Major Projects & Construction 5 Minute Fix 90: subsequent adjudications, price reviews, and duty of care

Court confirms that issue estoppel does not apply to subsequent adjudications relating to different work

A party to a court proceeding is generally precluded from re-agitating issues of fact or law that have already been determined by a court in earlier proceedings. This principle is known as issue estoppel. This principle applies even if the party's claim differs from the claims made in the earlier proceedings.

Given that the security of payment regime is to provide speedy but interim solutions to payment disputes, should the principle of issue estoppel apply to adjudications relating to different work? That is, should parties be precluded from re-agitating issues of fact or law determined in one adjudication in a subsequent adjudication concerning different work?

In the recent judgment of Beno Excavations Pty Ltd v Harlech Enterprises Pty Ltd (No 2) [2021] ACTSC 296, the ACT Supreme Court says the principle of issue estoppel does not apply to subsequent adjudication applications involving different work.

Following its successful application for extension, Beno Excavations Pty Ltd (Beno) appealed an adjudication decision on the basis that (amongst others):

• the principle of issue estoppel does not apply to adjudications involving different work; and
• the adjudicator committed a jurisdictional error when he expressly stated and applied the principle of issue estoppel in the adjudication decision that related to a different claim for different work.

After considering in detail issue estoppel and the nature of jurisdictional error under the ACT SOP Act, Mossop J agreed with Beno's submissions and found that the issue estoppel principle did not apply to subsequent adjudications relating to different work.

The fact that the security of payment regime permits adjudication decisions to be filed as court judgments for the purposes of enforcement proceedings did not render them final. Accordingly, his Honour found that the adjudicator's application of issue estoppel in the adjudication decision (along with other issues with the adjudication decision) gave rise to a jurisdictional error.

This case is a useful guide for how earlier adjudication decisions should be treated in subsequent adjudication applications that involve different work for all adjudication participants.

Contract clauses with drastic consequences "Time is of the essence"

Construction contracts rarely include a time of the essence provision since liquidated damages are ordinarily the remedy for late completion of construction works. However, provisions where time is "of the essence" often crop up in contracts to supply goods and services. Where a contract provides that "time is of the essence" regarding the performance of an obligation, there can be severe consequences for missing a specified contractual time limit. In the recent case of Chevron (TAPL) Pty Ltd v Pilbara Iron Company (Services) Pty Ltd [2021] WASCA 193, the WA Court of Appeal considered whether a time limit specified in a price review clause meant that time was of the essence. Specifically, the Court had to determine whether failure to comply with a time stipulation in giving notice to initiate a price review meant that the attempt to invoke the price review clause was ineffective.

The Appellants were joint venture participants in the Gorgon Gas Project (Sellers), and the Respondents were entities in the Rio Tinto iron Ore Group (Buyer). Together they entered into the gas supply contract, (the GSA).

The GSA outlined that either party could initiate a review of the price of the gas by issuing a notice within a stipulated time frame. A revised price was to be determined by negotiation or, failing agreement, by arbitration if this occurred.

Namely, clause 14.3 of the GSA stipulated that either party could initiate a price review by issuing the other party "a notice which complies with clause 14.4…not more than 120 days nor less than 90 days prior to a price review date".

The issue at hand arose in 2020 when the Buyer issued a price review notice some three weeks outside of the notification window. In the primary proceedings the Buyer claimed that the notice was effective to initiate the price review, notwithstanding that it was out of the time frame, and sought a declaration to that effect. The Sellers counterclaimed and sought a declaration to the contrary.

The Court of Appeal reviewed the general approach to construing commercial contracts before concluding that time was of the essence of the time stipulation in clause 14.3. This conclusion meant that it was necessary to give the notice within the time stipulated to trigger the review mechanism. In coming to this conclusion, the Court:

• found it was necessary to give the notice within the time stipulated for the review mechanism to be triggered to give a "harmonious" construction to the other provisions of clause 14 - thus, the Court considered the operation of the GSA as a whole; and
• did not accept any generally-applicable principle that time stipulations for determining price adjustments are presumed not to be essential.

While the appeal was successful, the outcome could have been secured at the time the contract was drafted by including a relatively straightforward clause providing that a notice issued outside the timeframe would not be valid.

Proving breach of new statutory duty of care: A test case for NSW's Design and Building Practitioners Act

The NSW Supreme Court decision in The Owners - Strata Plan No 87060 v Loulach Developments Pty Ltd (No 2) [2021] NSWSC 1068 provides important initial consideration of the scope and efficacy of the statutory duty of care created by section 37 of the Design and Building Practitioners Act 2020 (DBP Act).

Although this decision involves procedural rulings, it gives insight into the new statutory duty of care. Since the statutory duty of care can potentially affect risk profiles for future residential developments and completed projects, participants in residential developments will have a keen interest in these proceedings. In addition, Justice Stevenson provides helpful guidance as to the level of detail required to bring a claim for breach of the new statutory duty of care under the DBP Act.

The plaintiff, an Owners Corporation of a residential strata development, sought leave to amend its claim based upon breaches of implied statutory warranties in the Home Building Act 1989 (NSW) to include an alleged breach of section 37 of the DBP Act. According to the plaintiff, the mere fact the defects breached the Home Building Act statutory warranties established that the defect was a result of a breach by the builder of the statutory duty of care in the DBP Act.

However, the defendants (the developer and the builder) opposed the application because the pleading left the question of breach of the section 37 duty "wholly unarticulated".

Stevenson J stepped through various items referred to in the plaintiff's proposed amended pleadings, demonstrating how each identified a defect but failed to specify the breach of duty that has led to the alleged defect. For example, the plaintiff merely alleged the installation of defective cladding but did not articulate how the alleged breach of duty occurred.

His Honour observed that if the architect selected the cladding, the Owners Corporation would need to identify and articulate the nature of the breach. His Honour gave the following practical examples to illustrate the level of detail necessary:

• the builder failed to read the architectural plans;
• the builder failed to follow the architectural plans;
• the builder inappropriately selected the location at which the cladding was to be installed;
• the manner in which the cladding was installed, in particular, locations that converted otherwise acceptable cladding into unacceptable cladding;
• the builder had a duty to choose cladding other than that specified by the architect;
• the builder failed to ask questions, and if so what questions, about the specification of the cladding in the architect’s plans; and
• that the builder should have commissioned a flammability report.

His Honour also observed:

"The DBP Act was enacted to alleviate the need for a party like the Owners Corporation to prove a duty of care owed to it by the Builder…[it] was not intended to provide a shortcut as to the manner by which a breach of such a duty [of care] might be established.

[…]

It is not sufficient simply to assert a defect and allege that the builder was required to take whatever precautions were needed to ensure that the defect not be present."

With reference to the Second Reading Speech of the Design and Building Practitioners Bill 2019 (NSW), Stevenson J reminded plaintiffs that they must meet the tests for negligence under the common law and the Civil Liability Act 2002 (NSW), including that a breach of duty occurred and caused damage, and that they must also identify the specific risks the builder was required to manage and the precautions that should have been taken to manage those risks.

Ultimately, the Court denied the Owners Corporations' application to file the amended pleadings, but made orders permitting the Owners Corporation to prepare a further amended pleading.