Major projects & construction 5 Minute Fix 20

By Major Projects & Construction team
27 Sep 2018
Get your 5 Minute Fix of major projects and construction news. This issue: quantum meruit quandaries, a robust approach to adjudicator’s duties, more on AI and further helpful guidance from Justice McDougall on the application of the NSW security of payment legislation.

Court of Appeal considers quantum meruit claim and repudiated construction contract

In the recent judgment of Mann v Paterson Constructions Pty Ltd [2018] VSCA 231, the Victorian Court of Appeal considered the principles of recovery on a quantum meruit following repudiation of a construction contract by the principal. Quantum meruit claims are common in this context, and are viewed with dread by defendants.

The Court of Appeal reiterated the principles set out in the Kane v Sopov litigation, in respect of which the High Court refused special leave to appeal. Broadly, this recent judgment confirms principles of restitution can overcome contractual clauses in the repudiated contract, but the contract price may remain relevant. While the entitlement to recover is based on the “fair and reasonable value of the benefit conferred on the owner by the work that the builder performed", what is "fair and reasonable" will vary depending upon the circumstances, which can include the provisions of the construction contract

The Court of Appeal held that where the actual work performed is “radically different” from the scope of work in the contract, minimal weight may be accorded to the contract price, and that actual costs “are not determinative and do not impose a ceiling on the amount that can be recovered”.

The application of section 38(6) of the Domestic Building Contracts Act (Vic) (DBC Act) was also considered, which can preclude a builder from claiming for variations to the scope of works where the builder has not complied with the process set out in that section. However, it was held that the DBC Act does not preclude claims in quantum meruit, because it would have been inconsistent with the consumer protection purpose underpinning section 38(6), and the section was not sufficiently clear to deprive a party of a legal right.

The state of play in the development of intelligent transport systems

Disruptive technologies, increased urbanisation, population growth and environmental sustainability are reshaping the way in which we think about urban mobility and transport infrastructure in Australian cities of the future. A new Austrade report, "Future Transport and Mobility" provides an overview of the Australian transport innovation sector's expertise and capabilities.

The report identifies three key areas which have the potential to transform the Australian transport landscape: Intelligent Transport Systems, Connected and Automated Vehicles and Mobility as a Service involving "the evolution of car and ride-share into user-centric, multimodal mobility services".

At present, there are over 15 connected and automated vehicle trials in progress across Australia and more in the pipeline. Australian Governments and regulators are grappling with how to start preparing for the impact of these developments and to achieve the equilibrium between safety and leveraging new autonomous transport technologies.  

Sustainable digitalisation? Morphosis and RICS cross the threshold

Morphosis and the Royal Institution of Chartered Surveyors (RICS) recently published a report titled "Crossing the Threshold" discussing sustainable digitalisation in real estate and cities. The report presents a number of environmental, social and governance issues under the cover of six separate "transformations", and outlines various opportunities and challenges associated with digitalisation in real estate and cities.

The report provides a framework for organisations to prepare for and navigate sustainable digitalisation and includes consideration of the potential impact of technologies such as:

  • building information modelling (BIM);
  • blockchain;
  • the "internet of things"; and
  • artificial intelligence. 

Remedies for defective works and deceitful developers

In Carr v Miller [2018] NSWSC 1424, Justice McDougall delivered a detailed judgment outlining various instances of what was found to be deliberate deceit by a property developer in respect of a residential development with "sweeping views of Middle Harbour" in Sydney.

The deceit arose from the procurement of Home Warranty Insurance (HWI) certificates which was a condition precedent to the purchase contract. The purchaser of a renovated property claimed damages assessed as the difference between the purchase price ($8.55 million) and the actual value of the property.

Although the developer was not a licensed builder nor a registered owner-builder, most of the construction works were carried out by the developer, by directly contracting with and overseeing tradespeople. Much of the construction work was defective. During a cooling-off period, the buyer became concerned about the quality of the works, and obtained the inclusion of a condition precedent in the contract of sale that required the provision of HWI coverage in respect of works completed in the six years prior to the contract of sale. These HWI certificates were obtained by the developer, but only by entering into back-dated sham contracts with a licensed builder, coupled with statements that the completed building works were undertaken by that builder. These representations were found to be knowingly false, and deliberately designed to induce the buyer into entering into the contract of sale and effecting payment. 

