Major projects & construction 5 Minute Fix 14

By the Major Project & Construction team

05 Jul 2018

Get your 5 Minute Fix of major projects and construction news. This issue: John Murray AM explains his recommendations in the Murray Review on security of payment harmonisation; Infrastructure Australia reports on infrastructure reform progress; NSW Government announces shift towards collaborative contracting and related news; ipso facto legislative changes come into force, while the regulations continue to evolve; case law round-up regarding special referees in defects cases and "reference dates" causing confusion in security of payment cases.

Clayton Utz and SoCLA host John Murray AM to discuss his report on national harmonisation of security of payment legislation

We have previously discussed the Murray Review's recommendations regarding the national harmonisation of security of payment (SOP) legislation, largely based upon the NSW legislative model, in 5MF 11 and in more detail in an Insights article by Laura Walton.

On 27 June 2018, John Murray AM spoke to a national audience from Clayton Utz's Melbourne office as part of the Society of Construction Law Australia's consideration of the Murray Review. Mr Murray explained that his recommendations were based upon his assessment of existing legislative models, and his consideration of the versions which have successfully achieved policy goals, specifically: achieving prompt cash-flow through the construction industry giving industry participants more certainty about their immediate financial positions.

Mr Murray confirmed that, while different stakeholders preferred some legislative versions over others, there was overriding industry support for national harmonisation of some kind.

Infrastructure Australia releases report card on progress of infrastructure reform, following its 2016 Australian Infrastructure Plan

Infrastructure Australia (IA) recently published its report, “Prioritising Reform: Progress on the 2016 Australian Infrastructure Plan”. IA's 2016 Plan set out 78 recommendations for reform designed to address current infrastructure gaps in the energy, communications, water and transport sectors, and set Australia up to “meet the challenges of tomorrow”.

While the IA recognised areas of progress, it also observed instances of stalled or failed reform. Opportunity remains for increased innovation in respect of identified areas for improvement, including (among others) road user charging reform and a national population policy.

The IA report card recognised numerous positive developments, including:

Collaborative and relationship contracting: NSW Government Action Plan highlights increased role of collaborative contracting on major infrastructure projects

The NSW Government has released an Action Plan containing a "ten point commitment to the construction sector".

The Action Plan states that the member agencies will commit to procure and manage projects in a more collaborative way, partnering on risk allocation, developing a transparent pipeline of future projects, initiatives to reduce the cost of bidding for major projects, improve security of contract payments and increase diversity in the infrastructure and construction industry.

On 18 July 2018, Clayton Utz's Melbourne office and the Society of Construction Law Australia will be hosting a panel discussion on the future of collaborative contracting, including industry experts and Clayton Utz Partner, Marko Misko. Please contact Sean Kelly if you are interested in attending the event.

In the recent UK case of Amey Birmingham Highways v Birmingham City Council [2018] EWCA Civ 264, Lord Justice Jackson made observations on the state of "relational contracts" in the UK. The comments were made in the context of a relational contract to maintain, operate and manage the Birmingham road network for 25 years, where the contract documents totalled almost 6,000 pages. Lord Justice Jackson declined to wade into the academic debate over whether relational contracts were a special subset of contracts subject to special rules of contractual interpretation. However, he did note that: 

"any relational contract of this character is likely to be of massive length, containing many infelicities and oddities. Both parties should adopt a reasonable approach in accordance with what is obviously the long-term purpose of the contract. They should not be latching onto the infelicities and oddities, in order to disrupt the project and maximise their own gain." 

Ipso facto reform is enacted, while the regulations continue to evolve

The ipso facto legislation came into effect on 1 July 2018. The finalisation of the Corporations Amendment (Stay on Enforcing Certain Rights) Regulations 2018 and Corporations (Stay on Enforcing Certain Rights) Declaration 2018, published on 24 June 2018 and 28 June 2018 respectively, clarified the types of contracts and rights exempted from the operation of the stay.

From a construction industry perspective, the limited scope of the exemptions mean that many construction contracts will remain subject to the regime. However, the Regulations were further amended on 29 June 2018, broadening an exemption to contracts for the supply of essential or critical goods or services to government. The exemption also applies to the carrying out of essential or critical works for government.

