Lessons for Adjudicators practicing in Queensland

This article analyses the decision of Williams J in Karam Group Pty Ltd As Trustee for Karam (No.1) Family Trust v HCA Queensland Pty Ltd & Ors [2022] QSC290. It also includes a section setting out the ramifications for adjudicators.

The original of the article was prepared for the Queensland Building and Construction Commission, Adjudication Registry, by John Murray AM. John conducted for the Commonwealth the review of the different security of payment laws that operate in the various jurisdictions. John’s Final Report, “Building Trust and Harmony” was released by the Commonwealth in May 2018 and various of its 86 recommendations have been taken up by a number of State Governments. John is Adjudicate Today Chief Adjudicator for the States of Queensland, Victoria, South Australia, West Australia, Tasmania and A.C.T. having adjudicated more than 500 matters.

A] Issues before the Court

1. There were two issues associated with this case:
   
   
   1. Whether the requirement that an “adjudicator must decide an adjudication application” in s85(1) of the BIF Act is satisfied by the written document complying with s88(1) and (5) being finalised before the expiry of the time period (in the present case, midnight on 25 August 2022) in circumstances where:
      
      
      1. a copy of the Adjudicator’s decision was not given to the QBCC Registrar (s88(6)) and the parties (s88(7)) before the expiry of the time period; and
      
      
      2. the Adjudicator had not communicated that he would not communicate his decision until his fees and expenses were paid before the expiry of the time period (s95(7)(d)); and
   
   
   2. If the Court found that the Adjudicator had failed to make a decision within the prescribed time, then, by reason of the Court of Appeal decision in Civil Contractors (Aust) Pty Ltd v Galaxy Developments Pty Ltd¹, the decision would be void for jurisdictional error. In such circumstances, the next issue was whether the adjudicated amount paid pursuant to the purported adjudicator’s decision was to be repaid.


2. The prime focus of this article relates to the first issue as this has significant ramifications for adjudicators.

B] Background to the case

3. The Contractor entered into a contract with the Principal for the construction of a block of residential apartments. As the Contractor carried out its works, it made a number of progress payment claims.


4. On 1 March 2022, the Contractor served a payment claim in the amount of $7,383,688.00 and, on 15 March 2022, the Principal issued a payment schedule in the amount of $1,554,407.00.


5. The Contractor referred its Payment Claim to adjudication and, on 3 May 2022, the Adjudicator was appointed. The parties agreed to extend the time for the Adjudicator to decide the adjudication application to 25 August 2022.


6. On 25 August 2022, the Adjudicator completed his decision. That is to say, the Adjudicator had determined the matters set out in s88(1) of the Building Industry Fairness (Security of Payment) Act 2017 (Qld) (the BIF Act) and the decision also complied with the requirements set out in s88(5) of the BIF Act.


7. On 26 August 2022, the Adjudicator, via his agent, sent an email to the parties advising that his decision had been completed but that he would refuse to “release” the decision until all his fees and expenses were paid.


8. The Adjudicator’s fees were paid later that day and the Adjudicator’s decision was (via his agent) released. On 30 August 2022, the Adjudicator amended that decision pursuant to the “slip rule” and issued the “corrected” second decision that day.


9. The Principal made payments in respect of the Adjudicator’s corrected/second decision that also included accrued interest and an amount representing the percentage of the Adjudicator’s fees, as had been set out in the Adjudicator’s decision.


10. The Principal applied to the Court seeking a declaration that the Adjudicator’s decision and amended/second decision were void and an order that those decisions be set aside. The Principal also sought an order that the Contractor pay the amount made by the Principal to the Contractor as a result of the purported decision(s).

C] Meaning of the phrase “adjudicator must decide an adjudication application” in s85(1) of the BIF Act

11. Williams J commenced his analysis by noting that the BIF Act created a statutory alternative dispute resolution (ADR) process for the determination of disputes as to amounts payable under a payment claim. Consistent with the purposes / objects of the BIF Act, as set out in s3, the procedures relating to the adjudication process set out expedited time limits for the various steps to be undertaken. These time limits were important to achieving the BIF Act’s objectives/purposes:
    
    “It is consistent with the purpose in s 3 that the adjudicator’s task of “deciding” the adjudication application is the completion of all aspects contained in s 88 within the time prescribed in s 85(1) (as extended by s 86). To conclude otherwise would in effect frustrate the purpose of ensuring payment for work in the building and construction industry and the utility of the statutory ADR procedure. Communication of the adjudicator’s decision, being the s 88(1) components and the reasons contained in a written document, is essential to the operation of the scheme as a whole and in particular, to give rise to the obligation for payment of the adjudicated amount.”²


