Will the drafting of the BIF Act kill adjudication in Queensland?

Chris Harriss is a construction lawyer and a senior adjudicator with Adjudicate Today in Queensland, NSW, Victoria and now WA, 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.

The Building Industry Fairness (Security of Payment) Act (BIF Act) was introduced to Parliament with the promise that it would usher in a new era of fairness in the industry, increase ease of access to Security of Payment, and streamline and speed up the process. There was a significant re-drafting involved, building on a previous redrafting of the BCIPA in 2014. The result was an Act that remained similar to those in other jurisdictions, but with a tighter drafting, more specific requirements and procedures to be followed, and penalties for non-compliance.

What might not have been expected is that the courts would interpret this significantly tighter drafting as in intentional departure, and give the new Act a correspondingly tight interpretation that casts aside earlier interpretations and principles. The Courts now focus on the BIF Act as providing significant rights that come at the cost of strict compliance, such that a claimant must set up an accounting system that is different to and separate from its contractual system. The Queensland Courts are finding more and more aspects that are open to challenge, making the process more difficult and potentially costly if matters proceed to court, and it might be appropriate for the legislators to pause and consider if the redrafted BIF Act can ever achieve its stated aims.

Certainly, the available statistics suggest that the BIF Act is being used much less than its predecessor BCIPA,¹ and there is no evidence that insolvencies have decreased.

One form to rule them all

The QLD legislation is the only Act requiring an application to be made using an approved form, a requirement first introduced in amendments to the BCIPA in 2014. The wording “must be in the approved form” was confirmed in Niclin Constructions v SHA Premier Constructions [2019] QCA 177 as meaning that the “approved form” was effectively the adjudication application, and all else was merely submissions in support. Therefore, a claimant that did not serve the “approved form” on the other party had not served the adjudication application, even if the information from the “approved form” was duplicated in the supporting submissions.

This issue reached its nadir in Iris Broadbeach v Descon Group [2023] QSC 290, as a result of the QBCC’s systems permitting an application to be made on-line that instead of generating a full copy, generated a summary PDF document back to the user that was not identical to the “approved form”. The court found that service of this QBCC PDF was not service of the application, noting that perhaps screenshots of the on-line application would have sufficed.

Amendments to the BIF Act were pushed through in June this year as part of a Bill for rental reform, retrospectively making the QBCC PDF document valid and permitting adjudication determinations to be re-made if it was the QBCC PDF that was provided. That might be small comfort to the claimant in the above matter, having gone into liquidation on 1 May 2024 before the amendment was passed. The same amendments also gave a Claimant 4 business days to provide a copy of the Application to the Respondent, replacing the Court’s interpretation of “as soon as possible”.

A Time to Decide

Part of the redrafting of the BCIPA into the BIF Act involved a significant number of provisions that specify what an adjudicator “must” do, and the Court in Galaxy Developments v Civil Contractors [2020] QSC 51 particularly noted that the frequent use of the term “must” in the BIF Act was deliberate and regulated the actions of both the QBCC and the adjudicator.²

Other significant changes were made to the provisions regarding a Claimant’s rights if the adjudicator exceeds the time limit for making a determination. The BCIPA provisions mirrored interstate Acts, but the BIF ACT amendments were entirely different. This was sufficient for the first instance judge to determine that decisions in other jurisdictions that a late determination is still valid should not be followed. The Court of Appeal agreed with this analysis in Civil Contractors v Galaxy Developments [2021] QCA 10, finding that it was an intention of the BIF Act that a late determination is void, in which case the claimant has 5 business days to re-apply for or commence a new adjudication. That may have been of little benefit to the claimant in the above matter, given that the first instance decision was five months after the adjudication, and the Court of Appeal decision was another 10 months after that, and it never saw the adjudicated amount of $1.3M and instead was liable for court costs.

This reasoning went a step further in Karam Group v HCA Queensland [2022] QSC 290 such that a decision not only has to be made, but the determination has to be provided or at least notified as available within timeframe. The court noted that the BIF Act created a number of offences if timeframes were not met, including timeframes depending on when the adjudicator’s decision is communicated,³ and again found elements in the BIF Act that were different to other jurisdictions, all of which informed the Court’s interpretation.