The developer was found to be liable in deceit to the purchaser and under fiduciary duties owed to the original landowner as a result of an agency relationship, to the extent that the original landowner was also liable for the developer's conduct. 

Security of Payment round-up – Adjudicator's duties, good faith, defective works and invalid payment claims

Good faith and defective works

In Goodwin Street Developments Pty Ltd v DSD Builders Pty Ltd [2018] NSWSC 1229, Justice McDougall considered an argument that an adjudicator either did not exercise a statutory function, or did not do so in good faith, because she did not reach a conclusion about allegedly defective works as required by the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act).

As there was no express provision in the contract for valuing work, the adjudicator was obliged to consider the issues in section 10(1)(b) of the SOP Act as “fundamental elements in the determination”, which included that "if any of the work is defective, the estimated cost of rectifying the defect".

Justice McDougall noted that the obligation to exercise a statutory function in good faith requires that the adjudicator turned their mind to, grapple with and form a view on all matters they are required to consider under the SOP Act. In this case, the adjudicator referred to the allegedly defective work, but made no precise finding on the topic, which meant that the adjudication determination was "not entirely logical for downplaying the significance of the claim for defective work".

Nevertheless, the judge expressly discarded any predisposition to find error and looked at the adjudication determination in its entirety, and held that the adjudicator did deal with the dispute and the evidence adduced by the parties. As the principal was seeking to offset amounts to cover the cost of alleged defect rectification but had failed to adduce evidence supporting this claim, it was valid for the adjudicator to conclude that she was not satisfied that there was any defective work.

One project, two parties, three payment claims and "no less than four adjudication applications"

In Greenwood Futures Ltd v DSD Builders Pty Ltd [2018] NSWSC 1407, Justice McDougall considered whether an adjudication determination was invalid, by reference to the full gamut of arguments, including a failure to include supporting statements, multiple payments claims, reference dates and the purported withdrawal of adjudication applications.

Justice McDougall followed his earlier decision and concluded that a failure to include a "supporting statement" with the first and second payment claims pursuant to section 13(7) of the SOP Act meant that they were not validly submitted and the adjudicator did not have jurisdiction in respect of them. Notably, Justice McDougall highlighted the decision of Justice Ball in Central Projects Pty Ltd v Davidson [2018] NSWSC 523 that was inconsistent with Justice McDougall's analysis, and recognised that this disagreement between judges should be resolved by a higher judicial authority.

It was also argued that the second and third payments claims were also invalid because they related to the same "reference date" as the first payment claim. Justice McDougall held that the contract did not contain clause containing a reference date. Clause 17.3 only stated that "the builder must give the owner a written claim for a progress payment for the completion of each stage", but did not specify when the payment claim must be submitted. Accordingly, under section 8(2)(b) of the SOP Act, the relevant "reference date" was the last date of the month during which the relevant construction work was undertaken, which for the third payment claim was a new reference date (30 April 2018). The third payment claim was therefore valid.

The first and second adjudication applications were based upon the first and second payment claims. As these payments claims were invalid, the adjudication applications were nullities and there was no need to consider the validity of the withdrawals. The parties agreed that the third adjudication application was validly withdrawn under section 26 of the SOP Act (regarding delayed adjudication determinations), leaving only the fourth adjudication application for consideration by Justice McDougall, which was based upon the validly issued third payment claim. 

For the adjudication, Greenwood Futures adduced expert evidence regarding defect works and the cost of rectification. However, as clause 17.6(b) of the contract stated that Greenwood Futures "has no right of set-off", the adjudicator did not take into account the cost of rectifying alleged defects when valuing the payment claim. Justice McDougall agreed with this approach, as section 9 of the SOP Act requires that a payment claim be valued "in accordance with the terms of the contract". Therefore, it was held that "even if the Adjudicator had erred in his approach to the valuation of the construction work, the error was not jurisdictional". 

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