IS IT “BACK TO THE FUTURE” FOR QLD ADJUDICATIONS?

Summary

In Iris Broadbeach v Descon Group¹ the Queensland Supreme Court declared an adjudicator’s decision void because the payment claim was invalid “as a result of the identified items not being sufficiently particularised”.² The court’s view appears to be that a payment claim must include, for each part of a trade breakdown, a single line description of the specific works that are being claimed.

It might be tempting to treat this as a new interpretation of the Act, that payment claims must be particularised and that it is open to a court to arrive at a different conclusion to an adjudicator. However, if this is seen as a precedent applicable to all matters then the Qld construction industry needs to brace itself for a rash of cynical challenges where a party provides a payment schedule and relies on it to contest an adjudication application, but if it does not like the outcome goes to court asserting that it could not possibly have provided a payment schedule because it did not understand the claim at all.

The court’s approach, which followed another first instance Qld decision in KDV Sport v Muggeridge,³ is at odds with several NSW Court of Appeal decisions, all taking the view that where a payment claim has been submitted to adjudication it is for the adjudicator, who has the necessary expertise in this area, to decide if the payment claim satisfies the non-essential more detailed requirements of the Act. Those same decisions that have been cited with approval by the Qld Court of Appeal or applied in other Qld Supreme Court matters. Furthermore, there are aspects of both Qld first instance decisions that suggest they should be confined to their own circumstances.

Whether or not a particular payment claim identifies the construction work to which it relates sufficiently for a respondent to reply in the specific circumstances of the contract is a factual matter, and not a question of law. The Act contains no requirement for particulars, and several court decisions on adjudication matters have noted that it is the payment schedule, not the payment claim, that has the role of defining the issues.

It therefore might be appropriate for the legislators to consider both the views of the Courts of Appeal regarding the expertise adjudicators bring to the matter, and the proposal in the Murray Report that experienced senior SOP Adjudicators with a considerable background in the various state Acts and the construction industry in general, might be in a better position to rapidly review the determinations of other adjudicators. A form of review was included in the WA SOP legislation, including limitations such as the review adjudicator cannot consider a matter that was not pursued before the original adjudicator.

Otherwise, there is a risk that needless court reviews that are delivered many months after an adjudication determination will defeat the purpose of the Act, and as the lifeblood of the industry trickles away, the only winners will be the legal profession.

How Iris Broadbeach should be viewed

The better view of this case is to recognise how it was argued before the court. Firstly, the parties agreed in joint submissions to the court that, subject to a consideration of severance, the adjudicator’s determination would be void if the court found that the payment claim did not meet the requirements of the Act. That meant the court was not taken to and had no reason to consider the legal precedent that this is not a jurisdictional issue. Secondly, the contractor argued that it had provided supplementary materials after the payment claim was served, and that this was a regular practice between the parties on all claims that cured any deficiencies. By taking that approach, the contractor effectively admitted that its payment claims as served were always deficient, and the outcome should have been no surprise after the court ruled that the payment claim must be assessed at the time it is served. The court then followed KDV Sport v Muggeridge in finding that the works were not identified because only a percentage complete was given, rather than a description of what that percentage represented.

A more effective defence might have included the same submission made in KDV Sport v Muggeridge, that the payment claim was “on all fours” with that approved in Clarence St v Isis Projects.⁴ Unfortunately for Muggeridge, the court in its matter did not accept that a one-page payment claim that included significant internal mathematical errors was “on all fours”. But that cannot be said of the payment claim in Iris Broadbeach, which included a list of contract packages and a schedule breakdown into sub-packages or services under each package⁵ as well as a further 7 pages of supporting schedules/tables,⁶ seeking payment for the percentage complete against each sub-item. The payment claim in Clarence St v Isis Projects⁷ identified the works to which it related by a number of one line item descriptions and showing for each the original contract value, the amount of previous claims, the value of work to date and the percentage completed. By clear inference, the description must be a broad category of work at the level defined in the contract, and not a detailed particularisation of only the works undertaken in a specific month.

That can be seen in the further guidance provided by Santow JA in Nepean Engineering v Total Process Services,⁸ delivered shortly after the decision in Clarence St v Isis Projects:

1. a distinction is drawn between what might be sufficient and what is necessary to identify the construction work, noting that the formulation accepted in Clarence St was sufficient but “did not purport to be exhaustive as to what would do so”;⁹
2. indications in the text of the Act point to a broad approach, thus “the connotation of the word “relates” ... “requires no more than a relationship, whether direct or indirect, between two subject matters”;¹⁰
3. “construction work” is broadly defined in categories in the Act, strongly suggesting that identifying the work in a payment claim requires no more in physical detail than identifying a particular category of construction work and “there can be no necessity to identify for example the location on a particular pipe of a particular weld”;¹¹ and
4. “If the construction work has been identified in categories broadly in line with the definition of construction work contemplated by the construction contract, which may itself be merely oral, this should ordinarily enable the respondent to understand the basis of the claim and be able to respond accordingly”.¹²

Whether the court in Iris Broadbeach would have found differently if taken to these cases is not the point, and there were other issues that determined the outcome of the case. What is more relevant is whether the decisions in Iris Broadbeach and KDV Sport on the reviewability of payment claims are part of a consistent body of developed caselaw that should be followed, or if they are inconsistent with other decisions and should be confined in effect to their own circumstances. Each of those cases has nuances and each was grounded in the somewhat novel notion that a payment claim must contain words that describe the particulars of all of the works undertaken during the claim period, despite the Court of Appeal in Clarence St v Isis Projects accepting that the nomination of a total percentage complete against a broader category is ordinarily sufficient for a party with knowledge of the project to provide a response.

