Australia: Challenging an adjudication decision under the Building and Construction Industry Payments Act for lack of good faith

McNab Developments (Qld) Pty Ltd v MAK Construction Services Pty Ltd & Ors [2014] QCA 232

This case enlivened the question of whether an error of law by an adjudicator will only invalidate an adjudication decision where there is also a lack of good faith by the adjudicator.

Overview

McNab was a contractor and MAK was a subcontractor for a building project. MAK served a payment claim under the Building and Construction Industry Payments Act 2004 (Qld) ("BCIPA") on McNab, totalling $853,952.97 for the works undertaken.

McNab contended that the subcontract had been terminated due to MAKS default and MAK sought adjudication of its claim.

The adjudication was heard by the third respondent adjudicator who decided that McNab owed MAK $241,441.20 but he failed to consider one backcharge for $11,727 which had been addressed in the payment schedule and adjudication submissions.

McNab claimed a right to liquidated damages under the subcontract which depended on the date for practical completion of the Works, and filed an application to the Supreme Court seeking to void the adjudication on several grounds.

The primary judge dismissed the application in the first instance and McNab appealed the decision contending that the third respondent adjudicator did not give McNab an opportunity to make submissions on the construction of the contract adopted by the adjudicator before the adjudicator made the decision, that the adjudicator misapplied the Act, and that the adjudicator's decision to prefer the respondent's interpretation of the contract was unreasonable.

The issue to be decided on appeal was whether the third respondent had acted unreasonably, and whether the validity of the determination as a whole had been rendered invalid.

Decision

Gotterson JA delivered the leading judgment following the Brodyn ¹ and Holmwood ² lines of authority.

As Brereton J observed in Holmwood ³ Brodyn appears to hold that a remedy in the nature of certiorari (being a Court Order to set aside or quash a decision) is not available in respect of an adjudication determination, except where it is void by reason of the types of defect which the broadest privative clause would not save; that is where the adjudicator fails to comply with the basic and essential requirements prescribed by the legislation for there to be a valid determination ⁴ .

Gotterson J, going further, held that a failure to consider a matter properly raised in a payment schedule, or other submissions in support would only amount to a jurisdictional error if the adjudicator also acted without good faith.

Jackson J, however, rejected that approach and Morrison JA did not adopt it on the facts of this case.

The appeal was dismissed unanimously on the basis that there was no failure to provide natural justice or jurisdictional error.

Both Morrison JA and Jackson J held that the failure to consider a matter raised in a payment schedule is not an error of law, and that good faith, or lack thereof on the part of the adjudicator, is not a relevant consideration.

Jackson J stated that it could not have been the intention of the legislature that failure to consider one backcharge would have the consequence rendering void, an entire adjudication decision.

Holding that the adjudicator had complied with the statutory obligations under section 26(2) of the Act, and that an accidental error be in omitting to deal with one detail could rectified under section 28 of the Act as an 'accidental slip or omission', Jackson J observed that there were however circumstances where lack of good faith would ground an application for judicial review for invalidly exercising administrative power - and could be a jurisdictional error.

Take away point

Claimants and respondents should remain vigilant around any perceived issues of 'good faith' concerning adjudication decisions, especially in circumstances where the Act was conceived legislatively to provide 'rough and ready justice'. While an absence of good faith is not a necessary element to invalidate a decision, it would appear that the argument remains open ended.

Disclaimer

The content of this article is intended to provide a general guide to the subject matter. Advice should be sought. For more information on the Building and Construction Industry Payments Act 2004 (QLD), please contact Mr John Merlo, Special Counsel at Broadley Rees Hogan, Construction and Infrastructure.

Footnotes

¹ Brodyn Pty Ltd v Davenport [2004] 61 NSWLR 421
² Holmwood Holdings Pty Ltd v Halkat Electrical Contractors Pty Ltd [2005] NSWSC 1129
³ [2005] NSWSC 1129 at [38].
⁴ State of Queensland v Epoca Constructions Pty Ltd & Anor [2006] QSC 324 at [26].

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.