Major projects & construction: 5 Minute Fix 23

By the Major projects & construction team
08 Nov 2018
Get your 5 Minute Fix of major projects and construction news. This issue: discover the latest cladding developments; resources construction work now caught by WA training levy; mind the gap: public transport at the urban fringe; avoid slip-ups in your payment schedule; and the availability of insolvency processes under the Corporations Act 2001 for recovering SOP debts.

Cladding update - NSW

The clock has started ticking for NSW owners of buildings with external combustible cladding. The Environmental Planning and Assessment Amendment (Identification of Buildings with External Combustible Cladding) Regulation 2018 (NSW) commenced on 22 October 2018.

Owners of buildings caught by the Cladding Regulation are required to register their buildings with the NSW Government via an online portal, For buildings occupied before 22 October 2018, the deadline for registration is 22 February 2019. Owners of new buildings must register their building within four months of the building first being occupied. Further detail of the scope and effect of the Cladding Regulation is here.

Removal of training levy exemption for WA's resources sector

The long-standing exemption that excluded WA's resources sector from paying the Building and Construction Industry Training Fund Levy (BCITF Levy) upon engineering construction works has recently been removed.

From 1 October 2018, all new construction works in the resources sector are subject to the BCITF Levy(which is calculated at 0.2% of the value of construction work), unless the works are excluded by the Regulations. Notably, the BCITF Levy does not capture works relating to resources operational activities or repair or maintenance of resources facilities. Fact sheets with supporting information about the BCITF Levy and its application to WA's resources sector are available for download.

Revenue raised from the levy is used to support training in WA's building and construction industry. According to the latest WA State Budget, expanding the levy to resource sector engineering construction projects is forecast to generate additional revenue of around $25 million over the forward estimates period, which revenue will be reinvested to support training in WA. Expansion of the levy brings WA into line with New South Wales and Queensland, which all currently levy engineering construction projects in the resources sector.

Bridging the transport disparity gap

A recent Infrastructure Australia report "Outer Urban Public Transport" highlights the growing transport disparity between inner and outer urban suburbs in our major cities. Despite nearly half the population of the five largest cities living in the outer suburbs, outer suburban passengers face inadequate access to public transport and poor service levels compared with their inner-city counterparts.

The report assesses the quality and accessibility of public transport services in our five largest cities: Sydney, Melbourne, Brisbane, Perth and Adelaide, and it advocates a multi-modal transport integration approach in low-density areas to help bridge the transport disparity gap. It urges governments to embrace innovative solutions to the transport deficit:

"large capital investments and network extensions can often be difficult to justify, governments need to look beyond ‘big ticket’ projects. Operational changes, frequency improvements, network redesigns, accessibility upgrades and on-demand transport may all have significant benefits but come at a fraction of the cost of larger projects."

The Honourable Alan Tudge MP, Minister for Cities, Urban Infrastructure and Population, welcomed the report and foreshadowed the possibility of further Commonwealth investment in public transport in outer suburbs.

Amounts in payment schedules - include it or lose it

The recent decision of the South Australian Supreme Court in Hansen Yuncken Pty Ltd & Anor v Yuanda Australia Pty Ltd [2018] SASC 158, determined that an Adjudicator's decision not to exercise the slip rule, under the Building and Construction Industry Security of Payment Act 2009 (SA), does not amount to a jurisdictional error.

This dispute arose out of the new Royal Adelaide Hospital project. The background to these proceedings involved the joint venture builder Hansen Yuncken Leighton Contractors (HYLC) applying contractual delay liquidated damages upon its cladding subcontractor, Yuanda. HYLC then called upon bank guarantees provided by Yuanda and obtained $4,4m in partial payment of the $2.063m liquidated damages.

Responding to a payment claim under the Building and Construction Industry Security of Payment Act 2009 (SA) HYLC put some, but not all, of its cross-claim for liquidated damages in issue. In his determination, the Adjudicator only took into account the amount recovered under the bank guarantees ($4.4m) rather than the full entitlement of liquidated damages ($6.4m). HYLC requested the Adjudicator to exercise his discretion to "correct" the adjudicated amount, pursuant to section 22(5) of the Act (known as the "slip rule"), by adopting the full amount of liquidated damages. The Adjudicator declined to exercise discretion and HYLC sought judicial review of that decision.

