5 AUSTRALIA: THE EAST COAST MODEL (QUEENSLAND)

Chapter 5
Australia: The East Coast model (Queensland)




Introduction



“The BCIP Act proceeds on the assumption that the interruption of a builder’s cash flow may cause the financial failure of the builder before the rights and wrongs of claim and counterclaim between builder and owner can be finally determined by the courts. On that assumption, the BCIP Act seeks to preserve the cash flow to a builder, notwithstanding the risk that the builder might ultimately be required to refund the cash in circumstances where the builder’s financial failure, and inability to repay, could be expected to eventuate. Accordingly, the risk that a builder might not be able to refund moneys ultimately found to be due to a non-residential owner after a successful action by the owner must, I think, be regarded as a risk which, as a matter of policy in the commercial context in which the BCIP Act applies, the legislature has, prima facie at least, assigned to the owner.”1


5.1 Queensland already has a security of payment scheme called the Subcontractors’ Charges Act 1974 (the Charges Act). The Charges Act is still applicable and in force. It mainly aims to provide sub-contractors with some protection to secure outstanding amounts owed under a contract. The Charges Act allows a sub-contractor to place a charge upon money payable by an employer to a contractor. Thus, it has a very limited application, although it can sometimes be effective in the case of a contractor’s insolvency. The Queensland Building and Construction Industry Payments Act 2004 (the BCIPA) [Appendix 5] which commenced on 1 October 2004 was introduced as a quicker and more effective alternative with a much wider application.


5.2 The BCIPA and the Charges Act each create régimes for the determination of disputes concerning the performance of construction contracts and they are mutually exclusive. The sub-contractor has a choice as to which scheme to utilise in a particular case. However, both schemes cannot be utilised at the same time. The existence of a valid notice of claim of charge under the Charges Act prohibits the making of an adjudication application under the BCIPA.2


5.3 The BCIPA was closely modelled upon the New South Wales Building and Construction Industry Security of Payment Act 1999 (the NSW Act) [Appendix 3].3 The main differences are that in Queensland there is a different process for adjudication of payment claims over $750,000 and an Adjudication Registrar registers adjudicators, requires them to undertake an examination and continue professional development, receives all adjudication applications, selects the adjudicator, requires adjudicators to make an agreement with the Registrar on their fees and publishes all adjudication decisions.


5.4 There have been numerous decisions concerning the NSW Act in which observations have been made about the overall scheme of that statute and the rôle of the adjudicator, which are equally applicable to the BCIPA.4 Although the BCIPA includes substantial differences, as well as additional features, the title of the legislation, unlike its counterparts in the East Coast States, does not include the term “Security of payment”. The Second Reading Speech of the original Bill emphasised that there is no requirement for the developer to prove that the money is available prior to the commencement of construction. Accordingly, if there is no money in question, there is no security of payment, regardless of the existence of rapid adjudication.5 It follows that, even if a party is successful in achieving an adjudication decision, or getting a judgment in its favour, this does not necessarily “secure payment” to that party.6



2014 reform


5.5 After a decade of operation of the BCIPA, it was substantially amended in December 2014 (the amended BCIPA) [Appendix 5.1], following an extensive review and consultation process within the building and construction industry. The amended BCIPA established many new features and changes, which have no equivalent elsewhere in Australia, in response to concerns raised by industry stakeholders relating to the unintended consequences that undermined industry confidence in the BCIPA.7 The reform is said to be aimed at reducing regulatory burden and the costs associated with adjudication and to provide a fairer and more transparent process, but there is no evidence that this has been achieved.8 This chapter not only demonstrates the key differences and additional features of the revised legislation, but also examines the practical application and operational effectiveness of the Act since its inception.



The object of the BCIPA


5.6 Similar to the object of the legislation in other East Coast States, the express object of the BCIPA is to ensure that a party is entitled to receive and is able to recover progress payments if the person undertakes to carry out construction work under a construction contract, or undertakes to supply related goods and services under a construction contract: see section 7 thereof. The reason for this legislation was addressed in the relevant explanatory note and also addressed by White JA in Northbuild Construction Pty Limited v Central Interior Linings Pty Limited:9



“The failure of any one party in the contractual chain to honour its obligations would often cause a domino effect on other parties, resulting in restricted cash flow and, in some cases, insolvency. This would occur in many cases long before rights under the relevant contract or subcontract could be litigated and determined.



