Major projects & construction 5 Minute Fix 13

By the Major Project & Construction team

21 Jun 2018

Get your 5 Minute Fix of major projects and construction news. This issue: regulation of autonomous vehicles, "no oral variation" clauses, delay to the second stage of Queensland's security of payment reforms, technology in the construction industry, Victorian cladding update, more from Infrastructure Australia and the latest on the NSW Financial Management Transformation

National Transport Commission's preferred approach for regulating autonomous vehicles

The National Transport Commission (NTC) released its "Safety Assurance for Automated Driving Systems Consultation Regulation Impact Statement" on 14 May 2018; it is open for public consultation until 9 July 2018.

The Statement focuses on how “Automated Driving Systems” (ADSs) can be regulated to ensure their safe deployment and to provide certainty to automated driving system entities (ADSEs). The Statement considers introducing ADS technology to the Australian market and recommends the adoption of a new or amended legislative framework for this purpose.

The approach preferred by the NTC is premised on mandatory self-certification by ADSEs in a regulatory regime that would include:

  • specific offences and compliance and enforcement options; and
  • the imposition of a primary safety duty on ADSEs (rather than on, for instance, manufacturers or human drivers/occupants).

As part of the self-certification system, the NTC has proposed a “Statement of Compliance” which would require, amongst other things:

  • safe design system and validation processes;
  • an outline as to how interaction between the ADS and people both inside and outside the vehicle will be safely facilitated;
  • a demonstration as to how ADSEs will ensure vehicles operate in compliance with relevant road traffic laws and how they will interact with enforcement and other emergency services;
  • evidence of "on-road behavioural competency", namely a demonstration of how the ADS will appropriately respond to both foreseeable and unusual conditions;
  • the ADSE to demonstrate that it has considered the Australian road environment in the design and development of the ADS; and
  • information as to how the risk of cyber intrusion has been minimised.

Interested entities should consider making a submission before 9 July 2018. Click here to read more.

No oral variations? In the UK, you’ll be held to that

Currently in Australia, "no oral variation" (NOV) clauses are ineffective to exclude an oral agreement to vary the terms of a contract (GEC Marconi Systems Pty Limited v BHP Information Technology Pty Limited [2003] FCA 50). Contrary to that approach, they are now strictly enforceable in the UK.

In Rock Advertising Limited v MWB Business Exchange Centres Limited [2018] UKSC 24, the UK Supreme Court held that NOV clauses should be enforced according to their terms. In doing so, the Court aligned the UK position with international codes of contract law including the Vienna Convention on Contracts for the International Sale of Goods and UNIDROIT Principles of International Commercial Contracts.

The case concerned a licence granted by an owner, MWB, to an occupier, Rock Advertising, for the occupation of office premises, and an alleged oral agreement to vary the payment terms in favour of the occupier who was in arrears. At trial and subsequent levels of appeal, the determinative issue was whether the NOV clause in the licence agreement was effective to expunge the oral variation.

On appeal, the UK Supreme Court held that “[t]he law should and does give effect to a contractual provision requiring specified formalities to be observed for a variation”, relevantly noting that "party autonomy" should dictate that parties can bind and restrict themselves "as to the form of any variation".

The Court observed that NOV clauses serve legitimate commercial purposes, namely:

  • preventing attempts to undermine written agreements by informal means;
  • given that oral discussions are vulnerable to misinterpretation and misunderstanding, the avoidance of disputes as to the intended effect or terms of a variation; and
  • a degree of formality in recording variations affords corporations a means of ensuring that variations are only agreed by persons who are authorised to do so.

Noting that NOV clauses carry the risk that a party may act on an agreement that it assumes has been varied, the Court also observed that a "safeguard against injustice" lies in the equitable doctrines of waiver and estoppel.

A separate judgment was delivered by Lord Briggs in this case. In it, he advocated a more cautious approach, foreshadowing that it might be appropriate to refuse to enforce NOV clauses where it can be “necessarily implied” from the parties' conduct and verbal agreement that they intended to dispense with the clause, or where the NOV clause is “buried away in the small print of standard terms”.

It will be of interest to see whether the UK Supreme Court's reasoned rejection of the position prevailing in Australia opens the door for our appellate courts to reconsider this fundamental issue of contract law. Until then, NOV clauses in commercial contracts should be treated with caution, and adhered to as a matter of best practice.

