Major Projects & Construction 5 Minute Fix 111: Secure Jobs, Better Pay in construction, force majeure, contract repudiation

Secure Jobs, Better Pay Bill has passed, what happens next?

On 2 December 2022, the Federal Government, with the help of the Senate cross-bench, passed the Fair Work Legislation Amendment (Secure Jobs, Better Pay) Bill 2022 (Cth). The Bill received Royal Assent on 6 December 2022.

The passing of the Bill will have the following impacts for those delivering construction projects funded by the Commonwealth:

• abolition of the Australian Building and Construction Commission (ABCC);
• repeal of the Code for the Tendering and Performance of Building Work 2016 (Cth) (Building Code); and
• renaming of the Building and Construction Industry (Improving Productivity) Act 2016 (Cth) (BCIIPA) to the Federal Safety Commissioner Act 2022 (Cth) (FSC Act). The new FSC Act will be significantly streamlined to only retain provisions regarding the Work Health and Safety Accreditation Scheme and the Office of the Federal Safety Commissioner (FSC).

Commencement

• The Building Code was repealed in full on 7 December 2022.
• The ABCC will be abolished on a day to be fixed by Proclamation (currently, no date has been fixed for Proclamation). However, the provision must commence within two months of the Act receiving Royal Assent, meaning the abolition of the ABCC will occur no later than 6 February 2023.
• The BCIIPA will be re-named the FSC Act no later than the 6 February 2023, however, various general amendments came into effect on 7 December 2022.

Changes to Contract Documentation

• Changes required to contract documentation will include the following:
• removing references to the Building Code and ABCC;
• deleting Building Code requirements in Tender and Contract Documents; and
• renaming the BCIIPA to the FSC Act.

The Bill’s passing (and change of name to the FSC Act) does not substantively change the requirements relating to the WHS Accreditation Scheme and its relationship to building work funded by the Commonwealth.

The Department of Employment and Workplace Relations has developed fact sheets which address the changes. You can learn more on our guide to the Secure Jobs, Better Pay reforms here.

Force majeure: English Court of Appeal sanctions non-contractual performance

A recent English decision illustrates that a party seeking to rely on a force majeure clause may be required to accept an offer of non-contractual performance if it would "overcome" a force majeure event with no detriment to the party invoking force majeure. In MUR Shipping v RTI [2022] EWCA Civ 1406, the English Court of Appeal found that a shipowner (MUR) could not rely upon a force majeure clause to suspend its bauxite cargo-loading obligations. Instead, the relevant force majeure event (US sanctions imposed on the parent company of the charterer, RTI) could have been overcome using reasonable endeavours.

Force majeure is a creature of contract, and the decision of the Court of Appeal turned on the specific wording of the force majeure clause. The clause contained a positive obligation on MUR (as the party asserting force majeure) to show that the event couldn't be "overcome by reasonable endeavours from the Party affected [MUR]". Although sanctions weren't directly imposed upon RTI, the sanctions upon RTI's parent company caused difficulties in making "timely payments" for freight in US dollars (the contractual currency). Therefore, RTI proposed to:

• make payment in Euros (which MUR could then readily convert into US dollars); and
• bear any additional costs incurred, so MUR would not be disadvantaged by the change in currency.

However, MUR refused to accept RTI's proposal to pay in Euros and suspended its obligations. As a result, RTI obtained alternative freight and commenced arbitration proceedings to recover its additional costs.

The Arbitral Tribunal found that the event could have been "overcome by reasonable endeavours" had MUR accepted freight payment in Euros. MUR appealed the award on a point of law. The issue concerned whether "reasonable endeavours" required MUR to accept non-contractual performance by RTI (ie. payment in Euros instead of the contractual currency of US dollars). The English Commercial Court allowed the appeal, finding that requirements to exercise reasonable endeavours did not require MUR to sacrifice its contractual right to payment in US dollars.

However, a majority of the Court of Appeal took a different view, finding that accepting RTI's proposal to switch currencies would "overcome" the state of affairs caused by sanctions imposed on the parent company with no detriment to MUR. The Court suggested that MUR rejected RTI's proposal because the contract had become uneconomic to perform. The decision illustrates that successfully claiming force majeure will depend upon satisfying the contractual preconditions of the clause. Therefore, it may be necessary to consider proposals regarding non-contractual performance to determine whether they achieve the parties' underlying contractual purpose.

Contract termination due to increased costs constitutes repudiation

In the current economic climate, contractual performance is a significant issue. A recent Queensland District Court case illustrates how communications or conduct can amount to a repudiation of a contract.

In Addinos Pty Ltd v OJ Pippin Homes Pty Ltd [2022] QDC 205, O J Pippin Homes (Contractor) found itself unable to complete the excavation and construction works due to rising construction costs. The fact that a contract becomes more difficult or uneconomic to perform will not relieve a contractor from its contractual obligations. But, in this case, the Contractor sought to extricate itself from its obligations to build townhouses for a developer (Addinos) by purporting to terminate the contract. An email with an attached letter referred to construction costs "having increased significantly since the project was priced" and stated the Contractor no longer had the "capacity to undertake the works". A subsequent text also elaborated upon resourcing difficulties and increased costs.

Judge Rinaudo held that the Contractor's email and text message amounted to repudiation (which was accepted by Addinos) because they demonstrated an intention to no longer be bound. His Honour noted that increased construction costs were not a lawful reason to terminate the contract. In this case, the Contractor's words and actions showed an unwillingness or inability to complete the work. Therefore, Addinos was entitled to recover its loss and damage incurred due to the Contractor's repudiation.

