Building and Construction security of payment regime

In the recent decision of Civil Contractors (Aust) Pty Ltd v Galaxy Developments Pty Ltd,[1] the Queensland Court of Appeal has provided important guidance to principals, contractors and adjudicators on the strict requirements of the security of payment regime, including the strict time limit that applies to the delivery of adjudicators’ decisions. The decision may have serious practical consequences for adjudicators where decisions given late can be void on the basis of being out of time and therefore without jurisdiction, and in those instances adjudicators will not be entitled to their fees. The decision also serves as a useful reminder to contractors to be appropriately licenced and to understand the potential payment implications for licencing issues.

Background

Each state and territory in Australia has a security of payment regime that operates as an interim measure to facilitate the adjudication of contractual progress claims. In Queensland, the relevant Act is the Building Industry Fairness (Security of Payment) Act 2017 (the Act).

The Act includes a regime for the adjudication of progress claims, time limits for decisions and an adjudicator’s power to decide an adjudicated payment dispute. Importantly, the Act is substantially different to other Australian jurisdictions and applies to construction work carried out in Queensland regardless of whether or not the contract is expressed to be governed by Queensland law.

A separate licencing regime also exists under the Queensland Building and Construction Commission Act 1991 (QBCC Act) for categories of building and construction work which exceed minimum threshold amounts. Under the QBCC Act, a person must not carry out building work unless they hold the appropriate licence. If they do so, they are only entitled to “reasonable remuneration” which is defined and limited under the QBCC Act.

Facts

In February 2018, Civil Contractors (Aust) Pty Ltd (CCA) as contractor and Galaxy Developments Pty Ltd (Galaxy) as principal entered into a contract under which CCA was to perform civil works at a development in Coomera, Queensland.

CCA held one licence under the QBCC Act for a ‘builder restricted to structural landscaping’.

CCA’s primary works was the widening of Foxwell Road within the development. However, CCA’s scope of works also included minor works to remove and refix a garden seat and bus shelter and the installation of a bike rack (the Bus Stop Works).

On 1 July 2019, CCA served a payment claim on Galaxy for a progress payment of $1,430,070.69. On 15 July 2019, Galaxy served its payment schedule, which claimed payment from CCA in the amount of $53,278. The matter then proceeded to adjudication under the Act.

The Act allows adjudicators to request an extension of time for the delivery of decisions and in this instance three extensions were requested by the adjudicator and agreed by the parties. These extensions ultimately required the decision to be made on 24 October 2019.

The decision determined that Galaxy pay CCA the amount of $1,430,070.69 and was delivered by the adjudicator to the registrar on 28 October 2019. On 29 October 2019, the decision and the adjudication certificate were provided to the parties, however, in that decision the ‘Decision Date’ was specified as being 24 October 2019.

Galaxy applied to the Supreme Court for a declaration that the adjudication decision was void on the basis that the adjudicator only had jurisdiction to deliver a decision within the time limit prescribed by the Act and the decision in this case was delivered outside the maximum time period. 

At first instance the Supreme Court held that although the parties had agreed under the Act to extend the time for the decision, the adjudicator failed to deliver it by the extended agreed date and the decision was therefore void for the purposes of the Act. Her Honour, Justice Dalton, analysed the mandatory and permissive language of the relevant sections of the Act finding that ‘…it is plain that the mandatory language was carefully chosen. The draftsman was using the language with particularity and precision: mandatory language is used to impose time limits, and permissory language is used where the subject of the provision does in substance have a choice or election as to how, or whether, to exercise rights,’. In doing so, her Honour also considered the relevant sections and language used in the Victorian and New South Wales security of payment regimes. Ultimately, her Honour did not follow those decisions and instead adopted the same approach to the mandatory language used in relation to the obligations of principals and contractors.

Her Honour found that ‘in the construction of the Act overall, the purpose is to ensure a speedy extra-curial determination and a quick decision by the adjudicator is obviously an integral part of this’.[2] The Court’s decision stands in contrast to decisions of the Supreme Courts of Victorian and New South Wales, which her Honour noted assumed that the ‘legislative purpose [of their respective acts] would be frustrated if an adjudication allowing a claimant to be paid were delivered late and was therefore regarded as invalid’.[3] Her Honour distinguished these cases primarily on the basis of the differences in the language used in the respective Acts.

