Stop! Severance argument cut off by the Court of Appeal

January, 2014

BM Alliance Coal Operations Pty Ltd v BGC Contracting Pty Ltd & Ors [2013] QCA 394

Executive summary

Readers may recall that in May 2013 we discussed the decision of the Supreme Court of Queensland in BM Alliance Coal Operations Pty Ltd v BGC Contracting Pty Ltd (No 2) [2013] QSC 67 in the publication ‘Court declines to set aside adjudication decision despite jurisdictional error.’

The Court of Appeal has very recently delivered its judgment of the appeal brought by BM Alliance Coal Operations Pty Ltd (BMA), which effectively reverses the decision in the Supreme Court of Queensland, meaning that:

Background

The appellant (BMA) entered into a construction contract with the respondent (BGC) for the construction of a dam. BGC served a payment claim pursuant to the Building and Construction Industry Payments Act 2004 (Qld) (BCIP Act) which included claims for alleged latent conditions and termination costs.

Subsequent to service of a payment schedule, the payment claim was referred to adjudication. The adjudicator awarded to BGC a progress payment which included amounts for latent conditions and termination costs.

BMA appealed the adjudicator’s decision to the Supreme Court on the basis that the decision was void as a result of jurisdictional errors relating to the award of termination costs and latent conditions amounts, absent any contractual entitlement.

The court found that the adjudicator committed jurisdictional error in respect of the award of termination costs.

Initially the court declared the adjudication determination void by virtue of jurisdictional error. The court later revoked its declaratory order and relisted the matter for hearing to consider whether a decision affected by jurisdictional error was invalid for all purposes.

The court also gave further consideration to whether it had a discretion to give orders for remedies more convenient and satisfactory, such as allowing payments based on the parts of the determination not infected by want of jurisdiction, rather than simply declaring the determination void.

Appeal by BMA

In relation to the key issues arising from jurisdictional error, the appeal was made on the following grounds:

1. the primary judge erred in holding that the adjudication decision retained effect unless and until the court exercised its discretion (to declare the determination void).
2. the primary judge erred in dismissing BMA’s application on condition that BGC paid to BMA the portion of the adjudication decision affected by jurisdictional error.

Justice Muir (who delivered the leading judgment in the Court of Appeal) held that there were no provisions in the BCIP Act which addressed whether a jurisdictional error on part of an adjudicator will render a determination nugatory, and “the decisions of the High Court relied on by BMA make it plain that once a court determines that decision of the type in question is affected by jurisdictional error, the decision cannot give rise to legal consequences”.

Therefore, the court held that the primary judge erred in finding that the adjudicator’s decision, even where affected by jurisdictional error, “retained effect until he exercised his discretion to grant a declaration or make an order quashing or setting aside the decision”.

As an adjudication determination affected by jurisdictional error cannot give rise to legal consequences, parties are no longer able to seek orders severing discrete elements of a determination so as to preserve others.

Further, the court held that the primary judge erred by denying BMA the remedy necessitated by the finding of jurisdictional error.

The remedy identified in this case was the recovery of the adjudication amount paid by BMA. As the adjudication decision was entirely void for jurisdictional error, it did not give BGC entitlement to payment of any part of the adjudication amount.

Further to severance, the court also:


Conclusion

This case is significant for both claimants and respondents.

Construction proponents should keep in mind that an adjudicator’s determination, found by the court to be affected by jurisdictional error, will have no legal effect.

Adjudicators must be aware of their obligations under the relevant security of payments legislation and construction contracts. Simply referring to the relevant passage, without application, will not be sufficient.

This case also serves as an important reminder that when drafting and interpreting contracts, regard must be had to the interaction of clauses and clauses which are subject to another. If this is not specified, it is likely that in the event of an inconsistency, the specific clause will trump the general.

Finally this case reaffirms that the express language of BCIP Act and the express and implied terms of the construction contract are the foremost determinants of a party’s rights, rather than policy considerations said to underpin the regime.

Contact Mills Oakley

For more information, please contact:

Rechelle Brost | Partner
T: +61 7 3228 0421
E: rbrost@millsoakley.com.au

 

Greg Richards | Partner
T: +61 7 3228 0443
E: grichards@millsoakley.com.au

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