Major projects & construction 5 Minute Fix 41

Thinking business: seeing "reasonable cause" objectively

In Galileo Miranda Nominee Pty Ltd v Duffy Kennedy Pty Ltd [2019] NSWSC 1157, the NSW Supreme Court held that "reasonable cause" to suspend a contract requires an objective assessment in a business context. One of the issues considered was whether the plaintiff's failure to pay interest on a payment three days overdue was reasonable cause for the defendant, Duffy Kennedy (DK), to suspend the $66 million contract. The interest due amounted to $177.

Justice Parker first determined that DK was not entitled to suspend the works for the failure to pay interest under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act). Under section 27(2), a claimant may suspend work for non-payment of an "amount that is payable". DK claimed that it retained the right to suspension as Galileo had failed to pay interest on the scheduled amount, which was paid three days late. The Court held that for the purposes of section 27(2), "amount that is payable" is a reference to the "scheduled amount" which does not include interest. Therefore, DK was not entitled to continue the suspension of the works after the principal payment was made.

Although there was no right to suspend the works in the first instance, DK nevertheless contended that it acted in good faith and suspended with "reasonable cause". Justice Parker considered that "reasonable cause" must be construed in a business-like way in the context of a commercial contact. In his view, commercial considerations favour an objective test, particularly to provide certainty to parties of the contract. The question was not whether or not DK considered that it had "reasonable cause" but whether or not it, in fact, did. Upon an objective assessment, Justice Parker determined that DK did not have reasonable cause to suspend the works as the amount of interest was "minuscule in the scheme of things" and suspension was "completely disproportionate".

Where no express deadline means "as soon as possible"

The Queensland Court of Appeal in Niclin Constructions Pty Ltd v SHA Premier Constructions Pty Ltd [2019] QCA 177 has confirmed that the absence of an express provision as to timing under the (now repealed) Building and Construction Industry Payments Act 2004 (Qld) does not mean that no requirement as to timing exists.

On 28 November 2018, Niclin lodged a number of adjudication applications with the Queensland Building and Construction Commission (QBCC) relating to four different contracts that it had with SHA Premier Constructions Pty Ltd (SHA). On the same day, Niclin's solicitors delivered 10 lever arch folders containing documents filed in support of its applications, to the solicitors for SHA, but omitted to include the actual adjudication applications filed with the QBCC.

In SHA’s adjudication responses dated 13 December 2018, it raised this service issue submitting to the adjudicator that it was fatal that Niclin had not served the application adjudication forms with its submissions. It was argued service of the forms was a mandatory requirement as the wording in section 21(5) of the BCIPA used the word "must". Section 21(5) states:

"A copy of the adjudication application must be served on the respondent."

Niclin served the application forms on SHA the following day (on 14 December 2018), some 12 business days after it filed its applications.

The adjudicator decided that he did not have jurisdiction to determine the claims because the actual application forms had not been served upon SHA. Niclin sought orders that those three adjudication decisions be declared void on the basis that the adjudicator did in fact have jurisdiction to determine the relevant dispute, as there was no requirement under BCIPA as to the timing of service of the adjudication application forms.

In upholding the decision of Justice Ryan, the Court of Appeal held that, in the absence of an express requirement as to timing for service under BCIPA, section 38(4) of the Acts Interpretation Act 1954 (Qld) applies, and requires service of the adjudication application "as soon as possible". This service was necessary to confer jurisdiction upon an adjudicator and the adjudicator had not made an error in declining jurisdiction.

Single payment claim can comprise multiple invoices

The Queensland Supreme Court has confirmed that multiple invoices can amount to one payment claim for the purposes of the Building and Construction Industry Payments Act (Qld) 2004 (BCIPA). In JR & LM Trackson Pty Ltd v NCP Contracting Pty Ltd [2019] QSC 201, NCP (the first respondent) sent an email to Trackson (the applicant) attaching three invoices which related to three distinct items of work performed under a subcontract between the parties for the construction of a gravity sewer main. Trackson sought to argue that the three invoices constituted three separate payment claims and, as a result, that NCP had served multiple payment claims in respect of one reference date. Justice Ryan rejected this argument, finding that the three invoices comprised a single payment claim. She noted the need to approach the issue with a focus on substance over form, and to consider the way in which the documents were likely to be understood by the recipient.

