASAP's failure to comply with requests for information on the variations, the respondent argued that any requests for information were in vague, oblique terms. Although BCIPA may forgive some imprecision, the respondent said that the applicant's vague and uncertain references fell far short of any attempt to state the respondent's reasons for withholding payment, as required by s 18 of BCIPA.
[35] As the respondent also submitted, JTC had not argued before the adjudicator that the reference date was in any way affected by clause 9 of the subcontract. In any event, as the respondent submitted, the satisfaction of clause 9 did not make any difference to the fact that the parties had agreed upon the "reference date" as the 25th date of each month. As the issue was not agitated by the applicant before the adjudicator the respondent correctly argued there was no need for clause 9 to be specifically considered by the adjudicator.
[36] There was not in my view any error in the adjudicator's not considering an argument about clause 9 of the contract which was not advanced by JTC before him.
[37] The applicant also contended that the adjudicator's determination of variation 24, VPR 24, rendered the determination void. VPR 24 was described by ASAP in its variations summary as "upgrading of metal wall framing" and said to amount to $25,416.25.
[38] The applicant submitted that the adjudicator had decided the dispute about VPR 24 on a basis which neither party had contended. This was said to amount to a substantial denial of natural justice. In addition, the applicant submitted that there was jurisdictional error on the part of the adjudicator as he had exceeded his authorities and powers granted under BCIPA by falling into an error of law which caused him to identify a wrong issue, ignore relevant material, rely on irrelevant material and make an erroneous or mistaken finding. Because of the adjudicator's failure to determine the dispute about VPR 24 according to law, the applicant argued that the entire decision of the adjudicator was void.
[39] According to ASAP, VPR 24 was a variation to existing works which was verbally requested by the construction site foreman, Robert (surname unknown), and concerned the supply of materials and labour by ASAP to "upgrade" the metal wall framing pursuant to an engineering report by Peer Industries which certified the actual load bearing and wind loading of the external wall. The total cost of VPR 24 as set out in ASAP's payment claim was $25,416.25 ($27,957.75 incl GST). The variation was completed some time in December 2009. The claim was submitted on 18 February 2010, after the works were complete and the walls were covered up.
[40] JTC sent emails to ASAP on 22 February 2010 and 24 February 2010, requesting that ASAP provide them with the engineer's instructions to change the metal wall framing. ASAP provided JTC with the report from Peer Industries. The claim for VPR 24 was then assessed as nil by JTC. This was communicated in an email to ASAP on 9 March 2010. In submissions, JTC said that VPR 24 merely met the specifications of the contract and disputed VPR 24 on the basis that an "upgrade" was not necessary. The contract specifications already set out rigorous standards[5] to be met in respect of wall framing in clause 3.2 of section 17 of the specification dealing with light steel framing. According to the applicant, the variation was work that was always required to be done in accordance with the contract specifications.
[41] At the hearing of the application to set aside the adjudicator's decision, JTC contended that the adjudicator's decision was void for jurisdictional error as the adjudicator had not had regard to the submissions of ASAP and JTC in respect of VPR 24. According to JTC the adjudicator reasoned that VPR 24 was valid because there was no design requirement on ASAP relating to the installation of the ceilings and partitions, despite this having not been raised by either party. JTC argued that the determination of VPR 24 on this "new basis" represented a substantial denial of natural justice as at no stage was JTC afforded the opportunity to make submissions on this point.
[42] In response to these submissions, the first respondent argued that it was entirely understandable that the adjudicator considered ASAP's requirement to design the wall framing in reaching a decision about the validity of the claim for VPR 24. ASAP said that JTC had argued before the adjudicator that VPR 24 was not payable because of the contract specifications, specifically clause 3.2, which referred to "design". According to ASAP, it is in this context "that the decision by the adjudicator [in respect of VPR 24] was made in response to 'a basis raised' by [JTC]."
[43] The first respondent also asserted that if the court accepted the applicant's submissions, this would place an unnecessary burden on adjudicators and would open up the floodgates for contested adjudication decisions. If the applicant's submissions were correct, an obligation would be imposed on the adjudicator to ensure that the adjudicator correctly interprets each party's submissions and if the adjudicator fails to do so, this would amount to a denial of natural justice. The respondent contended that this is not what BCIPA provides. According to the respondent, s 26(2) requires the adjudicator to simply "consider" the matters listed in that section in good faith. BCIPA does not compel the adjudicator, as an essential pre-condition to the exercise of jurisdiction, to correctly interpret the submissions of the applicant. The failure to correctly interpret submissions is not a jurisdictional error.