In other jurisdictions, the courts have ruled that the relevant legislation contained a penalty to the adjudicator (ie, losing the right to payment) if a determination is late, such that there was no intention that a Claimant should also be penalised by losing its rights. Queensland is now the exception, and it is notable that there was no rush to pass retrospective amending legislation when the above cases came out, in contrast to when the QBCC was at fault regarding the “QBCC Form”.⁴ That would tend to suggest that the government has a close relationship with the QBCC registrar, who allocates matters to adjudicators where the government is frequently a respondent.

Work Hard for the Money, but don’t forget to ask for payment

A matter that was significantly divisive in submissions prior to the BIF Act reforms was the proposal to remove the endorsement that a payment claim is made under legislation. Many submissions cautioned against this change, noting that it had been tried in NSW and there were strong indications that this caused confusion and would be reinstated in that state. The view that prevailed in QLD was that it would be more desirable if every progress claim could be a claim under the Act, thereby speeding up the progression towards adjudication.

However, the drafting of the BIF Act did not achieve this aim, as became apparent in MWB Everton Park v Devcon Building Co [2024] QCA 94 where it was concluded that all elements of s68 must be present with a degree of precision for a payment claim to be valid, and that Claimants should not confuse contractual claims with claims under the Act.

In particular, the requirement that a payment claim must request payment of the claimed amount (which may be satisfied by using the word “invoice”) was strictly enforced. It was considered that it is not enough to submit a progress claim, which is the general construction industry practice when a party seeks payment. Many contracts specify a progress claim process where a claim is answered by an assessment, and only then can an invoice be submitted for the assessed amount before payment can be made. By definition, the initial claim will not satisfy the requirements of the BIF Act. The same applies to the increasing contractual requirement to use third-party systems such as “PayApps” for claims, where the head contractor sets up what can be claimed and the system does not generate an invoice. The use of Recipient Created Tax Invoices is becoming common in these contracts, to enable a respondent to ensure it is only invoiced for the amount it intends to pay.

By its very drafting, the BIF Act has made assumptions about how claims for payment are made in the construction industry that are contrary to industry practice.

Must identify the construction works and the amount claimed

In MWB Everton Park, the Court of Appeal also found that the payment claim did not “state” the claimed amount and did not identify the construction works, first noting that if a party wishes to take advantage of the BIF Act, it is incumbent on the party to set up an accounting system which conforms to the Act, with professional advice if necessary. The Court relied on previous caselaw for that assertion, in all cases leading back to Chase Oyster Bar v Hamo Industries [2010] NSWCA 190 in circumstances where each reference was to the strict timeframe requirements on both parties at each stage leading to adjudication. It is difficult to see how conformance with these timeframes can require a separate accounting system for the service of a payment claim that initiates the process.

MWB Everton Park concerned an appeal against a grant of summary judgement where a payment schedule had been provided after the due date. The Court’s approach diverged from how these matters have been previously considered by the Court of Appel in Queensland and other jurisdictions.

In Ausipile v Bothar Boring, the Court of Appeal had reasoned that the BIF Act created a statutory obligation for a party to provide a payment schedule if it wished to dispute a payment claim, so the scheme of the Act is that complaints about the payment claim must be raised in a payment schedule.⁵ The reasoning in TFM Epping v Decon Australia⁶ was accepted as correct, and the court set out the passage where that judgement had referred to Nepean Engineering v Total Process Services:⁷

. “… Provided that a payment claim is made in good faith and purports to comply with s 13(2) of the Act, the merits of that claim, including the question whether the claim complies with s 13(2), is a matter for adjudication under s 17 and not a ground for resisting summary judgment in proceedings under s 15. In particular, if no adjudication is sought summary judgment cannot be resisted on grounds that could have been raised by way of a payment schedule leading to adjudication.”

In T&M Buckley v 57 Moss Road,⁸ the Court of Appeal had accepted that the approach to be taken was as set out in Coordinated Construction v Climatech⁹ and Nepean Engineering, such that the test is whether the payment claim is comprehensible to the other party, and that a payment claim cannot be treated as a nullity unless that failure is patent on its face. Specifically, the Queensland Court of Appeal accepted that “the evaluation of the sufficiency of the identification takes into account the background knowledge of each of the parties derived from their past dealings and exchanges of documentation”.

The last point was accepted by the court in MWB Everton Park, making it difficult to understand the Court’s view that “It did not matter that the claim was the 17th progress claim and that, as the primary judge remarked, it was substantially in the same form as the earlier claims.” In fact, this was a decisive point in Clarence St v Isis Projects,¹⁰ that the respondent in that matter failed to identify what made the most recent payment claim incomprehensible. As noted in T&M Buckley, it is the understanding of the other party that is paramount, and that understanding can be objectively determined from the behaviour of the parties.