Chris Slocombe, Jo Pugsley and Noelle Alphonso-Loong discuss the construction and infrastructure exemptions and considerations for construction participants in more detail 

Case law round-up: special referee's reports in construction disputes

Judges in construction disputes are increasingly relying upon their ability to appoint a special referee; for example, in Brighton Australia Pty Ltd v Multiplex Constructions Pty Ltd [2018] VSC 246 Justice Riordan of the Victorian Supreme Court accepted a referee's report, subject to some significant overriding comments on the ability of parties to use time-bars to contract out of the Australian Consumer Law.

In Harris v Morabito Holdings [2018] NSWSC 912, the owners of a residential development claimed against the builder for defective works, and the builder argued that it was not liable for defects rectification. The matter was referred to a special referee, who reported to the NSW Supreme Court that the builder should pay $328,000 to the owners. The builder argued for the acceptance of the special referee's report. The owners argued against the adoption of the report by the Court.

Justice McDougall held that the discretion to accept, vary or reject a special referee's report must be exercised judicially. Broadly, parties will not to give a fresh hearing on the merits of the case and disputed findings of facts, but courts will consider afresh disputes on questions of law. In short, as stated in the judgment, "the right to be heard does not involve the right to be heard twice".

The owners argued that the contract to construct a luxury waterside property meant that the standard of workmanship was higher than for normal residential projects. The special referee rejected this contention, and based his report on a standard of workmanship derived from the contract documents, which did not refer to a higher standard than ordinarily applied. Justice McDougall agreed with the special referee's legal findings; to hold otherwise would be contrary to the objective approach to construing contracts, and would cause the certainty provided by the statutory warranties regime (incorporated into the contract) to evaporate.

Finally, special referees are bound to afford natural justice, but not by the rules of evidence. They may inform themselves as they see fit. In this case, the special referee undertook a site inspection and based some of his findings on that inspection. The fact that the inspection was conducted in conjunction with experts engaged by both parties meant that both parties were on notice of the issues identified during the inspection and that was considered sufficient natural justice in the circumstances of this case.

Security of Payment round-up: are "reference dates" causing confusion in the construction industry?

Recommendation 14 of the Murray Review recommends that a harmonised security of payment (SOP) legislative model move away from "reference dates". Instead, it should focus on allowing contractors to seek payment on a monthly basis (or more frequently if the contract allows).

The recent cases briefly described below are examples of the confusion that can arise in relation to the relevant impact of "reference dates" under the SOP legislation. Both cases considered whether a construction contract had adequately regulated the circumstances in which a "reference date" may occur, including in months during which no construction works were carried out and following termination for insolvency.

No "reference date" after contract termination

In Green Suburban Pty Ltd v Vita Built Ltd [2018] VSC 330, the Victorian Supreme Court confirmed that where a payment claim under the Victorian SOP legislation is submitted after the termination of the relevant construction, no "reference date" may arise and there may be no legislative entitlement to submit a payment claim. The express terms of the construction contract made it clear that a "reference date" could not occur following termination on the grounds of an insolvency event. Therefore, as the construction contract was terminated on that basis, there was no relevant "reference date" and the adjudication determination was overturned.

New "reference date" even in months during which no construction work was undertaken 

In Pinnacle Construction Group Pty Ltd v Dimension Joinery & Interiors Pty Ltd [2018] NSWSC 894, the relevant construction contract limited the subcontractor to submitting a payment claim once in respect of each reference date, and required that payment claims be submitted on the 15th day of the month. The subcontractor submitted a payment claim in December 2017, which was for the sum of unpaid invoices from February to May 2017. The main contractor argued that the relevant construction contract provided that a "reference date" only occurred during the months in which construction work was undertaken, which would have meant that the payment claim in dispute was a second payment claim in respect of the May 2017 "reference date". Justice Stevenson rejected this argument, as the drafting in the contract did not support the limitation sought by the main contractor. Therefore, a new "reference date" occurred in December 2017, and the subcontractor was entitled to submit a payment claim for earlier works pursuant to section 13(6) of the NSW SOP legislation. 

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