An early Christmas present, December commencement date announced for next tranche of Queensland security of payment reforms

It had been anticipated that the next phase of Queensland's security of payment reforms (dealing with important changes to payment claims, payment schedules and the adjudication process) would commence on 1 July 2018. However, it is clear that more time is needed to implement the reform agenda in the light of the Government's announcement last week of a 17 December 2018 commencement date

In the announcement, the Minister for Housing and Public Works, Mick de Brenni MP, foreshadowed further industry consultation on the next tranches of reform and stated, "I will introduce BIF Act amendments into the House to progress the next states of reform". The announcement does not elaborate on the scope of these further reforms. However, in his statement to the Queensland Parliament (published in Hansard), more detail is revealed:

"In the interests of business confidence, it is the intention of the government to commence these reforms in tranches. Following industry consultation on the next tranches, I will introduce building industry fairness act amendments into the House to progress the next stages of reform including clarification of the period within which a head contractor is to provide a payment schedule and to clarify that retention moneys are required to be held in a retention project bank account in certain circumstances. These reforms put the funds in the hands of the people who do the work. I can inform the House that I intend those provisions to commence from 17 December 2018."

The Minister also tabled in Parliament the terms of reference for the independent review panel established under the Building Industry Fairness (Security of Payment) Act 2017 and announced the appointment of four panellists. As part of its statutory review mandate, the panel will evaluate the first phase of the Project Bank Account implementation (PBA), the proposed second phase roll out of the PBA regime to the private sector as well as the implementation of other building and construction reforms (including the Building and Construction Legislation (Non-conforming Building Products – Chain of Responsibility and Other Matters) Amendment Act 2017).

The brave new world of BIM, "megatrends" and digitalisation: is the construction industry ready?

According to a recent report prepared by the World Economic Forum in conjunction with the Boston Consulting Group, the construction and engineering sector is lagging behind other industries in embracing technologies ushered in by the so-called "Fourth Industrial Revolution", and can no longer afford to do so.

The report, "Shaping the Future of Construction: Future Scenarios and Implications for the Industry", examines the potential impact on the sector of emerging trends such as building information modelling (BIM), automatization and prefabrication and urges stakeholders to start thinking strategically about anticipated disruption to their businesses.

In this context, the report identifies certain "transformation imperatives" for the sector, including the uptake of digital technologies and increased collaboration, relevantly by greater use of more integrated contract models.

Click here to read an article by Misko Misko and Kath Hallpike in which they consider the issues raised by the report together with the question, is Australia keeping up with global best practices when it comes to technology and contract delivery models?

Challenging statutory demands based on adjudication certificates

The Supreme Court of New South Wales recently revisited the relationship between the State's security of payment legislation and the Commonwealth Corporations Act 2001. In doing so, it illustrated the difficulties faced by respondents seeking to challenge judgment debts.

In Powerpark Systems Pty Ltd [2018] NSWSC 793, Shoemark Electrical Pty Ltd obtained an adjudication determination against Powerpark Systems Pty Ltd. Shoemark then served a statutory demand on Powerpark for the amount of the determination and, subsequently, filed an adjudication certificate and obtained judgment against Powerpark under section 25 of the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act).

Powerpark sought to set aside the demand under section 459 of the Corporations Act 2001, asserting that:

  1. there was a genuine dispute as to the existence or amount of the debt because of an alleged jurisdictional error affecting the adjudication certificate and ensuing judgment (section 459H(1)(a));
  2. the said jurisdictional error constituted "some other reason" why the demand should be set aside under section 459J(1)(b); and
  3. it had an offsetting claim against Shoemark for the purpose of section 459H(1)(b), being losses due to defective work.

As to the first ground, Powerpark pointed to the fact the adjudication determination related to construction work carried out both in NSW and Queensland, whereas the SOP Act expressly does not apply to work performed outside of NSW.

The Court noted that an erroneous decision with respect to an essential prerequisite to the existence of an adjudicator's determination will amount to a jurisdictional error, with the effect the determination is reviewable. However, citing Re Douglas Aerospace Pty Ltd [2015] NSWSC 167 at length, the Court repeated the position that, once an adjudication determination has been filed, the resultant judgment debt "is indisputably due and payable, and remains so unless and until it is set aside". By dint of that status, a pending appeal or application for judicial review will not suffice to establish the existence of a "genuine dispute". In any event, Powerpark neither made such application within the prescribed period nor sought an extension of time within which to do so. Its contention that a genuine dispute existed was rejected accordingly.

Powerpark similarly failed to persuade the Court that the asserted jurisdictional error provided an "other reason" justifying the setting aside of the demand. Noting that the power of the Court under section 459J(1)(b) is discretionary, and that "there is no rigid rule" pertaining to its exercise, it was held that "the pendency of curial proceedings" impugning the validity of an adjudication cannot, without more (relevantly if the judgment in issue is stayed or security if given), constitute "some other reason".

Powerpark was not entirely unsuccessful; it was able to adduce sufficient evidence of a genuine offsetting claim (for defective works) resulting in an order that the quantum of the statutory demand be reduced. The case is a further caution to parties dissatisfied with adjudication determinations not to delay in seeking appropriate relief if a situation such as transpired in Powerpark is to be avoided.

Victoria homes in on banned cladding

In our 5 Minute Fix 06, we reported that the Victorian Government had banned certain particularly dangerous types of combustible cladding. The ban was implemented by Ministerial Guideline MG-14 which is explained in a Building Product Safety Alert, "Use of ACP and EPS as external wall cladding".

