Australia: Dealing with new reasons and partial invalidity of adjudication decision

Important case update on provisions of the Building Industry Fairness (Security of Payment) Act 2017 (BIF), dealing with "new reasons" and partial invalidity of adjudication decision.

This recent Queensland Supreme Court decision by Justice Bond deals with the new provisions of the BIF Act requiring that the adjudicator "must not" take into account new reasons not raised in the payment schedule. It also importantly deals with whether or not the facts, in this case, allowed the court to order in favour of a subcontractor a remedy in accordance with section 101(4) of the Act, whereby the invalid part of the decision could be excised with the valid portion to continue to have effect.

This was a case where a claimant was applying to the Supreme Court seeking orders that the decision made by the adjudicator was only partially invalid and relying upon S101(4) to urge the court to confirm the balance of the decision that was valid.

Facts

Monadelphous was the head contractor on an upgrade of the existing Kawana sewerage treatment works. It engaged Acciona as a subcontractor to undertake engineering design and support as well as to supply equipment and training.

Monadelphous had already made application to the Supreme Court to restrain the adjudication application without success. Acciona had been successful in four out of the five adjudication applications it made, and this adjudication was the fifth.

The adjudicator's decision found there was nil owing by Monadelphous on the basis of a set-off allowed by the adjudicator of over $4 million for what was said to be a share of CP costs due and owing by Acciona under a Collaboration Deed forming part of the contract.

Under the terms of the Collaboration Deed a steering committee with a representative of each party, could in certain circumstances make a determination of the amount and timing of the contributions required to be made by the parties. Provisions required a contribution notice to be forwarded to each party, and it was the contribution notice being given that created the obligation to pay.

While Monadelphous asserted an entitlement to recover over $5 million as Acciona's contribution in respect of the CP costs, on the four previous occasions the matter had been adjudicated each adjudicator determined that in order for Monadelphous to establish such a claim it had to prove that the steering committee had issued a contribution notice and there was a failure to pay by the due date.

The payment schedule delivered by Monadelphous detailed the contribution said to be required under the Collaboration Deed. Monadelphous asserted that account had to be taken of its contractual entitlement to recover the contribution exceeding $5 million.

The adjudication application by Acciona pointed out that since there was no approval of the steering committee, there was no procedure followed, the rates were in excess of what was approved, and they were in excess of budget and no amount was due as no notice had issued.

For the first time, Monadelphous then raised in its adjudication response that: -

• despite a purported termination, the parties remained bound by the Collaboration Deed including an obligation to attend steering committee meetings;
• in breach of Acciona's implied obligation to co-operate it refused to attend meetings;
• a breach of the obligations resulted in a right to recover either based on the principle that the offending party can't take advantage of its own breach - (prevention principle) or Acciona was in breach of the implied contractual term, and Monadelphous was entitled to damages as a result. The measure of these damages was said to be the value of the contribution that would have been issued if Acciona had performed its contractual obligation by attending the steering committee;
• Monadelphous suggested that it was entitled to a set-off for damages pursuant to clause 37.2A of its subcontract or in equity.

Issues

• Whether the matters raised in the adjudication response concerning the steering committee meetings and the purported damages claim and set-off were new issues and unable to be raised;
• Whether sufficient reasons were detailed by the adjudicator in allowing the set-off;
• What orders should be made and whether section 101(4) BIF could be used excising the invalid parts of the adjudication, with the valid parts of the decision continuing.

Decision

The Court closely examined the language of sections 82(4) and 88(3) which dealt with obligations of a respondent in making responses and obligations of the adjudicator as to what the adjudicator should consider and not consider.

These observations concerning the change in the language used in the new BIF provisions as opposed to the old BCIPA provisions found that the new provisions were starkly different and provide for a more definite directive that a respondent "must not" include within its response new reasons not raised within the payment schedule. Section 88 his Honour observed also used the phrase "must not" when dealing with what the adjudicator should consider.

Monadelphous suggested that these were not new reasons at all because those reasons merely set out a justification of the contention which had been made within the payment schedule.

By way of observation, if the views of Monadelphous were to be accepted, how would it be then, as a question of fairness, that Acciona could ever address these issues raised. In this case, Acciona emailed the adjudicator requesting that he allow time for further submissions. The adjudicator denied that request.

His Honour found that without having raised the damages/contractual claim specifically within the payment schedule, they were in effect new reasons which Monadelphous was prohibited from including within its adjudication response and the adjudicator was obliged not to consider.

The court was of the view that there are clear policy reasons underlying the new provisions of Section 82 and 88 and that to accede to the submissions of Monadelphous would treat the distinction between a reason in a payment schedule and a new reason in such a way as would undermine that policy.

The court otherwise found the lack of engagement by the adjudicator in the reasons why he agreed with the arguments of Monadelphous indicated jurisdictional error. As his Honour put it " the reasons reveal nothing more than a vote one way ".

The adjudicator had already found in favour of Acciona for a sum but had then had the setoff claims by Monadelphous applied to them. With the setting off claims being found to be invalid, there was an opportunity for Acciona to have the balance of the adjudicator's decision in its favour continue.

His Honour was clearly convinced that the provisions of Section 101(4) were applicable. This section allows in certain circumstances for the invalid parts the decision to be excised with the valid parts continuing. His Honour had some regard to the remedial nature of the provision which argued for a beneficial approach to the provision's interpretation if one was needed.

Takeaways

This case reemphasises the need to raise all arguments within the payment schedule, given the new provisions of BIF. Later significant and unraised arguments within a response will leave a respondent open to attack and any hard-won success in adjudication vulnerable.

Read the full judgement here

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