In addition to its ‘out of time’ argument, Galaxy successfully argued in the alternative that upon the proper construction of the QBCC Act and the QBCC Regulations, CCA did not hold a building licence to carry out the Bus Stop Works. The consequence of this was that CCA could not recover under its contract with Galaxy and the adjudicator had made a jurisdictional error in determining that it could. Her Honour noted that this result ‘although it may be correct in law, is absurd in reality’.[4]

Her Honour also found that because the adjudicator was aware of the time limit for determining the adjudication, he could not be said to have acted in ‘good faith’ and was therefore not entitled to his fees pursuant to s95 of the Act.

Consequently, the learned primary judge set aside the money judgment and the enforcement warrant.

CCA and the adjudicator separately appealed this decision.

The appeal

CCA appealed the following matters: 

1. the validity of the adjudicator’s decision made out of time (The Late Decision Question); and
   
   
2. the scope of CCA’s structural landscaping licence as it related to the Bus Stop Works.

The adjudicator also appealed the Supreme Court’s orders which disentitled him from being paid any fees or expenses and ordered him to refund monies paid to him in relation to the adjudication. The adjudicator appealed the orders on the basis that the primary judge should not have made findings of bad faith without providing the adjudicator the opportunity to be heard on the matter.

Justice McMurdo, with Fraser and Jackson JJ agreeing, dismissed CCA’s first appeal, allowed its second appeal and dismissed the adjudicator’s appeal.

With respect to The Late Decision Question, the Court of Appeal upheld the Supreme Court’s decision in full, as summarised above. Their Honours held that the relevant sections of the Act ‘provide a coherent scheme by which the time limits, on an adjudicator’s power to decide an application, are defined’.[5] The Court reasoned that the while the ‘Act does not answer the specific question, in that it does not expressly provide that a decision which is given beyond the time limit will be of no legal effect, there are provisions which provide strong indications of the answer’.[6] 

The Court of Appeal did, however, reverse the primary judge’s decision regarding the Bus Stop Works licence question. The Court of Appeal held that the works CCA performed were in fact associated with a road and thus within the scope of its licence. Notably, the reversal of the Supreme Court’s decision depended on a close, literal analysis of the QBCC Regulations based on the particular construction works before it. However, because the Court of Appeal upheld the Supreme Court’s decision on The Late Decision Question, the reversal of the decision on this licencing question had no material impact on the outcome of the case or the appeal.

Finally, the Court of Appeal upheld the Supreme Court’s decision with respect to the adjudicator’s fees. Although the Court of Appeal reversed the Supreme Court’s findings of bad faith against the adjudicator, it nevertheless found that because the decision was made out of time and void for the purposes of the Act, the Supreme Court’s orders stood and the adjudicator was not entitled to payment.

What this means for you

1. Principals, contractors and sub-contractors operating in Queensland must be alive to the rigid timeframes set out in Queensland’s security of payment regime. The implications of a void adjudication decision may result, subject to a further reference date accruing under the Act, in the claimant losing its right to payment under the Act. In such a case, the claimant is still entitled to agitate its claim in court but such actions can be protracted, costly and uncertain.
   
   
2. Both the Supreme Court and Court of Appeal decisions also make it clear that there are material differences between the security of payment regimes across Australian jurisdictions and an awareness of one will not necessarily correspond to an understanding of another. Relevantly, in late 2020 the Building Industry Fairness (Security of Payment) and Other Legislation Amendment Act 2020 (Qld) (BIFOLA Act) came into force, which again changes the security of payment landscape under the Act in Queensland. The amendments introduced under the BIFOLA Act apply not only to principals, head contractors, subcontractors, suppliers and consultants who perform construction work in Queensland, but in certain circumstances, can also apply to a head contractor’s project financier.[7]
   
   
3. Principals, contractors and sub-contractors must also be aware of the strict limitations of QBCC building licences. Although the Court of Appeal found for CCA on this point, the first instance and appeal decisions make it clear that if there is no right to be paid for the performance of the work because it falls outside the scope of the licence, adjudicators have no jurisdiction to determine these progress payments under the Act. Contractors and sub-contractors should therefore consider the scope of the licences they hold in order to ensure that the licence covers the work being undertaken.
   
   
4. Finally, the decision also provides guidance for adjudicators and for those seeking to challenge an adjudicator’s conduct in determining a claim under the Act. The decision confirms that where an adjudicator fails to make a decision within the prescribed timeframe the decision will be void and they will not be entitled to payment of fees and will have to repay and fees received for that decision. Unsurprisingly, the decision also confirms that a high threshold exists under the Act for a party seeking to argue that an adjudicator has acted in bad faith.