Major projects and construction: 5 Minute Fix 09

By the Major Projects & Construction team

26 Apr 2018

Get your 5 Minute Fix of major projects and construction news. This issue: ipso facto reforms affecting the construction industry, regulating engineers in Victoria, NSW seeks input on changes to its Strata Building Bond and Inspections Scheme, and the latest in security of payment.

Federal Government releases exposure drafts of ipso facto Regulations & Declaration

The eagerly awaited exposure drafts of the exemptions to the stay on ipso facto clauses have now been released for public comment. On 16 April 2018, Treasury released exposure drafts of the following:

  • Corporations Amendment (Stay on Enforcing Certain Rights) Regulations 2018 ('Regulations')>
  • Corporations (Stay on Enforcing Certain Rights) Declaration 2018 ('Declaration')

Comments on the Regulations and Declaration are sought by 11 May 2018 and the Regulations and Declaration will be proclaimed by, and are likely to commence on, 1 July 2018.

Chris Slocombe and Kathleen Hallpike take a look at the implications the Regulations and Declaration will have for those involved in the construction industry.

Victoria tightens regulation of engineering services

Victoria is one step closer to stronger regulation of the engineering profession after the Legislative Assembly passed the Engineers Registration Bill 2018 (Vic) on 29 March 2018. The Bill establishes a mandatory, statutory registration scheme that will do much to regularise standards and eliminate rogue practices in the industry.

Key features of the Bill include:

  • prohibiting any person from providing professional engineering services in a prescribed area unless that person is registered in accordance with the legislation or certain exceptions apply;
  • imposing material penalties on those falsely holding themselves out to be registered or endorsed engineers; and
  • initial coverage of those engaged in civil, structural, mechanical, electrical and fire-safety engineering, although the Bill makes provision for other areas to be prescribed.

The registration scheme is predicated on an assessment of the qualifications, competencies and experience of engineers and is designed to be consistent with national and international standards. It is framed to recognise the critical role of engineering services, in particular in the delivery of the State's infrastructure projects, and perhaps the expectations of international construction companies undertaking major projects in the Australian market.

The Bill will still need to pass the Victorian Legislative Council before it becomes law. If passed, the scheme is likely to come into operation on 1 July 2020 (unless otherwise proclaimed). Engineering practitioners will be afforded a transition period within which to ready themselves for the new requirements.

Amendments to the NSW Strata Building Bond and Inspections Scheme now available for public consultation

Late last year we reported on the commencement in NSW of the Strata Schemes Management Act 2015 (SMA), which introduced a defects bond and inspections regime in respect of residential and mixed-use high rise strata properties.

Broadly, the SMA requires developers to lodge with NSW Fair Trading a bond for the value of 2% of the contract price for building works to cover the cost of rectifying any defects. The SMA also obliges developers to appoint inspectors to carry out interim and final inspections of building works to identify any defects.

The NSW Government proposes making changes to the SMA, and for this purpose has now released an exposure draft of the Strata Schemes Management Amendment (Building Defects Scheme) Bill 2018. According to NSW Fair Trading, the changes are aimed at improving the means of assessing the contract price, in order to fix the 2% bond, and clarifying the role of the building inspector.

Noteworthy among the changes are the following:

  • building bonds will need to be lodged before application for an occupation certificate is made;
  • an increase in the maximum penalty that a developer is liable to pay for failing to lodge a building bond to $1.1 million (a significant increase on the current penalty of $22,000);
  • where building defects have been identified, empowering the Commissioner for Fair Trading to determine the amount that can be claimed against the building bond to cover rectification costs if the owners corporation and developer are unable to agree on that amount;
  • the creation of a new offence to ensure developers do not provide the Commissioner with false or misleading information (the maximum penalty for which will be $110,000 for a corporation);
  • building inspectors and professional associations will be afforded protection from liability for things done or not done in the exercise of their functions, so long as they were done in good faith; and
  • Fair Trading will be given broader investigative and enforcement powers to carry out its functions.

Complementary amendments to the Strata Schemes Management Regulation 2016 are also intended, but an exposure draft of those amendments is yet to be released, although a table of proposed amendments is available.

The proposed changes are open for public consultation until 5pm on 11 May 2018. Any comments should be emailed to [email protected].

