HG Alert: “Good faith” questioned in Supreme Court - 16 Feb 2010

The Supreme Court of Queensland recently ruled that an adjudicator’s decision was valid because he exercised his power under the Building and Construction Industry Payments Act 2004 (Qld) in “good faith”.

The case, Queensland Bulk Water Supply Authority t/a Seqwater v McDonald Keen Group Pty Ltd (in liq) & Anor, considered the progress payment provisions under the Act, and in particular, whether the adjudicator’s decision was invalid on the grounds of natural justice.

The case in question

McDonald Keen Group made a payment claim against the Authority under the Building and Construction Industry Payments Act 2004 (Qld). The matter went to adjudication and the claimant was successful. The amount held as owing under the progress payment at adjudication was $11 million. In line with the Act, McDonald Keen Group filed the adjudication certificate as a judgment for debt against the Authority. The Authority then sought to have the adjudicator’s decision declared void and the judgment set aside, on the basis that the adjudicator went outside the matters he was entitled and required to consider under the legislation when making his decision.

The Authority argued that the adjudicator, rather than applying the construction contract to arrive at his decision, based his decision on underlying notions of compensating the claimant, as well as assigning undue weight to a facsimile document which formed part of the tender.

The Court dismissed this, and said that it was clear from the adjudicator’s reasons that he had applied the construction contract in making his determination. The Court held that the adjudicator did not arrive at his conclusion by using the facsimile “as the basis for constructing an alternative contract”, nor had he “approached the adjudication intent on determining the claim by ensuring that McDonald Keen Group was fairly recompensed”.

What does the “good faith” test mean for claimants and respondents?

Under the Act, natural justice ensures adjudicators do not fall short or go beyond what they are obliged and entitled to take into account in the exercise of their powers.

Section 26(2) of the Act sets out what an adjudicator is required to take into account:

  • the provisions of the Act and, to the extent that they are relevant, the provisions of the Queensland Building Services Authority Act 1991 (Qld), Part 4A;
  • the provisions of the construction contract from which the application arose;
  • the payment claim to which the application relates, together with all the submissions, including relevant documentation, that have been properly made by the claimant in support of the claim;
  • 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; and
  • the results of any inspection carried out by the adjudicator of any matter to which the claim relates.

Providing an adjudicator makes a genuine attempt to understand and apply those matters to arrive at a decision, it will not be invalidated on principles of natural justice. The judgment of the Court indicates that the “good faith” test threshold is easily satisfied. In the absence of fraud or dishonesty, it is difficult to prove that the decision was not made in good faith.

Poor decision making or human error on behalf of the adjudicator will also not invalidate the decision. Those matters are distinguished from exercising power in good faith.

This case reflects the Court’s previous views on adjudication applications as an interim measure that is designed to quickly resolve disputed progress claims, but which allows for further civil proceedings and enforcement of contractual rights should the parties pursue that course and issue a claim.

Submissions for any adjudication application or response should comprehensively address all the relevant documentation and issues for the adjudicator’s consideration. When reviewing an adjudicator’s reasons, the parties should keep an eye out for any likelihood of demonstrating fraud, dishonesty or actual bias which may result in setting aside the decision on the grounds of natural justice.

For more information on this case or claims under the Building and Construction Industry Payments Act 2004 (Qld), please contact HopgoodGanim’s Construction, Infrastructure and Major Projects team.