Void decision is of no effect

Court of Appeal orders return of nearly $30 million to coal miner

A contractor, BGC Contracting Pty Ltd (“BGC”) claimed over $35 million for the construction of a dam in Central Queensland, for BM Alliance Coal Operations Pty Ltd (“BMA”), and the claim went to adjudication with the adjudicator awarding a progress claim of over $25 million, including sums in respect of latent conditions and termination costs claims.

At 1st instance, the Supreme Court held that the adjudicator’s decision was void for jurisdictional error only for the termination costs claim, and made a declaration to that effect in November 2012. However, His Honour later revoked his earlier declaration in March 2013, and held that the adjudication decision had a measure of validity, and dismissed BMA’s application upon BGC’s undertaking to repay the portion of monies essentially “infected” with the jurisdictional error. His orders, he said, provided a just result, which avoided the risk of further litigation and the costs and complexity of a further adjudication, and avoided BGC being deprived of approximately $24,000,000.

On appeal: Muir JA with whom the two other Court of Appeal justices agreed, held that:

1. The learned judge had misinterpreted the operation of clause 26.3 of the contract relating to the latent conditions claim. The Court said that his Honour had erroneously found that clause 26.3 assumed the existence of an entitlement to be paid for the impact of latent conditions, for which BGC could seek payment.

2. Once there was a finding of jurisdictional error, the adjudication decision could have no legal effect.

3. Therefore, the adjudication decision gave BGC no entitlement to payment of any part of its claim, and BMA having paid it, had the right to recover it.

Some comments about his Honour’s observations which are important in adjudication

Whilst he did not have to decide the point because it had not been raised in the Grounds of Appeal, Muir JA observed that:

1. The latent conditions claim under clause 26.3 of the contract which the adjudicator had awarded, and which the learned judge had found was not made under a jurisdictional error, was arguably made without jurisdiction.

2. After extensively canvassing the issue of jurisdictional error, with particular reference to two High Court decisions of Kirk v Industrial Court (NSW) (2010) 239 CLR 531 and Craig v South Australia ( 1995) 184 CLR 163:

a) With reference to Kirk, that the failure by the Industrial Court to correctly interpret part of the safety legislation and its failure to comply with the rules of evidence, were jurisdictional errors which “led the Court to misapprehend the nature and limits of its power”;

b) In his application of Kirk’s principles to the adjudicator’s decision, said the adjudicator had erroneously awarded an amount for the latent conditions claim when there was no entitlement to be paid for it, because the preconditions of clause 26.3 of the contract (being a negotiation between the parties and the referral of the latent conditions claim to an expert for determination), had not been met.

3. He added that, “Also, the extent of an adjudicator’s jurisdiction on matters of law is, at best, limited (my underlining). Bodies other than courts do not have power to authoritatively determine questions of law or make decisions, other than in accordance with law, subject to contrary intent in the statute creating the body”. His Honour referred to Craig as authority for this principle.

4. In his further reference to Craig, his Honour emphasised an extract from paragraphs 177-178 of Craig, from which can be distilled 3 important issues:

a) Whilst acting wholly within the general area of jurisdiction, an inferior court can fall into jurisdictional error by doing something which it lacks authority to do. The High Court gave the example of the need to establish the existence of (my underlining) an essential condition founding jurisdiction for a particular matter, i.e. the occurrence of a fact or the satisfaction of a requirement; then a court would fall into jurisdictional error if that fact had not occurred, or that requirement had not been satisfied, even if the matter fell within the court’s jurisdiction (my underlining);

b) If an inferior court has been given jurisdiction to take account of or ignore a matter, and then

i. disregards the matter that should be taken into account; or

ii. takes account of the matter that should be ignored,

this is a jurisdictional error;

c) Furthermore, an inferior court falls into jurisdictional error if it misconstrues the statute or other instrument giving it jurisdiction, thereby misconceiving the nature of the function which it is performing or the extent of its powers.

This judgement (delivered on 20 December 2013) may be signalling the Court of Appeal’s crystallisation of approach involving BCIPA generally.

1. Whilst BCIPA is a quick and robust mechanism for ensuring the payment of progress claims, it does not contemplate that the failure to comply with the BCIPA requirements should allow benefits to claimants or detriments to respondents, to achieve a “just result” through a decision of an adjudicator or a Court.

2. Adjudicators (in relation to their jurisdiction) need to be ever mindful of the 3 important issues extracted above from the case of Craig, particularly as regards the non-occurrence of a fact or an unsatisfied requirement, which is a pre-requisite to jurisdiction.

3. It is embarking upon a perilous voyage if an adjudicator is content in thinking that a matter is generally within jurisdiction, and then continues with adjudication, without the solid hull of the essential fact or satisfied requirement underneath him or her.

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Chris Lenz

Lenz Moreton