Major Projects & Construction 5 Minute Fix 123: proportionate liability, bank guarantees, who can receive a payment claim

Proportionate liability scheme does not apply to liability under NSW statutory duty of care

The NSW Court of Appeal has confirmed that the proportionate liability regime cannot be used to defend a claim for a breach of the statutory duty of care under section 37 of the Design and Building Practitioners Act 2020 (NSW) (DBP Act).

In The Owners – Strata Plan No 84674 v Pafburn Pty Ltd [2023] NSWCA 301, the issue concerned whether the builder and developer of a building with defects could plead that liability for a breach of section 37 of the DBP Act could be apportioned amongst nine independent contractors as "concurrent wrongdoers" under the relevant proportionate liability legislation: the Civil Liability Act 2002 (NSW).

The Court of Appeal overturned the primary judgment (which dismissed the Owners' notice of motion seeking to strike out the proportionate liability defence). After considering the nature of the statutory duty in the DBP Act and its relationship with the Civil Liability Act, the NSW Court of Appeal held that a claim based on breach of statutory duty under section 37 of DBP Act is one brought "in tort", and that such duty is "non-delegable" pursuant to section 39 of the DBP Act. Because liability owed under statutory duty is a form of vicarious liability, it cannot be limited by the proportionate liability provisions of the Civil Liability Act. Consequently, the proportionate liability regime in the Civil Liability Act had no application. The builder remained "vicariously liable for the breaches of concurrent wrongdoers". Therefore, while the builder was still entitled to a cross-claim against the concurrent wrongdoers, it could no longer rely upon the proportionate liability regime to defend or reduce its liability to the Owners for breach of the statutory duty under section 37 of the DBP Act.

Given the broad application of the statutory duty of care under the DBP Act, the decision has wide-ranging implications for builders, developers, designers, manufacturers of building products and other stakeholders (including their insurers) involved in the construction of a "building" (as defined in the DBP Act).

Principal permitted to call on bank guarantee in the face of arbitral proceedings

A recent NSW Supreme Court decision reinforces the Australian position that the courts will allow a party to call upon a bank guarantee even where the parties have agreed to arbitration where the guarantee serves as a "risk allocation device".

In Martinus Rail Pty Ltd v Qube RE Services (No 2) Pty Ltd [2023] NSWSC 1550, Justice Rees in the NSW Supreme Court refused to extend an interim injunction that prevented the principal from calling upon bank guarantees totalling $7 million on the Moorebank Intermodal Project. After examining the contractual provisions and terms of the bank guarantee, her Honour held that the commercial purpose of the bank guarantee was a "risk allocation device", establishing a "pay now, argue later" regime. In other words, the principal gets to "hold the money" the subject of the bank guarantees while the parties await the final resolution of their broader disputes by an arbitral tribunal. There was no evidence to suggest that the principal would be unable to repay any moneys obtained by the call on the guarantees if the arbitral tribunal decided that the contractor was not in default.

Justice Rees also held that an adjudication determination in the contractor’s favour did not stand in the way of the principal making a call on the guarantees so long as it satisfied the requirements for recourse under the parties' contracts.

A tale of two forms: strict compliance is required when giving a copy of the adjudication application under section 79(3) of the BIF Act

A Queensland Supreme Court decision is a reminder that the courts will strictly construe the requirement for a claimant to "give a copy" of the adjudication application under section 79(3) of the Building Industry Fairness (Security of Payment) Act 2017 (Qld) (BIF Act).

In Iris Broadbeach Business Pty Ltd v Descon Group Australia Pty Ltd & Anor [2023] QSC 290, the Court held that the contractor failed to satisfy section 79(3) when it gave to the superintendent a copy of the PDF automatically generated by the Queensland Building and Construction Commission (QBCC PDF Form) following the contractor's online submission of an adjudication application.

Justice Williams emphasised the need for strict compliance with section 79(3) to access the benefits of the statutory adjudication process. A claimant can lodge an adjudication application with the QBCC in two ways: online or manually. Here, the contractor had lodged an online application. Yet, the contractor served a copy of the QBCC PDF Form rather than a copy of the electronic form lodged with the QBCC regarding the adjudication. The QBCC PDF Form contained matter-specific data from the completed electronic form but had some differences. The QBCC PDF Form did not:

• identify the supporting documentation relied upon in support of the adjudication application;
• include information about adjudication fees;
• include the declaration required to be completed by the person lodging the adjudication application.

Justice Williams characterised these differences as "non-trivial differences", meaning that the copy of the QBCC PDF Form could not be said to be a "copy" of the electronic form lodged with the QBCC registry. Consequently, the Court declared the adjudicator's determination void and set it aside.

Court adopts a practical approach when considering who is authorised to receive a payment claim

The Queensland Supreme Court has adopted a practical approach to consider who was authorised to receive a payment claim.

In Canadian Solar Construction Pty Ltd v Re Oakey Pty Ltd [2023] QSC 288, Canadian Solar Construction Pty Ltd (Claimant) sent an email to a director of Re Oakey Pty Ltd (Respondent), as well a number of others who were employed in various capacities by the Respondent's agent and project manager (Foresight). This email attached a payment claim that sought over $4 million from the Respondent. While the employees of the Respondent's agent did receive the email, the Respondent itself (via its director) did not, as its email address was not operational at the relevant time.

After considering the factual circumstances surrounding the Claimant's email and the contractual provisions relating to service, the Court held that the Claimant's payment claim, while not specifically received by the Respondent, had been given to the Respondent via its project manager and agent.

In reaching that conclusion, Justice Freeburn adopted a practical approach, observing that five of the six recipients actually received the email, and that at least three of the six recipients had an active role in the review and/or assessment of the payment claim. The contract nominated no exclusive method of service, and the parties had a practice of ensuring the payment claim was emailed to the five other recipients as well as the Respondent. These factors were sufficient to lead to the conclusion that there was "something in the nature of receipt" of the payment claim.

Is a letter of demand a payment claim? It depends…

The NSW Court of Appeal considered whether a letter of demand attaching invoices could satisfy the requirements of a payment claim under the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act).

In Total Construction Pty Ltd v Kennedy Civil Contracting Pty Ltd (subject to a Deed of Company Arrangement) [2023] NSWCA 306, the solicitor for the Administrator appointed for Kennedy Civil Contracting Pty Ltd issued a letter of demand with invoices to Total Construction Pty Ltd. Kennedy subsequently sought the amount stated in the letter on the basis that it was a payment claim within the meaning of section 13 of the SOP Act.

The NSW Court of Appeal ultimately held that Kennedy's letter did not constitute a payment claim for the purposes of the SOP Act. The Court looked at several features of the letter to determine how the letter would have been understood by a reasonable reader in Total's position, including:

• the use of the solicitor's letterhead;
• the use of the word "indebted";
• the demand for payment of the "total outstanding amount" by a "Deadline"; and
• the reference to commencing proceedings without further notice "to recover the outstanding as well as seek costs and interest" by way of statutory debt pursuant to the SOP Act.

The Court noted that in some circumstances, a letter of demand could satisfy the requirements of a payment claim under section 13 of the SOP Act. However, these features led to the Court finding that Kennedy's letter was not a payment claim within the meaning of section 13 of the SOP Act.