According to a media release issued on 31 May 2018, the Victorian Building Authority (VBA) has now issued notices to more than 800 registered builders and property developers seeking confirmation of the type of cladding specified for use on the exteriors of current and upcoming projects.

Relevantly, the notice:

  • requires that building surveyors review building permit documentation; and
  • directs property developers and building companies that unless approval by the Building Appeals Board has been obtained, prescribed combustible cladding must not be used on future projects.

Notice recipients were required to respond by 8 June 2018, with disciplinary action foreshadowed by the VBA should recipients fail to do so.

Infrastructure Australia issues sixth paper in its reform series

In its “Australian Infrastructure Plan“ (February 2016), Infrastructure Australia identified infrastructure challenges and opportunities faced by Australia and called on the Federal Government to catalyse reforms by linking the availability of additional infrastructure funding to the delivery of those reform outcomes. At the time, the Government’s support for that proposal was made conditional on the “identification of an appropriate reform agenda and the capacity to provide the necessary funding."

Infrastructure Australia has now released a further report, “Making Reform Happen: Using incentives to drive a new era of infrastructure reform” (June 2018), building on the recommendations contained in the 2016 Plan and responding to the Government's qualifications. While not an exhaustive list, the report identifies five reforms (which originally featured in the 2016 Plan) that Infrastructure Australia views as "well suited to an incentive-based funding approach":

  1. Introducing road user charging: the report re-agitates the vexed issue of a "reformed charging framework for roads" that would see "all existing taxes and fees removed and replaced with direct charging that reflects each user's own consumption of the network".
  2. Reforming the urban water sector: the report proposes that governments should establish a "national urban water reform plan" and consider further reforms including moving "to a national regulator and privatising urban water assets".
  3. Reforming the electricity market: the report notes the need for further reform to address issues of security, reliability and affordability and suggests that transitioning the remaining publicly owned entities to private ownership "is a nationally significant opportunity to improve the efficiency of the sector".
  4. Reforming land tax: referring to Infrastructure Australia's 2016 paper "Capturing Value: Advice on making value capture work in Australia", the report repeats the finding that "broadening the land tax system while removing inefficient charges, such as stamp duties, could provide a fairer, more efficient way of capturing land value uplift and ensuring land is used most productively".
  5. Franchising public transport services: identified as a means of improving efficiency and service quality while achieving value for money via a competitive process.

PPPs in NSW: From PAFA to GSF!

Practitioners in the public private partnerships (PPPs) space in NSW with well-thumbed copies of the "PAFA Act" (the Public Authorities (Financial Arrangements) Act 1987) will soon have to become accustomed to working with Part 6 of the Government Sector Finance Act.

In the latest instalment of the Financial Management Transformation program, the NSW Government's efforts to update the financial management of the NSW government sector, the NSW Parliament has recently passed the Government Sector Finance Bill 2018. The GSF Bill is currently awaiting assent and will commence as of the date of proclamation.

The object of the GSF Bill is to consolidate a new framework for government sector financial and resource management in New South Wales and cover all public financial management matters, except audit matters. The GSF Bill also includes significant changes to the accountability framework for public sector bodies and personnel, in particular detailing key roles and responsibilities of "accountable authorities".

The GSF Bill includes provisions relating to financial arrangements and annual reporting by certain agencies of the government sector, referred to as GSF agencies. The GSF Bill will also include a category of other agencies to be classified as 'separate GSF agencies' which will be subject to different provisions in relation to directions and delegations by the Minister.

A cognate bill with the GSF Bill, the Government Sector Finance Legislation (Repeal and Amendment) Bill 2018 (GSF Repeal Bill) will repeal the Annual Reports (Departments) Act 1985, the Annual Reports (Statutory Bodies) Act 1984 and the PAFA Act and the regulations under each of those Acts. The GSF Repeal Bill will also rename the Public Finance and Audit Act 1983 as the Government Sector Audit Act 1983.

The PAFA Act enables certain public authorities to enter into certain financial arrangements (including investments and joint financing arrangements) only with the Treasurer's approval.

Part 6 of the GSF Bill substantially reflects the equivalent provisions of the PAFA Act. Of most relevance to PPPs:

  • Division 6.4 will permit GSF agencies to enter into financial arrangements if the arrangement has been authorised. Financial arrangements will be defined to mean an arrangement (whether entered into or occurring in or outside Australia) with respect to, amongst others, a borrowing, an investment, a joint financing arrangement and joint venture arrangement.
  • Division 6.5 will continue to provide for the State to guarantee the due performance of a GSF agency of obligations incurred by the GSF agency as a result of or in connection with a financial arrangement authorised by the GSF Act. Interestingly, the GSF Act also appears to dispense with the (little used) Section 22AA Statutory guarantee of performance.

Click here to view the legislative history and draft of the GSF Bill.

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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.