Major projects & construction 5 Minute Fix 71: joint ventures, security of payment, rectification

18 Mar 2021
Get your 5 Minute Fix of major projects and construction news. This issue: pursuing construction projects via joint ventures; a decision of the Victorian Court of Appeal with practical implications for claimants under Victorian security of payment legislation in; statutory misleading or deceptive conduct claims providing an avenue to recover defect rectification damages; Infrastructure Australia's 2021 infrastructure priority lists; and consultation now open for the Australian Building Codes Board's response to recommendations 9 and 11 of the Building Confidence Report.


Joint ventures do not automatically create fiduciary relationships

In Brady Queen Pty Ltd & Ors v Austhome Developments Pty Ltd & Ors [2021] VSC 18, Brady Queen (a company associated with Mr Brady) and Austhome (a company associated with Mr Wu) entered into a joint venture (JV) to undertake property development, via a Unit Trust held by 280 Queen Street Pty Ltd (JV Co). Austhome and Wu made claims against Mr Brady and Mr Pethica, the directors of JV Co for breach of fiduciary duty.

The Court held that Pethica did not owe any fiduciary duties to Austhome or Wu as the JV was between Brady Queen and Austhome. As the JV was pursued via a Unit Trust held by JV Co, it was a matter for JV Co to make a claim against its directors, but it had not done so. Furthermore, the Court also held that there was no fiduciary relationship between Brady and Wu (and Austhome) arising out of the JV, as none of the indicia of a fiduciary relationship identified by Mason J in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 were present.

This judgment is discussed in more detail in an Insights article summarising recent developments regarding the regulation of JV relations by Sean Kelly, Allison van Beers and Alicia Un.

Victorian SOP Act: can the excluded amounts regime undermine the practical benefit of judicial enforcement of payment claim?

In Yuanda Vic Pty Ltd v Façade Designs International Pty Ltd [2021] VSCA 44, a majority of the Victorian Court of Appeal held that excluded amounts contained in a payment claim issued by Façade Designs International Pty Ltd under the Building and Construction Industry Security of Payment Act 2002 (Vic SOP Act) prevented the Court from recognising the claimed amount as a debt, even where no payment schedule was submitted by Yuanda Vic Pty Ltd.

Key features of the Vic SOP Act relevant to this dispute are:

  • if the recipient of a valid payment claim does not respond with a valid payment schedule in accordance with the Vic SOP Act (within 10 business days, or less if provided by the contract), then the claimant is entitlement to payment of the full claimed amount (section 15(4));
  • the claimant can elect to pursue this entitlement as a judgment debt in court or by making an adjudication application by seeking a determination by an adjudicator (section 16(2)(a)(i) and (ii)); and
  • however, there is a general prohibition on "excluded amounts", which are defined to include damages relating to latent conditions, time-related costs, changes in regulatory requirements and certain disputed variations, which are kinds of claims that commonly arise on construction projects (sections 10B(1) and (2), 14(3)(b), 16(4)(a) and 23(2A)(a)).

Following Yuanda's failure to issue a responsive payment schedule, Façade elected to recover the value of the payment claim as a judgement debt. However, section 16(4)(a)(ii) applied insofar as that section provides that "judgment in favour of the claimant is not to be given unless the court is satisfied …(ii) that the claimed amount does not include any excluded amount".

At trial the primary judge held (among other things) that, in accordance with section 16(4)(a) of the Vic SOP Act, the Court may enforce Façade's payment claim provided that it deducted any "excluded amounts" from the claimed amount. However, the Court of Appeal overturned this finding by a majority decision. Justices McLeish and Niall held that the Court's role under section 16(4)(a) is limited to identifying and enforcing statutory liabilities, being the amount claimed in the payment claim. Where the payment claim contains "excluded amounts", the identification and quantification of the excluded amounts is a matter to be assessed by an adjudicator rather than the Court, and the Court cannot enforce any part of the claim.

