Case update

BM Alliance Coal Operations Pty Ltd v BGC Contracting Pty Ltd & Ors [2013] QSC 67

A Queensland Supreme Court judgment delivered on 22 March 2013, BM Alliance Coal Operations Pty Ltd v BGC Contracting Pty Ltd & Ors [2013] QSC 67, has overthrown the established position that an adjudication decision made under the Building and Construction Industry Payments Act 2004 (Qld) ("BCIPA") can be set aside or declared void in its entirety if it is found that any part of the decision is infected by jurisdictional error.

Background

BGC was awarded approximately $28.16 million in an adjudication determination made under BCIPA. BMA sought a declaration from the court that the determination was infected by three separate jurisdictional errors and was therefore void.

The judge found that BMA had established that one of the three jurisdictional errors affected the adjudication determination. The jurisdictional error related to the $4.35 million the adjudicator awarded for termination costs. His Honour found that the adjudicator failed to identify a legal source for the entitlement to termination costs.

The judge then heard written and oral submissions from both parties on the appropriate orders that should be made. BMA submitted that the adjudication decision should be declared void and BGC should be ordered to pay back to BMA the amount awarded by the adjudicator. BGC however, submitted that it should pay back to BMA the amount of $4.35 million (plus GST and interest) which represented the amount relating to the jurisdictional error only.

The Court's decision.

Rather than declaring the adjudicator's decision void, the judge ordered that BGC pay back to BMA only that part of the original adjudication amount infected by jurisdictional error, being $4.35 million (plus GST and interest).

The judge found that the power to set aside or declare an adjudication decision void is discretionary. As a result, he held that the court does not need to grant such relief in circumstances where "a more convenient and satisfactory remedy exists". The judge reviewed and cited previous case law to support the view that declining declaratory relief on the basis that a more satisfactory remedy exists is well-recognised by the courts.

Of critical importance in deciding not to declare the decision void was the fact that the amount affected by jurisdictional error could be readily defined and quantified and that it represented only a small part of the overall claim. Moreover, the jurisdictional error had not tainted the whole of the decision making process but had only affected the amount awarded for the termination costs. The judge held it would be unjust to grant such a remedy in these circumstances.

Importantly, the judge found that the adjudicator's decision did not lack effect notwithstanding the finding of jurisdictional error and that the adjudicator's decision retained its effect unless and until the judge exercised his discretion to grant a declaration or make an order quashing the decision.

The judge also agreed with comments made by McDougall J in Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd (2010) NSWLR 393 that, when exercising the discretion to grant or withhold relief, the court should take into account both the policy underlying the relief and the statutory context in which the application arises. He noted that BCIPA "seeks to preserve the cashflow to a builder" and that each party has a right to an adjudication decision free from jurisdictional error. In this instance, the remedy which best reflects and preserves the objects of BCIPA is the remedy of refunding the amount of the claim affected by jurisdictional error.

Implications

The decision has significant consequences on parties involved in a review of an adjudication determination.

For a judge to declare an adjudication decision void, parties will not only have to prove that jurisdictional error in fact existed, but they will also have to show that the jurisdictional error affected the whole decision or that it could not be clearly separated from the rest of the decision. The mere fact that jurisdictional error is found to affect a decision no longer means the decision will be declared void if the judge deems a more convenient and satisfactory remedy exists.

BCIPA is intended to be used as a quick and effective mechanism to facilitate cash flow in the construction industry. This, coupled with the reluctance judges have shown in the past to declare the whole of an adjudication decision void, means that the approach taken in this case might spark a new trend in the nature of relief granted in adjudication review applications.

Appeal

BMA will be appealing this decision, with the Notice of Appeal being lodged on 10 April 2013.

Application of the BMA case

Although the judgment delivered on the BMA case is fairly recent, there has already been a case considering the BMA decision.

In Thiess Pty Ltd v Warren Brothers Earthmoving Pty Ltd & Ors [2013] QSC 141 Warren Brothers argued that the adjudication decision should not be declared void as the jurisdictional error found by the judge only affected part of the decision and a more convenient and satisfactory remedy existed. The judge rejected this reasoning and distinguished the facts of this case from the facts in BMA and declared the adjudication decision void.

Warren Brothers argued that the reasoning applied in BMA applied in this case as:

  • the jurisdictional error found by the judge only applied to one of three items comprising the overall work;
  • without the jurisdictional error, the adjudicator would have valued the construction work at an amount that could be precisely calculated; and
  • the affected amount represented only 12.5% of the overall amount.

However, the judge found that the requirements of BMA did not exist in this case. Her Honour found that in BMA, the jurisdictional error was confined to a discreet part of an item. In this case the jurisdictional error could not be confined to a discreet part of the decision. The adjudicator based the rejection of Theiss' submissions in relation to the affected item on the basis that the submissions were unreliable. The finding by the judge that the adjudicator's view of Theiss' submissions was flawed necessarily affected the entire decision. The judge found that the jurisdictional error tainted the whole decision making process and may well have affected both the determination and the quantification of other parts of the Warren Brother's claim.

Moreover, Warren Brothers claimed that the value affected by the decision could be precisely calculated. However, the judge was not convinced that the amount it put forward was in fact accurate and counsel for Theiss submitted a different figure.

Finally, the judge in this case specifically declined to decide whether a declaration that the adjudication decision was void could be withheld as a matter of discretion in BCIPA cases. The judge therefore declined to comment on whether she felt the BMA decision was correct.

Legislative reform

In December 2012, the Minister for Housing and Public Works issued a Discussion Paper entitled "Payment dispute resolution in the Queensland building and construction industry". The paper establishes that the Government is undertaking a comprehensive review of the effectiveness of BCIPA and the paper seeks feedback from industry participants concerning the operation of BCIPA and the dispute resolution process it provides. In particular, the paper raises issues of jurisdiction, procedure and appeal and review rights under BCIPA. However, the paper does not contemplate providing a mechanism within BCIPA to allow courts to declare partial invalidity of adjudication decisions. Therefore, we will have to wait until the submissions (which were received on 22 February 2013) are reviewed to see if this matter makes it onto the legislative reform agenda.