Major Projects & Construction 5 Minute Fix 125: public interest immunity, arbitration agreements, AS4000 and more

Public interest immunity and parliamentary privilege justify non-disclosure of Cabinet documents and Ministerial briefings

The State of South Australia's decision to resist disclosure of documents on parliamentary privilege and public interest immunity grounds was upheld in CPB Contractors Pty Ltd and Hansen Yuncken Pty Ltd v State of SA [2024] SASC 46.

The non-disclosures related to Cabinet deliberations and briefings to Ministers about the new Royal Adelaide Hospital, which was delivered under an "availability PPP" model. The contractor claimed an entitlement to these documents in an arbitration in the context of a claim that the State had breached its duty to co-operate and the Australian Consumer Law.

The Court considered that documents which attracted public interest immunity due to their connection to Cabinet deliberations included:

• documents prepared for the purposes of informing Cabinet's consideration of the business case before the project had commenced;
• documents which included discussions at a meeting between senior public servants concerning Cabinet deliberations;
• steering committee papers procured for the purposes of submission to Cabinet, agendas referring to Cabinet deliberations and documents that had been before Cabinet;
• reports, or references to reports, which were provided to Cabinet;
• a briefing note created for the purpose of preparing Cabinet documentation; and
• documents created for the purpose of assisting Cabinet to make important strategic and policy decisions in respect of the project.

The Court also permitted non-disclosure of documents on the grounds of parliamentary privilege, because they were characterised as briefings to Ministers.

Rectification damages for structural defects necessary and not unreasonable

In Neville's Bus Services Pty Ltd v Total Group Constructions Pty Ltd [2024] NSWSC 215, the Supreme Court of NSW reiterated that the measure for rectification damages is the amount required to rectify a defective building, and not merely the difference between the value contracted for and the value constructed.

The case related to cracks in a concrete slab and defects in a drainage system. Justice Ball held that the concrete slab needed to be replaced for structural reasons. Damages were assessed by reference to the cost of replacing the slab, to ensure that the principal would receive a building substantially in accordance with the contract. Because the defective drainage caused "extensive cracking" and affected the entire concrete slab, it was not unreasonable for NBS to insist on rectification of the entire slab. Unreasonableness only arises if "fairly exceptional circumstances" exist – such as where proposed rectification is out of all proportion to the benefit to be obtained. /p>

Amendments to tiered dispute resolution regime did not invalidate arbitration agreement

In Icon Si (Aust) Pty Ltd v Australia Nuclear Science & Technology Organisation [2024] NSWSC 324, the Supreme Court of NSW upheld an arbitration agreement even though the contractual preconditions to arbitration could not be met.

The principal, Australian Nuclear Science & Technology Organisation (ANSTO) engaged Icon to construct a facility in NSW. The contract's original terms contained a tiered dispute resolution regime involving a notice of dispute, negotiation and referral to expert determination. If a notice of appeal of an expert determination had been served or the contract particulars stated that the expert determination regime did not apply, a dispute could then be referred to arbitration.

Amendments to the contract removed expert determination as a step in the dispute resolution process, but did not update the contract particulars, so it was not possible to complete all of the steps prior to submission to arbitration.

Justice Ball held that the amendments only removed the option for expert determination, and not all dispute resolution methods under the contract, including arbitration. It was held that, when read in its commercial context, the contract evinced the parties' intention to arbitrate a dispute.

Consultation draft of AS 4000-2024 released: same wine, new bottle?

Standards Australia's proposed update to its construct-only form of contract, AS 4000-1997, has been released for public consultation, styled as DR AS 4000-2024. The consultation is open until 29 May 2024, with the draft available online here.

Standards Australia has been explicit that the emphasis is not on changing the risk allocation of the standard form construct-only contract. However, there are various amendments to bring the form up to date with some of the more prominent developments since 1997 and to address well-known drafting ambiguities.

The most extensive amendments are those made in respect of dispute resolution and avoidance. The default position remains negotiation followed by arbitration, however, other processes are now available. Parties can choose from a suite of optional processes including mediation leading to arbitration, expert determination, mediation leading to expert determination and a Dispute Avoidance Board.

Other noteworthy amendments include:

• the addition of clauses dealing with GST and the Personal Property Securities Act 2009 (Cth);
• expanding the definition of "Latent Condition" to include "contamination" (and requiring the Contractor's notice of a latent condition to include details of any remediation plans, where applicable);
• resolution of some drafting ambiguities, such as within the definition of "qualifying cause of delay";
• dispensing with "shall" in favour of "must" and adopting more consistent approaches to the specification of timeframes – relevantly, "as soon as practicable" rather than "promptly";
• updating the requirements for the service of notices – in particular to include email and electronic exchange and increase the period for deemed receipt;
• the inclusion of more exceptions to the obligation of confidentiality;
• replacing the Principal's obligation to ensure that the Superintendent acts “reasonably and in good faith" with “fairly and reasonably”;
• the addition of a form of deed of novation, to give effect to the novation of subcontractors to the Contractor;
• drafting that clarifies the basis for calculating the Contractor's entitlement to compensation for delay; and
• updating the insolvency clause to reflect current legislation.

