Major Projects & Construction 5 Minute Fix 75: arbitration clauses, security of payment, heavy vehicles and Zero Emission Vehicles

BY THE MAJOR PROJECTS & CONSTRUCTION TEAM
13 May 2021
Get your 5 Minute Fix of major projects and construction news. This issue: the Queensland Supreme Court considers arbitration clauses and claims arising outside the contract and (separately) jurisdictional error and security of payment; a Bill in NSW is set to transfer NSW’s heavy vehicle regulatory functions to the national regulator; the Victorian Government announces a package of spending measures designed to promote the uptake of (electric) "Zero Emission Vehicles"; and false statutory declarations for subcontract work.

RELATED KNOWLEDGE

Supreme Court confirms arbitration clause encompasses claims for equitable relief and statutory unconscionable conduct

A recent decision of the Queensland Supreme Court has taken an expansive approach to the scope of an arbitration clause in the context of a subcontract for road construction. In Cheshire Contractors Pty Ltd v Civil Mining & Construction Pty Ltd [2021] QSC 75, Civil Mining & Construction Pty Ltd (CMC) successfully applied to stay proceedings and refer a dispute to arbitration pursuant to 8(1) Commercial Arbitration Act 2013 (Qld).

Justice Henry considered that the arbitration clause in question (which was relevantly expressed to apply to "disputes or differences arising between the Parties") merited a liberal construction. In this case, his Honour found that the scope of the arbitration clause encompassed Cheshire's claims for relief based on estoppel by convention or statutory unconscionable conduct under the Australian Consumer Law.

Justice Henry interpreted the scope of the arbitration clause in the light of three general principles of interpretation:

  • consider the contract when construing the arbitration clause;
  • construe commercial contracts to give effect to their commercial purpose; and
  • avoid construing arbitration clauses narrowly.

He also engaged in an extensive review of cases considering the degree or nature of connection a dispute must have to a contract to be covered by a broadly worded dispute resolution clause, such as that found in the contract in this case. Justice Henry also considered but distinguished cases in which the relevant arbitration clause was limited to disputes arising "under" the applicable agreement. Here, the drafting of the arbitration clause had no such specificity.

Justice Henry concluded that Cheshire’s claim fell within the ambit of the arbitration clause in the contract. He found a “sufficiently close connection” (as contemplated by the authorities) between Cheshire’s claims and the contract. The work performed by Cheshire, to which its claim for additional payment (the genesis of the dispute between the parties) related, would not have been performed but for the commercial relationship created by the contract.

Bill passed in NSW to support national regulatory approach to heavy vehicles

The Heavy Vehicle Legislation Amendment (National Regulator) Bill was passed by the NSW parliament on 6 May 2021, transferring certain functions under the Heavy Vehicle National Law (HVNL) from Transport for NSW (TfNSW) to the National Heavy Vehicle Regulator (NHVR). The changes effected by the Bill represent what the Minister for Regional Transport and Roads has described as "a final significant step in a more than 10-year national reform journey" to establish a national regulatory regime for heavy vehicles.

The NHVR is Australia's independent regulator for all vehicles over 4.5 tonnes of gross vehicle mass and administers a national set of laws under the HVNL. However, since the establishment of the NHVR in 2013, each State and Territory covered by the HVNL has continued to exercise certain regulatory functions on behalf of the NHVR to support a phased transition. In NSW, those functions have been performed by TfNSW.

In addition to the transfer of regulatory functions from TfNSW to the NHVR, the Bill also:

  • enables TfNSW to obtain and use information held by the NHVR;
  • provides for the transfer of TfNSW staff to the NHVR while safeguarding their employment conditions;
  • enables the Minister to direct that certain assets, rights or liabilities of TfNSW be transferred to the NHVR; and
  • effects consequential amendments to other relevant NSW legislation.

The Minister has previously noted that the aim of the reforms is "to improve safety and reduce costs and regulatory burden for Australian transport companies" operating across jurisdictions.

Falling into jurisdictional error under security of payment legislation

The process of adjudication under the security of payment legislation requires adjudicators to reconcile difficult requirements, namely, to determine often complex legal issues within a short time frame, and to observe the strict requirements of the legislation. If the right balance isn't struck, adjudicators may fall into jurisdictional error. This is what occurred in the recent case of Total Lifestyle Windows Pty Ltd v Aniko Constructions Pty Ltd & Anor [2021] QSC 92.

Total made a payment claim against Aniko under a construction contract and Aniko denied liability in its payment schedule. Total proceeded to make an adjudication application under the Building Industry Fairness (Security of Payment) Act 2017 (Qld) and the adjudicator found in favour of Aniko. In issue in this case was whether the determination was invalidated by jurisdictional error because the adjudicator:

  • considered reasons included in Aniko's adjudication response that had not been included in its payment schedule; and
  • failed to consider a relevant document that had been submitted by Total.

