Karam Group Pty Ltd v HCA Queensland Pty Ltd
[2024] QSC 34
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- Notable Unreported Decision
- Karam Group Pty Ltd v HCA Queensland Pty Ltd[2024] QSC 34
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Karam Group Pty Ltd v HCA Queensland Pty Ltd[2024] QSC 34
Karam Group Pty Ltd v HCA Queensland Pty Ltd[2024] QSC 34
SUPREME COURT OF QUEENSLAND
CITATION: | Karam Group Pty Ltd ATF The Karam (No. 1) Family Trust v HCA Queensland Pty Ltd & Ors [2024] QSC 34 |
PARTIES: | KARAM GROUP PTY LTD ATF THE KARAM (NO. 1) FAMILY TRUST ACN 512 325 943 (applicant) v HCA QUEENSLAND PTY LTD ACN 629 849 814 (first respondent) PETER THOMAS SARLOS (Registered Adjudicator Number J1158721) (second respondent) ADJUDICATION REGISTRAR, QUEENSLAND BUILDING AND CONSTRUCTION COMMISSION (third respondent) |
FILE NO/S: | 11131 of 2023 14050 of 2023 |
DIVISION: | Trial Division |
PROCEEDING: | Originating Application |
ORIGINATING COURT: | Supreme Court of Queensland at Brisbane |
DELIVERED ON: | 14 March 2024 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 5 December 2023 |
JUDGE: | Bradley J |
ORDER: | In proceeding 11131/23, THE ORDER OF THE COURT IS THAT:
THE COURT DIRECTS THAT:
In proceeding 14050/23, THE COURT DECLARES THAT:
THE ORDER OF THE COURT IS THAT:
|
CATCHWORDS: | CONTRACTS – BUILDING, ENGINEERING AND RELATED CONTRACTS – REMUNERATION – STATUTORY REGULATION OF ENTITLEMENT TO AND RECOVERY OF PROGRESS PAYMENTS – ADJUDICATION OF PAYMENT CLAIMS – where the first respondent served a copy of a payment claim on the applicant for works completed under a contract – where the applicant delivered a payment schedule – where the second respondent made an adjudication decision in respect of the payment claim – where the applicant and the first respondent accept the adjudication decision was affected by jurisdictional error – whether only part of an adjudication decision is affected by jurisdictional error – whether the Court should exercise a discretion so that the balance of the decision not affected by jurisdictional error would remain binding on the applicant and the first respondent Building Industry Fairness (Security of Payment) Act 2017, ss 88, 101, Chapter 3 Karam Group Pty Ltd ATF the Karam (No 1) Family Trust v HCA Queensland & Ors [2023] QSC 245, considered |
COUNSEL: | A C Stumer KC with M R Derrington for the applicant S B Whitten for the first respondent |
SOLICITORS: | HopgoodGanim for the applicant CDI Lawyers for the first respondent |
- [1]There are two proceedings before the Court, each with the same parties in the same capacities.
- [2]In the first proceeding, 11131/23, the applicant (Karam) seeks an order restraining the first respondent (HCA) from again agitating a part of the payment claim for a progress payment seeking the repayment of liquidated damages. Karam and HCA agree that such an order should be made. It should be. They have not agreed about a costs order for that proceeding. I will deal with costs at the end of these reasons.
- [3]In the second proceeding, 14050/23, Karam challenges an adjudication decision (the decision) delivered by the second respondent (the adjudicator) about HCA’s payment claim. Most of these reasons deal with this challenge.
- [4]The payment claim was in respect of HCA’s contract with Karam for the design and construction of apartments in Coorparoo.[1] The contract was made in July 2020. It is in the form of an AS 4000-1997 standard form contract, with amendments. The contract price is $38 million, excluding GST.
The decision
- [5]In the decision, the adjudicator determined a total adjudicated amount of $4,529,814.68 (inclusive of GST) was to be paid by Karam to HCA in respect of the progress payment. The adjudicator reached this total by determining Karam was to pay HCA the following amount for each of these individual claims:
- $4,134,486.28 as repayment of liquidated damages previously paid by HCA to Karam pursuant to a different decision made by a different adjudicator;
- $206,568.40 for several variations to the agreed works to be performed by HCA; and
- $188,760.00 for delay costs claimed by HCA in respect of an extension of time caused by a variation to the agreed works following changes to a fire and engineering report (EOT117).
