Sierra Property Qld Pty Ltd v National Construction Management Pty Ltd & Ors [2016] QSC 108

ADMINISTRATIVE LAW - PREROGATIVE WRITS AND ORDERS - CERTIORARI - GROUNDS FOR CERTIORARI TO QUASH - EXCESS OR WANT OF JURISDICTION - PARTICULAR INSTANCES OF JURISDICTIONAL ERROR - where the applicant and the first respondent were parties to a construction contract - where the first respondent served a payment claim under the Building and Construction Industry Payments Act 2004 (Qld) for work claimed to have been performed under the original contract as well as additional work by way of variations - where an adjudication decision was made under the Act - where the adjudicator allowed the claim for work performed under the original contract at 95 per cent, without referring to (or making findings in relation to) the nine relevant contract categories of work identified in the adjudication process, about which extensive submissions were made - where the adjudicator stated that he had carefully considered the material which satisfied him that 95 per cent allowance was appropriate - where the adjudicator made allowances for variations under the contract - where, irrespective of the legal correctness of those conclusions as to the variations, the adjudicator had set out the reasons for them - whether the adjudicator failed to give reasons or adequate reasons as required by s 26(3)(b) of the Act - whether any failure to give reasons or adequate reasons as required by s 26(3)(b) of the Act was a jurisdictional error

Acts Interpretation Act 1954 (Qld), ss 4, 27B

Building and Construction Industry Payments Act 2004 (Qld), ss 26, 99, 100

Judicial Review Act 1991 (Qld), s 18, sch 1

Queensland Building and Construction Commission Act 1991 (Qld), s 15

Avopiling (NSW) Pty Ltd v Menard Bachy Pty Ltd [2012] NSWSC 1466, cited

Bauen Constructions v Westwood Interiors [2010] NSWSC 1359, cited

Brookhollow Pty Ltd v R&R Consultants Pty Ltd [2006] NSWSC 1, cited

Campbelltown City Council v Vegan (2006) 67 NSWLR 372; [2006] NSWCA 284, cited

Kirk v Industrial Court (NSW) (2010) 239 CLR 531; [2010] HCA 1, cited

MF-Insurance Aust v Milton (2015) 73 MVR 13; [2015] NSWSC 1392, cited

Northbuild Construction Pty Ltd v Central Interior Linings Pty Ltd [2012] 1 Qd R 525; [2011] QCA 22, applied

Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355; [1998] HCA 28, applied

Re Minister for Immigration and Multicultural and Indigenous Affairs; ex parte Palme (2003) 216 CLR 212; [2003] HCA 56, cited

Transfield Services (Australia) Pty Ltd v Nortask Pty Ltd [2012] QSC 306, cited

Wingfoot Australia Partners Pty Ltd v Kocak (2013) 252 CLR 480; [2013] HCA 43, cited

[1] Jackson J: The originating application is for orders declaring parts of an adjudication decision made under the Building and Construction Industry Payments Act 2004 (Qld) ("the Payments Act") to be invalid on the ground of jurisdictional error. Consequential orders are sought to allow the remainder to bind the parties and for the first respondent to pay the sum of $253,392.25 to the applicant, which reflects the parts affected by jurisdictional error together with interest and the adjudicator's fees.

[2] The need to separately consider the validity of the parts of the adjudication decision follows from the amendments introduced by s 100(4) of the Payments Act as follows:

"(4) If, in any proceedings before a court in relation to any matter arising under a construction contract, the court finds that only a part of an adjudicator's decision under part 3 is affected by jurisdictional error, the court may -

(b) allow the part of the decision not affected by the error to remain binding on the parties to the proceeding."

[3] By written contract made between the applicant as the "Client" and the first respondent as the "Builder", the first respondent agreed to "carry out and complete the works in accordance with the contract and directions authorised by the contract" and the applicant agreed to "pay the Builder the contract sum adjusted by any additions or deductions made under the contract". The "contract sum" was $1,245,403.37. The "works" were defined to mean the whole of the work to be carried out by the Builder, including variations, to be handed over to the client in accordance with the contract.

[4] The "contract" was defined to mean the agreement between the client and the builder and the "contract documents" were defined to mean the documents comprising the contract and listed in Item 8(a) of the Schedule. Item 8(a) listed the Schedule, the Medium Works Contract Conditions, the Drawings, the Schedules, the Quote - NCM and Annexure A. The Quote - NCM was made by a letter from the first respondent to the applicant dated 18 July 2014. It confirmed a "lump sum price based on the preliminary design received for the amount of $1,245,403.37 including GST". The letter stated that:

"The above price has been based on the attached drawing register 'Annexure A' and changes to the Finishes schedule on plan A001-W as listed below:

- ...

- CC1 - Is now a stencil crete (colour to be determined from standard range) as per finish schedule

- ...

- CT1 - PC Sum per Beaumont quote and email dated the 26.2.14

- ...

- EP - As per finish schedule on A001-W..."

[5] Note the specific reference to CT1 as a "PC sum", meaning a provisional cost amount. Also note that the reference to "EP" was a code reference on the drawing to areas for an epoxy finish.

[6] The letter also provided for exclusions listed in Items 1 to 18. Item 14 was: "Swimming pool or any associated works."

