Is Adjudication Shopping about to make a comeback in Qld?

Every person who procures construction work or related goods or services in Queensland should read this article. If you are such a person then you are a potential ‘respondent’ in terms of adjudication and the proposed changes outlined below will affect you, if implemented.

What is “adjudication shopping”?

In his final report of a review of Security of Payment Laws (Mr Murray’s report) dated 21 May 2018, Mr John Murray AM, defined ‘adjudication shopping’ as (page 171):

“the claimant chooses an ANA whose panel of adjudicators is perceived to be ‘claimant friendly.”

An ‘ANA’ is an ‘Authorised Nominating Authority’ in Victoria, NSW, South Australia, ACT and Tasmania for the purpose of receiving adjudication applications and then referring them to adjudicators to decide payment disputes.

ANA’s use to operate in Queensland and perform these functions until they were abolished in 2014. The Adjudication Registrar, a statutory appointee attached to the Queensland Building and Construction Commission (QBCC) now performs these functions.

However Mr Murray’s report raises the possibility of ANA’s making a comeback in Queensland and replacing the role of the Adjudication Registrar at some point in time in the future.

This is due to the fact that the Commonwealth government is exploring the possibility of harmonising security of payment laws in Australia. In a press release dated 21 May 2018, the Minister for Small and Family Business, the Workplace and Deregulation, The Hon Craig Laundy stated:

“More needs to be done to harmonise the various state and territory security of payments laws so that businesses and subcontractors operating in the building and construction industry are not required to be across several complex pieces of legislation at any given time.”

Queensland Government — Current and future

The Building and Construction Industry Payments Act 2004 (BCIPA) was initially intended to be repealed on 1 July 2018 and replaced with provisions contained in the Building Industry Fairness (Security of Payment) Act 2017 (BIFA).

However in a press release dated 12 June 2018, the responsible Minister, The Hon Mick de Brenni stated that “ to progress the next stages of reform” he intended to introduce amendments to BIFA that will result in these provisions coming into effect on 17 December 2018. This means the repealing of BCIPA will be delayed almost 6 months.

Watch this space !!

In my recent article BCIPA bites the dust, I supported the decision by the Queensland government to retain all existing key responsibilities of the Adjudication Registry, and in particular the functions of receiving adjudication applications and referring applications to adjudicators that were the result of major amendments to BCIPA in 2014. When reflecting on key initiatives I was responsible for as Adjudication Registrar I stated:

“10 years later, successfully implementing the 2014 BCIPA amendments, and in particular overseeing the transferring from ANA’s to the Adjudication Registry, the functions of receiving adjudication applications and appoint adjudicators. While this was a very controversial decision and has been the subject of much misinformation, it should be noted that on the commencement of the BCIPA reforms contained in BIFA, the Adjudication Registry will continue performing these vital functions. The Registry I was in charge of for 13 years will remain under BIFA, performing all the above key functions and I consider this such an important decision for integrity reasons.”

2014 BCIPA background

The 2014 BCIPA amendments were the outcome of a report compiled by Andrew Wallace, Barrister at Law and presented to the Queensland Government on 24 May 2013.

In terms of issues relating to the receiving of adjudication applications and the referring of them to adjudicators, Mr Wallace addressed these in his report (pages 128–166).

Significantly on page 158 of his report, Mr Wallace clearly outlines apprehended bias concerns he had about ANA’s referring applications to adjudicators. He states:

“the parties to an adjudication application are entitled to have the utmost faith that the adjudicator is genuinely disinterested in the outcome. Under the current appointment process where adjudicators are appointed by third party ANAs all of whom generate income from the adjudication process and whose best interests are served by appointing adjudicators who may make decisions which will in effect generate more work and more profit might cause the fair minded lay observer to reasonably apprehend that the adjudicator might not bring an impartial and unprejudiced mind to the resolution of the question the adjudicator is required to decide”.

Furthermore in summing up his position on page 160 of his report, Mr Wallace stated:

“In my view, the nexus between the interests of claimants and their representatives must be broken from those that appoint adjudicators and of course the adjudicators themselves. Putting aside all of the untested allegations made to the Review and applying the test adopted in Johnson v Johnson it is my view that a fair-minded lay observer might reasonably apprehend that an adjudicator under the current appointment process might not bring an impartial and unprejudiced mind to the resolution of the questions that he or she is called upon to decide”.

As the Adjudication Registrar, what did I think of the ANA model?

Initially I was a strong supporter of ANA’s. I am on record many occasions saying as much. I provided the drafting instructions in 2004 for the development of BCIPA which created ANA’s in Queensland.

