Northbuild Construction Pty Ltd v Central Interior Linings Pty Ltd & Ors [2011] QCA 22

Background to dispute

The appellant, Northbuild Construction Pty Ltd (Northbuild), was the head contractor under a construction contract for home units at Runaway Bay. The first respondent, Central Interior Linings Pty Ltd (Central) was sub-contracted by Northbuild to undertake certain plastering and carpentry works.

In August 2009 Northbuild terminated its contract with Central because of alleged delays. In September 2009, Central made a payment claim, under the Payments Act, against Northbuild for work completed up until the termination date.

In response, Northbuild served a payment schedule containing reasons why it had withheld payment from Central. Northbuild also included an assessment of liquidated damages against Central for failing to complete the works on time and the costs required to complete the remaining work. Northbuild argued that the liquidated damages owed by Central, were sufficient to set off Central’s entire payment claim.

The payment claim was referred to adjudication. Northbuild provided the adjudicator with an adjudication response which included a large amount of material including expert reports and detailed submissions.

The adjudicator found in favour of Central and awarded it $856,594.00 (together with interest and costs). In making his decision, the adjudicator did not engage the assessment process advanced by Northbuild. Nor did he undertake the ‘mammoth task’ of examining in detail the 73 variations to the contract and the expert reports provided by Northbuild.

The Payments Act and Judicial Review Act

The purpose of the Payments Act is to allow a party to a construction contract to recover progress payments for work completed whether or not the contract provides for such recovery. It does this by the creation of a statutory based system whereby, upon application, there can be rapid adjudication for the interim resolution of ‘payment on account’ disputes arising from building and construction contracts.

Adjudication decisions are enforceable in any court of competent jurisdiction by requesting an adjudication certificate from the adjudicator and filing the adjudication certificate with the court, which then operates as a judgment debt. In order to effect the quick resolution of disputes, the Payments Act provides only limited recourse to the courts in respect of an adjudication. However, rapid adjudication does not extinguish a party’s ordinary contractual rights to obtain final resolution of payment disputes by a court.

In 2007, the Judicial Review Act 1991 (Qld) (JRA) was amended so that adjudication decisions made under Part 3 Division 2 of the Payments Act (such as the one in this case) were excluded from review under the procedures contained in the JRA.1

Application to the Supreme Court of Queensland

By originating application, Northbuild applied to the trial division of the Supreme Court of Queensland seeking a declaration that the adjudication was invalid and an injunction preventing Central from obtaining an adjudication certificate. Northbuild did not seek relief of a prerogative kind pursuant to the JRA. Instead, it sought relief pursuant to section 128 of the Supreme Court Act 1995 (Qld) or alternatively the Court’s inherent jurisdiction.

Northbuild contended that the adjudicator’s decision was void or liable to be set-aside because (relevantly) Northbuild alleged the adjudicator failed to:

• consider or make a bona fide attempt to consider the issues raised by the appellant in its payment schedule and the appellant’s submissions or evidence;
• consider issues raised by the appellant in its payment schedule and adjudication response; and
• take into account matters required to be considered in s 26(2)(a), (b) and (d) of the Payments Act.

The primary judge dismissed Northbuild’s application with costs. In so doing, the primary judge accepted:

• that the adjudicator had made a genuine attempt to understand and apply the contract and to perform his statutory function under the Payments Act; and
• the correctness of the approach taken to the Payments Act in Brodyn v Davenport (2004) 61 NSWLR 421 (Brodyn).

The Kirk decision

Subsequent to the primary decision, but prior to the hearing of the appeal, the High Court handed down its decision in Kirk. That decision “made clear that the legislature cannot exclude the power of a State Supreme Court to exercise its supervisory jurisdiction as to jurisdictional error in executive and judicial decision-making”.2

As such, it became clear that section 18(2) of the JRA could not prevent the Court from reviewing adjudications made under the Payments Act on the ground of jurisdictional error.

Kirk also brought into question particular aspects of the decision in Brodyn which the primary judge had relied upon in dismissing the appellant’s application in the trial division.

Appeal

Northbuild appealed the primary judge’s decision to the Court of Appeal pursuant to section 69(1) of the Supreme Court of Queensland Act 1991 (Qld), on the basis that the primary judge erred in making the following findings :

• the adjudicator’s approach to valuation of the work under the contract did not demonstrate that he had failed to make a genuine attempt to exercise the power given to him under the Payments Act;
• the adjudicator’s approach to Central’s delay claim did not demonstrate that he had failed to make a genuine attempt to exercise the power given to him under the Payments Act;
• the adjudicator did not “essentially disregard” Northbuild’s material in relation to the valuation of the work under the contract and the assessment of Central’s delay claim; and
• the adjudicator did not deny Northbuild natural justice.

The original notice of appeal was filed prior to the handing down of Kirk. However, after the Kirk decision was published, the appellant amended their notice of appeal to include two further grounds of appeal as follows:

• the primary judge erred in applying Brodyn and proceeding on the basis that the adjudication decision could only be declared void or quashed on the grounds set out in Brodyn; and
• the primary judge erred in assuming that the adjudication decision could not be set aside for jurisdictional error.

Decision and reasons

The appeal was dismissed.