- [6]The adjudicator also determined that Karam should pay the adjudication fees and charges.
- [7]The adjudicator made the decision under Chapter 3, Part 4 of the Building Industry Fairness (Security of Payment) Act 2017 (Qld) (the Act). Karam asks the Court to set the decision aside on the ground that it is affected by jurisdictional error. It is common ground between Karam and HCA that at least parts of the decision are affected by errors of that nature.
- [8]HCA concedes that parts of the decision are affected by jurisdictional error. HCA asks the Court to save the part or parts of the decision that are not so affected. The Court has a power to do so, conferred by s 101(4) of the Act:
“(4) If, in any proceedings before a court in relation to any matter arising under a construction contract, the court finds that only a part of an adjudicator’s decision under this chapter is affected by jurisdictional error, the court may –
- identify the part affected by the error; and
- allow the part of the decision not affected by the error to remain binding on the parties to the proceeding.”
- [9]The power conferred by s 101(4) is discretionary. If only part of the decision is affected by the relevant error, then the Court may consider whether to save the balance.
- [10]Karam maintains that the whole of the decision should be declared void and set aside.
- [11]The other parties made no submissions and, appropriately, abide the decision of the Court.
The identification of error
- [12]As noted above, Karam and HCA are agreed that some parts of the decision are affected by jurisdictional errors. They are in dispute about whether the remaining parts of the decision are similarly affected. In some instances, HCA denies the adjudicator fell into error at all. In other instances, HCA accepts that the adjudicator was in error, but contends that the error was within the adjudicator’s jurisdiction.
The repayment of liquidated damages
- [13]The largest of the agreed errors is the adjudicator’s determination that Karam should repay to HCA $4,134,486.28, which HCA had paid to Karam on account of liquidated damages. As this brief description indicates, in an earlier adjudication decision, another adjudicator had determined that HCA was to pay the liquidated damages to Karam.
- [14]Karam and HCA agree that the adjudicator’s decision to determine that the liquidated damages should be repaid was affected by jurisdictional error, and that the Court should declare it to be void.
- [15]Setting aside this part of the decision would reduce the sum Karam is bound to pay HCA from $4,529,814.68 to $395,328.40.
Other agreed errors
- [16]Karam and HCA also agree that the adjudicator made jurisdictional errors in the parts of the decision where the adjudicator:
- expounded his own theory of the application of the prevention principle to the contract (which Karam and HCA also agree affected the adjudicator’s decision that Karam should repay HCA the liquidated damages);
- expressed his own views about what the role and the obligations of the superintendent should be under the contract; and
- expressed views about whether the parties’ amendments to the standard form contract amounted to an attempt to “contract out” of the Act.
- [17]I am satisfied that each of these parts of the decision is affected by jurisdictional error and should be declared to be void.
- [18]In these parts, the adjudicator’s personal theories and views do not appear to result in any specific determination that a particular sum is payable by Karam to HCA (or vice-versa) in respect of the payment claim. They appear as the gratuitous comments of an officious observer. Karam contends that these comments assist its case for the whole decision to be set aside.
Disputed errors in the variations
- [19]Karam submitted that the adjudicator also fell into jurisdictional error in dealing with another matter, not unrelated to the above conceded errors. The adjudicator found the AS 4000-1997 contract had been excessively amended, that it was misleading to refer to it as a standard form contract, that it was ambiguous, and that it should be construed to favour the interests of the contractor (in this instance HCA) over the interests of the principal (Karam).
- [20]None of these contentions was raised by either of the parties in the payment claim or the payment schedule, or in other documents put before the adjudicator. The adjudicator embarked upon this frolic without any apparent encouragement by a party.
- [21]On a fair reading of the decision, the adjudicator seems to have proceeded in this way:
- He identified the terms of an AS 4000-1997 standard form contract.
- He noted Karam and HCA had agreed to amendments to that standard form.
