Major projects & construction 5 Minute Fix 11

Murray Review of Security of Payment Laws released

A nationally consistent security of payment approach is critical to addressing the limitations of the existing divergent legislative landscape, according to the 400-page report of the national review of security of payment laws by John Murray AM released on Monday, which makes 86 recommendations designed to achieve this goal. You can read our overview of the main proposals here; we'll explore them in more depth in the coming weeks.

Australian Consumer Law in construction projects – can time bars preclude liability under the ACL, and aggressive litigation be "unconscionable"?

The Victorian Supreme Court has recently held that liability under the Australian Consumer Law (ACL) cannot be defeated by contractual time bars on bringing claims.

In Brighton Australia Pty Ltd v Multiplex Constructions Pty Ltd [2018] VSC 246, Brighton, a subcontractor, made claims against Multiplex relating to the construction of the NAB headquarters in Docklands, Melbourne. Among other things, Brighton pleaded that it had entered into the relevant subcontracts with Multiplex in reliance on representations made by Multiplex that were misleading and deceptive in thus in breach of section 18 of the ACL.

The special referee appointed by the Court found that the ACL claim should fail on various grounds, including that the claim had not been made in accordance with the subcontracts. Relevantly, the subcontracts contained a clause requiring a prescribed notice of any claim to be given within seven days.

However, Justice Riordan held that the special referee erred in so finding holding the attempt to rely on the time bar as "an unacceptable interference with the public policy underpinning" the ACL.

In Probuild Constructions (Aust) Pty Limited v Shade Systems Limited [2018] NSWSC 54 the Court considered whether actions taken in litigation might be “in trade or commerce” for the purpose of the unconscionable conduct provisions in sections 20-21 of the ACL.

Shade Systems argued that Probuild’s claim for liquidated damages (which far exceeded the amount the subject of the adjudication determination in Shade Systems' favour) was being "prosecuted for an ulterior purpose, namely to shut Shade Systems out of its rights under the adjudication determination". On this basis, Shade Systems sought leave to amend its pleadings so as to contend that the conduct of Probuild in commencing the liquidated damages proceedings constituted unconscionable conduct under the ACL.

While Justice McDougall noted that courts are typically"reluctant to agree with the proposition that conduct in litigation can be conduct engaged in in trade or commerce", he considered "there is no principle of law to the effect that litigious conduct cannot be conduct engaged in in trade or commerce". Shade Systems was therefore granted leave to amend its pleadings, leaving the question of whether Probuild’s conduct was in fact unconscionable for resolution at trial.

Justice McDougall acknowledged that it is at least arguable that construction industry participants may use litigation as an instrument in its pursuit of commercial gain, but also cautioned that such a finding may not necessarily make aggressive litigation "unconscionable". It remains to be seen how the implications of the ACL for the maintenance of litigation will play out in future litigation.

Obligations of good faith on construction projects

The recent case of Lien & Anor v Clontarf Residential Pty Ltd [2018] QSC 94 considered implied duties of good faith in the context of joint venture project development agreements. It was held that parties with management and payment powers were in a fiduciary relationship with, and owed implied duties of good faith to, joint venture parties that were vulnerable to the exercise of those powers. On the facts of the case, a breach of the implied duties was sufficient to constitute repudiation of the contract.

This case comes just as the High Court revisits the issue of implied obligations of good faith. On 18 May 2018, the High Court heard a special leave application in respect of the Full Federal Court's decision in Virk Pty Ltd (in liq) v YUM! Restaurants Australia Pty Ltd [2017] FCAFC 190, which dealt with the questions whether an implied good faith obligation is separate from a reasonableness obligation, and whether reasonableness is to be considered objectively or subjectively. The High Court rejected the application for special leave to appeal.

Queensland cladding taskforce releases report

In the aftermath of the Grenfell tragedy, the Queensland Government established an urgent audit taskforce to investigate the extent of combustible and potentially dangerous aluminium composite cladding in Queensland.

The extent of the problem faced by building owners is apparent from the taskforce's first status report: as many as 12,000 buildings across Queensland will require closer scrutiny. Of these, the report estimates that around 10% will require detailed investigation (based on the results of the taskforce's initial audit of Queensland Government buildings and the remediation actions required).

According to the report, building owners will bear responsibility for further investigation and any necessary rectification measures. The Taskforce proposes regulatory powers to ensure that private building owners deal with potentially dangerous cladding.

