McNab Developments (Qld) Pty Ltd v MAK Construction Services Pty Ltd & Ors

Court of Appeal (Gotterson and Morrison JJA and Jackson J)

16 September 2014

In this matter the Court of Appeal was concerned with an appeal from a refusal to set aside an adjudicator’s decision made under BCIPA for jurisdictional error.

In determining whether or not the adjudicator fell into jurisdictional error Gotterson JA accepted, as had the trial judge, that an error by the adjudicator who “misconstrues or misapplies a relevant contractual provision, and as a result, does not correctly decide the amount of the progress payment, if any, to be paid to the claimant does not, for that reason alone, make a jurisdictional error.” See BM Alliance Coal Operations Pty Ltd v BGC Contracting Pty Ltd [2012] QSC 346 at [56]. His Honour then dealt with the various grounds of appeal.

In relation to the allegation that the appellant was denied natural justice because the adjudicator did not inform it that she did not intend to determine that the date for practical completion was the date identified by either of the parties, his Honour:

• accepted that a denial of natural justice would amount to a jurisdictional error thus rendering it void.
• also accepted that a denial of natural justice will occur when, inter alia, “an adjudicator decides a dispute on a basis for which neither party has contended, unless it can be said that no submission could have been made to the adjudicator which might have produced a different result.” [30].
• held that in the circumstances of the matter before the Court, the adjudicator had not determined the matter before her on the basis for which neither party had contended.

The appellant also relied upon “Wednesbury” unreasonableness as a ground for setting aside the adjudication based on the appellant’s reliance on a liquidated damages clause which it claimed had the effect of reducing the respondent’s claim. In doing so it relied upon the proposition advanced in Queensland Bulk Water Supply Authority v McDonald Keen Group Pty Ltd to the effect that a decision which displays an extreme degree of unreasonableness being akin to that described in Associated Provincial Picture Houses Ltd v Wednesbury Corporation, does not amount to a decision for the purposes of s 26 of the BCIPA. In this respect, his Honour held that:

• Recently in the High Court in Minister for Immigration and Citizenship v Li the High Court confirmed that “unreasonableness” in the making of an administrative decision only applies to the exercise of a discretionary power granted by statute. The power exercised by an adjudicator under BCIPA is not of that nature.
• It is relevant that unreasonableness of the Wednesbury kind was not identified as a species of jurisdictional error in Kirk v Industrial Court of New South Wales.

In relation to certain variation claims, in respect of which the appellant had asserted the respondent sub-contractor had not complied with the contractual pre-requisites, the adjudicator had determined that it was for the appellant to establish that the contractual pre-requisites had not been met as that was not shown she allowed the respondent’s claim for the additional work done. In relation to this claim, Gotterson JA:

• noted that it was well established that an adjudicator was not entitled to allow amounts of a claim on quantum meruit basis.
• agreed that if the effect of the adjudicator’s decision was to allow part of the claim on the basis of some extra-contractual common law right the decision would have been vitiated for jurisdictional error.
• determined that the adjudicator may have made an error of law as to the construction of the contract, however, she had not allowed part of the claim on an impermissible basis.

It was shown that the adjudicator had wrongly failed to take into account a backcharge claimed by the appellant in respect of some of the work performed by the respondent sub-contractor. The question which arose in this respect was whether or not this vitiated the decision? In relation to this point Gotterson JA:

• referred to and accepted the decision in Brookhollow Pty Ltd v R & R Consultants Pty Ltd to the effect that the mere failure by an adjudicator to consider each and every aspect of the claim does not mean that the adjudicator failed to address in good faith the issues raised by the parties.
• held the failure to consider one small backcharge claim in the context of a large complex claim was attributable to oversight with the result that there was no absence of good faith on the part of the adjudicator and it did not invalidate the adjudication.

However, Morrison JA and Jackson J did not agree with Gotterson JA on this last point. Morrison JA held that:

• there have been substantial reservations expressed as to the validity of the approach in Brookhollow particularly because the concept of “lack of good faith” is unclear and issues raising that concept should be dealt with on the basis of a denial of natural justice.
• there has been a long-standing and, as yet, unresolved debate about whether or not the concept of “lack of good faith” for jurisdictional error is narrow or wide.
• the necessary requirement is that the adjudicator consider the provisions of the Act, the contract which he or she believes to be relevant, and the submissions of the parties which are believed to have been made. A mere accidental or erroneous omission to consider a particular provision of the Act, a particular provision of the contract or a particular submission cannot wholly invalidate a decision.

Jackson J did not agree with either of the above approaches in relation to the failure of an adjudicator to deal with part of a claim or a response. However, on the facts of the matter before the Court, his Honour held that the error was capable of being an “accidental slip or omission” within the meaning of s 28(2) of BCIPA and therefore was capable of being rectified by the adjudicator.