Justice Ryan also found that, where two adjudication applications had been filed, the filing of the second (and therefore, invalid) adjudication application did not invalidate the first.

She also considered the purpose and parameters of a conference called by an adjudicator under s 25(3)(d) of BCIPA. Trackson sought to argue that such a conference could not involve witnesses or the making of submissions. Justice Ryan rejected these arguments, and found that witnesses with relevant expertise or factual knowledge, other than the parties, were permitted to be in attendance at a conference called under section 25(3)(d) of BCIPA, and that submissions could be made at such a conference.

Although the BCIPA has been repealed, this reasoning will likely apply to the Building Industry Fairness (Security of Payment) Act 2017 given the similarity between the objectives and provisions of the two Acts.

Judicial hammer comes down on common approaches to expert programming for delay claims

Justice Hammerschlag's incisive and timely judgment in White Constructions Pty Ltd v PBS Holdings Pty Ltd [2019] NSWSC 1166 may prove to be a hammer blow against delay claims and associated expert reports that seek refuge behind the UK Society of Construction Law's "Delay Protocol" at the expense of direct evidence of the actual cause of the claimed delay. In the words of Justice Hammerschlag, the case "demonstrates the importance of paying close attention to the actual facts rather than opinions about what the evidence establishes".

Key takeaways from the judgment include:

• The mere fact that a method of delay analysis is, or is not, listed in the Delay Protocol is not determinative of whether the method is appropriate in a given case. That assessment can only be made by reference to the unique facts of each case.
• This is an important outcome, as it cuts across contrary industry tendencies that developed following the case of Alstom Ltd v Yokogawa Pty Ltd (no 7) [2012] SASC 49. It is also consistent with edition 2 of the Delay Protocol, which states that it "is not put forward as the benchmark of good practice throughout the construction industry … [and that] users of the Protocol should apply its recommendations with common sense".
• An essential element of a claim for delay damages for overall project delays is causation, being that the delaying event occurred and caused delays to activities on the critical path.
• Proving this essential element of causation involves adopting a "common sense approach" by paying close attention to the underlying facts, and assessing whether the claimant has proved, on the balance of probabilities, that the claimed delay actually delayed the project as a whole and, if so, by how much.
• This will require detailed proof of circumstances "on the ground". In the case before Justice Hammerschlag, a foreman's affidavit evidence that progress was generally "delayed, piecemeal and disrupted" was inadequate. Indeed, so was the contractor's daily site diary which, on multiple occasions, expressly referred to the claimed delaying event, but critically did not give evidence of which connected activities in the construction sequence were therefore also delayed.

This judgment relates to a claim for delay damages for breach of contract, which is assessed by reference to common law principles. On the other hand, extension of time, delay and disruption claims that are made under sophisticated construction contracts are likely to be influenced by the precise language used in the relevant contractual provisions.

An in-depth analysis of this judgment and its implications for delay claims is here.

Exclusive Dealings: Private sector organisations now have a new way to seek an exclusive mandate with Government – here's what you need to know

The Queensland Government recently introduced a new process for entering into exclusive transactions with private-sector organisations called Exclusive Dealings. Exclusive Dealings replaced the market-led proposals (MLP) process that had been in place since July 2015.

The Exclusive Dealing process provides a pathway for commercial proposals from the private sector to seek an exclusive mandate with government. Exclusive Dealings proposals need to present a clear justification as to why the proposal should be considered under an exclusive arrangement, as opposed to an ordinary competitive procurement process and must demonstrate how an Exclusive Dealing:

• aligns with the Queensland Government's priorities;
• represents value for money; and
• will be financially feasible.

The expectation is that the new Exclusive Dealings process will provide a more streamlined approach than the MLP process, enabling more timely assessments and reduced costs to the private sector.

Learn more here