However adjudication quickly became a very divisive issue in the building and construction industry (see my article Why is BCIPA so divisive?) and commentary started getting published where phrases like “claimant friendly adjudicators” and “Adjudication shopping” gained prominence.

I am unable to comment on any aspect of my role as the Adjudication Registrar unless it is a matter of public record. In this regard in 2011, under the existing legislative powers available to me at the time, I took action to bolster the regulatory environment in which ANA’s were operating in Queensland.

These actions involved me prescribing conditions on the registration of ANA’s which sought to address the need for independence in the referral of adjudication applications that prescribed amongst other things:

1. A key person (as defined) in an ANA could not:

• have any involvement in the referral of an adjudication application if they had provided any advice, information or assistance in relation to the construction contract the subject of the application;
• have any form of connection or relationship with a company or business that as part of its business operations, provided advice, assistance or information to any entity on the adjudication of payment disputes under the Act. In other words no key personnel in an ANA could have any involvement (very broadly defined) with a claims preparer.

Mr Wallace in his report (pages 153–154) fully outlines these actions.

BIFA background

In the development of BIFA, the transferring of these key functions to the Adjudication Registry in 2014 was the subject of consultation and stakeholder feedback through:

• The release of a Security of Payment Discussion Paper on 17 December 2015;
• The subsequent release of a Queensland Building Plan Discussion Paper in November 2016, which incorporated a BCIPA proposed amendments factsheet.
• Consultation undertaken across Queensland in relation to the Queensland Building Plan until 31 March 2017, which incorporated 15 public meetings.

During the consultation and feedback process, in settling on BIFA initiatives relating to the adjudication process, the Queensland government would have heard from supporters of the Adjudication Registrar model and those favouring the return to the ANA days.

An LNP government was responsible for implementing the BCIPA 2014 reforms. When in opposition, the current labor government was extremely critical of these reforms. They gave an election commitment to review them, which they have done.

During the course of this review, I think it is reasonable to conclude that the government would have closely examined whether the Adjudication Registrar should continue to perform these functions.

The government’s response has been an emphatic endorsement of these particular 2014 BCIPA reforms. In the tabling of the Bill that gave affect to BIFA the explanatory notes state:

“Amendments also enhance the independence and operation of the Adjudication Registry within the QBCC”

Under section 79 of BIFA, a claimant may lodge an adjudication application with the Adjudication Registrar.

Furthermore under section 154 of BIFA one of the Adjudication Registrar’s functions is to refer adjudication applications to adjudicators.

Bringing back ANA’s

However with the release by the Commonwealth government of Mr Murray’s report the functions of receiving adjudication applications and referring them to adjudicators is again back under the microscope because Mr Murray is proposing something very different to the current and future amended Queensland positions in this regard.

Significantly on page 181 of his report Mr Murray comments:

“First and foremost, whilst the legislation should continue to empower ANAs to receive adjudication applications from claimants, ANAs should no longer be involved in the actual appointment of an adjudicator. As the description of their title indicates, ANAs should be confined to nominating suitable adjudicators for consideration by the Regulator.

Accordingly, whenever an ANA receives an adjudication application it should be required to put forward the names of three persons from its panel of adjudicators which the ANA considers would be suitable and available to adjudicate on the matter. The actual appointment of the adjudicator should, however, be made by the Regulator.”

It should be noted that Mr Murray’s actual recommendations in this regard are more general in nature, namely:

“Recommendation 36: The legislation should provide that a function of the Regulator is to appoint adjudicators (whether nominated by the authorised nominating authority, or otherwise) to determine an adjudication application.

Recommendation 37: The legislation should provide for authorised nominating authorities to make nominations of accredited adjudicators to the Regulator for appointment to determine an adjudication application.”

Mr Murray states in support of his recommendations (page 217 of his report):

“The point that needs to be underscored is that, under this proposal, the direct connection between an ANA receiving an adjudication application and then appointing an adjudicator would be broken. In this way, any potential perception of close relations between a claims preparer and an ANA would be removed. Similarly, the current perception that the business model of private sector ANAs being underpinned by the appointment of claimant friendly adjudicators loses much of its potency because the actual appointment of an adjudicator would now not be made by an ANA, but rather by the independent regulator.”

While I have the utmost respect for Mr Murray, I strongly disagree with him in respect to these two recommendations.

Why?