NSW Government responds to State Infrastructure Strategy

With a record infrastructure spend of $112.7 billion over the next four years, the NSW Government has responded to Infrastructure NSW's independent advice on the State's infrastructure needs and strategic priorities. The NSW Government announced on 22 November 2022 support (or support in principle) for all 102 recommendations of the Infrastructure NSW "State Infrastructure Strategy 2022-2042: Staying Ahead". However, the Government's support of infrastructure priorities doesn't guarantee projects will receive funding.

The Government's response aligns with the diversified strategic approach to future infrastructure planning of the Strategy. As noted in an earlier edition, the SIS adopts a shift in infrastructure planning with a move from megaprojects towards climate change prevention and resilient infrastructure. The NSW Government's response to the Strategy highlights the need to transform infrastructure investment to meet future needs and challenges, including:

• climate-resilient infrastructure, transitioning to net zero carbon emissions by 2050
• the integration of digital technology into infrastructure
• adopting circular economy solutions (that is, solutions which reduce waste but enable economic growth) and water security.

There is also support for opportunities for private-sector investment. For example, recommendation No. 54 outlines various options for private-sector investment. Some of these are familiar (for example, PPP procurement and leases or sales of "commercial brownfield assets to traditional infrastructure investors"). But, innovative financing options are also mentioned (such as "use of emerging data assets from the increasing digitisation of infrastructure to underpin new commercial delivery models").

Court not prepared to declare COVID-19 Pandemic a “force majeure event”

The Western Australian Supreme Court has declined to grant a declaration that the COVID-19 Pandemic was a “force majeure event” within the meaning of the contract.

The case of Acciona Industrial Australia Pty Ltd v Kwinana WTE Project Co Pty Ltd [2022] WASC 380 involved an application by the Acciona for declarations regarding whether or not the circumstances emanating from the COVID-19 Pandemic amounted to one or more force majeure events as defined by contract.

In particular, the Contractor sought declaratory relief to confirm that facts in relation to the COVID-19 Pandemic met the express descriptions contained in the contractual definition of Force Majeure.

Project Co argued that the Contractor should not be granted the relief it sought because the declaratory relief sought was hypothetical, and, in substance, in substance, the Contractor was seeking an advisory opinion from the Court, which would have clarified a party’s entitlement to terminate under the contract for a force majeure event.

In declining the relief sought, Justice Solomon stated that a declaration ought to be directed to clarify a party’s rights. As Acciona had only sought the court’s clarification on whether aspects of a contractual definition had been met, this amounted to an advisory opinion. His Honour also referred to the fact that the Acciona displayed a lack of clear intention to terminate the contract on the basis of a force majeure event, and therefore the declaratory relief was hypothetical.

While Justice Solomon said that such a declaration had an “alluring attraction as a sensible and pragmatic approach to what threatens to be unwieldy litigation with ever-spreading, spiked and expensive tentacles”, he ultimately determined that it would not be an “appropriate exercise” of the court’s jurisdiction to grant the relief sought.

Appeal allowed for off-the-plan misrepresentations

The Full Court of the Federal Court in Century Legend Pty Ltd v Ripani [2022] FCAFC 191 has partially allowed an appeal in a case which resulted in the off-the-plan purchasers of a luxury apartment in Melbourne being able to rescind the sale contract (and obtain damages). The basis for the result at trial was that the developer had engaged in misleading and deceptive conduct within the meaning of section 18 of the Australian Consumer Law, largely relating to the provision to the purchasers of a "marketing render" before they entered into the contract which indicated that the doors to the outdoor patio would open widely and not have a step.

Justice McElwaine's judgment opens with his observation that the case "illustrates the inherent risk for a vendor in the marketing of an "off-the-plan" apartment development where the ability to construct a building does not ultimately match the pre-development promotional material, despite the inclusion of disclaimer and exclusion clauses in the formal contract of sale." The nearly 100 pages which follow largely related to whether the trial judge had been correct in rejecting evidence by an employee of the architects who was the primary contact with the purchasers after they signed the contract and before it became unconditional. This revolved around whether she had informed the purchasers that it was not possible to deliver the doorway feature in the way it was represented.

The Court found that the trial judge made errors within five categories, summarised as "misus[ing] the advantage that he otherwise enjoyed of seeing and hearing all of the witnesses and of receiving and reflecting on the whole of the evidence sequentially". This passage shows the tip of an intricate iceberg of the Court's (and trial judge's) analysis around "demeanour evidence", emphasising the need for there to be clear documentation of discussions about key aspects of an off-the-plan sale and how that need can conflict with the way marketing of such properties is typically done. The discussion also gives insights into issues which are being encountered in the wake of the COVID-19 pandemic, including that the employee was unable to refresh her memory about the design and related issues because she could not access her office during lockdown.

Justice McElwaine rejected other appeal grounds relating to the effect of disclaimer clauses, the basis on which the trial judge granted rescission and whether detriment of a relevant type was suffered by the purchasers. The upshot, therefore is that the orders given at trial have been set aside and – unless the parties settle in the meantime – the case will return to trial to determine whether the purchasers continued to rely on the misleading or deceptive conduct between the signing of the sale contract and when that contract of sale became unconditional.

Justice McElwaine observed that it would be undesirable for a trial on that discrete point to reopen issues which were not successful on the appeal, but contemplated that the trial would need to consider consequential issues such as damages. So, it seems that this case arising from a luxury apartment overlooking the Melbourne's Grand Prix track still has a fair distance to run!