5.7 The object of the BCIPA is achieved by granting an entitlement to progress payments, whether or not the relevant contract makes provision for progress payments, and establishing an adjudication process: see section 8 thereof. The BCIPA not only requires adjudicators to comply with the principles of natural justice and procedural fairness,10 but also “emphasises speed and informality”.11 Adjudication decisions give rise to an entitlement to a payment on account and are not intended to be scrutinised in quite the same way as final determinations by a court or an arbitrator.12 In R J Neller Building P/L v Ainsworth,13 Keane JA clarified the policy underlying the BCIPA as follows:





Business days


5.8 The BCIPA adopts the term “business day” similar to other East Coast jurisdictions. Times for taking steps in the adjudication process are measured in business days. However, the amended BCIPA has also excluded the period from 22 December to 10 January from the definition of business days, in order to reflect the industry shutdown and to counter the situation in which payment claims and adjudication applications are served during popular holiday periods, during which staff numbers may be reduced.14 It was also argued that some claimants abuse the old definition, whereby payment claims and adjudication applications are strategically served in the days just prior to Christmas, so as to cause maximum disadvantage to respondents15 with “ambush attacks”. The amended BCIPA ameliorates some time constraints found in other East Coast Model Acts.



Application of the amended BCIPA


5.9 The amended BCIPA retains the definition of “Construction work” and “related goods and services” under sections 10 and 11 thereof, adopting similar definitions to that of the NSW Act. However, under the BCIPA, construction work also includes building work within the meaning of the Queensland Building and Construction Commission Act 1991. The BCIPA does not apply, inter alia, to a construction contract for the carrying out of domestic building work if a resident owner is a party to the contract, to the extent that the contract relates to a building, or part thereof, where the resident owner resides, or intends to reside: see section 3(2b) thereof. The BCIPA also does not apply to the drilling for, or extraction of, oil or natural gas; the extraction, whether by underground or surface working of minerals, including tunnelling or boring or constructing underground works, for that purpose: see section 10(3) thereof.


5.10 In practice, many adjudication applications have been dismissed by adjudicators for lack of jurisdiction by reason of non-existence of a construction contract within the meaning of the BCIPA.16 Many other adjudication decisions were successfully challenged by respondents in court on the same ground.17 This may indicate the necessity to better define the jurisdiction of adjudicators or to better educate both adjudicators, as well as construction stakeholders, in order to improve their awareness of the application of the BCIPA to avoid invalidation of adjudications.


5.11 In Wiggins Island Coal Export Terminal Pty Limited v Monadelphous Engineering Pty Limited,18 the Court considered a significant issue of whether a contractor is able to recover payment for work performed outside of Queensland through an adjudication brought under the BCIPA. McMurdo J held that the contractor was entitled to recover payment through the adjudication process under the BCIPA, despite the express territorial limitation provided for in section 3(4). McMurdo J further pointed out that the important consideration was not where the work was carried out, but rather whether the work was “an integral part of construction work undertaken inside Queensland”.



Dual adjudication scheme


5.12 The amended BCIPA is the first and only piece of Australian legislation to introduce a dual adjudication scheme. It provides different procedures for adjudicating “complex payment claims”, whilst retaining its original scheme to deal with “standard payment claims”, with some alterations. For the purpose of the new dual scheme, the amended BCIPA classifies all payment claims greater than $750,000 as complex payment claims even when the amount in issue is less than $750,000. This amount was adopted to tie in with the monetary limit of the civil jurisdiction of the District Court of Queensland19 but it ignores the fact in the court it is the amount in issue that must not exceed $750,000, whereas under the BCIPA it is the amount of the original claim that is relevant, even if the respondent has paid or does not dispute a portion of the amount originally claimed. The composite scheme was sought because of criticism that the old scheme was not appropriate to deal with large, or complex, payment claims. The “one size fits all” approach inherent in the BCIPA does not cater for the gulf of different size and complexity of claims.20 In John Holland Pty Limited v Walz Marine Services Pty Limited, Wilson J held:21



“While I appreciate that the quantum of progress claims made under the Act can be very high, and that the outcome of the adjudication can have serious consequences for the liquidity of either or both parties, I doubt that the Legislature envisaged such a development. The adjudication process may be more suited to comparatively small, uncomplicated claims than to large, complex claims.”



5.13 Unless the payment claim relates to a final payment, the claim must be served within the later of the period worked out under the relevant construction contract, or the period of six months after the construction work to which the claim relates was last carried out: see section 17A(2) thereof. The payment schedule, if it relates to a standard payment claim, must be served upon the claimant within the earlier of the time required, by the relevant construction contract, or 10 business days after the payment claim is served: see section 18A (2) thereof. The payment schedule, if it relates to a complex payment claim, must be served upon the claimant within the earlier of the time required by the relevant construction contract, or whichever of the following applies:



  • .1 If the claim was served upon the respondent 90 days, or less, after the reference date to which the claim relates, 15 business days after the claim is served; or
  • .2 If the claim was served upon the respondent more than 90 days after the reference date to which the claim relates, 30 business days after the claim is served: see section 18A(3) thereof.