[7] Attached to the letter was a document in 17 pages headed "Sierra Property" that broke down the proposed works into 25 categories ("contract categories"). It is clear from the terms of the letter that some of that breakdown was superseded by the agreed inclusions and exclusions.

[8] Also attached to the letter was a document headed Annexure A which included a list of drawings together with notes, a quote from Beaumont Tiles dated 26 February 2014 and a chain of emails between Mr Saltmarsh, the applicant's director, and Mr Marshall, the first respondent's manager, relating to the tiles.

[9] On 25 August 2015 the first respondent served progress claim 8 under the contract and as a payment claim pursuant to the Payments Act. The payment claim was for work claimed to have been performed under the contract ("original contract works") as well as additional work by way of variations.

[10] The claim for original contract works was for the sum of $124,242 built up across nine of the contract categories by estimating the percentage of the work completed for each relevant category. The claim for variations was for the sum of $152,832 built up across over 20 separate variation claims. Each variation claim was described by the letters "CV" and a number, eg "CV13". The total amount claimed was $275,832.40.

[11] On 2 September 2015, the applicant served a payment schedule in response to the payment claim (and progress certificate in accordance with the contract). The scheduled amount stated was nil. Summarised, the applicant's principal positions were that:

- The parties had agreed that the first respondent would accept a sum in full and final satisfaction of all outstanding payments under the contract;

- The works claimed were not undertaken or completed; and

- The amounts claimed for variations were included within the scope of the original contract works, not directed by the applicant or agreed between the parties, and were incomplete or defective.

[12] On 16 September 2015, the first respondent made an adjudication application supported by written submissions in 21 pages.

[13] On 6 October 2015, the applicant made an adjudication response supported by written submissions in 38 pages.

[14] On 26 October 2015 the second respondent made an adjudication decision valuing the progress payment as follows:

[15] The adjudicator also decided that the rate of interest payable on any amount was 12.13 per cent per annum pursuant to s 15(3) of the Queensland Building and Construction Commission Act 1991 (Qld). The due date for payment was decided as 2 September 2015.

[16] Finally, the adjudicator decided that the applicant was responsible for all of the adjudicator's fees and expenses.

[17] The applicant challenges the adjudication decision for that part of the adjudicated amount allowed for the original contract works.

[18] Taking the details from the payment claim, the breakdown of the claim for the original contract works appears in the following table:

[19] As appears from the table, the payment claim included amounts against nine of the contract categories, viz categories 1, 3, 7, 13, 16, 17, 18, 19 and 21 for percentages ranging between 84 per cent and 100 per cent of the work in the relevant category.

[20] In the payment schedule, the applicant did not raise a particular dispute about the extent or value of the work under the original contract works. However, it did state generally:

"The payment claim includes work which has, in fact, not been undertaken or completed by [the first respondent] and is therefore not properly the subject of a progress claim under the contract."

[21] In the adjudication application, the first respondent repeated the claim for the original contract works by reference to the nine relevant contract categories identified in the payment claim. Incorrectly, the first respondent submitted that the applicant in its payment schedule did not object to or challenge or give any reasons for withholding payment of the amount claimed for the original contract works. The first respondent continued that it "submits that in the absence of any objection to the amount claimed for contract work [$124,242 excluding GST], that amount should be admitted and certified by the Adjudicator".

[22] In the adjudication response, for the first time, the applicant made detailed submissions as to why the amounts claimed for the original contract works were not payable, identifying against the nine relevant contract categories where it contended the work had not been undertaken or completed to the value claimed in the payment claim.

[23] Before the adjudicator, there was a dispute about whether the breakdown attached to the Quote - NCM ("schedule") (wrongly described in some places as a bill of quantities) was a contractual document. For the purposes of this application, the applicant does not challenge the adjudicator's determination that it was, at least as a general proposition.

[24] Second, there was a dispute as to how an amount of $32,100 which had been allowed for swimming pools in the schedule - that were deleted from the scope of the works by the letter dated 18 July 2014 - should be treated. That is, the parties disputed whether the amount was just a general contractual amount not allocated to any particular contract category of work or whether it should be spread across the contract categories in relation to any relevant calculation of value. Again, the applicant does not seek to challenge any part of the adjudicator's decision on that question.

[25] The applicant's current challenge boils down to the contention that the parties' disputes across the nine relevant categories for original contract works were separate disputes about the extent of the work that was done under each category and the value to be given for it.

[26] The second respondent dealt with the extensive submissions made in the adjudication process in relation to each of the nine relevant contract categories as follows:

"However, after carefully considering the [applicant's] material and also the concerns in relation to the contract works portion of the claim (see for example, paragraph 119 of the adjudication response), I am satisfied that the [first respondent] is entitled only to 95 per cent of the contract works portion of the claim, that is, $118,030.00 (excluding GST) or $129,833.00 (including GST)."

[27] The applicant submits that the second respondent's method of arriving at 95 per cent is completely unexplained. Although the parties had specific disputes as to the extent of the work which had been completed in relation to each of the nine relevant contract categories, the second respondent made no reference to those differences and made no finding about the extent of the work for any category. Accordingly, the second respondent made no reference to the value of the work for any relevant category.