- He expressed the view that these amendments were so numerous that the parties had gone beyond the licence permitted for the use of that standard form.
- He expressed the view that the amendments made it misleading to describe the contract by reference to the standard form.
- He expressed the view that a busy contractor would be unlikely to understand the amendments made to that standard form in full.
- He combined the views in (c) to (e) above to conclude that the terms agreed by Karam and HCA could be considered ambiguous.
- He considered that he should construe these “ambiguous” terms in a way that favoured the interests of HCA (as the contractor) over the interests of Karam (as the principal).
- [22]It is common ground that the adjudicator was in error in each step of this process. Aside from offering some insight into the erroneous thinking of the adjudicator, Karam relies on these parts of the decision to submit that the adjudicator fell into another jurisdictional error.
- [23]Mr Whitten for HCA contends that each of these errors by the adjudicator was one made within jurisdiction. He contends that the adjudicator was entitled to consider these things because they relate to “the provisions of the relevant construction contract”, which the adjudicator is directed to consider by s 88(2) of the Act.
- [24]On a fair reading of the decision, the adjudicator did not begin his exploration of the relationship between the parties with a consideration of the provisions of the contract they had agreed would govern that relationship. He began with the terms of an AS 4000-1997 standard form contract, without amendment. He did not find the provisions of the contract to be misleading or ambiguous by considering those provisions. He reached that conclusion because the provisions had been amended from those in the standard form. He began his consideration with matters outside the scope of s 88(2) of the Act. As best the decision may be understood, the standard form contract and assumptions he made about the circumstances of a busy contractor were the adjudicator’s primary considerations. They were not merely part of his consideration of the actual provisions of the relevant construction contract. He afforded only cursory consideration to the provisions the parties had agreed would vary from the standard form.
- [25]In the circumstances, I am satisfied that the adjudicator’s conclusions that the contract was ambiguous and ought to be construed to favour HCA were the result of jurisdictional error.
- [26]Like the adjudicator’s errors discussed in paragraphs [16]-[18] above, his conclusion that the contract was ambiguous appears to be irrelevant to any of the other particular parts of the payment claim in dispute. The issue before the Court on this application is whether this error (and any other identified jurisdictional errors) affected all or any other parts of the decision.
Whether jurisdictional errors affected the variation determinations
- [27]Karam submitted that the Court could not be satisfied that these errors had not affected the adjudicator’s determinations in relation to the individual variations. Mr Stumer contended that, while this might not be clear on the face of any specific determination, it was difficult to be certain that the adjudicator’s thinking, say on the prevention principle or construing the contract for the benefit of HCA, was not “sneaking into” other parts of the reasons.
- [28]I have read each of the parts of the decision to which the parties drew my attention in their written and in their oral submissions. These were the parts on which the parties relied to advance their respective cases on this point.
- [29]In the decision, the adjudicator expressed himself without an ideal level of clarity, felicity, or brevity. Parts of the decision are quite difficult to understand. There is extensive duplication. There is much incidental and some anomalous cross-referencing. There is only limited enlightenment as to the adjudicator’s reasoning on some individual claims.
- [30]A few examples of individual variation claims will suffice.
Variation for partition changes
- [31]In determining HCA’s variation claim for the costs of partition changes, the adjudicator found Karam’s “assessment and the service of the scheduled amount were inconsistent with” the general conditions of contract. I think it more likely than not that the adjudicator’s reasoning and determination on this variation claim was affected by the jurisdictional error that led him to conclude that the contract was ambiguous and, as a result, he should favour HCA’s position when construing the “ambiguous” provisions.
Variation CV0.1.109
- [32]HCA claimed $52,239 for variation CV0.1.109 for changes to the design and scope of cabinetry for laundry types A – C. The adjudicator expressed his “reasons for decision” in these terms:
“126. I consider that this particular item is shrouded with a degree of uncertainty in which case I need to exercise my jurisdiction to decide whether or not it should be allowed. As this legislation is remedial by definition, it follows that where there is a doubt any decision should favour the person the legislation attempts to protect. In the present case the BIFA was introduced to level the field between the interests of the service provider and the beneficiary of those services – in the present case the Claimant.
