CONSTRUCTION Alert: Supreme Court exercises power to sever void adjudication decision

Jul 7 2015

Publications

In a matter where Thomson Geer acted for the respondent, the Supreme Court of Queensland has used its new power to sever void adjudication decisions for the first time and, in so doing, provided eager applicants with a reason to think twice before challenging adjudication decisions.

Facts

In Sunshine Coast Regional Council v Earthpro Pty Ltd & Ors [2015] QSC 168 Justice Byrne considered an application by the Council for a declaration that an adjudication decision in Earthpro’s favour was void as a result of jurisdictional error.

Following termination of the relevant construction contract, Earthpro had sought payment from the Council. The Council refused to pay the amount claimed and Earthpro subsequently brought an adjudication under the Building and Construction Industry Payments Act 2004 (Qld) (BCIP Act).

The adjudicator found in favour of Earthpro and awarded it approximately $1.4 million, a large part of which was comprised of delay costs for extensions of time (EOT) claimed by Earthpro. Following payment of that sum, the Council brought an application alleging that the adjudicator’s decision was void on a number of bases and should be set aside.

Denial of procedural fairness

First, the Council alleged that the adjudicator had made crucial errors and denied the parties procedural fairness when awarding Earthpro several post-termination EOTs. The Court agreed with the Council that the adjudicator had made both: 

  • a factual error by wrongly deciding that those claims had been made prior to termination when in fact they had not; and
  • a legal error by applying an incorrect and overly restrictive interpretation to the principles arising from the decision of Peninsula Balmain Pty Ltd v Abi Group Contractors Pty Ltd (2002) NSWCA 211 (an authority relied on by Earthpro during the adjudication).

As neither Earthpro nor the Council had contended that the claims had been made pre-termination or that the restrictive interpretation of Peninsula Balmain applied, they had been denied procedural fairness by being deprived of the opportunity to make submissions on those points.

However, Justice Byrne held that no injustice resulted from these errors as they did not affect the outcome and a declaration that the decision was void was therefore inappropriate.

Re-agitation of claims  

Secondly, the Council alleged that Earthpro had contravened the BCIP Act by re-agitating a claim relating to the saturation of alluvial material on the worksite caused by excessive rainfall and a failure by the Council to take certain steps to prevent the saturation.

Under the BCIP Act, parties are prevented from re-agitating issues already decided under a previous adjudication where that issue was essential to the prior decision. 

In a previous adjudication between the parties, Earthpro had claimed for a variation due to the additional work caused by the saturation of the alluvium. This claim was denied by the adjudicator who held that, despite being aware of the risk, Earthpro failed to take certain steps which would have prevented the saturation.

In the later adjudication, Earthpro provided additional evidence demonstrating that it was not responsible for the saturation and claimed an EOT and delay costs in reliance on a separate contractual provision from that relied upon in the previous adjudication.

Earthpro submitted that it was not prevented from re-agitating the claim, as the claims were separate and distinct and had been brought on different contractual bases. However, Justice Byrne disagreed and found that the adjudicator had exceeded his jurisdiction by deciding issues in Earthpro’s favour which had already been decided against it in the prior adjudication, which were essential to that decision.

On that basis, the part of the decision relating to the saturation of the alluvium was held to be void.

Further issues

The Council also raised two additional unsuccessful arguments, which were:

  • that  Earthpro had wrongly received  delay costs for a period within which it did not seek compensation, which was dealt with by Justice Byrne simply considering the adjudicator’s reasons and concluding that delay costs had not been awarded in respect of that period; and
  • that the adjudicator approached his valuation of delay costs in a way that was so perverse, arbitrary or capricious that it constituted jurisdictional error, the main ground being an alleged misinterpretation of the Claimant’s contractual entitlement to delay costs. Justice Byrne held that the Adjudicator’s view of the operation of the relevant contract clause was not so unusual that it indicated a failure to apply a rational mind and further held that the other matters complained about would at most be non-jurisdictional errors.

As a result, both of these further grounds for argument by the Council were rejected by Justice Byrne.

Severing void decisions

In December 2014, substantial amendments to the BCIP Act came into effect. An outline of those amendments and their practical impact may be found in our previous alerts (see here). 

Prior to those amendments, jurisdictional error affecting any part of a decision would likely render the whole of the decision void which would then be set aside. The effect of this was that parties who received unfavourable decisions often scoured those decisions for any mistake by the adjudicator in an attempt to have the entire decision set aside.

Following the December 2014 amendments, courts were provided with the power to, where appropriate, sever parts of an adjudication decision held to be void while leaving the remainder of the decision as valid and enforceable.

This case is notable as the first occasion on which the courts have exercised that discretionary power. Despite the application being filed before the amendments came into effect, it was not heard before Justice Byrne until February 2015. On that basis, the Council argued the power to sever should not apply, however Justice Byrne considered the transitional provisions of the BCIP Act and disagreed.

His Honour then ordered that the part of the decision relating to delay costs for the saturation of the alluvium be severed and declared void, with the balance of the decision (approximately 80%) remaining valid and enforceable by Earthpro. The Council was also ordered to pay a significant portion of Earthpro’s legal costs on the basis that it had only been successful in one of the many grounds of challenge it had advanced before Justice Byrne.

Practical impact

The practical impact of this power may be to somewhat diminish the appeal of challenging unfavourable adjudication decisions as those challenges are no longer, in effect, “winner takes all” situations with consideration instead required to be given to a range of possible outcomes.

This decision also reinforces the need for parties to consider carefully the grounds of challenge to an adjudication decision advanced before the court or risk facing adverse costs orders, despite being partly successful in the application.

As a result of the amendments, achieving the correct outcome at an adjudication is, in our view, more important than ever and we therefore recommend seeking legal advice at an early stage, particularly in light of the restrictive timeframes within that process.

If you would like some more advice in relation to adjudications under the BCIP Act, please feel free to contact:

Andrew Kelly | Partner | +61 7 3338 7550 | akelly@tglaw.com.au

Andrew Mackintosh | Senior Associate | +61 7 3338 7551 | amackintosh@tglaw.com.au

Thomson Geer’s Queensland Construction team recognised by Doyle’s Guide

Partner, Andrew Kelly has recently received individual recognition as a “Preeminent” lawyer by his peers in Doyle’s guide. This is Andrew’s second consecutive year being recognised within this category.

The firm was also recognised as a “Second Tier” Leading Queensland Back-End Construction Law Firm and a “Third Tier” Leading Queensland Front-End Construction Law Firm. These results are a great reflection of the excellent reputation Andrew and his team hold within the construction industry in Queensland.