Throwing the contract in the bin – adjudicator’s failure to apply the contract is an error within jurisdiction

Dec 5 2016

Publications

A recent decision of the Queensland Supreme Court Annie Street JV Pty Ltd v MCC Pty Ltd & Ors [2016] QSC 268 has underlined the tension between an adjudicator’s mandate to consider the terms of the construction contract and the effect of section 24(4) of the Building and Construction Industry Payments Act 2004 (Qld) (the Act). It also reinforces the importance of parties ensuring that payment schedules include every possible reason for withholding payment.

Introduction

The case concerned a standard payment claim dispute between MCC (MCC) and Annie Street (Annie Street). MCC served a payment claim for $808,843.44. Annie Street responded with a payment schedule certifying no amount for payment.  The dispute proceeded to adjudication and Annie Street, in its adjudication response, sought to rely on contractual time bars as a reason for withholding payment despite the fact that it had failed to include that reason in the payment schedule in breach of section 24(4) of the Act. Section 24(4) provides that an adjudication response must not include any reasons that have not been raised in the payment schedule.

The adjudicator found that Annie Street’s submissions in the adjudication response as to time bars were not submissions properly made because they offended section 24(4) of the Act, and determined not to consider those submissions. Ultimately, the adjudicator determined that Annie Street was to pay MCC the sum of $528,505.09 plus interest.

Annie Street applied to the Court for relief asserting that the adjudicator’s decision was void on the basis of two grounds of alleged jurisdictional error:

  • the adjudicator’s decision not to allow Annie Street to set-off for liquidated damages denied Annie Street natural justice, was made without adequate reasons pursuant to section 26(3)(b) of the Act and was without foundation; and
  • notwithstanding Annie Street’s contravention of section 24(4) of the Act in relation to its reliance on the time bars, the adjudicator failed to consider the contractual provisions dealing with time bars pursuant to section 26(2) of the Act.

This update focuses on the latter ground.

Decision

Annie Street submitted that the adjudicator had an obligation under section 26(2)(b) of the Act to consider the time requirements of the contract relevant to the payment claim despite that issue not being raised in the payment schedule and the submissions in the adjudication response as to those time requirements not being ‘properly made’.

The Court rejected Annie Street’s submission. The Court reasoned that the adjudicator had not in fact failed to consider the relevant contract provisions but rather, had made a decision to refuse to consider those provisions based on the operation of section 24(4) of the Act. His Honour went on to find that the treatment of those contractual provisions by the adjudicator, if erroneous, would only constitute an error within jurisdiction and not jurisdictional error.

The Court was not satisfied that either ground of jurisdictional error had been made out and dismissed Annie Street’s application for declaratory and injunctive relief.

Implications

This decision makes clear the distinction between an adjudicator’s failure to consider relevant provisions of the construction contract, which may amount to jurisdictional error and an adjudicator’s refusal to consider such provisions (which, if erroneous, may only amount to an error within jurisdiction).

The decision highlights the importance (particularly in relation to standard payment claims in Queensland) of ensuring that payment claims are met with fulsome payment schedules that identify each and every reason for withholding payment available.

For further information please contact:
Andrew Kelly | Partner | +61 7 3338 7550 | akelly@tglaw.com.au
Thomas McKillop | Senior Associate | +61 7 3338 7530 | tmckillop@tglaw.com.au