5.14 The reference date is defined in Schedule 2 of the BCIPA. It is the date from which a progress claim can be made. The difficulty in determining the reference date for a particular payment claim has given rise to many jurisdictional issues.


5.15 If in response to a payment claim the respondent provides a payment schedule. If in the payment schedule the respondent refuses to pay the claimant the whole of the claimed amount, the claimant may apply for adjudication of the payment claim. The claimant can only do so within 10 business days after the claimant receives the payment schedule. If the respondent fails to serve a payment schedule and also fails to pay the whole of the claimed amount by the due date for payment the claimant may apply to the Adjudication Registrar for adjudication of the payment claim. Before applying for adjudication, the claimant must first give to the respondent notice of the claimant’s intention to do so and such notice must be given to the respondent within 20 business days immediately following the due date for payment. The notice must state that the respondent may serve a payment schedule upon the claimant within five business days after receiving the notice and the notice must state that it is made under the BCIPA: see section 20A thereof. Such a second chance (to provide a payment schedule) was statutorily secured for respondents in order to afford procedural fairness, as addressed by Chesterman J in Minimax Fire Fighting Systems Pty Limited v Bremore Engineering (WA Pty Limited).22 Frequently a dispute arises as to what was the due date for payment. Following the authority of Chase,23 it seems that the requirements of the BCIPA for the claimant’s notice of its intention to apply for adjudication go to jurisdiction. Failure to comply with the requirements may invalidate the adjudicator’s decision. They are basic and essential requirements.24


5.16 For an adjudication application for a standard payment claim the respondent who has provided a payment schedule can make an adjudication response within 10 business days after receipt of a copy of the adjudication application: see section 24A(2a) of the amended BCIPA. For complex payment claims, the respondent has 15 business days in which to submit an adjudication response: see section 24A(4). Only when the adjudication application is for adjudication of a complex payment claim, the respondent is allowed to raise new reasons (for withholding payment) that were not included in the payment schedule: see section 24(5). Respondents to an application for adjudication of a complex payment claim can apply to the adjudicator for an extension of time of up to 15 business days to submit their response: see section 24A(5). If the respondent includes in an adjudication response new reasons for withholding payment, the claimant may give the adjudicator a reply to the new reasons (the claimant’s reply) within 15 business days after receiving a copy of the adjudication response: see section 24B(2). The claimant may apply to the adjudicator for an extension of time, of up to 15 additional business days, to give the claimant’s reply if, because of the complexity, or volume, of the new reasons, an extension of time is required to adequately prepare the claimant’s reply: see section 24B(3). These arrangements were designed to overcome the criticism of ambush tactics by either party and to afford more procedural fairness to both parties. The adjudicator can have up to 20 business days to make the “adjudicator’s decision” (the term “decision” rather than “determination” is only used in Queensland and ACT) in respect of a complex payment claim, instead of 10 business days in respect of a standard payment claim: see sections 25A(4)–(6). If the respondent fails to pay the whole, or any part, of the adjudicated amount to the claimant, as decided by the adjudicator, the claimant may request the Registrar to provide an adjudication certificate under this section 30 of the BCIPA and may serve notice upon the respondent of the claimant’s intention to suspend carrying out construction work, or supplying related goods: see section 30. Whilst a respondent may commence proceedings to have any judgment based upon the adjudication certificate set aside, the respondent is precluded from challenging the adjudicator’s decision, counterclaiming, or raising a defence under the contract in those proceedings: see section 31(4). There is no appeal from an adjudicator’s decision but either party can apply to the Supreme Court for a declaration that an adjudication decision is void.



Appointment and regulation of adjudicators


5.17 Unlike its counterparts in East Coast States, the BCIPA requires all adjudicators to be registered in order for them to be eligible to practise in Queensland. The amended BCIPA abolished Authorised Nominating Authorities (section 114), replacing them with the Adjudication Registrar. The Registrar and the staff of the Adjudication Registry are appointed by and subject to the direction of the Queensland Building and Construction Commission, “the QBCC” (sections 37(2) and 38(1) of the BCIPA). All adjudication applications are now made to the Registrar. The Registrar refers adjudication applications to adjudicators selected by him. This change was in response to criticism of the perceived bias in adjudicators’ appointments by private for-profit nominating authorities. Usually, those nominating authorities would only refer adjudication applications to adjudicators who contracted to pay the nominating authority a percentage of their adjudication fees. The percentage was usually 25% or 33%. There was a perception by some respondents that, in the interests of attracting more business, an authorised nominating authority would favour adjudicators who made decisions in favour of claimants. A person may be an adjudicator in relation to a construction contract if registered as an adjudicator under the amended BCIPA: see section 22(1) thereof. A person is not eligible to be an adjudicator in relation to a particular construction contract if the person is a party to the contract, or in circumstances in which the appointment of an adjudicator might create a conflict of interest: see section 22(2) thereof. The Registrar has an unfettered discretion to select the adjudicator to decide an adjudication application. The Registrar even selects the adjudicator when a Queensland Government construction authority, or a contractor to such an authority, is a party to an adjudication. The Registrar is an employee of the QBCC and has no security of tenure.