HYLC was unsuccessful on all three grounds of review. First, Justice Lovell found that the criteria set out in s 22(5) of the Act are not, when considered in the context of the Act, “jurisdictional facts”. Second, the Adjudicator did not make a slip, error or miscalculation. Justice Lovell observed, “[i]f he was in error in not including the sum of $2,063,074.12 for unpaid liquidated damages that was an error within jurisdiction. It was not an error of the type that would invoke the discretion under s 22(5) of the Act”.

Finally, the Court was asked to consider whether the determination was so unreasonable that no reasonable adjudicator would have made it. Justice Lovell dismissed this ground on the basis that the adjudicator had not in fact made an error because it was apparent from his reasons that HYLC had only put in issue the figure of $4.4m relating to liquidated damages. According to Justice Lovell, the Adjudicator "did not make a slip, error or miscalculation. If he was in error in not including the sum of $2,063,074.12 for unpaid liquidated damages that was an error within jurisdiction. It was not an error of the type that would invoke the discretion under s 22(5) of the Act."

The decision highlights that principals and head contractors should take great care in assessing amounts payable in payment schedule, as they may be precluded from relying on revised amounts in adjudications.

Using statutory demands to recover SOP debts

The availability of insolvency processes under the Corporations Act 2001 for the purpose of recovering debts arising under the security of payment legislation was considered recently by the New South Wales Supreme Court,in a case that demonstrates the Court's approach to reconciling the SOP Act's “pay first, litigate later” imperative with the Commonwealth statutory provisions for the recovery of debts.

In Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd [2018] NSWSC 1647, the plaintiff builder ,Grandview, applied to set aside a statutory demand that had been served by the defendant subcontractor (Budget) in respect of two unpaid progress claims made under the Building and Construction Industry Security for Payment Act 1999 (NSW) (SOP Act). In relation to the first claim, Grandview issued a payment schedule providing for payment of the full amount claimed. No payment schedule was issued in response to the second claim. In its application to set aside Budget's statutory demand, Grandview alleged an entitlement to offsetting claims relating to liquidated damages and costs to complete.

The Court accepted Grandview's submission that the service of statutory demand under the Act was not an appropriate vehicle for recovering unpaid payment claims or adjudication amounts under the SOP Act. However, the availability of other means of enforcement did "not mean that a company that owes a debt under the SOP Act should be able to avoid the insolvency consequences of failure to pay it."

As to whether a "genuine dispute" existed for the purposes of setting aside the statutory demand, the Court repeated the statement of Justice Brereton in Re Douglas Aerospace Pty Ltd [2015] NSWSC 167:

"…as to whether a judgment debt arising upon a filed adjudication certificate can be the subject of a genuine dispute for the purpose of s 459H(1)(a), the general principle that a pending appeal or application to set aside a judgment cannot found a “genuine dispute” as to the existence of the judgment debt while it stands, applied in the context of [SOP Act], indicates that the existence or pendency of an arguable claim in curial proceedings that the adjudication does not reflect the true legal rights of the parties cannot amount to a “genuine dispute” about the existence or amount of a judgment debt in respect of an adjudication…. This accords with the legislative policy that adjudicated debts should be paid notwithstanding the pendency of any curial dispute as to whether they reflect the true legal rights of the parties…"

On the issue of Grandview's offsetting claims, the Court noted it should be "concerned only with whether the claim made is genuine and sustainable", not the "likelihood of it being sustained at a hearing". Although Grandview's claims could not be said to be "nebulous or vague", their quantum was characterised as "seriously contestable". On this basis, the Court proposed making an order reducing the amount of the statutory demand provided that Grandview undertook, first, to commence and thereafter prosecute proceedings to assert its offsetting claims, secondly, to pay into Court the sum by which the statutory demand was reduced.

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