Major projects & construction 5 Minute Fix 17

By the Major Project & Construction team

16 Aug 2018

Get your 5 Minute Fix of major projects and construction news. This issue: large fines for use of aluminium composite panels in NSW, the potential for national reform to the National Construction Code, security of payment, and proportionate liability legislation.

NSW Fair Trading Commissioner announces large fines for use of aluminium composite panels

On Friday, 10 August 2018, the NSW Fair Trading Commissioner gave notice of her intention to impose a building product use ban on aluminium composite panels, to come into force on 15 August 2018.

The Commissioner stated “I am giving manufacturers at least 48 hours’ notice of the intention to impose the ban." Offences will attract fines of up to $1.1 million for corporations and $220,000 for individuals. The ban will apply even if the building product was used in a building before the ban was made.

The latest from the Building Ministers' Forum: is genuine national reform finally on the agenda?

The Building Ministers’ Forum (BMF) met on Friday, 10 August 2018, and considered:

  • the National Construction Code and recommendations in a report, "Building Confidence: Improving the effectiveness of compliance and enforcement systems for the building and construction industry across Australia". The BMF has directed the preparation of an implementation plan focusing on recommendations 1 and 2 (nationally consistent approach to the registration of building practitioners), 9 to 11 (tension between the statutory functions of private building surveyors and their commercial relationship with designers, owners and builders) and 13 (regarding building approval documentation); and
  • John Murray AM's "Review of Security of Payment Laws: Building Trust and Harmony", about which the BMF noted they “agreed to work collaboratively to consider ways to improve consistency between security of payment regimes across jurisdictions".

The BMF communiqué also indicates that the BMF:

  • supports a permanent labelling system for Aluminium Composite Panel products; and
  • have concerns relating to the professional indemnity insurance market for building practitioners and agreed to develop a national approach in consultation with industry stakeholders.

In relation to this latter point, concerns about the lack of a consistent national approach to proportionate liability are not new, and indeed a prohibition on contracting out has previously been proposed in consultation draft model proportionate liability provisions developed by the (then) Standing Council on Law and Justice.

Further extensive reforms for building regulation on the horizon in Victoria

The Building Amendment (Registration of Building Trades and Other Matters) Bill was released to the public and received its second reading on 7 August 2018. It represents the latest tranche of significant amendments to Victoria’s building legislation (primarily, the Building Act 1993 and Local Government Act 1989) arising from community concerns over safety in the light of disastrous wall cladding-fuelled fires and swimming pool tragedies. Key areas of reform to keep an eye on include:

  • tightened registration requirements throughout the contracting chain;
  • a register (to be maintained by municipal councils) of, and inspection regime for, swimming pools attached to residential buildings including homes, apartments and motels;
  • enhanced powers for the relevant Minister to make declarations in relation to high risk external wall cladding products, including prohibiting the use of such products; and
  • provisions for councils to enter into “cladding rectification agreements” with building owners / owners’ corporations and lending bodies (which may be the council).

Contractual risk allocation of concurrent delay trumps prevention principle

Cases involving concurrent delay are few and far between. A recent decision of the English and Wales Court of Appeal in North Midland Building Ltd v Cyden Homes Ltd [2018] EWCA Civ 1744 will be of considerable interest in all dispute resolution forums in Australia. The decision involved a bespoke concurrent delay clause that allocated to the Contractor the risk of an (otherwise) excusable delay to the extent that it was concurrent with a non-excusable delay.

While the outcome itself was unsurprising (the Court of Appeal upheld the express terms of the parties' contractual bargain allocating the risk of concurrent delays) the decision provides insight into a thorny construction law topic: the relationship between the prevention principle and concurrent delay. The decision confirms that the parties to a contract are free to allocate the risk of concurrent delay and, if the drafting is sufficiently clear, the prevention principle will not invalidate the express risk allocation agreed between the parties.

The decision contains some interesting points about the relationship between the prevention principle and concurrent delay clauses, in particular:

  • the prevention principle is not an "overriding rule of public or legal policy" that will prevail over the express terms of the contract; and
  • the Court emphasised the primacy of the contract: a building contract is "a detailed allocation of risk and reward". If the parties choose to allocate the risk of concurrent delay, there is no room for the prevention principle to operate as an implied term overriding the clear wording of the contract.