[28] The applicant submits that its challenge can be framed in four alternative ways ("grounds of invalidity"):

- First, as a failure to consider the provisions of the Payments Act;[1]

- Second, a failure to consider the payment schedule and submissions made in support of the schedule by the applicant in the adjudication response;[2]

- Third, a denial of natural justice in failing to inform the applicant that he proposed to adopt a methodology which did not conform to the treatment of the disputes between the parties in relation to the nine categories of the payment claim for the original contract work; and

- Fourth, that the decision did not include the reasons for the decision in the manner required.[3]

[29] In my view, and in light of the conclusions below, it is necessary to consider only one of these grounds, namely that the decision did not include the required reasons for the decision.

[30] Beginning with the text of the relevant provisions, s 26(1) of the Payments Act provides that an adjudicator "is to decide ... the amount of the progress payment, if any, to be paid by the respondent to the claimant".

[31] Sections 26(2) and (3) then provide as follows:

"(2) In deciding an adjudication application, the adjudicator is to consider the following matters only -

(a) the provisions of this Act and, to the extent they are relevant, the provisions of the Queensland Building and Construction Commission 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;

(e) the results of any inspection carried out by the adjudicator of any matter to which the claim relates.

(b) include the reasons for the decision, unless the claimant and the respondent have both asked the adjudicator not to include the reasons in the decision." (emphasis added)

[32] The requirement that the written decision must include the reasons for the decision leads to the consequential question: what is the extent of the reasons required? That requirement is informed by the context in which it appears and the matters which the decision must address.

[33] First, because the decision is to arrive at an amount of the progress payment to be paid as the adjudication amount,[4] the reasons must be adapted to that purpose.

[34] Second, because the adjudicator is to consider the list of matters under s 26(2) only, the reasons should be directed to those matters to the extent that they are relevant. For example, the reasons may need to consider:

(a) any relevant requirements for the payment claim and payment schedule and consequential processes, under the provisions of the Payments Act;[5]

(b) any relevant provisions of the construction contract;[6]

(c) the terms of the payment claim and payment schedule, and any submissions and documents in support of the claim and payment schedule;[7] and

(d) the results of any inspection carried out by the adjudicator.[8]

[35] Third, the decision must be made within the time constraint or "deadline"[9] imposed by the Payments Act and be made "as quickly as possible".[10]

[36] Fourth, the rights of the claimant and respondent to a payment claim are affected by the decision in important respects. The respondent must pay the adjudicated amount[11] and any interest. This may affect the respondent significantly because any risk of insolvency is transferred to the respondent who must reclaim any amount that is not truly payable for the work when the final rights and obligations under the contract are ascertained. The claimant may recover the adjudicated amount (once certified) as a debt[12] and suspend the work for non-payment.[13]

[37] Fifth, on the other hand, the decision does not have the effect of establishing any amount payable under the contract in a final way.[14] Any adjudication amount payable in respect of a payment claim is on account only. The purpose of the Payments Act is to ensure an entitlement to receive and recover progress payments,[15] not to change the final rights and obligations under the contract.

[38] Sixth, the adjudicator will often have expertise[16] in the area of the work to be valued under the payment claim and will make the adjudication decision with the benefit of that expertise - not as a lawyer deciding the final rights and obligations of the parties under the contract.

[39] The requirement to include reasons in the decision in writing is also informed by the fact that the questions in dispute upon a payment claim served or purportedly served under the Payments Act may vary greatly. Therefore, there is no necessary list of matters that must be considered in the reasons. Conversely, there is no list of matters that if considered will in every case satisfy the requirement to include the reasons for the written decision. To some extent, each case must depend on its own facts.

[40] The applicant relied on Bauen Constructions v Westwood Interiors,[17] where McDougall J said:

"Although adjudicators work under significantly greater time pressures than judges, and their reasons should not be scrutinised with the attention to detail to which the reasons of trial judges and intermediate appellate courts are subjected in ultimate courts of appeal, nonetheless the reasons must indicate why it was that the adjudicator arrived at the determination given in accordance with s 22(1). Just as there is with judges, so too with adjudicators there is a presumption that the stated reasons are all of the reasons for coming to the conclusion expressed.

Of concern in Waterways Authority v Fitzgibbons was the primary judge's acceptance of the evidence of one medical practitioner over that of others. It appears from what Hayne J said at [131] that the trial judge concluded that the evidence of a particular practitioner should be accepted and preferred 'but disclosed no reasoning supporting that conclusion'. As his Honour said at the end of the same paragraph '[t]he absence of explanation for, and reasoning and support of, the conclusion expressed ... reveals that the process of fact finding miscarried.'"[18] (emphasis added)

[41] There are other useful statements to similar effect. So, in Brookhollow Pty Ltd v R&R Consultants Pty Ltd[19] Palmer J said:

"The extent to which an adjudicator must give reasons for the determination in accordance with s 22(3)(b) [of the NSW Act] reflects the extent of his or her duty to give consideration to the matters required by s 22(2). In a fully contested adjudication in which several issues have been raised, the adjudicator's reasons should demonstrate that he or she has endeavoured in good faith to consider those issues, in compliance with the requirements of s 22(2)(c) and (d)."[20] (emphasis added)

[42] And in Avopiling (NSW) Pty Ltd v Menard Bachy Pty Ltd,[21] Sackar J said:

"The content of the adjudication is obviously the most relevant source as to whether the adjudicator has or has not performed the relevant statutory functions. It is to be recalled that the process may or may not be interactive and will be conducted generally, entirely in writing. Provided it is apparent that the adjudicator has considered pertinent issues in good faith, very considerable latitude in my view should be afforded to an adjudicator as to the manner and form of the determination. To become too pedantic about the way in which the adjudicator has drafted a determination is to introduce an element of artificiality such as might well defeat the object and purpose of the [Payments Act] and the aim of the process entirely. On the other hand the mere fact an adjudicator blandly says he or she has read 'all of the submissions and accompanying documents' or simply that he or she is 'satisfied' without more in relation to a particular issue under consideration may not, subject to viewing the determination as a whole survive as adequate reasons. As I have said it will always be a matter of degree. Shell Refining (Aust) Pty Ltd v AJ Mayr Engineering Pty Ltd at [25] and [26] per Bergin J (as she then was), and McDougall J in Leighton at [94]."[22] (emphasis added) (citations omitted)

[43] And in Transfield Services (Australia) Pty Ltd v Nortask Pty Ltd,[23] Douglas J said:

"The absence of reasons, even in truncated proceedings as occur with adjudicators exercising this statutory jurisdiction, can clearly affect the decisionmaking process."[24] (footnote omitted)

[44] In my view, the reasons of the second respondent in the adjudication decision for the original contract works claim are opaque. Although the second respondent referred to having "carefully" considered the applicant's material, the only particular reference made was to paragraph 119 of the adjudication response. Paragraph 119 was concerned with the dispute as to how the amount originally included in the schedule for the deleted swimming pools should be allocated. No reference was made to the extent of the work completed in any of the nine relevant contract categories, either as claimed by the first respondent or as disputed by the applicant.

[45] In my view, the statement of reasons did not adequately discharge the obligation to "include the reasons for the decision" under s 26(3)(b) of the Payments Act.

[46] In reaching that conclusion, I note that the applicant did not rely on s 27B of the Acts Interpretation Act 1954 (Qld) which provides:

"If an Act requires a tribunal, authority, body or person making a decision to give written reasons for the decision (whether the expression 'reasons', 'grounds' or another expression is used), the instrument giving the reasons must also -

(a) set out the findings on material questions of fact; and

(b) refer to the evidence or other material on which those findings were based."

[47] I form no concluded opinion as to whether s 27B applies. It has no counterpart in the Interpretation Acts of the other States where there is legislation corresponding to the Payments Act. By s 4 of the Acts Interpretation Act 1954 (Qld) the application of that Act (including s 27B) may be displaced wholly or partly by a contrary intention appearing in any Act. No submission was made about this point either.

[48] Irrespective of the possible application of s 27B, it clearly enough emerges that, notwithstanding the specific context of a decision given by an adjudicator under the Payments Act, for the requirement in s 26(3) that the decision must be in writing and include the reasons for the decision to be meaningful, it must require more than what was done by the second respondent in relation to the claim for the original contract works.

[49] An adjudication decision is not reviewable under the Judicial Review Act 1991 (Qld) ("JR Act"). That is because s 18(2)(b) provides that the JR Act does not apply to a decision made under an enactment mentioned in Sch 1 Pt 2 to that Act and Sch 1 Pt 2 identifies Pt 3 of Div 2 of the Building and Construction Industry Payments Act 2004 (Qld) as an enactment to which the JR Act does not apply.

[50] In that context, it was established by the decision of the Court of Appeal in Northbuild Construction Pty Ltd v Central Interior Linings Pty Ltd[25] that declaratory or injunctive relief may be obtained upon judicial review in the supervisory jurisdiction of this Court for jurisdictional error, as explained in Kirk v Industrial Court (NSW).[26]

[51] For present purposes, it is sufficient to proceed on the footing that the parties accept that the applicant must establish jurisdictional error in that sense to obtain relief. The question therefore arises whether the failure of the second respondent to give reasons or adequate reasons as required by s 26(3)(b) of the Payments Act is a jurisdictional error.

[52] It is well known that the Payments Act corresponds to very similar legislation in a number of State and territory jurisdictions. The text of the legislation is not identical but the differences in the relevant provisions for this case are minor,[27] subject to the qualification of the possible application of s 27B of the Acts Interpretation Act 1954 (Qld).

[53] However, putting that difference to one side, the provisions of the Payments Act and its New South Wales, Victorian and other counterparts are close. They are so close that one might have expected that a case would have arisen upon whether an adjudicator's failure to comply with the requirement to include the reasons for the decision amounts to jurisdictional error. The parties did not refer to any such case.

[54] The effect of the critical text from s 26(1) and (2) of the Payments Act is that the adjudicator is to decide the amount of the progress payment and in so deciding is to consider only the identified matters. By s 26(3) that decision must "be in writing" and "include the reasons for the decision". As a matter of ordinary meaning, something which is not in writing is not such a decision. Similarly, something which is in writing but does not include the reasons for the decision is not such a decision. Those conclusions are required by the use of the word "must" in the text.

