Australia: Questionable construction adjudication decision against you?

It is well known that a security of payment adjudication decision can be challenged in Court for jurisdictional error. This article looks at what needs to be proven in order to prevent an adjudication decision being enforced before the Court makes its determination.

The recent Supreme Court decision in Karam Group Pty Ltd v Earthmoving Contractors Pty Ltd deals with the common circumstance where an interim injunction is sought while an alleged jurisdictional error of an adjudicator is determined by the Court. The case deals with whether or not recent views of the High Court preclude an injunction so that money would flow regardless, leaving a respondent to bear the risk of non-repayment should it ultimately be successful in its challenge of the decision.

The case also considers (we believe for the first time in Queensland) the new penalty provision under s. 90 of the Building Industry Fairness (Security of Payment) Act (“BIFA”) where there is a substantial penalty for not paying an adjudicated amount within 5 business days of receipt of the decision.

The Facts

Earthmoving Contractors Pty Ltd (“EC”) undertook bulk earthworks, construction basement walls, rock anchoring and site remediation works for a building at Coorparoo at the request of Karam Group Pty Ltd (“Karam”).

EC issued a payment claim for a sum of $2.8 million (approximately). Karam's payment schedule was delivered for $47,500.00 (approximately).

A subcontractor to EC issued a subcontractor's charge and EC accepted it was liable to pay the subcontractor. For reasons not evident in the judgment sums were paid into Court rather than paid directly to the subcontractor.

EC made an adjudication application and was awarded approximately $2.2 million plus interest and the adjudicator's fees.

Karam applied to the Court to set aside the adjudicator's decision based on two alleged jurisdictional errors and an issue concerning alleged fraud. Her Honour Justice Brown heard Karam's interim injunction application seeking to restrain the enforcement of the adjudication decision (until a determination on its validity had been made).

On any application for an interim injunction the Court must be satisfied the applicant has sufficient prospects of success (a prima facie case) to justify preserving the status quo. The Court must also be satisfied that the balance of convenience favours the making of the interim orders.

Prima Facie Case

The fraud argument was one that required further evidence for the Court to come to any conclusion. It was not in a position to form a view as to whether there was prima facie case or otherwise.

Karam's best argument for the adjudication decision being void was that EC's payment claim included work beyond (i.e. subsequent to) the reference date relied on. It relied on Queensland Supreme Court authority to this effect. While both parties had arguable positions on the evidence available, the Court found Karam had a prima facie case with sufficient likelihood of success.

The other jurisdictional error argued by Karam was based on the adjudicator awarding a delay claim that Karam said was not sufficiently raised within the payment claim, but only properly formulated in the adjudication application. Karam argued that EC had reframed the basis of the claim in the adjudication application (it said what was claimed in the payment claim was a variation claim). Karam submitted that the payment claim did not reasonably identify the construction work to which it related and, as a consequence, was invalid. The Court acknowledged that there were arguments on both sides and that the result would greatly depend upon close examination of the documents and surrounding circumstances. While Karam's position was arguable, and the Court considered it had a prima facie case, it was not a ‘strong case'.

Balance of Convenience

Of considerable interest was the attitude the Court would take to the “pay now and argue later” policy of the BIFA, which was argued by EC. It contended that the Court should give this considerable weight, especially because there was no evidence of impecuniosity, insolvency, or an inability by EC to repay the monies.

EC argued that because Karam had not paid the full adjudicated amount into Court, no injunction should be granted.

EC relied on a line of authority in Queensland indicating that any risk of a claimant being unable to refund monies should rest with the adjudication respondent. EC also argued that the criminalisation of a failure to pay an adjudicated amount under s. 90 of the BIFA, and the granting of power to caveat real property upon non-payment (Part 6A of the BIFA), weighed heavily against granting an injunction.

These provisions came into operation in October 2020. The penalty provision was considered to be in direct contrast with the commonly exercised discretion of the Court to grant injunctions where an adjudication decision is arguably affected by jurisdictional error. This was despite it being argued that the legislature had chosen to criminalise non-payment, and in those circumstances, it may not be open to the Court to give an order inconsistent with such an intention.

The Court questioned whether a decision affected by jurisdictional error was a decision that s. 90 applied to, and ultimately decided, it was not.

EC argued that a recent High Court decision (Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd) meant that even where there was a prima facie case of jurisdictional error, the “pay now and argue later” policy applies to assign (to a respondent) the risk of a claimant not being able to repay an adjudicated amount.

Justice Brown distinguished the High Court decision (and other authorities relied on by EC), deciding they were inapplicable as they related to errors of law on the face of the record, not, as in this case, an alleged jurisdictional error. While this was a factor in determining where the balance of convenience lay and the Court came down firmly on the side of established authority in Queensland (BRB Modular Pty Ltd v AWX Constructions Pty Ltd & Ors), the courts decided there wasn't sufficient circumstances weighing the balance of convenience in favour of the injunction sought by Karam. This was primarily because the Court considered Karam's arguments for jurisdictional error did not amount to a ‘strong case'.

It must also be noted that the Court was influenced by Karam having not paid the full adjudicated amount into Court and was not convinced that the sums paid into the District Court in satisfaction of the subcontractor's charge should be taken into account. These subcontractor's charge issues appear not to have been fully argued at the hearing.

Takeaways

1.  The decision of Justice Bond in BRB Modular is further supported. There is a good argument in Queensland that there is no presumption (should a strong prima facie case be shown) that on an adjudication application the respondent should always bear the risk of any non-repayment by an adjudication claimant.

2.  Section 90 of the BIFA is unlikely to prevent injunctions restraining payment to the claimant where there is sufficient prospects that the adjudication decision is affected by jurisdictional error.

3.   If you are seeking an interim injunction, care should be taken to pay into Court the full amount of the adjudication decision (including interest and any adjudication costs decided). 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.