In my view the Claimant’s Submissions must be preferred and I decide accordingly.”
- [33]It appears the adjudicator failed to consider and apply the provisions in the relevant construction contract. As best it can be understood, the adjudicator’s decision to allow this claim was affected by some “overflow” of the more general jurisdictional errors. It is possible it was affected by a different jurisdictional error to favour HCA in the event of any uncertainty about whether to allow part of a payment claim. In either circumstance, it cannot stand.
Variation CV0.1.111
- [34]On the basis that HCA had not substantiated all the work required as a result of changes to the mechanical works on the ground floor and level one tenancy areas, Karam rejected HCA’s claim to be paid for those claimed works.
- [35]The adjudicator does not appear to have considered or reached any conclusion about whether HCA had performed the works. It appears the adjudicator allowed the amount claimed for the variation because he concluded that the superintendent had taken too long to decide whether to pay HCA the claimed amount. It seems this conclusion was related to the adjudicator’s erroneous view about what the role and the obligations of the superintendent should be under the contract.
- [36]Notwithstanding the difficulties of understanding some of the parts of the decision dealing with the variation claims, I am satisfied that the adjudicator’s jurisdictional errors in respect how to apply provisions of the contract (which the parties had specifically amended from the standard form) affected his determination in relation to each of the variation claims.
- [37]If the adjudicator’s determination on each variation claim was to be set aside, as I am satisfied should occur, then it would reduce further the sum Karam is bound to pay HCA from $395,328.40 to $188,760.00.
Delay costs for EOT117
- [38]The remaining part of the decision concerns whether Karam should pay HCA an amount of $188,760 for the EOT117 delay costs.
- [39]HCA claimed these delay costs on alternate bases: for a delay of 26 calendar days; or a delay of 18 business days. The adjudicator allowed HCA’s claim, finding that the delay costs should be calculated at $7,260 per day for 26 calendar days.
- [40]HCA accepts that the adjudicator was mistaken about the meaning of days under the contract. HCA concedes this was a jurisdictional error and concedes that this part of the decision cannot stand in whole. HCA says that the amount that ought to have been determined by the adjudicator in respect of the EOT117 delay costs was $130,680, being $7,260 per day for 18 business days. HCA asks the Court to declare void only the difference between the $188,760 that the adjudicator wrongly decided and the correct figure of $130,680.
- [41]The adjudicator gave written reasons for this part of the decision that indicate he engaged with the task of deciding whether the delay costs HCA claimed were payable by Karam. The reasons are consistent with a genuine consideration of the Act, the contract, the claim documents and the schedule documents. He identified the cause of the relevant delay, which he found began on 2 February 2023. By applying the contract provisions, he concluded the delay claim had been made within time. He found it was a qualifying delay within the contract provisions. He found, as a fact, that there was no delay “cross-over” between the delay period which was the subject of EOT117 and the delay period that was the subject of an earlier adjudication decision. As Mr Whitten for HCA submitted, when looked at closely, the adjudicator’s references to an earlier adjudication decision on the rectification of defects in two lift shafts (and on the prevention principle) were not part of the process by which he determined that delay costs were payable for EOT117.
- [42]Those reasons, albeit unnecessarily repeated in the decision, would not cause a fair-minded observer to apprehend that the adjudicator might have decided this part of the decision otherwise than on an independent and impartial evaluation of the merits.
- [43]Karam relies on passages found elsewhere in the decision to contend that the adjudicator’s decision in respect of the delay costs for EOT117 should be set aside on the ground of apprehended bias. In particular, Karam cites the adjudicator’s reference to “the machinations, difficulties and experience” of “professionals and professional building owners”. This appears to be a reference to HCA (as professionals) and then Karam (as professional building owners). It is no more than the adjudicator stating that he is familiar with the robustness of a contest such as that between the parties to the adjudication.
- [44]I reject Karam’s submission that it was denied procedural fairness in respect of the EOT117 delay costs claim, because the adjudicator has “raised numerous issues” in his request for information sent on 9 August 2023. That request, and others like it, were irrelevant. The matters raised by the adjudicator in the request were not “central” to the part of the decision concerning the EOT117 claim. Indeed, they do not appear to have affected that part of the decision at all. The irrelevant requests did not affect Karam’s ability to put its case on the delay costs to the adjudicator, in accordance with the constraints imposed by the Act.