5.18 The QBCC has also released what is called the “Adjudicator Responsibilities Policy 2015” (the Policy), aiming to ensure that adjudicators comply with the rules of natural justice, or procedural fairness, with respect to scenarios that may give rise to apprehended and/or actual bias. The authority of the QBCC to make such a policy is said to stem from section 101 of the Act which empowers the QBCC to make a policy governing the administration of the BCIPA. The Policy provides that, following appointment to decide an adjudication application, an adjudicator must take all reasonable steps to avoid any reasonable apprehension by the parties that the adjudicator has a conflict of interest, or is not impartial as between the parties. The Policy therefore directs the adjudicator that he or she may engage an agent to act on his or her behalf to undertake telephone and other communications with the parties. In practice, this agent is usually the same abolished authorised nominating authority with which the adjudicator had contracted prior to the recent reforms and the adjudicator pays the agent a fee similar to that paid when the authority had the power to nominate adjudicators. This direction was criticised as ultra vires and will unnecessarily increase the cost of adjudication.25 Before the Registrar refers an adjudication application an adjudicator, the adjudicator is required to make a private and confidential agreement with the Registrar relating to conflict of interest, the adjudicator’s fees and the adjudicator’s agent, if any.


5.19 The Building and Construction Industry Payments Regulation 2004 provide for specific and detailed elements of the training course that must be successfully completed so as to allow an adjudicator to obtain a certificate in adjudication as qualification of adjudication.26 Since taking over the rôle of referring adjudication applications to adjudicators the Registrar has purported to impose a number of additional conditions of registration of adjudicators. These include a “mandatory transitionary training course”, completion of an examination, a continuing professional development (CPD) programme (purportedly to maintain the quality and competencies of registered adjudicators) and general conditions of registration. The general conditions include a requirement that before the Registrar refers an adjudication application to an adjudicator the adjudicator must enter a private and confidential agreement with the registrar governing the adjudicator’s fees for deciding the application. There are currently a number of actions in the Queensland Civil and Administrative Tribunal by adjudicators challenging the validity of the Registrar’s conditions on registration.


5.20 The QBCC also released what is called the “Adjudicator Grading and Referral Policy 2015” (the GR Policy). The GR Policy was purportedly made in order to ensure transparency and confidence in the Registrar’s power to nominate adjudicators and assess adjudication applications in order to marry each application with a suitably qualified adjudicator to decide the dispute. The GR Policy establishes, inter alia, a grading system for adjudicators, namely Adjudicator (lowest), Advanced Adjudicator and Senior Adjudicator (highest). The grading system takes account of the number of decisions made by an adjudicator, the amount of the payment claims that have been decided, the quality (in the opinion of the Registrar) of the decisions, the results of the compulsory examination that the adjudicator has undertaken and the relevant qualifications/expertise and relevant skills of the adjudicator. Senior adjudicators are only appointed for complex payment claims. However, the GR Policy provides that, if an assessment of the application identifies that the issues in dispute are of significant complexity, then the matter must be decided by a senior adjudicator, regardless of the value of the payment claim: see section 5.2.4 of the GR Policy. It also states that the QBCC aims to ensure that 9% of all referrals are made within four business days: see section 2.3.3 thereof. The GR Policy governs adjudicators’ fees. For adjudicating a payment claim for more than $25,000, lowest grade adjudicators cannot charge more than $260 per hour including disbursements (eg printing and photocopy costs). Senior adjudicators cannot charge more than $385 per hour: see section 6.1.2 of the GR Policy. It was argued that billing by the hour rewards the most inefficient adjudicators and may not be reasonable.27 The Registrar will liaise with a particular adjudicator to ascertain certain matters prior to referring to them an adjudication application, including the adjudicator’s availability, the adjudicator’s fees, conflicts of interest, or any perception of apprehended, or actual, bias: see section 6.3.1 thereof. The Registrar, if receiving consecutive applications involving the same parties and the same contract, may consider whether both applications would best be decided by a single adjudicator: see section 6.2.3 of the GR Policy. The Registrar maintains a complete discretion as to whom he will refer an adjudication application. He also considers the “quality” of adjudicators’ decisions and he may submit an adjudication decision to “peer review”. What “peer review” is and the consequences thereof have yet to be defined.