1. A claimant will have the entitlement to select an ANA to lodge an adjudication application with.
2. The selected ANA will enjoy total independence in the compiling of a short list of suitable (in view of the ANA) adjudicators from their panel of adjudicators for the consideration of the Regulator. It should be noted that there are various different commercial relationships between all ANA’s and their adjudicators.
3. While I note that Mr Murray proposes to afford the Regulator the opportunity to reject all suggested adjudicators (if the Regulator decides all are unsuitable) and request that another adjudicator from their panel of adjudicators be submitted for consideration, it should be pointed out that this step is again at complete arms length to the Regulator.

According to the most recent published QBCC adjudication statistics there are 119 registered adjudicators in Queensland.

Taking NSW as a guide if ANA’s were to make a return to Queensland, then there would be seven registered ANA’s.

119 adjudicators spread across 7 ANA’s and while some adjudicators could be on more than one panel, the fact of the matter is such a system would not always result in the best available adjudicator deciding a dispute because that particular adjudicator may not have a panel relationship with the ANA that received the application.

In making this point I am aware that a number of registered adjudicators have concerns about the fact that since the abolishing of ANA’s in Queensland, they have not had sufficient applications referred to them in order to maintain their knowledge and skills because the Adjudication Registrar has the option of selecting adjudicators from a large pool of candidates.

I acknowledge this is an issue which needs addressing through changes to the Adjudicator Grading and Referral policy.

I am also of the view that Mr Wallace’s apprehended bias concerns are only slightly less valid if ANA’s have to submit three adjudicators for the Regulators consideration.

While the actual referral of an adjudication application will rest with the Regulator, it should be noted that every step leading up to the referral action will be undertaken by the ANA that received the application.

Another way of looking at this proposed hybrid model (part private, part government) is that a statutory appointee (Adjudication Registrar) is totally reliant on front end work done by a private organisation in making a crucial statutory decision as to who should resolve a payment dispute that may be worth millions of dollars.

I would not continue or seek to be the Adjudication Registrar in such circumstances because I do not believe it appropriate that the Adjudication Registrar, a statutory appointee, should be referring adjudication applications to adjudicators based on a partial outsourced services arrangement.

Some legislative services and functions should be entirely the responsibility of government to manage and administer because of their significance and the power and influence vested in key decision makers.

According to the 2016 QBCC Annual Report, there was an adjudication application lodged the previous year for a claimed amount of $994,812,693, (not a mistake, just shy of $1 billion) which was decided that year for $600,638,513.

The Queensland Civil and Construction Tribunal (QCAT) handles minor civil and debt disputes up to and including $25,000. I can imagine the outcry if there was a proposal to allow for Tribunal applications to be lodged with private organisations and these organisations submit a short list of three members from their panel of members to the Registrar for their consideration as to who to appoint to decide such matters.

Adjudication has evolved into a very significant payment dispute resolution process where multi million dollar decisions are capable of being enforced as a judgment of the Supreme Court. Consequently I am of the view that the current and future Queensland position in respect of the Adjudication Registrar receiving adjudication applications and then having the obligation to refer them to adjudicators, is absolutely essential because of public sector accountability, transparency and crime and corruption requirements and obligations that apply to the Registrar and Registry staff. This would not the case for private ANA office bearers and their staff if they were to assume responsibility for undertaking the functions as proposed by Mr Murray.

While I understand the benefits of harmonising the various state and territory SOP laws and Mr Murray should be congratulated in producing a well researched report that addresses every significant issue in an easily understood manner, the fact of the matter is that the desire to achieve such an outcome should never be at the expense of embracing fundamentally flawed concepts.

I have made a case that in respect of Mr Murray’s recommendations relating to the receiving of adjudication applications and the referral of them to adjudicators, the risks in adopting them on a national basis would be very significant.

I have a demonstrated record of fighting for and achieving significant payment reforms that benefit persons and businesses like subcontractors (claimants) who carry out construction work. BCIPA, which created adjudication, is the best example I can site in this respect.

Approximately 67% of matters that proceed to adjudication are lodged by subcontractors.

However I also believe that adjudication should be a fair process and where the integrity of decisions cannot be called into question.

I am strongly of the view that if ANA’s were to make a comeback in Queensland then respondents, the people who pay for all the construction work and the supply of goods and services, should be concerned that the pendulum will have swung too far in favour of claimants.

Should you wish discuss the current operations of BCIPA or the proposed new payment and adjudication regime under the BIFA please feel free to contact Michael Chesterman at michael@helix.legal and Earl Tan at earl@helix.legal.

Not intended as legal advice. Read full disclaimer.