The Court of Appeal in MWB Everton Park found the reasoning in KDV Sport¹¹ apposite. As was noted in Vanella v TFM Epping,¹² it was the combination in KDV Sport of the brevity of the payment claim and the number of mathematical errors that did not permit a percentage complete to sufficiently identify the works. Similarly, in MWB Everton Park there were differences in the amounts claimed between the cover and the schedules, and the complexity of the project being for 56 different units, that made the use of a percentage complete fail to adequately identify the works. However, the court in MWB Everton Park did note that in different factual circumstances, a percentage complete would be adequate, hopefully putting to rest the notion that a percentage complete is in all cases inadequate identification. It is the factual matrix of complexity and errors that needs to be taken into account.

While previous courts have found that mathematical errors in a payment claim can be sorted out in adjudication, the requirement to “state” the claimed amount made the payment claims fail if there was more than one available interpretation of the claimed amount.

The Queensland courts are now interpreting the phrase “identifies the construction work or related goods and services to which the progress payment relates” as meaning “describes the specific construction works for which payment is claimed”.

But … they did provide a payment schedule

What makes the decision in MWB Everton Park and the two Queensland decisions it referenced¹³ difficult to understand and apply is that, in each case, the respondent had provided a detailed payment schedule in reply to the payment claim, albeit late in the case of MWB Everton Park.

It was noted in Nepean Engineering that, if a party wished to assert that it could not understand the claim or any parts of the claim, that party could say so in a payment schedule and an adjudicator would be obliged to consider that issue. But in each of the Queensland decisions, the respondent provided a payment schedule that answered each element of the payment claims. If the fundamental issue is the understanding of the respondent, then the issuing of a payment schedule that answers each element of the payment claim should be a decisive consideration. It is arguable that a court should reject as an abuse of process an assertion by a respondent that it did not understand the payment claim when it had previously provided and relied on a payment schedule that properly challenged the claim.

The fact that the courts are entertaining such challenges should alert the legislators to the potential that the highly proscriptive drafting in the BIF Act has been counterproductive.

The court in Iris Broadbeach v Descon Group was convinced by the monetary amount of eleven items in the payment claim that the respondent argued did not identify the works. But as can be seen from the published decision of the adjudicator, two of those items, representing 70% of the monetary value, did not proceed to adjudication. Of the remaining nine items, the adjudicator’s analysis demonstrates that the respondent understood the claims. While the court noted items where subsequent information was provided, it is clear that the subsequent information related to proof, such as an underlying invoice, rather than identification.

So where to next?

It is of some concern that the creation of a separate definition of Payment Claim in the BIF Act may lead the courts to conclude that it is no longer a “non-essential” requirement for an adjudicator’s jurisdiction, thereby distinguishing Brodyn v Davenport and leaving open a potential challenge to every adjudication determination that the payment claim does not meet the definition. Given the timeframe the courts require to determine such matters, the cost for a respondent to launch such a challenge could well be offset by the opportunity to delay payment and negotiate a favourable settlement, or simply allow the claimant’s cashflow difficulties to settle the issue. Effectively, Respondents would have little to lose, and at that point adjudication in Queensland would surely be at an end.

¹ See “What is happening under the Building Industry Fairness (Security of Payment) Act 2017 QLD?” Adjudicate Today website
² In contrast, the NSW Act only uses the phrase “must” with regard to an adjudicator’s role when noting that a determination must be in writing, must include reasons for the determination, and that an adjudicator must give the other party an opportunity to comment on further submissions
³ The QBCC has recorded no prosecutions against this requirements, so perhaps it was not necessary
⁴ The High Court found in ProBuild v Shade Systems that the absence of any attempt of the legislators to review the NSW Act in light of the decision in Brodyn v Davenport was a strong indication that the Brodyn decision reflected the intention of the Parliament
⁵ [2021] QCA 223 at [88]-[102]
⁶ [2020] NSWCA 395
⁷ [2005] NSWCA 409 at [76]
⁸ [2010] QCA 381
⁹ [2005] NSWCA 229
¹⁰ [2005] NSWCA 391 at [33]-[36]
¹¹ KDV Sport v Muggeridge [2019] QSC 178
¹² [2019] NSWSC 1379 at [88]
¹³ KDV Sport and Iris Broadbeach v Descon Group [2023] QSC 290