Security of payment wrap-up

Adjudicator’s reasons: a nuanced approach?

A recent decision of the Victorian Supreme Court, Nuance Group (Australia) Pty Ltd v Shape Australia Pty Ltd [2018] VSC 362, emphasises the need for adjudicators to work out how much is actually payable to the contractor.

Justice Digby held that the adjudicator effectively worked backwards, starting with the claimed amount and then deducting amounts he thought were not properly claimable (including those falling within Victoria’s “excluded amounts” regime). Section 23 of the Victorian SOP Act "at a minimum requires a determination as to whether the construction work the subject of the claim has been performed and its value". Even though Justice Digby recognised that "bare reasons which render the Adjudicator’s determination comprehensible will suffice", not even this relatively low standard was reached. The adjudicator had failed to undertake the determinative task required, and the determination did not contain comprehensible reasons explaining the quantification of the adjudicated amount. Therefore, the determination was void.

No recourse to SOP Act post-termination

In Vanguard Development Group Pty Ltd v Promax Building Developments Pty Ltd [2018] VSC 386, the Victorian Supreme Court considered a "final claim" in the context of the Victorian security of payment regime. This follows on the heels of several security of payment cases considering "reference dates", a statutory precondition to claiming payment under the legislation.

In this case, the construction contract provided three circumstances where the contractor could make a "final claim" – namely when all defects liability periods have ended; all defects are rectified and incomplete works finished – and a separate clause detailing when the reference date would be for that "final claim", being the date the contractor last undertook any works on the site. The court held that construction contract was terminated prior to the occurrence of any of the three "final claim" circumstances, and that no contractual "final claim" had arisen to support a reference date. Accordingly, without a reference date, the adjudicator did not have jurisdiction to consider the claim.

No escape from natural and ordinary meaning of indemnity clause

Whether amendments to the scope of works and payment obligations in an underlying contract could result in a separate contract of guarantee being discharged was recently considered in Mineralogy Pty Ltd v BGP Geoexplorer Pte Ltd [2018] QCA 174.

Mineralogy argued that the addition of vessels, changing exploration start dates and zones, extending the time for payment and placing a cap on payments in a contract between Palmer Petroleum and BGP Geoexplorer meant that it was discharged from its guarantee obligations owed to BGP Geoexplorer under a separate contract. The contractual indemnity in the guarantee contract provided that Mineralogy "shall not be released or discharged from our liability hereunder by … any alteration to, addition to or deletion from the Contract or the scope of the work". Nevertheless, Mineralogy argued that this indemnity clause should be construed strictly, so as not to apply to the amended contract.

The court held that the interpretation of an indemnity or guarantee did not require "reading down of the widely-worded constituent elements" of the indemnity clause. Therefore, the contract of guarantee continued to cover Palmer Petroleum's obligations under the amended underlying contract. This decision is consistent with the trend of cases around Australia that existence of an indemnity or guarantee does not of itself allow a court to depart from the natural and ordinary meaning of unambiguous clauses.

Battle of the forms: lump sum or cost plus construction contract?

A recent NSW Supreme Court decision has highlighted the need for contracting parties to be wary of how their objective intentions could be assessed after modifying or replacing previous legal agreements.

Stepanoski v Aslan [2018] NSWSC 1160 considered a battle of the forms for a construction contract. The parties had initially signed a Cost Plus Contract, but later signed a Lump Sum Contract which was backdated to the date of the Cost Plus Contract. The issue arose as to the extent to which the Lump Sum Contract was intended to replace the Cost Plus Contract.

Justice Emmett had regard to the defendant's monthly progress claims. These sometimes attached tax invoices headed "Cost Plus Building Contract Value …" , however they also:

  • referred to the exact amounts specified in the Lump Sum Contract under the schedule of progress payments;
  • mentioned the amount of the lump sum as the contract value; and
  • did not particularise the defendant's expenditure incurred in performing the works.

Further evidence also indicated that certain payments were made to the defendant over and above the amount actually expended by him at that time.

Despite the "minor inconsistencies" in the material, overall the evidence was inconsistent with there being a Cost Plus Contract on foot. Justice Emmett held that irrespective of when the Lump Sum Contract was signed, the act of signing clearly indicated the parties' intention to be bound by the Lump Sum Contract with effect from the date that it bore.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.