Iris Broadbeach Business Pty Ltd v Descon Group Australia Pty Ltd & Anor  [2024] QSC 16

Andrew Orford  |  Luke Trimarchi  |  Jarryd Cox

Key takeouts

This case highlights the continuing need for judicial oversight in order to maintain the integrity of the adjudication and security of payment process.  The court intervened to rectify numerous jurisdictional errors committed by an adjudicator, including a failure to afford procedural fairness and a failure to consider a party’s submissions.

Despite lacking explicit language requesting payment or use of the word ‘invoice’, a payment claim can still meet the requirements under section 68(1) of the Building Industry Fairness (Security of Payment) Act 2017 (Qld) (BIF Act) if it clearly indicates a request for payment. This emphasises the court’s preference of substance over form to achieve fairness in adjudication processes under the BIF Act.

Facts

In August 2022 the applicant, Iris Broadbeach Business Pty Ltd (Iris) engaged Descon Group Australia Pty Ltd (Descon) to design and construct a development known as the Victoria and Albert Broadbeach Project (project).  Eastview Qld Pty Ltd (superintendent) was appointed as the superintendent.  On 25 January 2023 Iris gave notice to terminate the contract.

Adjudication

On 28 February 2023, Descon served Iris with its final payment claim for almost $13.5 million. The superintendent responded with a payment schedule certifying $3.6 million payable.  Descon lodged an adjudication application and the adjudicator accepted the appointment on 9 May 2023. Iris gave its adjudication response on 15 June 2023. On 6 September 2023 the adjudicator delivered a decision and reasons.  

Supreme Court proceedings

Iris applied to the court for orders that the adjudication decision be set aside, or declared void for jurisdictional error, and that Descon be permanently restrained from enforcing the adjudication decision.  Iris submitted that the adjudicator had erred in five ways, by:

1. deciding Iris was not entitled to retention moneys on a basis not advanced by either Iris or Descon, and failing to consider Iris’s submission about the effect of clause 5.7(a) of the contract;
2. awarding $781,628.24 in insurance amounts notwithstanding this was not claimed by Descon;
3. awarding $141,459.89 in structural engineering amounts notwithstanding Descon claimed a much lesser sum for this item;
4. finding that its previous valuation of work conducted by the architect was still valid; and
5. considering an invalid payment claim under section 68(1) of the BIF Act.

Iris and Descon agreed that, in respect of grounds 2 and 3, the adjudicator fell into jurisdictional error and that her decision was void to that extent.  Accordingly, the parties agreed that $857,431.88 was to be released to Iris.  In respect of the remaining three grounds, Descon submitted that there was no jurisdictional error.

Decision  

The court found that the adjudicator had fallen into jurisdictional error. 

Ground 1 – The retention monies

Under the contract, Descon was required to provide security to Iris in the form of two bank guarantees, totalling 5% of the contract sum.  Descon did not, prior to the termination, provide Iris with the security.  However, the superintendent withheld retention money from Descon in each payment certificate.  By the effective date of termination, the amount of retention withheld by the Superintendent was $1,838,287. 

Descon submitted that it was entitled to the return of the retention funds, which it submitted was to be released within 10 business days of the date of termination and, as this time period had passed, Iris was no longer entitled to the retention monies.  Iris’s position was that the release was subject to clause 5.7(a) of the contract, which provided that Iris was able to continue to hold security or retention moneys ‘where the contract may otherwise require it to be released or after termination of the Contract for any reason, if there is any amount claimed by the party’. 

The adjudicator determined that Descon was entitled to the full release of the retention and dismissed Iris’s submission under clause 5.7(a), as Iris had not referred the adjudicator to ‘any claim it made against Descon prior to the termination of the Contract pursuant to clause 5.2 of the Contract or another provision’ – Iris had simply stated that it had a claim against Descon.

The court held that the adjudicator’s decision was affected by jurisdictional error in two ways:

1. procedural fairness was denied as Iris’s rights were determined on the basis of clause 5.2 when neither party made submissions in respect of that clause; and
2. the adjudicator failed to consider Iris’s submission about the effect of clause 5.7(a) of the contract.

Ground 4 – The architect item

In a previous adjudication the adjudicator valued work completed by an architect at $200,000.  The adjudicator’s valuation of this work was subject to section 87(2) of the BIF Act, which provides that the valuation of the work must be the same value as it was previously decided, unless a party satisfied the adjudicator that the value of the work changed since the previous decision.  Iris’s submissions referred to two invoices from the architect which  evidenced that the total invoice was only $183,780.  On of the invoices  was dated after the previous adjudication decision, and therefore did not form part of the evidence for the adjudicator to consider in the previous adjudication.  In the adjudication decision, the adjudicator simply applied her previous valuation with no consideration for Iris’s submissions.

Iris submitted that the adjudicator failed to comply with section 87(2) as she failed to consider Iris’s submissions in relation to the architect item.  The court was satisfied that Iris’s evidence demonstrated that the architect item should have been valued less than $200,000, and found that the adjudicator fell into jurisdictional error by failing to engage with Iris’s submissions as required under sections 87(2) and 88(2) of the BIF Act.  

Ground 5 – The request for payment

Iris submitted that the payment claim did not comply with the requirements under section 68(1) of the BIF Act as it did not expressly request payment of the claimed amount and did not bear the word ‘invoice’.  Iris submitted that the adjudicator therefore did not have jurisdiction under the BIF Act in respect of the payment claim.  The court considered that while the payment claim did not expressly include a request for payment of the claimed amount, it was clear from the form of the document and the attached statutory declaration, that it was a request for payment.  The court found that the payment claim had met these requirements and consequently the adjudicator had jurisdiction with respect to the payment claim.