[55] That textual analysis would support the conclusion that in this particular context the failure to include the reasons in the purported decision in writing might invalidate the decision. The leading case of Project Blue Sky Inc v Australian Broadcasting Authority[28] fully explores the proper approach to a constructional question of invalidity. It was described by Brennan CJ as the distinction between "a provision which directs the manner of the exercise of a power ... [and] a provision which prescribes an act or the occurrence of an event as a condition on the power".[29] The majority judgment framed the question thus:

"An act done in breach of a condition regulating the exercise of a statutory power is not necessarily invalid and of no effect. Whether it is depends upon whether there can be discerned a legislative purpose to invalidate any act that fails to comply with the condition. The existence of the purpose is ascertained by reference to the language of the statute, its subject matter and objects, and the consequences for the parties of holding void every act done in breach of the condition. Unfortunately, a finding of purpose or no purpose in this context often reflects a contestable judgment. The cases show various factors that have proved decisive in various contexts, but they do no more than provide guidance in analogous circumstances. There is no decisive rule that can be applied; there is not even a ranking of relevant factors or categories to give guidance on the issue."[30] (citation omitted)

[56] Applying the approach required under Project Blue Sky, in my view, in the circumstances of this case the inclusion of reasons in the decision that answer the statutory requirement for those reasons is a condition of the power to decide the adjudication application under s 26. Failure to do so invalidates the decision.

[57] First, as set out above the text of s 26 supports that conclusion.

[58] Second, an important subject matter of the of the Payments Act (and s 26 in particular) is that an adjudicator, as the repository of the relevant power, may decide to grant to a claimant a right to receive a progress payment and impose a corresponding obligation upon the respondent to make the payment that can be enforced by summary legal process. The exercise of the power has significant and serious commercial consequences for both of them. The Payments Act generally creates these rights and obligations in a way that the parties may not agree to waive or discharge.[31] It appears that the intention is to protect claimants by granting to them a cash flow that may be vital for commercial well-being or even survival, although final rights and obligations as to the amount payable for all the work under the contract are not altered.

[59] Third, generally speaking the Payments Act specifies with particularity and by detailed steps the conditions on which the power may be exercised. Those steps are intended to ensure fairness as between the parties in a speedy non-curial process. The requirement of reasons in writing informs the parties of the bases on which their adjudication application and any adjudication response including any submissions have been accepted or rejected. It is a fundamental part of the processes under the Payments Act that under s 26(2) the adjudicator's decision is constrained by the contentions which have been properly raised and the range of matters that are the only matters to be considered. That serves to emphasise the important function that the reasons for the decision required under s 26(3)(b) fulfil in showing that the adjudicator has complied with the statutory conditions for the exercise of the power to make the decision.

[60] Fourth, although the consequence of invalidity (at least where there is jurisdictional error) is that the decision of the adjudicator is void, the loss to the claimant is only of one progress payment. The claimant is still entitled to make another payment claim that includes the subject of the invalid decision and the final rights of the parties under the contract are not affected. I note that since the amendments to the Payments Act introduced under s 100(4), the decision is void only to the extent affected by the jurisdictional error and is to remain binding otherwise.

[61] But is non-compliance with s 26(3)(b) also a jurisdictional error within the meaning of the case law?

[62] None of the existing authoritative cases decides that question either as a matter of principle or in a cognate context. Thus, in Re Minister for Immigration and Multicultural and Indigenous Affairs; ex parte Palme[32] the plurality said:

"Failure to provide reasons may also be reviewed in this court and compliance by the Minister with the statutory duty may be ordered. The reasons then provided may furnish grounds for prohibition..."[33]

"It is not easy to accept the notion that a decision is made without authority because subsequently the decision-maker fails to give reasons for the decision. Nevertheless it is always possible that a statutory scheme has made the giving of reasons a condition precedent to the validity of a decision. If it has, a decision that does not give reasons will be made without authority."[34]

[64] In Campbelltown City Council v Vegan[35] the New South Wales Court of Appeal said:

"There is extensive authority for the proposition that a failure, on the part of a tribunal exercising judicial functions, to give reasons for its decision will constitute an error of law which will permit the decision to be set aside on appeal, where the right of appeal is limited to errors of law ... Whether it also constitutes jurisdictional error is not a matter which needs to be determined..."[36]

[65] In Wingfoot Australia Partners Pty Ltd v Kocak[37] the High Court said:

"Whether non-compliance by the Medical Panel with its duty to give a written statement of reasons also constitutes a breach of a condition of the valid performance of the duty imposed on it by s 68(1) and (2) of the Act to form, and to give a certificate as to, its opinion on a question referred to it is not to the point. That issue would only be determinative in an application to the Supreme Court for an order in the nature of certiorari to remove the purported legal consequences of a medical opinion on the basis of jurisdictional error."[38] (footnote omitted)

[66] In MF-Insurance Aust v Milton[39] Beech-Jones J said:

"A failure to provide such reasons constitutes an error of law on the face of the record ... although it has not yet been decided whether it amounts to a jurisdictional error ..."[40]

[67] In my view, consistently with the approach of McHugh J in Palme, and the constructional question to be answered in accordance with Project Blue Sky Inc, the true question is one of statutory interpretation as to the proper construction of s 26 of the Payments Act. The text supports the conclusion that the reasons required under s 26(3)(d) are an essential element of a decision made under s 26. The failure to include reasons for the decision amounts to a jurisdictional error.