White JA held and with whom McMurdo P and Chesterman JA agreed, that even by adopting the broad approach to jurisdictional error, the appellant was unable to demonstrate any jurisdictional error on the part of the adjudicator. The primary judge was correct in finding that the adjudicator had regard to the appellant’s material and considered everything he was required to under the Payments Act. As such, it was not necessary for the Court to determine on what basis it has jurisdiction to grant relief.

In relation to the matters to be considered by an adjudicator, White JA at [79] provided that:

“The “only” matters which an adjudicator may consider in reaching a decision are the provisions of the Payments Act , the terms of the construction contract, the payment claim and response and all submissions properly made so that if the arbitrator departed from that list and considered, for example, what he regarded as a “fair thing” he would have made a decision without authority and, if he truly disregarded a claimant’s submissions, his decision would not be one envisaged by the Payments Act .”

In relation to the role of ‘good faith’ on behalf of an adjudicator, the appellant argued that the adjudicator did not carry out his tasks in good faith. Making a ‘bona fide attempt’ or acting in ‘good faith’ describes an implied condition of validity for discretionary decisions and requires more than subjective honesty, it demands the adjudicator make “a genuine attempt” to perform its task.

White JA did not accept that the adjudicator had not acted in good faith, stating at [96]:

“ The discussion in Minister for Immigration and Citizenship v SZMDS concerning the relationship between jurisdictional error in respect of reasoning which is “clearly unjust”, “arbitrary”, “capricious” and “ Wednesbury unreasonable” demonstrates that attaching these descriptors to the good faith debate possibly adds little more than did the original understanding of good faith in the review of statutory decision making that the power must be exercised honestly for the purpose for which it was given. As the New South Wales Court of Appeal did in Holmwood , the enquiry should focus more on whether the adjudicator has performed the function demanded by the Payments Act and less on pursuing elusive synonyms, keeping always in mind that the legislative intent dictates a person with recognised expertise in the area be selected for the task by an informed body and this, necessarily, facilitates the rapid decision making required .” [footnotes omitted]

In relation to the appellant’s contention regarding the primary judge’s application of Brodyn, White JA stated at [80] “… by quoting extensively from and relying on passages in Brodyn the primary Judge did not fall into error, since he considered whether the adjudicator had performed the task assigned to him by s 26 which did not require, in this case, any articulation of the distinction between adherence to “basic requirements” and jurisdictional error.”

Comment

Because jurisdictional error was not established by the appellant, it was not strictly necessary for the Court to address on what basis it would have jurisdiction to grant relief in light of Kirk. However, Chesterman JA noted that litigation generated by contentious adjudications under the Payments Act is prolific and, despite the consideration of the issue being obiter dicta, expressed a tentative opinion.

With respect, it is this opinion that is perhaps of most relevance to any party who finds themselves unsatisfied with an adjudication decision under the Payments Act. Particularly, his Honour clarifies the applicability in Queensland of each tier of the test in Brodyn in light of the decision in Kirk. In this respect, Chesterman JA at [32] stated that:

“… Brodyn remains authority for its first proposition: that adjudications which do not comply with the essential statutory requirements are void and the court may, when non-compliance has been demonstrated, make declarations and/or grant injunctions to prevent a void adjudication being acted on. The second proposition reversed by Chase Oyster Bar, which in turn decided that the court has jurisdiction to grant prerogative relief with respect to adjudications affected by error on the face of the record or jurisdictional error cannot be applied in Queensland, at least without additional analysis, because of the complication, not present in New South Wales, afforded by s 18(2) and the inclusion of the Payments Act in the Schedule.”

Just because adjudication decisions under the Payments Act are not reviewable under the JRA does not mean that the supervisory jurisdiction of the Court has been removed. Kirk dictates that section 18(2) of the JRA would be unconstitutional if it were to prohibit the Supreme Court exercising its jurisdiction to grant prerogative relief. But section 18(2) of the JRA is not privative, it only says that the JRA cannot be used as a means of exercising supervisory power.

The continued existence of the pre-statutory jurisdiction is maintained by section 10 of the JRA which provides “that rights conferred by the [JRA] are in an addition to any other rights the person has to seek review of administrative decisions”. Also, section 41 of the JRA, does not purport to remove the court’s pre-existing jurisdiction to supervise inferior tribunals and decision makers. It merely regulates the manner in which such a review is undertaken by the court and alters the nature of the relief granted. But if the Act does not apply, then section 41 does not apply and we are left with the pre-statutory jurisdiction of the Supreme Court described in Kirk (at 580).3

Following this decision and in light of the decision in Kirk and clarification of Brodyn, the position in Queensland seems to be that “ an adjudication decision may be impugned on the basis described in Brodyn, that essential statutory pre-conditions have not been complied with, and by application for a prerogative writ on the grounds of error of law on the face of the record or jurisdictional error or, presumably, any other ground recognised by pre JR Act jurisprudence ”.4

Michael de Waard

1. The amendment was made by section 91 of the Justice and Other Legislation Amendment Act 2007 (Qld) and is now reflected in the Judicial Review Act 1991 (Qld) section 18(2).

2. Northbuild Construction Pty Ltd v Central Interior Linings Pty Ltd & Ors [2011] QCA 22 at [6].

3. Northbuild Construction Pty Ltd v Central Interior Linings Pty Ltd & Ors [2011] QCA 22 at [35].

4. Northbuild Construction Pty Ltd v Central Interior Linings Pty Ltd & Ors [2011] QCA 22 per Chesterman JA at [37].