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Regulatory responses to Grenfell Tower fire in Qld, NSW and Victoria

The dangers posed by the widespread and unregulated use of aluminium composite panel cladding have been front of mind in the industry since the Grenfell Tower fire tragically took 71 lives in June 2017.  This month has seen a lot of regulatory activity on the east coast in response.

Queensland

The Building and Construction Legislation (Non-conforming Building Products – Chain of Responsibility and Other Matters) Amendment Act 2017 (Qld) was proclaimed to come fully into force on 1 November 2017.  We've identified the key features of this legislation, which aims to eliminate non-conforming building products from new buildings.

New South Wales

The Building Products (Safety) Bill 2017 (NSW) was passed on 23 November.  It too aims to eliminate the use of non-conforming products, but its approach is to authorise the Commissioner for Fair Trading to issue bans in respect of certain building products on the basis that they are unsafe.

The Bill includes extensive provisions in relation to the investigation, assessment and rectification of buildings which contain unsafe products.  It also provides for heavy penalties (as in Queensland, discussed above), with fines of up to $1.1m for companies which use banned products.  Company directors and managers can also incur penalties for their role in the use of banned products. 

Victoria

The Victorian Cladding Taskforce released its interim report on 1 December 2017.  The interim reports finds that the use of combustible cladding is a significant public safety issue and is symptomatic of regulatory non-compliance across a range of areas within the industry.

The interim report concluded that widespread non-compliant cladding can be attributed to three factors: the supply and marketing of inappropriate building materials, a poor culture of compliance in the industry, and the failure of the regulatory system to deal with these issues.  Recommendations include:

• preventing the use as cladding of aluminium composite panels with a polyethylene core and expanded polystyrene for certain building classifications;
• a State Building Inspector or State Building Surveyor be established to provide authoritative compliance advice, technical guidance and interpretations of relevant standards;
• the Victorian Building Authority significantly increase its compliance and enforcement activities;
• consideration be given to amending legislation to ensure building surveyors and fire safety engineers act independently; and
• legislative compliance and enforcement powers be reviewed to ensure that regulators are equipped to intervene and penalties be reviewed.

Security of payment developments

John Murray AM is undertaking a review of security of payment legislation for the Federal Government which industry looks forward to digesting early in 2018. 

In the meanwhile, superior court decisions and ad hoc legislative changes continue apace.

Creative contracting cannot override the legislation

The NSW Court of Appeal has held that the terms of a construction contract cannot cure the early submission of a payment claim before the relevant reference date.

In All Seasons Air Pty Ltd v Regal Consulting Services Pty Ltd [2017] NSWCA 289 a payment claim, submitted eight days before the relevant "reference date", was held to be invalid for the purpose of the NSW security of payment legislation, despite a clause in the construction contract which said that early payment claims were deemed to be made on the reference date. 

The deeming clause could not overcome the requirement under section 8(1) legislation that the right to submit a payment claim arises "on and from" the relevant reference date.  This was based upon the High Court's decision in Southern Han Breakfast Point Pty Ltd (In Liq) v Lewence Construction Pty Ltd [2016] HCA 52, which found that the existence of a reference date is a jurisdictional fact acting as a precondition to the right to submit a payment claim under the legislation not necessarily under the relevant construction contract.     

Legislative change in Queensland

On 26 October 2017, the Parliament of Queensland passed the Building Industry Fairness (Security of Payment) Act 2017.  Despite some late amendments the key features we reported on in September remain in place.

These include significant changes, which will come into force on a staged basis, in relation to:

• mandating of Project Bank Accounts on State Government head contracts. Initially, there will be a pilot covering contracts with a value between $1m-$10 million where more than 50% of the contract price is for building work;
• streamlined payment and adjudication processes, including removal of the need to opt in to the legislative scheme by endorsing payment claims as being made under the Act; and
• increased penalties for non-compliance, along with enhanced powers for the Queensland Building and Construction Commission as regulator. ams.  

High Court to rule on jurisdictional error

We have reported previously on the journey to the High Court of Shade Systems Pty Ltd v Probuild Constructions (Aust) Pty Ltd (No 2) [2016] NSWCA 379 and Maxcon Constructions Pty Ltd v Vadasz (No 2) [2017] SASCFC 2 on the scope of judicial review of adjudication determinations under the security of payment legislation. 

The High Court heard argument on the cases in Canberra on 9 November 2017.  The Court reserved its judgment.  The transcript of the proceedings is available on the High Court cases page.  Much of the discussion between the Bench and Counsel concerned the nature of the alleged error by the adjudicator and relevant case law on administrative law-based remedies (including the Court's 2010 decision in Kirk), including the writ of certiorari.  

Longstop limitation period on NSW "building actions"

Section 109ZK of the Environmental Planning and Assessment Act 1979 (NSW) may not be well-known, however it is crucial to construction claims in NSW, because it imposes a 10-year limitation period to "building actions" that runs from the issue of the final completion certificate. 

In Dino Dinov v Allianz Australia Insurance Limited [2017] NSWCA 270, the NSW Court of Appeal considered whether section 109ZK applied to an action by a person not claiming damages for defective building work.  In this case, an insurer (Allianz) calling upon indemnities given by directors and shareholders of the original builder – was this claim by Allianz a "building action" under the legislation?

The Court found that it did not apply to such an action, allowing Allianz's claim to proceed against the indemnifiers.  It was held that the "recurrent theme" setting the limits on the operation of section 109ZK was that it was "concerned with participants in the building industry".  In turn, the 10-year limitation period did not extend to the protection of the indemnifiers here. However, it was noted that he did not intend "to state in some definitive or exhaustive way the full extent and effect of the definition of 'building action'.  That task is one that is impossible of fulfilment."

The 10-year limitation period for building actions was considered in the Victorian context in Brirek Industries Pty Ltd v McKenzie Group Consulting (Vic) Pty Ltd [2014] VSCA 165. 

Unfair contract terms legislation enforced by Federal Court

The ACCC has been successful in an enforcement action against waste management company JJ Richards in relation to certain terms in its standard form waste management contracts.  The terms related to automatic renewal, price variation, agreed times, no credit without notification, exclusivity, credit terms, indemnity and termination.  

On 13 October 2017, Justice Moshinsky handed down judgment in ACCC v JJ Richards & Sons Pty Ltd [2017] FCA 1224, finding that the terms were void under section 24 of the Australian Consumer Law.  The judgment gives a useful outline of the relevant statutory scheme and its application to the commercial setting.   

Productivity Commission on urban infrastructure in Australia

The Australian Productivity Commission recently released its five-year economy-wide productivity review, "Shifting the Dial".  Having noted the critical importance of cities as centres of jobs and populations, chapter 4 of the Report highlighted particular concerns about:

• whether cost estimates for large high-profile projects are realistic;
• urban encroachment on transport corridors constraining freight supply capacity;
• the need for transparency on project proposals so as to allow parties which do not have a stake in the project to critically assess the proposal;
• the need for alternative sources for road funding; and
• reforming planning schemes and state-based revenue models (including a recommendation to remove stamp duties on transfers of residential and commercial properties, in favour of land taxes which do not act as disincentives to more efficient allocation of resources). dispute."    

Changes to the Strata Schemes Management legislation

The Strata Schemes Management Act 2015 (NSW) is due to commence as of 1 January 2018 - see the update by Lina Fischer and Khash Kamali in this edition.