[44] It was further argued by the first respondent that the object and purpose of BCIPA is to ensure a scheme of rapid payment of payment claims while still preserving the ability of principals to recoup payments they consider are not warranted. The purpose would be frustrated if an adjudicator's entire determination on a building payment dispute could be invalidated because one small aspect was infected by error. The respondent therefore submitted that if the court accepted the applicant's submissions on VPR 24, it would be possible to sever that part of the adjudicator's decision.
[45] There can be no doubt that a substantial failure to accord natural justice would be a jurisdictional error which would render the adjudication void.[6] This is an incident of the duty in s 26(2)(c) and (d) to consider, inter alia, only the parties' submissions. Deciding a dispute on a basis for which neither party contends is a failure to accord natural justice because the losing party has not had the opportunity to make submissions in opposition to those findings.
[46] The claimant's submissions to the adjudicator referred to the variations being payable for reasons set out in paragraph 22 of those submissions. With regard to variation 24, at paragraph 22.9, ASAP said it was:**
"As requested by verbal instruction from Site Foreman Robert
Supply materials and labour to upgrade external walls as per Engineers Report requiring changes to satisfy the real (actual) load bearing and wind loading."
**The claimant's submissions included copies of the variation and the correspondence about it leading to its rejection.
[47] JTC's submissions to the adjudicator about variation 24 were as follows:**
2. Work was carried out predominately in December 2009.
Regardless the design provided to ASAP from Peer Industries merely complies with their contractual obligations.
[48] The adjudication on variation 24 was as follows:
Variation twenty four is a claim for a change in specification to sections of metal stud partitions. I have referred to the respondents submission relating to the variation and find that JTC were expecting ASAP to design the partitioning accordance with the specification. It is not apparent, from the contract, that there is a design requirement from the sub contractor relating to partitions and the contract scope of works states that the basis of the contract sum is the complete supply, installation of ceilings and partitions as per the bill of Quantities, drawings and specifications. ASAP have priced the Bill of quantities (specifically page 4 of 14 sections D, E and F), as described. The pre ambles of the bills do not call for any design inclusion when pricing.
I am unable to find the requirement of the subcontractor to design any part of the scope and therefore find in favour of the claimant in the sum of $22,101.00, which includes an add and omit of materials and administration. I have acknowledged the statement from JTC that margins are included in the rates, which is evidence in the way in which the contract sum is compiled by both parties."
**[49] In deciding the adjudication in this way, there was a fundamental misunderstanding by the adjudicator of the parties' submissions. Both parties addressed the question of whether payment should be made for variation 24 as a variation for extra materials and labour. The adjudicator decided it on a completely different basis. He instead considered that the amount should have been allowed as a design component because no sum had originally been allowed for design as he said was required by the contract. He did not give the opportunity to the parties to make submissions on this quite different basis for allowing variation 24 and so denied natural justice to the parties.
[50] The failure to accord natural justice was a jurisdictional error which renders the decision void unless the part of the decision dealing with variation 24 can be severed.
[51] The first respondent, ASAP, argued that, if it were found that the adjudication decision was infected by jurisdictional error, the adjudication decision to the extent that it concerned variation 24 could be severed from the rest of the decision. It relied in support of this argument on a decision of a single judge of the Supreme Court of Victoria in Gantley Pty Ltd v Phoenix International Group Pty Ltd [2010] VSC 106, which was referred to by the Court of Appeal in Queensland in T & M Buckley P/L v 57 Moss Rd P/L [2010] QCA 381 at [43]. The Court of Appeal decided that case on a different basis and so it was not necessary to consider whether or not that decision should be followed in Queensland.
[52] In Gantley, Vickery J considered in a very lengthy and learned judgment whether or not the common law doctrine of severance could apply to a payment claim made under the Victorian equivalent of BCIPA which included an amount which was not validly claimed.
"The question should be whether the Act, either expressly or impliedly, operates to exclude the common law doctrine of severance. I find that it does not. Indeed, the purposes and objects of the Act earlier described are best served by processes which, so far as possible, ought to accommodate reasonable flexibility and avoid unnecessary technicality.
Severance in this case would operate to achieve the purpose and objects of the Act and would not operate to diminish the attainment of these goals. A respondent to a payment claim and an adjudicator, if appointed, should be able to assess the valid part of this progress claim which sufficiently describes the work for which payment is claimed, and provide a rational response or adjudication determination in respect of that part of the claim, and exclude from consideration that part of the claim which does not comply."