A result of the majority decision is that, where a payment claim includes "excluded amounts", the claimant cannot pursue any of the payment claim as a judgment debt even where the recipient has not responded with a payment schedule. In practical terms, claims for "excluded amounts" are relatively common on construction projects and there is often a "dual track" claims process in the underlying construction contract. The effect of the majority decision might be to render illusory the claimant's statutory right to elect its preferred enforcement mechanism: judgment debt or adjudication determination.

In dissent on this point, Justice Sifris held that the primary judge was correct in enforcing the payment claim less the "excluded amounts", on the basis that there is nothing specific in the text of the Vic SOP Act that precludes the Court from doing so.

The power of a statutory claim for misleading and deceptive conduct and recovering losses incurred because of defect rectification

The Owners – Strata Plan No 87265 v Saaib; The Owners – Strata Plan No 87265 v Alexandrova [2021] NSWSC 150 involved two proceedings arising from the construction of townhouses and considers the issue of implied agency and a claim for misleading and deceptive conduct.

The first set of proceedings was brought against the builder, alleging that his work on common property was in breach of warranties in the Home Building Act 1989 (NSW). The issue was whether the builder entered into the contract, as the signatures were not his. The plaintiff argued the builder's nephew, also involved in the project, had authority to enter into the contract on the builder's behalf. Justice Henry held that one must look to the "objective facts, contemporaneous materials and logic of events" to determine any potential agency, here finding no such inference because there would "no apparent logic, rational reason or need" for the nephew to falsify signatures if he was authorised to enter into the contract on the builder's behalf.

The second set of proceedings was brought against an insurance broker. The Owners contended that the broker was liable for rectification costs because the broker engaged in misleading and deceptive conduct in contravention of section 18 of the Australian Consumer Law (ACL). Justice Henry held that the broker had engaged in such conduct by representing (including by way of falsified documents) that she was authorised by the builder to submit insurance documents. It was found that this conduct was sufficiently connected to losses amounting to $3.4 million in defect rectification, which amounts were not recoverable by the owners from the builder or developer. These damages would not have been incurred if the broker had not engaged in the misleading or deceptive conduct because, in the absence of the necessary (but genuine) insurance documents, the building works would not have been completed, which made it a material (even if not the sole or predominant) cause of the loss. Therefore, it was held that "the misleading conduct was a link in the chain of causation that has a requisite degree of proximity to the loss suffered".

Consultation open: integrity of private building surveyors and their role in enforcement

The Australian Building Codes Board has issued a discussion paper for public consultation in response to the "Building Confidence Report". The Council of Australian Governments Building Ministers Forum (BMF) commissioned an independent review into compliance and enforcement systems for the building and construction industry in the wake of the Lacrosse and Grenfell Tower fires. The results of that review were published in February 2018 in the Building Confidence Report.

The Building Confidence Report identified serious and widespread compliance failures in the sector and made 24 recommendations designed to address those weaknesses. The BMF provided in-principle support for the report at the April 2018 meeting. A commitment to develop a joint implementation plan was given and the issue of that joint plan is imminent. For discussion of the Building Confidence Report and its implications for the building industry, see our summaries here and here.

The Australian Building Codes Board is inviting comment on recommendations 9 and 11 of the Building Confidence Report. The objectives of these recommendations are to mitigate conflicts of interest, increase transparency in engagement and statutory responsibilities, provide enhanced supervisory powers and require mandatory reporting. The consultation forum is open until 26 April 2021, and comments can be submitted here.

National infrastructure priority list published

Infrastructure Australia has published its list of priority national infrastructure projects. The projects identified as "high priority" include:

  • in NSW: the M12 Motorway, Sydney Metro (City & Southwest) and Western Sydney Airport;
  • in Victoria: the M80 Ring Road upgrade and North East Link; and
  • in Queensland: Brisbane Metro.

The list also identifies "priority" projects and "high priority" and "priority" initiatives from across Australia.

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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.