[68] Therefore, because the second respondent did not comply with s 26(3)(b) in deciding the payment claim for the original contract works, it follows that the part of the adjudication decision allowing the amount of $118,030 (exclusive of GST) for the payment claim for the original contract works is affected jurisdictional error.

[69] The payment claim also included claims for variations as previously mentioned. The applicant challenges the validity of the adjudication decision in respect of the allowances for:

(a) CV13 in the amount of $7,853.94 (exclusive of GST);

(c) CV15 in the amount of $4,315 (exclusive of GST);

(d) CV17 in the amount of $25,207.20 (exclusive of GST);

(e) CV20 in the amount of $3,818.31 (exclusive of GST);

(f) CV22 (which was not pressed in oral argument); and

(g) CV23 in the amount of $27,093.60 (exclusive of GST).

[70] The payment claim in respect of CV13 was for the supply of lights and ceiling fans allowed in the adjudication decision in the amount of $8,839.14 (excluding GST).

[71] The essential dispute was whether the work was included in the original contract works so that it could not or should not have been allowed as a variation. The second respondent's decision was as follows:

"Here the claimant says and the respondent agrees that the claimant paid 'the respondent's subcontractor' $6,380.75 for the supply of lights and ceiling fans. Accompanying the subcontractor's quotation in the sum of $6,380.75 (number 1449 dated 20 July 2015) the claimant requested variation CV13 as part of the understandings reached between the claimant and the respondent. The respondent now disputes that the claimant is entitled to this variation. Here the parties have attached different meanings to an understanding, and I prefer the meaning attached by the claimant because at the time the agreement was made the claimant had no reason to know of any different meaning attached by the respondent and the respondent had reason to know the meaning attached by the claimant. I am satisfied the claimant is entitled to $8,839.14 excluding GST for CV13."

[72] These findings are not easy to understand. In the adjudication application, the first respondent said that Item 22.2.18 of the schedule (attached to the Quote - NCM) referred to "light fittings etc as per lighting schedule" and provided a zero value because the light fittings were not included in the contract price and were to be supplied by the respondent. That was possibly an inaccurate statement about what the schedule provided, because in Item 1.3.03 also provided "[l]ight fittings, exhaust fans supply p.c. $14,403 + GST". However, neither of the parties referred the adjudicator to that part of the schedule.

[73] In the adjudication response, the applicant referred to the light fittings and ceiling fans as being included in the contract scope of works referred to in architectural and electrical drawings. Two of the architectural drawings specified fans in the bedrooms for all four units and two of the electrical drawings indicated the number and location of lights for one unit to be replicated in the other units. The applicant continued:

"Accordingly, the drawings when read together provided sufficient information to the builder to quantify and price the number of ceiling fans and lights for the project."

[74] It is unnecessary to further detail the applicant's submissions to the adjudicator. The point of difference was the scope of contract works according to the contract documents. The applicant effectively disputes the adjudicator's determination that there was an understanding as to an entitlement to the variation. What the adjudicator may have considered or based his reasoning on as to this understanding is not apparent from the documents.

[75] However, the problem is not that the adjudicator did not purport to consider the scope of the contract work in relation to the claimed variation or consider the value of the lights and fans supplied. Nor is it that he did not set out his reasons for his conclusions. Whether or not they are right, he did set them out.

[76] The applicant relied on each of the grounds of invalidity previously identified for the challenge to the original contract works, other than denial of natural justice, to challenge the part of the adjudication decision that allowed CV13. In my view, none of them is made out.

[77] The payment claim for CV15 was for the deletion of the specification of treated pine decking and the substitution of merbau hardwood decking to some areas and the replacement of galvanised screws to fix the decking with stainless steel screws. It was allowed in the adjudication decision in the sum of $4,315 (GST excluded).

[78] Again, the dispute is as to the scope of the original contract works and whether the hardwood and stainless steel fixings constituted a variation.

[79] In this instance, the contract documents have internal inconsistencies. A drawing relied on by the applicants provided for hardwood decking. The schedule attached to the Quote - NCM provided for pine decking. Another drawing provided for pine decking.

[80] The second respondent's reasons were as follows:

"The bill of quantities provided the provisional sum allowance of $1,716.00 for supplying timber decking (that is, CCA pine). After the creation of the contract but before full performance of this variation, the needs of the respondent appear to have changed and the respondent directed the claimant to replace the treated pine with merbau hardwood decking and also to replace the galvanised screws with stainless steel screws. The cost to supply and install the hardwood decking was $5,716.08 ($70.05 per m²) against which the provisional sum must be deducted. Under the construction contract the claimant is permitted a mark-up of 20 per cent. The claimant is therefore permitted to claim $4,800.00 but has only claimed $4,315.00. I am satisfied the claimant is entitled to $4,315.00 excluding GST for CV15."

[81] I note that the reasons refer to the schedule as the "bill of quantities" and to the breakdown of the price in the schedule as a "provisional sum allowance". Those points are not the subject of the present challenge to the validity of the adjudication decision.

[82] The applicant relied on each the grounds of invalidity, other than denial of natural justice, to challenge the part of the adjudication decision that allowed CV15.