Queensland amends the Building Industry Fairness (Security of Payment) Act statutory trust framework

The Queensland Government has passed the Building Industry Fairness (Security of Payment) and Other Legislation Amendment Bill 2024, which is aimed at providing practical improvements to a number of features of the statutory trust framework found in Chapter 2 of the Building Industry Fairness (Security of Payment) Act (Qld) (BIF Act).

The changes that lie ahead include the following:

Clarity about subcontractors: The amendments aim to make it easier for industry participants to determine whether a subcontract is subject to the trust framework. Currently that depends on whether the subject matter of the subcontract falls within one of a long list of activities. The amendments condense that to architectural services, contractor or trade work, professional engineering services, and services or work prescribed by regulation.

All of these categories are defined by reference to works and supply of goods or services for which a relevant licence or registration is required. For example, "contractor or trade work" is defined as work for which the subcontractor holds, or is required to hold, a licence, under the Building Act 1975, Electrical Safety Act 2002, Plumbing and Drainage Act 2018, QBCC Act 1991, a regulation under the Work Health and Safety Act 2011, and others prescribed by regulation.

Eligibility criteria for amended contracts requiring project trusts: The statutory trust roll-out was not intended to apply retrospectively as new phases commenced. The amendments clarify this.

A contract that was not eligible for a project trust at the time of entry will only become eligible if:

• the contract is amended;
• the contract, if it existed in its amended form at the time of entry, would have been eligible for a project trust; and
• the amended contract increases the original contract price or the original percentage of the contract price that is for project trust work (or both) by 30% or more.

Record-keeping requirements for trust account records The amendments will remove the current prescriptive trust record-keeping requirements and replace them with records to be prescribed by regulation. A draft regulation has not been published yet, but the explanatory memorandum to the Bill indicates that it will be framed to facilitate the uptake of accounting software solutions.

Independent review requirements for trust accounts: Currently, trustees must engage a registered company auditor to conduct a review of trust accounts. Due to the limited availability of registered auditors nationally, the amendments provide for a broader category of persons (to be prescribed by regulation) who may conduct a trust account review. It is intended that registered accountants will be able to conduct trust account reviews.

Security of Payment wrap-up

NSW: NSW court confirms that common law rights can be pursued separately from statutory entitlements

In McDonald v MAK Constructions and Building Services Pty Ltd [2024] NSWCA 63, the NSW Court of Appeal considered section 32 of the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act). Section 32 provides that the statutory adjudication process does not affect rights under the construction contract, including in civil proceedings. Overturning the primary judgment, the Court held that section 32 does not prevent a party from enforcing its common law rights under a construction contract where it owes a debt for a progress payment for works performed under that contract.

McDonald engaged MAK Constructions & Building Services Pty Ltd (Builder) to perform domestic building work, but terminated the contract because of an alleged breach by the Builder. The Builder was successful in obtaining a judgment in respect of an adjudicated amount under the SOP Act. Meanwhile, McDonald commenced proceedings seeking rectification damages from the Builder. The Builder sought a stay of the latter proceedings pending payment of the judgment debt in respect of the adjudicated amount.

At first instance, the primary judge stayed the proceedings on the basis that section 32 of the SOP Act only allows a party to make a claim under the contract after a judgment debt has been satisfied. The Court of Appeal overturned this decision and lifted the stay, finding that:

• section 32 does not limit a party's enforcement rights under the contract;
• section 32(2) unambiguously states that recovery of progress payments pursuant to the SOP Act affects civil proceedings;
• McDonald's claim was not a "cross-claim" because it does not directly relate to the Builder's judgment debt; and
• McDonald's claim does not prevent the Builder from enforcing its judgment debt.

Amendments to the ACT SOP Act

Changes to the Building and Construction Industry (Security of Payment) Act 2009 (ACT) commenced on 11 March 2024.

Key amendments include:

• Removal of reference dates: Claimants may now lodge one payment claim per month, either on the last day of each calendar month, or on an earlier day stipulated in the contract. This change brings the ACT regime in line with the SOP Act in NSW.
• Changes to payment timeframes: The due date for payment is now 15 business days after a payment claim is given, or an earlier due date under the contract. This could place greater cashflow risk on head contractors who need to pay subcontractors downstream by reference to the same or similar timeframes regulating upstream payments.