Major Projects & Construction 5 Minute Fix 99: NSW's statutory duty of care, opposing a statutory demand, and unsuccessful adjudication offsets

Contract administrator found liable for defect correction in breach of NSW statutory duty

Over the past few years, we have been tracking the significant building regulation reforms brought in in NSW via the Design and Building Practitioners Act 2020 (NSW) (DBP Act) and its associated regulations. It has been clear that the implications of the regime are far-reaching, especially around its retrospective imposition of a duty of care to avoid economic loss caused by defects and its registration and declaration aspects. A judgment handed down on 19 May 2022 by Justice Stevenson in the NSW Supreme Court provides significant guidance about how the duty of care reforms apply "on the ground". It confirms that the provisions have real "teeth", the "bite" from which for construction professionals can include substantial damages awards for defects incurred under their supervision.

Goodwin Street Developments Pty Ltd atf Jesmond Unit Trust v DSD Builders Pty Ltd (in liq) [2022] NSWSC 624 concerned damage and defects in student accommodation in Newcastle which occurred during construction in 2017-18 (at least two years before the relevant parts of the DBP Act came into force). The evidence as to what caused the defects was contested. However, the Court found the contract administrator for the builder to have caused the damage to the works and also to have brought about the defects through his failure to properly project manage and supervise the work. That failure amounted to a breach of the DBP Act's duty of care, resulting in the contract administrator being liable to pay the owner of the land (Goodwin) the cost of making good the damage and rectifying the defects.

Queensland audit: Lessons and opportunities for managing infrastructure

Queensland is in the midst of an infrastructure boom, with the Government planning to spend $52.2 billion over the next four years. As a result, good contract management is a necessity. A recent Queensland Audit Office (QAO) report (Report 16: Contract management for new infrastructure 2021-22) examines six of the State's building infrastructure projects to identify lessons and enhance contract management performance for future infrastructure delivery.

The report analyses Government frameworks used to manage infrastructure contracts at both a whole-of-government and departmental level. It examines how the Department of Energy and Public Works and the Department of Education applied contract management frameworks and managed contractor performance through the lens of the six projects. The report advocates 11 recommendations and emphasises the need to overhaul the Capital Works Management Framework (a whole-of-government framework for managing infrastructure contracts) to align with contemporary practice and lessons learned from past contract management experiences. The report also recommends that all government departments review and update their internal policies to enhance contract management performance at least every three years.

Being wound up is not a good enough reason to warrant a stay

The appointment of voluntary administrators to Probuild in March 2022 added further complexity to the protracted litigation between the developer (V601) and Probuild. In V601 v Probuild [2021] VSC 849, Probuild received the judgment in its favour amounting to $13.8 million, reflecting that it was largely successful in defending the claims against it by V601 and in making its own claims relating to breaches by the superintendent and otherwise. 

In V601 Developments Pty Ltd v Probuild Constructions (Aust) Pty Ltd [2022] VSCA 77, the developer V601 sought a stay of execution of judgment, pending an appeal. As Probuild was in administration, V601 was required to seek the court's leave to proceed with the stay application under section 440D of the Corporations Act.  The Victorian Court of Appeal rejected V601's application for a stay.

The Court's approach to the stay was unremarkable (essentially, V601 could not convince the Court of special or exceptional circumstances).  The Court observed that the probable winding up of V601 "whilst inconvenient, will not … render any successful appeal nugatory because a termination of the winding up will substantially restore V601 to the position it was in before."  However, the judgment is useful for its insights into the possible grounds of appeal (if the appeal proceeds) and the difficulties faced by V601 (as a special purpose vehicle) in funding that appeal if the stay was not granted.  The Court observed that V601 ceased trading in 2013 upon completion of the development and had no assets.  While the liquidator might decide to continue with the appeal, procuring funding for the appeal may be more "problematic".

In its decision, the Court summarised the extensive grounds of appeal proposed to be relied upon by V601. It will be interesting to see if V601, or rather its liquidator, decides to continue with the appeal.

Offsetting a statutory demand for an adjudicated amount – it can be done

The Federal Court has considered whether an offsetting claim raised in an adjudication determination under the security of payment legislation could be relied upon to set aside a statutory demand under section 459H of the Corporations Act 2001.

Axis Commercial (ACT) Pty Ltd was awarded the sum of $845,674 against CBS Commercial Canberra Pty Ltd (CBS) in an adjudication determination under the Building and Construction (Security of Payment) Act 2009 (ACT) (SOP Act). Axis registered the adjudicated amount as a judgment debt and issued a statutory demand to have CBS wound up under section 459E of the Corporations Act 2001.

In CBS Commercial Canberra Pty Ltd v Axis Commercial (ACT) Pty Ltd [2022] FCA 544, CBS applied to have the statutory demand set aside under section 459G based on an offsetting claim under section 459H(1)(b).

CBS’s offsetting claims, which totalled $1.45 million included amounts for:

• liquidated damages, backcharges and negative variations that had been claimed and rejected as part of the adjudication; and 
• additional liquidated damages, backcharges and negative variations that had not been raised in the adjudication but "turned upon the resolution of the same factual issues".  

Axis submitted that it would be contrary to the policy of the SOP Act to permit a party to rely upon an offsetting claim that an adjudicator had rejected to challenge a statutory demand to recover an adjudicated amount. The court did not accept this submission.