[83] There is one concerning aspect of the reasons, namely the finding that after the creation of the contract but before full performance of this variation the needs of the respondent appeared to have changed. Having regard to the payment claim, payment schedule, adjudication application (and submissions in support), and adjudication response (and submissions in support), I am unable to see what the basis of this finding might have been. Nevertheless, the further finding that the respondent directed the claimant to replace the treated pine with merbau hardwood decking and also to replace the galvanised screws with stainless steel screws is capable of being explained by reference to the internal inconsistencies in the contract documents. Again the question is not whether the second respondent was right in his conclusion.

[84] Accordingly, in my view, none of the grounds of the challenge to this item is made out.

[85] This variation related to epoxy flooring and was allowed in the amount of $25,207.20 (excluding GST).

[86] Although the parties' submissions did not distinguish between them, it is clear from the schedule attached to the Quote - NCM that there is more than one area of relevant epoxy coating. Item 19.1 was headed "Epoxy floor finishes". Item 19.1.01 provided for "floor finish on concrete" in the amount of $5,472. Separately, Item 20.3 was headed "Internal painting with epoxy coating on" and Item 20.3.01 was "concrete floor (garage)". Although an area of 108 square metres was provided for, the item was described as "Excl", possibly meaning that it was excluded from the work.

[87] The applicant contended that the work claimed for was not a variation because it was referred to in contract drawing A501-W which specified epoxy flooring.

"There is an exchange of emails that assists in showing that the respondent directed the claimant to provide the same floor finish as the 'Teneriffe Realty Office' and the variation now claimed by the claimant is for the cost to provide a fleck finish to the garage and an epoxy finish to the living areas less the provisional sum allowance of $5,472.00 for floor finishes. The claimant's claim is $30,679.20 and the claimant says that the quote from his painter was $31,038.00 for floor finishes but there is nothing provided by the claimant to show how it has arrived at the claim of $30,679.20. It appears that the claimant has not deducted the provisional sum allowance. I am satisfied the claimant is only entitled to $25,207.20 excluding GST for CV17."

[89] Those reasons are explained by the submission made by the first respondent in the submissions in support of the adjudication application that the variation claimed was for the cost to provide a fleck finish to the garage and the epoxy finish to the living areas. The first respondent relied on Item 20.3.01 of the schedule as excluding the work for the garage floors from the scope of works.

[90] It appears that the second respondent has treated that as being correct, because he has allowed that part of the work as part of the variation. Second, the second respondent relied in his reasons on a "direction" that the finish required for the living areas was to be similar to that identified in the Teneriffe Realty Office as a variation. That characterisation is disputed by the applicant. The applicant may be right about the proper construction of the contract and whether the request as to the finish required and example given by the applicant's director constituted a variation. However, for present purposes that is not the question.

[91] The applicant again relies on each of the grounds of invalidity previously identified, other than denial of natural justice, to challenge the part of the adjudication decision that allowed CV17. In my view, none of them is made out.

[92] This claimed variation related to the installation of a front door to Unit 1 and was allowed in the amount of $3,813.31.

[93] The applicant contended that the work claimed for was not a variation because drawing 901-Q specified pivot doors.

[94] The second respondent's reasons were as follows:

"Here the parties have attached different meanings to a modification of the works, and I prefer the meaning attached by the claimant because at the time the agreement was made, the claimant had no reason to know of any different meaning attached by the respondent, and the respondent had reason to know the meaning attached by the claimant, that is, '... issue a variation notice for the next Progress Payment draw for all amounts above ... the provisional sum allowance in the bill of quantities ($62,200.00 (excluding GST))'. I am satisfied the claimant is entitled to $3,818.31 excluding GST for CV20."

[95] Although the expression of the reasons is not easy to understand, the second respondent was referring to an email from the applicant's director, Mr Saltmarsh, to the first respondent's managers, Mr Marshall and Mr Law, in the following terms:

Please issue a variation notice for the next progress payment draw for all amounts above $62,200 (Ex GST).

[96] That email was sent together with an email from Bradnams to Mr Saltmarsh which contained pricing for various elements of the project, including an item to supply and install an entry door to Unit 1 in the amount of $3,383.04.

[97] Mr Saltmarsh's reference to "$62,200 (Ex GST)" can be seen in Item 13 of the schedule attached to the Quote - NCM, which allowed the sum of $62,200 as a total for aluminium windows and doors.

[98] In other words, the reasons of the second respondent can be understood as a finding that Mr Saltmarsh's email constituted a variation requested or agreed between him on behalf of the applicant and the first respondent.

[99] The applicant again relies on each of the grounds of invalidity, other than denial of natural justice, to challenge the part of the adjudication decision that allowed CV20. In my view, none of them is made out as the second respondent considered each side's submissions in the reasons provided, irrespective of whether the conclusion reached was correct.

[100] This variation related to an amount for the supply of sanitary fixtures and fittings allowed in the adjudication decision in the amount of $27,093.60 (excluding GST).

[101] The applicant contended that the work or materials claimed for were not a variation. It relied on contract drawings A902A, A902B and A502, which it submitted showed the relevant fixtures and fittings.