Iris Broadbeach and KDV Sport in the context of developed caselaw

In the adjudication matters underlying Iris Broadbeach and KDV Sport both respondents provided payment schedules and were permitted to submit adjudication responses that were considered by the adjudicators. In both cases, the outcome was less than half of the claimed amounts being awarded. Either a party can understand the payment claim or it cannot, but it shouldn’t be permitted to plead both at the same time or plead one case in one forum, and a different case in another.

Perhaps more importantly, both adjudicators in Iris Broadbeach and KDV Sport considered the payment claims and decided that they met the requirements of the Act and there is consistent superior court caselaw that establishes this is not a reviewable decision or a jurisdictional issue. Brodyn v Davenport¹³ listed a number of essential criteria, including the NSW equivalent section regarding the service of a payment claim, but noted that the more detailed requirements of that section regarding the content of a payment claim was not essential to the validity of a determination.¹⁴ This was supported In Coordinated Construction v Climatech¹⁵ where it was noted that it is a matter for the adjudicator to determine if the payment claim identifies the work, and what is or may be sufficient identification falls within the special expertise which a qualified adjudicator is intended to bring to the task.¹⁶ Coordinated Construction v J.M. Hargreaves¹⁷ noted that while the Act provides that a payment claim must identify the construction work to which it relates, Brodyn may be read as saying that whether or not it does depends on the opinion of the adjudicator. Perform v Mev¹⁸ similarly stated that the detailed requirements of a payment claim are a matter for the adjudicator to determine.

The adjudicator in KDV Sport dealt with the specific submission that the payment claim did not identify the works, and the court made no reference to those eight paragraphs of the determination (including relevant caselaw references) and made no finding that the adjudicator did not perform the required task. It is therefore unclear why the court proceeded to make a different finding, contrary to superior court decisions as to the limited role of the court. The court’s reference at [12] to Northbuild Constructions v Central Interior Linings at [32] was in fact an endorsement of the authority in Brodyn v Davenport that a determination is void if it does not meet the “essential statutory requirements” which, as noted above, explicitly excluded the more detailed requirements for the content of payment claims, so that reference provides no support for the view that the content of a payment claim is a jurisdictional issue where the adjudicator’s opinion can be reviewed.

All of the Court of Appeal decisions referenced in KDV Sport were summary judgement applications after a failure to provide a payment schedule, placing the court in an entirely different position because there is no preceding adjudicator’s decision. They provide no support for the view that a court can review an adjudicator’s opinion of a payment claim. The only case referenced in KDV Sport that involved an adjudication was Peter’s of Kensington¹⁹ and in that matter most of the judgement was a consideration of various Court of Appeal viewpoints regarding whether this is reviewable, finally deciding that none of the tests were met. The court in KDV Sport did not appear to address the submission that if any errors were made out, they were not jurisdictional, despite accepting that it is not a question as to whether the court would arrive at a different decision and the proper question was whether the adjudicator performed the functions demanded by the Act. In Iris Broadbeach, the parties’ agreed submission to the court removed the need to consider if the issue was reviewable, and while the court considered Climatech and Brodyn it was regarding the issues of subsequent documents and whether partial compliance was sufficient.

The court in Peter’s of Kensington also clarified that the formulation accepted in Clarence St v Isis Projects was not meant to suggest that it is necessary for the work to be broken down into the nuts and bolts of the performance of each individual aspect.

From a pragmatic adjudication perspective

I find it difficult to see how a claimant on a reasonably sized project could specifically list each item of work undertaken in a month for each trade in a single line description. More importantly, I do not see what purpose it would serve because progress payments are generally not calculated by valuing each physical item of work since the last claim, unless there is a contract price for each of these sub-components. If there is no specific price, the Act requires a valuation which was described in Pacific General Securities v Solimon & Sons:

the amount of a progress payment will … be that proportion of the contract price as corresponds with the proportion of the contracted construction work that has actually been performed as at the relevant reference date (less any payment already made).²⁰

This formulation does not require a particularisation of the works that are the subject of the claim, but that is not to suggest that there might never be circumstances where it is necessary to do so. In practice, the appropriate adjudication process is dependent on the contract terms, the nature of the payment claim and reasons given in the payment schedule, and the submissions and supporting information provided by the parties. As the courts have noted, this is the expertise that an adjudicator brings to the process.

That is why it is dangerous for a court to purport to specify the minimum requirements for a payment claim that must apply in all cases. If the circumstances of the matter dictate what is necessary, the adjudicator is in a better position to make an assessment and our overloaded court system should not have to determine matters of fact that could be better reviewed by a more senior adjudicator.

In the meantime, adjudicators should prepare to receive a volley of submissions, most likely drafted by lawyers, that the respondent’s primary submission is the payment claim is invalid because it is not particularised, but if that submission is not accepted then a valid payment schedule was provided and it included convincing reasons for non-payment that the adjudicator should accept.

Chris Harriss is a construction lawyer and a senior adjudicator with Adjudicate Today in Queensland, NSW and Victoria, as well as being qualified in construction management and project management and having over thirty years of experience in major projects, including the Sydney Olympics.