UK review of Building Regulations – Final Hackitt Report released

The final report by Dame Judith Hackitt into building regulations and fire safety following the Grenfell tragedy in the UK has been released. The comprehensive and wide-ranging report refers to a regulatory system that is "not fit for purpose" and calls for its "radical rethink". Urging a holistic overhaul, encompassing cultural and regulatory change, the report makes some 53 recommendations. Broadly, the themes and concerns addressed by the report include:

• the regulatory system – presently oversight is inadequate, disproportionate to the size and complexity of projects and lacking effectual penalties and deterrence.The framework should be "outcomes based", requiring "competent" participants in the system to drive "safety and integrity throughout the life cycle of a building";
• a more interventionist approach targeted to “higher risk residential buildings”, which are those with more than 10 levels;
• a "model of risk ownership", prescribing more clearly the responsibilities and obligations of various participants (clients, designers, contractors and owners) to overcome a want of accountability and ownership;
• mandatory incident reporting obligations, similar to the obligations in place in the civil aviation industry;
• competence – tackling ignorance in the industry, for example by establishing formal accreditations;
• transparency and the information trail – in particular the report notes the current system for the testing and certification of products is "disjointed, confusing, unhelpful"; and
• the creation of a nationwide "Joint Competent Authority" to oversee building safety.

Podcast on regulatory reform

As previously reported, Clayton Utz's Matthew Bell has been awarded the prestigious Hudson Prize for his research paper on the regulatory lessons from the Grenfell tragedy, "How is that Even Possible?' Raising Construction Regulation from the Ashes of Grenfell Tower". Matthew recently presented his paper in London, and you can listen to a podcast of that presentation here.

Commonwealth budget update: Victorian and Queensland projects allocated a majority of infrastructure spending

In our 5 Minute Fix 10 we discussed the 2018/2019 Victorian State Budget released on 1 May 2018. The Commonwealth has since released the Federal Budget and the infrastructure spending trend is maintained. The major infrastructure measures include:

• ACT: $100 million for the Monaro Highway Upgrade;
• NSW: $1.5 billion for new major projects, including the Pacific Highway Coffs Harbour Bypass, the Port Botany Rail Line Duplication and the Nowra Bridge. In addition to funding these projects, the Commonwealth and New South Wales governments will be equal partners in funding the first stage of the North South Rail Link in Western Sydney;
• NT: $280 million for upgrades of the Central Arnhem Road and the Buntine Highway.
• Queensland: $5.2 billion for new major projects, including priority upgrades on the Bruce Highway, the M1 Pacific Motorway, the Beerburrum to Nambour Rail Upgrade, the Brisbane Metro project and the Cunningham Highway (Amberley Interchange);
• SA: $1.8 billion for new major projects, including the North-South Road Corridor projects, the Gawler Rail Line electrification and the Joy Baluch Bridge;
• Tasmania: over $500 million for the Bridgewater Bridge replacement and the Tasmanian Freight Rail Revitalisation Package;
• Victoria: $7.8 billion for new major projects, including in respect of the Melbourne Airport Rail Link, the North East Link, Monash Rail, electrification for the Frankston Rail Line to Baxter, a Victorian congestion package, the duplication of the Princes Highway East from Traralgon to Sale, Geelong Rail Line upgrades and to support the establishment of international services at the Avalon Airport; and
• WA: $2.6 billion for new major projects, including the METRONET rail project, a Perth congestion package and the Bunbury Outer Ring Road;

Case law wrap-up – SOP Act application focuses on substance over form

In Central Projects Pty Ltd v Davidson [2018] NSWSC 523, the Court upheld the validity of a "supporting statement" (required to be attached to a payment claim) for the purpose of the NSW SOP Act despite its errors.

A head contractor in NSW must not serve a payment claim on the principal unless it is accompanied by a supporting statement that, among other things, includes a statement that all subcontractor have been paid. In this case, even though the supporting statement inserted the principal's name instead of the subcontractors' names, and did not list all of the relevant subcontractors, the Court awarded the head contractor (Central Projects) the adjudicated amount ($1.2 million) and its costs.

In Brefni Pty Ltd v Specific Industries Pty Ltd [2018] NSWSC 578, the principal submitted a revised payment schedule a few hours after it submitted its original. This was the only information that the adjudicator could take into account, as the principal's adjudication response was served out of time. Justice McDougall succinctly rejected the claimant’s argument that the adjudicator could not have regard to the revised payment schedule in the circumstances of the case.

These cases shows that the court continue to prefer “substance over form”, which is broadly in line with the policy of the NSW SOP Act, which is to provide a mechanism for prompt payment to downstream participants on construction projects.