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Construction Alert: Courts scrutinise adjudicators' decisions in construction contract payment disputes under the Building and Construction Industry Payments Act 2004 - 26 Oct 2011

The Building and Construction Industry Payments Act 2004 (BCIPA) provides a fast track to resolve payment disputes for those undertaking construction work or supplying related goods and services under a construction contract.

While the parties can pursue their rights in civil proceedings if they are not satisfied with an adjudicator's decision under BCIPA, there are limited rights to review such decisions on an interim basis. However, an adjudicator's decision is subject to judicial review if:

  • the decision was made as a result of jurisdictional error;
  • there has been a denial of natural justice;
  • the decision was given in bad faith;
  • the decision was procured by fraud; or
  • the decision was one which the adjudicator had no power to make.

Here, senior associate Michelle Hall outlines the findings in recent Supreme Court cases where a disgruntled party has applied to the Court for a review of an adjudicator's decision.

Key lessons to be learned

It is important to remember that adjudication, by its very nature, is an interim process. Adjudicators don't always get it right.

To protect themselves, parties should:

  • ensure that the payment claim, payment schedule and adjudication submissions include all relevant submissions they might need to rely on, particularly down the track if the decision needs to be reviewed in Court; and
  • scrutinise adjudication decisions to ensure that the adjudicator has properly dealt with all issues that he or she is obliged to consider under BCIPA.

QCLNG Pipeline Pty Ltd v. McConnell Dowell Constructors (Aust) Pty Ltd & Ors

In QCLNG Pipeline Pty Ltd v. McConnell Dowell Constructors (Aust) Pty Ltd & Ors, handed down on 5 October 2011, the Supreme Court of Queensland declared that an adjudication decision for the sum of $86 million was not valid. The subject of the dispute was a contract between the parties to design and construct a gas pipeline in Central Queensland.

The QCLNG relied on various grounds in its application to the Court to review the adjudication decision, and the Court found that the adjudicator had failed to consider some of the submissions found in the adjudication response.

Peter Lyons J said that the requirement to consider matters found in section 26(2) of BCIPA - the section which sets out what an adjudicator must consider - extends to the payment claim, the payment schedule, and, in each case, "all submissions including relevant documentation, that have been properly made". By not considering submissions that were of significance, the adjudicator failed to comply with an essential requirement of BCIPA. The Court held that the adjudication decision failed to comply with the "basic and essential requirements" of BCIPA, and for that reason was not a valid adjudication decision.

Syntech Resources Pty Ltd v. Peter Campbell Earthmoving (Aust) Pty Ltd & Ors

In Syntech Resources Pty Ltd v. Peter Campbell Earthmoving (Aust) Pty Ltd & Ors, delivered in the Supreme Court of Queensland on 30 September 2011, there had been a number of documents attached to and delivered with the original adjudication response, including spreadsheets that had not been included in or supplied with the payment schedule.

The applicant in this case requested a review of the decision for an adjudicated amount of approximately $456,000. The Court declared the adjudication decision void on two grounds:

The adjudicator did not consider the spreadsheets attached to the adjudication response, and in not doing so committed a jurisdictional error. The adjudicator is required by BCIPA to consider submissions which are not to be construed narrowly.
The adjudicator denied natural justice to Syntech because he unilaterally discarded the spreadsheets without giving the parties notice of his intention to do so.

The adjudication decision in this case was overturned because of how the adjudicator delivered the decision. This case is a reminder to respondents in adjudications to ensure that all relevant submissions are included in the payment schedule, so as to avoid potentially being prevented from relying on them later on.

Clyde Bergemann Senior Thermal Pty Ltd v. Varley Power Services Pty Ltd

In Clyde Bergemann Senior Thermal Pty Ltd v. Varley Power Services Pty Ltd, recently delivered in the Supreme Court of New South Wales, an adjudication decision in the sum of approximately $2.5 million was upheld by the Court.

The Court held that while an adjudicator must consider the relevant terms of a construction contract, the adjudicator in this case did not fall into jurisdictional error if and to the extent that he misconstrued or misapplied the relevant provisions of the contract. The Court also held that there was no denial of natural justice or lack of good faith in this case because the adjudicator did not pick up an issue that had not been identified in the payment schedule, or had not otherwise been drawn clearly to his attention.

The outcome in this case could have potentially been avoided if the respondent had included and outlined clearly all of the relevant submissions in its payment schedule and submissions.

For more information about resolving payment disputes under the Building and Construction Industry Payments Act 2004, please contact HopgoodGanim's Construction, Infrastructure and Major Projects practice.