Latest security of payment cases

Adjudicating multiple payment disputes in WA

If there was any uncertainty about the effect of amendments made to the WA security of payment legislation by the Construction Contracts Amendment Act 2016 (WA) (CCAA), the Western Australian Supreme Court has now provided clarification by confirming that more than one payment dispute between the same parties can in fact be adjudicated simultaneously, without the parties' consent.

In Clough Projects Australia Pty Ltd v Floreani [2018] WASC 101, an adjudicator found that amounts were payable by Clough to its subcontractor, Oceanic, after determining some nine payment disputes arising from multiple invoices submitted by Oceanic. Clough contended that, absent the consent of the parties, the adjudicator did not have jurisdiction to determine the disputes simultaneously and by so doing exceeded his jurisdiction.

In support of its contention, Clough relied on section 32(3)(c) of the Construction Contracts Act 2004 (WA), which had been amended by the CCAA. Under section 32(3)(b) of the Act, an adjudicator may "with the consent of the parties, adjudicate simultaneously 2 or more payment disputes between the parties" [emphasis added] whereas section 32(3)(c) states an adjudicator may "adjudicate a payment dispute simultaneously with one or more other payment disputes if satisfied that doing so will not adversely affect the adjudicator's ability to adjudicate the disputes in accordance with section 30" of the Act.

Clough submitted that section 32(3)(c) was directed to disputes other than between the same parties, and that to construe otherwise would render section 32(3)(b) "superfluous" and thus be contrary to interpretative principles.

Justice Tottle disagreed. Beginning with the tenet the "construction of a statute begins and ends with the words of the text" , he noted the language of section 32(3)(c) did not limit its application to disputes between different parties, rather, the section was "the source of an adjudicator's jurisdiction when the consent of one party is not forthcoming".

Also in issue in this case was whether the adjudicator had:

  • denied Clough procedural fairness, by determining the disputes on a basis that was not argued by the parties; and
  • exceeded his jurisdiction by determining the payment disputes on the basis a number of implied contracts had been made.

These points of contention arose because Oceanic's payment claims were based on asserted variations. While Clough countered that the variations were not the subject of written directions as required by the subcontract, applying the reasoning in Liebe v Molloy (1906) 4 CLR 347 the adjudicator determined that in seven of the nine disputes an implied contract had arisen and allowed Oceanic's claims. As this was not a basis on which Oceanic advanced its case, Justice Tottle held there had been a denial of procedural fairness as Clough could not have anticipated a finding being made on that basis and thus was not afforded the opportunity to make submissions on that point.

Justice Tottle further held that by adjudicating disputes on the basis of implied contracts, the adjudicator was not determining disputes that had arisen under the subcontract, but rather, under implied contracts that the adjudicator concluded had formed. By so doing, he held the adjudicator exceeded his jurisdiction.

A reminder to adjudicators to properly consider the merits of a payment claim

The New South Wales Supreme Court has reiterated the principle that an adjudicator making a determination under the Building and Construction Industry Security of Payment Act 1999 (NSW) must duly consider and make a finding as to the merits of a payment claim in order to discharge the adjudicator's statutory function.

In Laing O’Rourke Australia Construction Pty Ltd v Monford Group Pty Ltd [2018] NSWSC 491, Justice Stevenson found that the adjudicator had determined contentious variation claims "in favour of Monford simply on the basis of rejecting Laing O’Rourke’s contentions concerning those variations and without any consideration of whether Monford had carried out the work, or the value of any work carried out" , and in respect of certain other variations, "without considering whether the work constituted a variation of the contract (as opposed to work that Monford was in any event obliged to perform for the contract sum)."

Citing numerous authorities including Coordinated Construction Co Pty Ltd v J.M. Hargreaves (NSW) Pty Ltd (2005) 63 NSWLR 385 and Pacific General Securities Ltd v Soliman & Sons (2006) 196 FLR 388, Justice Stevenson held that the "mere absence of material adduced on behalf of a respondent to an adjudication application does not, without more, mean that an adjudicator can simply award the amount of the claim without addressing its merits".

Justice Stevenson held the adjudication determination was made without jurisdiction and was therefore void.

To round it all off, in our 5MF08 we reported on the implications of Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq) [2018] NSWSC 412 for insolvent claimants in NSW. Click here for a more detailed analysis of that decision and its potential impact in other jurisdictions.

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