12. His Honour also noted that the objective of compliance with the prescribed time limits is reinforced by the BIF Act creating offences in respect to non-compliance with key obligations. These include s88(6) which imposes a penalty where an adjudicator fails to give a copy of the adjudicator’s decision to the Registrar together with a notice of all fees and expenses paid or to be paid and s90(2) which imposes a penalty on a respondent who fails to pay the adjudicated amount within 5 business days after the day on which the adjudicator had given a copy to the respondent:
    
    

    “These offences highlight that the key focus of the statutory scheme is to facilitate the prompt payment of the adjudicated amount following the adjudicator’s decision. This is dependent on the communication of the adjudicator’s decision. The expeditious communication of the adjudicator’s decision is therefore central to achieving the objectives of the statutory scheme.”³ (emphasis added)

13. The reference in s95(7) that an “adjudicator does not fail to make a decision only because - … (d) the adjudicator refuses to communicate the adjudicator’s decision on an adjudication application until the adjudicator’s fees and expenses are paid” is consistent with the interpretation that all the components of s88 are to be completed within the prescribed time period:
    
    

    “Section 95(7) expressly says that “an adjudicator does not fail to make a decision only” because of the identified matters, which is consistent with there otherwise being a failure to make a decision in those circumstances. The use of the word “refuses” conveys some communication that the adjudicator is not otherwise communicating (or providing) a copy of the adjudication decision until the fees and expenses are paid.
    
    This section requires some notification to the parties that at least informs them that the adjudication decision has been made, advises the amount of the fees and expenses and indicates that the adjudication decision will be provided once the fees and expenses have been paid to be operative. An adjudicator reaching that conclusion but keeping it to themselves would not be sufficient to come within s 95(7) of the BIF Act.
    
    Where s 95(7)(d) operates there is a decision which is in effect “on hold” until the fees and expenses are paid. The section would have no operation if s 88(1) and (5) had otherwise not been complied with.”⁴ (emphasis added)



14. However, s97(5) states that the Adjudicator’s right to withhold release of the decision until the adjudicator has been paid is only available if the adjudicator communicates a refusal to provide the adjudication decision. Williams J emphasised that construed in context and consistent with the purpose of the BIF Act, such communication is required to be done before the expiry of the prescribed time period.
    
    

    If communication was not required within the prescribed time period it could effectively frustrate the right in s 94, which would also be inconsistent with the purpose of the BIF Act and the ADR process in Part 4 in particular.
    …
    The text of s 94 is also a strong indication that all aspects of “deciding” the adjudication application have to be completed prior to the adjudicator’s “power being spent”, subject to the right in s 95(7)(d) being exercised.⁵ (emphasis added)

15. Insofar as the Contractor referred to the decision of the ACT Supreme Court in St Hilliers Property Pty Ltd v ACT Projects Pty Ltd⁶ and the NSW Supreme Court in Cranbrook School v JA Bradshaw Civil Contracting⁷ as authority for the proposition that an adjudicators decision does not need to be communicated within the prescribed time limit where the decision was made within time, Williams J considered those two cases to be “plainly wrong”. Further, his Honour noted that neither of the two cases appeared to have given any consideration to the equivalent provisions of ss88, 94 or 97(5)(d) of the BIF Act.
    
    

    “In any event, the legislative scheme is sufficiently different to require the construction task to be undertaken in respect of the BIF Act and a different conclusion may be reached as a result of that construction exercise.”⁸

16. Thus, Williams J summarised the statutory obligation on an adjudicator to complete the decision and to communicate the completion of that task to the parties, as follows:
    
    

    “The proper construction of s 85(1), s 86 and s 88 is that the adjudicator decides the adjudication application by completing all aspects constituting the adjudicator’s decision in s 88 prior to the expiry of the time period in s 85(1) (as extended pursuant to s 86), unless the adjudicator has exercised the right to refuse to communicate the adjudicator’s decision until the fees and expenses have been paid.
    
    Consequently, where the adjudicator has finalised a written document complying with s 88(1) and (5) before the expiry of the time period but:
    
    (a) failed to give a copy of the adjudicator’s decision to the registrar (s 88(6)) and the parties (s 88(7)) before the expiry of the time period; and
    
    (b) failed to exercise the right to refuse to communicate the adjudicator’s decision until the adjudicator’s fees and expenses are paid by giving notice to the parties before the expiry of the time period (s 95(7)(d)),
    
    the adjudicator has not decided the adjudication application within time.”⁹ (emphasis added)

17. Accordingly, if (as in the present case), the adjudication application had not been decided within time, then, in accordance with the Court of Appeal decision in Civil Contractors (Aust) Pty Ltd v Galaxy Developments Pty Ltd, the adjudicator’s decision is invalid and void

D] Obligation to repay money paid pursuant to a void adjudication decision

18. Williams J then held that as the adjudicator’s decision (and its amended/corrected decision) was void for jurisdictional error, the Contractor was obliged to repay the monies that the Principal had paid pursuant to the purported adjudicator’s decision.


