Major projects and construction: 5 Minute Fix 06

By the Major Project & Construction team

15 Mar 2018

Get your 5 Minute Fix of major projects and construction news. This issue: building industry fairness reforms, combustible cladding, security of payment, and exclusion of liability clauses.

Media release about timing of building industry fairness reforms

In 5 Minute Fix 05 we reported on the commencement of the Project Bank Accounts regime in Queensland. This regime is the first phase of a multi-faceted building industry reform package introduced by the Building Industry Fairness (Security of Payment) Act 2017 (Qld) (the BIF Act).

The Queensland Minister for Housing and Public Works has foreshadowed in a media release that the second and third phases of the BIF Act reforms will commence 1 July 2018 and 1 January 2019. The second phase introduces important changes to the payment claims, payment schedules and the adjudication process aimed at reducing delays by respondents and streamlining the adjudication process.

The third phase of reform flagged to commence 1 January 2019 will reinstate financial reporting requirements for building companies in Queensland.

Victoria bans most dangerous types of combustible cladding

Aluminium Cladding Panels with a polyethylene core of more than 30%, and expanded polystyrene, will be banned from use on all multi-storey buildings, according to the Victorian Minister for Planning. The ban will be implemented via Ministerial Guideline MG-14, which takes effect from 22 March 2018.

The effect of this Guideline is explained in a Building Product Safety Alert, "Use of ACP and EPS as external wall cladding". This notes that the guideline applies to a product regardless of whether it has a CodeMark certification or a Building Regulations Advisory Council accreditation, and also regardless of whether a building surveyor “interprets that other concessions may apply”. 

Contractors beware: agreeing to terminate may extinguish the right to make a payment claim

The existence of a "reference date" is a precondition to the making of a valid payment claim under the Building and Construction Industry Security of Payment Act 1999 (NSW) and like legislation in other Australian jurisdictions. Whether a reference date continues to accrue following termination of the contract will depend on the terms of the relevant contract.

In Trinco (NSW) Pty Ltd v Alpha A Group Pty Ltd [2018] NSWSC 239, a written construction contract was purported to be terminated by agreement in early June 2017 but work continued to be performed until August 2017 in circumstances where the agreement covering that work was not entirely clear. The contractor later submitted a statutory claim for payment for work that had been performed before the date of termination and for work performed afterwards. In its adjudication application, the contractor identified the claim as being made under the original contract. The adjudicator accepted that, despite the purported termination, the work had continued to be performed under the original written contract and allowed the payment claim.

On a challenge of the adjudicator's decision by the owner, the New South Wales Supreme Court accepted that the written contract had been terminated in June and the later work had been performed under a different agreement. The Court also found that the contract made no provision for reference dates to accrue after the termination. This was a fatal blow to the contractor's reliance on the written contract because, without a valid reference date for making the payment claim, the adjudicator had no jurisdiction. The adjudication determination was declared void and of no effect.

The Court found that the payment claim was also invalid because, by claiming for work performed before and after the termination, the contractor had sought payment for work performed under two different contracts. The Court affirmed the reasoning in earlier decisions that such a claim is not permitted under the SOP legislation. 

Where parties contemplate terminating their contract by agreement, contractors should be alert to the possibility that the reference dates will not continue to accrue post termination (in the absence of clear contractual drafting to the contrary). The contractor should carefully consider its position before terminating the contract and seek to agree (through a contractual variation of the terms of the contract) that reference dates will continue to arise in respect of the payment of any outstanding moneys following termination. 

WA Supreme Court elucidates basis for implying terms from the WA SOP legislation

The Supreme Court of Western Australia has delivered one of the few decisions to shed light on the question of when provisions contained in Schedule 1 to the Construction Contracts Act 2004 (WA) (CCA) will be implied into a construction contract.

Unlike the East Coast security of payment regime, statutory provisions under the CCA regulating such matters as the making of claims for payment (section 16), responding to claims for payment (section 17) and the time for payment (section 18) will only apply when a contract is silent on those matters. In each of these instances, the CCA requires that the provisions contained in the relevant Division of Schedule 1 are to be implied in a contract that does not contain written terms about that subject matter.

In Total Eden Pty Ltd v Charteris [2018] WASC 80, the WA Supreme Court clarified that the failure of a contract to include provisions dealing with a particular matter did not justify the implication into that contract of the entirety of the provisions contained in the relevant Division of Schedule 1. In this case, the contract included a term dealing with the time for payment of a payment claim but did not include a written provision as to how and when the contractor was to "respond" to a payment claim in the manner contemplated by section 17 of the CCA (namely, by disputation or rejection). On this basis, the adjudicator concluded that all of the terms under Division 5 of Schedule 1 to the CCA should be implied into the contract, resulting in the implication of section 7(3) of Division 5 which prescribes the time for making payment of a claim.

The WA Supreme Court held that the adjudicator erred in so concluding and quashed the entirety of the adjudicator's determination. Relevantly, the Court held that the only provisions in Division 5 of Schedule 1 which may be implied in a contract are those dealing with matters not addressed in the contract, even if this results "in a bifurcation" of the provisions contained in the relevant Division. To hold otherwise would, the Court reasoned, give rise to an "internal inconsistency" between the written contractual terms and the implied terms. Specifically, the Court held the adjudicator erred in implying clause 7(3) of Division 5 into the contract as this resulted in inconsistent payment terms. 

Contracting entities should therefore be diligent to ensure their contracting terms address each of the specific requirements of the CCA to avoid implication of the relevant scheduled provisions. 

Queensland Court of Appeal trips up station owner's attempt to bypass an exclusion of liability clause

Exclusion of liability clauses are a common feature of construction contracts. Indeed, many contractors and suppliers will refuse to do business unless the contract excludes or caps their liability.

In the recent Queensland Court of Appeal decision in The Thistle Company of Australia Pty Ltd v Bretz [2018] QCA 6, a service station owner had engaged an engineering consultant to redesign the station forecourt. When a customer tripped over a poorly designed concrete plinth upon which the petrol bowser was positioned, the owner sought to bring a third party proceeding against the engineering consultant to recover a contribution to the damages the owner had to pay to the customer.

The Court of Appeal held that the third party proceeding brought against the engineering company had been validly dismissed by the trial judge on the basis of the operation of the contractual exclusion clause. The relevant exclusion clause was widely drafted: it did not limit liability but completely discharged the engineering company from all liability (including in tort and contract) in respect of the services after the expiration of one year from the final invoice date.

The owner argued that the exclusion clause was not effective because the engineering company's liability did not arise "in respect of the services" that had been contracted. However, the Court of Appeal gave short shrift to this argument: irrespective of whether the liability arose from breach of contract or in tort for negligence, it fell within scope of the exclusion clause "in respect of the services" that had been contracted. 

Exclusion and limitation of liability clauses are hotly negotiated. Owners need to be alert to the fact that widely drafted exclusion clauses may leave them exposed to third party liabilities with no further recourse against their contractor or supplier. When considering a contractual exclusion clause, make sure the drafting of the exclusion clause is clear and not loosely worded and consider whether the clause needs to be made subject to any specific exceptions or carve-outs. 

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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.