- [45]The adjudicator’s errors referred to in paragraphs [13] to [26] above do not appear to have affected the part of the decision dealing with the EOT117 delay costs claim. Unlike, for example, the part of the decision dealing with variation CV0.1.109 discussed in paragraph [32] above, the part of the decision on these delay costs did not involve any doubt on the part of the adjudicator about the basis or the merit of the HCA claim.
- [46]I am satisfied that the balance of the determination of the EOT117 delay costs claim was not affected by jurisdictional error.
- [47]I raised with counsel whether such an adjustment to the calculation of delay costs from $188,760 to $130,680 could be made. Neither counsel contended that it could not be done. In the circumstances, the balance of this part of the decision should stand, with an amount of $130,680 allowed for delay costs for EOT117.
Should the unaffected part of the decision remain binding?
- [48]With HCA’s concessions, and the resolution of the remaining disputed differences of view, I am satisfied that the parts of the decision affected by jurisdictional error have been identified. Save for the part of the decision dealing with delay costs for EOT117, all other parts of the decision, including the part concerned with Karam paying the adjudication fees and charges, are so affected.
- [49]As noted above, HCA conceded that the part of the decision dealing with EOT117 delay costs was affected by jurisdictional error (as it was calculated based on calendar days) and should be reduced to $130,680. So, the only part of the decision not affected by jurisdictional error is the (modified) part dealing with those delay costs.
- [50]HCA has established the prerequisites for the Court to exercise the discretionary power arising under s 101(4) of the Act. The final issue is whether the Court should exercise the discretion to allow the only unaffected part of the decision to remain binding on the parties.
- [51]If HCA wishes to pursue any of the other individual claims made in the payment claim, then it will need to initiate another adjudication process under the Act. With the benefit of the reasons of Martin SJA in Karam Group Pty Ltd ATF the Karam (No 1) Family Trust v HCA Queensland & Ors [2023] QSC 245, and some small further assistance from these reasons, HCA might review its position. On review, HCA may consider some of the individual claims as having merit and seek to pursue them. It is not possible to express any view on the merits of any individual claims. The adjudication process determines any amounts payable on account of what might ultimately be found to be due. However, it seems likely that HCA would pursue the EOT117 delay costs claim.
- [52]It follows that there would be some utility in allowing the part of the decision on the EOT117 delay costs to remain binding on the parties. It would avoid the parties incurring the cost of a further adjudication process in respect of that claim.
Final disposition
- [53]In the circumstances, I would exercise the discretion to allow that part of the decision concerning the EOT117 delay costs determination to remain binding, with the effect that Karam would be bound to pay HCA the adjusted amount of $130,680 in respect of that individual claim.
Costs of proceeding 14050/23
- [54]Karam has had substantial success in this application. Only a small part of its material and submissions was concerned with the EOT117 delay costs claim. The claim represents about a third of the amount that remained in issue after HCA conceded that the liquidated damages claim should be set aside.
- [55]I would order HCA to pay Karam’s costs of the originating application.
Further order and costs in proceeding 11131/23
- [56]In proceeding 11131/23, both parties consent to an order restraining HCA from pursuing a claim for repayment of the liquidated damages in any future adjudication application about a progress payment under the contract. Such an order should be made.
- [57]The making of the restraining order deals with all that remains in terms of substantive relief from proceeding 11131/23. At the hearing, Karam sought an order for its costs of that proceeding. HCA contends that any costs order should be made by Martin SJA, because his Honour heard the main part of the application and published detailed reasons.
- [58]I will direct Karam and HCA to file and serve any written submissions on the costs of 11131/23, limited to three pages, within 10 business days.
Footnotes
[1] Some of the history of the relationship between Karam and HCA is set out in the reasons of Martin SJA in Karam Group Pty Ltd ATF the Karam (No 1) Family Trust v HCA Queensland & Ors [2023] QSC 245.