19. In arriving at this conclusion, his Honour followed the decisions of the Court of appeal in BM Alliance Coal Operations Pty Ltd v BGC Contracting Pty Ltd¹⁰ and Lyons J in J Hutchinson Pty Ltd v CADA Formwork Pty Ltd¹¹. In Williams J’s words:
    
    

    “The process under the BIF Act is an alternative dispute resolution procedure which creates an obligation to pay the adjudicated amount. The importance of the obligation to pay the adjudicated amount is reflected in s 90(2) creating an offence for non-compliance. Further, the amount can be enforced as a judgment debt through the courts on the basis of the adjudication certificate.
    
    I consider that the decisions are correctly decided on the basis that the payment of money pursuant to an adjudicator’s decision subsequently found to be invalid is sufficiently analogous to the payment of money pursuant to a court order later overturned to give rise to an obligation to repay the money. Whether this is in the same category of restitution, or in effect a sub-category, the same principle applies entitling the Principal here to the repayment of the monies paid pursuant to the Second Decision.”¹²

E] Key Take-outs from the case

20. It is now clear that an adjudicator who has been appointed to decide an adjudication application under the BIF Act must complete deciding all the aspects in s88 prior to the expiry of the time period in s85(1) (or as extended pursuant to s86). Similarly, an adjudicator’s right to refuse to communicate/release the adjudicator’s decision until the adjudicator’s fees and expenses have been paid (pursuant to s95(7)(d)), must communicate his/her exercise of that right prior to the expiry of the time period in s85(1) (or as extended pursuant to s86).


21. For adjudicators, the practical ramifications of Williams J’s decision are as follows:
    
    
    1. Have appropriate systems and procedures in place that will alert you to when your adjudication decision is required to be made and make sure that your decision has been completed prior to the expiry of that time. If you intend to exercise your statutory right of refusing to release your decision until your fees and expenses have been paid, then you must communicate this to the parties prior to the expiry of the time when your adjudication decision was required to be completed. This also means that you must advise the parties of your fees and expenses by way of a tax invoice and you must send that tax invoice at the same time when you are advising the parties that you are relying on your rights as set out in s95(7)(d);
    
    
    2. Be cognisant that if you have exercised your right pursuant to s95(7)(d), then you must release your adjudication decision as soon as payment has been made. Remember that payment by EFT is now common so you must have a process in place for the release of your decision as soon as payment has been made. If you have received payment, you can’t then delay releasing your decision because you wish to carry out some further editing. Your decision was required to have been completed prior to the expiry of the prescribed time;
    
    
    3. If you have engaged an agent to attend to a range of administrative tasks, such as proof-reading your draft determination and/or communicating with the parties on your behalf, then you best make sure that your agent has appropriate systems and procedures in place to communicate with the parties that you will not be releasing your adjudication decision until your fees and expenses have been paid and that such communications are made before the expiry of the time when your adjudication decision was required to have been completed. If you are likely to complete your adjudication decision after business hours on the day when your decision is required to be completed, then you best make sure that your agent is aware and able to communicate with the parties that you have exercised your right under s95(7)(d) before 11:59pm on that day. If your agent advises the parties on the following day, then your decision will be held to be void for jurisdictional error; and
    
    
    4. As set out above, Williams J held that where a respondent had paid an amount to the claimant pursuant to an adjudicator’s decision which is subsequently held to be invalid, the claimant is obliged to repay this amount to the respondent. For a claimant, such an outcome must be galling. But for the adjudicator’s failure to communicate to the parties prior to the expiry of the prescribed time period, the claimant would not have been deprived of the benefit of receiving payment from what would otherwise have been a valid adjudication decision. As a result of the adjudicator’s actions the claimant will continue to be denied payment for the work it claims to have carried out, and the impact on the claimant’s cash flow may well be devastating. Remember, the underlying philosophy underpinning the security of payment regime is to preserve the contractor’s cash flow, because the legislature recognises that cash is the life blood of the industry. As an adjudicator you have a responsibility in managing your time so that you are able to complete your decision within the time period set out in the Act. Heretical and unpopular as this may be to the reader, the BIF Act’s focus is less on advancing the interests of adjudicators and more on securing the payment for the party that has carried out construction work. It is not for nought that the word “Fairness” appears in the title of the legislation. The inclusion of that word reflects the legislature’s intention to implement the notion of giving the party that has carried out the construction work a “fair go”. As an adjudicator you should take whatever measures you need to make in order to complete you decision in a timely manner. Seeking comfort from the provision set out in s97(8) (i.e. entitlement to be paid your fees and expenses where a court finds your decision void and unenforceable so long as you act in good faith) may well, one day, prove to be misplaced.


22. Know the right time when your adjudication decision is due and if you have completed it prior to when it is due, make sure you communicate this to the parties.