[54] However as his Honour held in a subsequent decision, Seabay Properties Pty Ltd v Galvern Construction Pty Ltd [2011] VSC 183 at [67], in contradiction to a payment claim to which severance could apply:
"Non-compliance with an essential precondition for the existence of a valid adjudication determination renders the determination void. For example, affording natural justice, to the extent that the Act requires it to be given, is one of the essential conditions for the existence of a valid determination. In this area there can be little room for the concept of partial invalidity in relation to determinations arrived at in breach of its requirements. Indeed, it would be rarely safe to introduce such a concept. As McDougall J said in Watpac Constructions v Austin Group [2010] NSWSC 347 at [29]:
'... it may not always be obvious to see how a denial of natural justice has affected the outcome: for example, where the omitted or irrelevant matter had the capacity to assess an adjudicator's overall view of the 'credibility' or substance of a party's case.'" [footnote omitted]
[55] This is not necessarily an attractive result. As Palmer J observed in Multiplex Constructions Pty Ltd v Luikens and Anor [2003] NSWSC 1140 at [92]:
"It seems to me that because the Act requires a determination to produce only one amount for payment pursuant to a payment claim served under s.13(1), despite the fact that the payment claim might have comprised numerous claims for separate and distinct items of work, and because the Act does not provide for variation of the adjudicated amount, or the judgment debt, if the adjudicator's decision as to any component part of the adjudicated amount is shown to be liable to be set aside on judicial review, the consequence is that, subject to other discretionary considerations, the whole of the determination must be quashed if jurisdictional error infects any part of the process whereby the adjudication amount has been produced. This is, no doubt, a highly inconvenient result. However, I do not see any means of avoiding it, as the Act presently stands."
**[56] The Victorian equivalent of BCIPA includes provisions not found in its interstate equivalents[7] which may render the adjudicator's decision partially void: see Building and Construction Industry Security of Payment Act 2002 (Vic) (the "Victorian Act") s 10B, s 23(2A) and (2B). In the absence of any such provision, it is not possible to sever the adjudication decision.[8]
[57] The statutory scheme in Queensland provides for an adjudication decision for one amount only. Pursuant to s 26 of BCIPA, an adjudicator is to decide the amount of the progress payment, if any, to be paid by the respondent to the claimant (the adjudicated amount), the date on which any amount became or becomes payable, and the rate of interest payable on any amount.
[58] The adjudicated amount is a statutorily created sum that once determined is final and binding upon the parties. Once determined, an adjudicated amount can be the subject of an Adjudication Certificate and thereafter a judgment registered with the Court and capable of enforcement against the respondent. The adjudicated amount founds the sum claimed in the judgment along with other sums for costs and interest.
[59] Save a slip rule, there is no mechanism available to sever any unlawful finding from an adjudicated amount, in particular a part of the adjudicated amount that is infected by jurisdictional error as found in this case.
[60] The adjudication was affected by jurisdictional error by reason of the failure of the adjudicator to afford natural justice to the parties. The common law doctrine of severance cannot remedy the decision reached. The decision must therefore be set aside.**
[1] [2011] QCA 22 at [52] - [66].
[2] Judicial Review Act 1991 (Qld) Schedule 1 Part 2.
[3] Northbuild Construction P/L v Central Interior Linings P/L & Ors at [83].
[4] Defined in Schedule 2 of BCIPA as follows -
"reference date, under a construction contract, means -
(a) a date stated in, or worked out under, the contract as the date on which a claim for a progress payment may be made for construction work carried out or undertaken to be carried out, or related goods and services supplied or undertaken to be supplied, under the contract; or
(b) if the contract does not provide for the matter -
(i) the last day of the named month in which the construction work was first carried out, or the related goods and services were first supplied, under the contract; and
[5] Such as the need for the subcontractor to "provide written certification from a registered professional structural engineer (RPEQ), as defined in the Queensland building by-laws, that the wall framing and their tie-down details and connections are structurally adequate" and to "design and construct the wall framing in accordance with the relevant Australian codes."
[6] See David & Gai Spankie & Northern Investment Holdings Pty Ltd v James Trowse Constructions Pty Ltd & Ors (No 2) [2010] QSC 166 at [10].
[7] Building and Construction Industry Security of Payment Act 1999 (NSW); Construction Contracts Act 2004 (WA); Building and Construction Industry Security of Payment Act 2009 (Tas); Construction Contracts (Security of Payments) Act 2004 (NT).
[8] An amendment to BCIPA to conform with amendments made to the Victorian Act may be considered worthy of attention by those responsible for this legislation in Queensland.
James Trowse Constructions Pty Ltd
ASAP Plasterers Pty Ltd & Ors [2011] QSC 145
(2010) 239 CLR 531
(1995) 184 CLR 163