"The claimant says that tapware, fixtures, bathroom accessories were excluded from the price and the works. As a result of this state of contractual affairs, there was no allowance in the lump sum contract for these items. The items to be provided were specified in drawing A902B-W and the respondent instructed Harvey Norman to provide a quotation for the supply of these items and some additional items. The claimant's claim in this regard is the amount charged by Harvey Norman plus the permitted margin under the construction contract. I have considered all circumstances accompanying the transaction and prefer the claimant's position. I am satisfied the claimant is entitled to $27,093.60 excluding GST for CV23."

[103] The schedule to the Quote - NCM provided at Item 21.2.01 that tapware fixtures and bathroom accessories were allowed at zero. The item did not specifically state that those items were excluded or that they were provisional cost items.

[104] The first respondent submitted that although the items were specified in drawing A902B-W there was no allowance for them in the "bill of quantities". There also seems to have been a suggestion that it was the applicant, not the first respondent, who ordered the relevant items from Harvey Norman. In any event, the basis of the contractual dispute as to whether or not the items were included in the scope of the works under the original contract is clear enough.

[105] Again the second respondent may be in error in his decision about the scope of works under the contract. But whether or not he made such an error is not the question in this proceeding.

[106] The applicant again relies on each of the grounds of invalidity previously identified, other than denial of natural justice, to challenge the part of the adjudication decision that allowed CV23. In my view, none of them is made out.

[107] It can be seen from the foregoing reasons that, in my view, the applicant is successful in its application but only in part. Pursuant to s 100(4)(a) of the Payments Act, I identify the part of the adjudication decision of the second respondent that is affected by jurisdictional error as the assessment of the contract works claim in the amount of $118,030 (exclusive of GST).

[108] In light of that conclusion, it seems to me the parties should be permitted to make brief written submissions as to the decision of the second respondent concerning the adjudicator's fees and interest.

[109] Otherwise, pursuant to s 100(4)(b) of the Payments Act I allow all other parts of the adjudication decision to remain binding on the parties.

[110] In the circumstances, it seems appropriate to allow the parties the opportunity to agree upon the orders to be made or make further submissions in writing as to the orders to be made, including any order as to costs.

[111] I should mention that some of the disputes raised in this case were over small amounts, having regard to the costs of bringing this proceeding.

[1] Building and Construction Industry Payments Act 2004 (Qld), s 26(2)(a).

[2] Building and Construction Industry Payments Act 2004 (Qld), s 26(2)(d).

[3] Building and Construction Industry Payments Act 2004 (Qld), s 26(3)(b).

[4] Building Construction Industry Payments Act 2004 (Qld), s 26(1).

[5] Building Construction Industry Payments Act 2004 (Qld), s 26(2)(a).

[6] Building Construction Industry Payments Act 2004 (Qld), s 26(2)(b).

[7] Building Construction Industry Payments Act 2004 (Qld), s 26(2)(c)-(d).

[8] Building Construction Industry Payments Act 2004 (Qld), s 26(2)(e).

[9] Building Construction Industry Payments Act 2004 (Qld), s 25A(1).

[10] Building Construction Industry Payments Act 2004 (Qld), s 25(1)(a).

[11] Building Construction Industry Payments Act 2004 (Qld), s 29(1).

[12] Building Construction Industry Payments Act 2004 (Qld), s 31(1).

[13] Building Construction Industry Payments Act 2004 (Qld), ss 30(1)(b) and 33(1).

[14] Building Construction Industry Payments Act 2004 (Qld), s 100.

[15] Building Construction Industry Payments Act 2004 (Qld), s 7.

[16] Building Construction Industry Payments Act 2004 (Qld), ss 57(c) and 60(2).

[17] [2010] NSWSC 1359.

[18] [2010] NSWSC 1359, [23]-[24].

[19] [2006] NSWSC 1.

[20] [2006] NSWSC 1, [66].

[21] [2012] NSWSC 1466.

[22] [2012] NSWSC 1466, [38].

[23] [2012] QSC 306.

[24] [2012] QSC 306, [13].

[25] [2011] QCA 22; [2012] 1 Qd R 525.

[26] [2010] HCA 1; (2010) 239 CLR 531.

[27] For example, s 26 of the Payments Act refers to an adjudicator's "decision", whereas the New South Wales counterpart refers to a "determination".

[28] [1998] HCA 28; (1998) 194 CLR 355.

[29] [1998] HCA 28; (1998) 194 CLR 355, 373 [37]. Although Brennan CJ was in dissent, it was not on this point.

[30] [1998] HCA 28; (1998) 194 CLR 355, 388-389 [91].

[31] Building Construction Industry Payments Act 2004 (Qld), s 99.

[32] [2003] HCA 56; (2003) 216 CLR 212.

[33] [2003] HCA 56; (2003) 216 CLR 212, 226 [48].

[34] [2003] HCA 56; (2003) 216 CLR 212, 227 [55].

[35] [2006] NSWCA 284; (2006) 67 NSWLR 372.

[36] [2006] NSWCA 284; (2006) 67 NSWLR 372, 399 [130].

[37] [2013] HCA 43; (2013) 252 CLR 480.

[38] [2013] HCA 43; (2013) 252 CLR 480, 493 [29].

[39] [2015] NSWSC 1392; (2015) 73 MVR 13.

[40] [2015] NSWSC 1392; (2015) 73 MVR 13, 23 [38].