The Court agreed that the adjudicator erred in each instance, and declared the resultant determination void. In reaching this conclusion, the Court considered the operation of certain provisions of the Act, relevantly:

  • section 88 – in deciding an application, an adjudicator may only consider matters prescribed in subsection (2), which includes the provisions of the construction contract in issue, the payment claim and the payment schedule and, in respect of each, "all submissions, including relevant documents, that have been properly made" in support of the claim or schedule respectively;
  • section 88(3) – an adjudicator must not consider "a reason" included in an adjudication response to an adjudication application where section 82 prohibits the inclusion of the reason; and
  • section 82 – an adjudication response "must not include any reasons (new reasons) for withholding payment that were not included in the payment schedule".

The Court considered, and rejected, various arguments advanced by Aniko regarding the provisions of the Act dealing with "new reasons". With respect to one of Total's claims, Aniko's adjudication response relied on – and the adjudicator applied – a clause of the contract (clause 18) that was not raised in Aniko's payment schedule. Aniko contended that:

  • reference to clause 18 was not made in the payment schedule because the clause had not been referred to in Total's payment claim. The Court noted in response that "s 69(c) of the Act requires a respondent to include all of its reasons for withholding payment in its payment schedule and not just those that are specifically raised or prompted by the payment claim";
  • section 82(3)(c) of the Act (which states an adjudication response may include "submissions relevant to the response") allowed it to raise the operation of clause 18. The Court disagreed, stating that this provision "must be read subject to section 82(4) which provides that an adjudication response must not include any reasons for withholding payment that were not included in the payment schedule"; and
  • the operation of clause 18 was within the adjudicator's jurisdiction because section 88(2)(b) permits consideration of the relevant construction contract. Dispensing with that argument, the Court held that section 88 "must be read as a whole", and that while an "adjudicator might consider the provisions of the construction contract, the adjudicator may not consider a reason associated with a particular provision if it is a reason which falls within section 88(3)."

The Court also noted that the prohibition imposed by section 88(3)(b) "is a very wide restriction", that it is immaterial whether a proscribed reason forms part of an adjudicator's decision. Rather, once such a reason is considered by an adjudicator, "then section 88(3)(b) has been breached, whether or not the consideration leads to a particular decision."

On the matter of the adjudicator's failure to consider a relevant document submitted by Total, Aniko pointed to the fact the adjudicator, in his determination, stated "he had had regard to 'the payment claim to which the Application relates, together with all submissions, including relevant documentation'”. While conceding that adjudicators are subject to "extraordinary pressure" when dealing with applications, and that "[i]nfelicity of expression is not a ground for finding that there has been an omission to comply with the Act", nevertheless, the Court held that the document in issue was of such import to Total's case, squarely contradicting the case advanced by Aniko (that was accepted by the adjudicator), that reference to it should have been made:

"Merely saying that one has had regard to all relevant documentation is not conclusive on that issue. The omission to refer to a document of considerable importance … allows the inference to be drawn that regard was not had to it."

The case not only demonstrates the strictness with which requirements of the Act relating to adjudication applications are applied, but also the importance of considering, and including in payment schedules, all of the arguments on which a respondent may wish to rely.

Victorian Government announces a package to lift Zero Emissions Vehicle uptake

On 1 May 2021, the Victorian Government announced a package of spending measures designed to promote the uptake of (electric) "Zero Emission Vehicles" (or ZEVs).

While a substantial proportion of the announced $100 million budget is allocated to subsidising the purchase of ZEVs, $19 million has been allocated to the roll-out of additional charging infrastructure at key locations. The measures announced will add 50 Government-supported fast charging sites to an existing 24 sites.

The announcement included a target that half of all new light vehicle sales (in Victoria) will be ZEVs by 2030. An expert advisory panel will be established to advise the Government on policies, programs and infrastructure required to meet that target.

The Victorian Department of Land, Water, Environment and Planning has also published a roadmap identifying and outlining the actions the Victorian Government is taking to support the transition to net-zero emissions in road transport by 2050. That roadmap (amongst other things):

  • seeks to "to promote, prepare for and address barriers to a more mainstream uptake of ZEVs in Victoria";
  • identifies barriers to the uptake of ZEVs;
  • analyses policy challenges and opportunities in transitioning to net-zero emissions road transport; and
  • considers the systems and infrastructure upgrades which may be needed to support transition to a predominantly ZEV fleet.

The announcement follows on from the introduction of the Zero and Low Emission Vehicle Distance-based Charge Bill 2021 into the Victorian parliament. If passed, the Bill will enable distanced based charging in respect of ZEVs. We reported on the Bill (which, at the time of writing, has yet to pass in the Legislative Council), here.

False statutory declarations for subcontract work expose building contractor’s director to significant damages

The requirement that a head contractor provide, with its monthly payment claim, a statutory declaration that its subcontractors have been paid has been a feature of Australian construction contracts for many years. But what happens when aspects of some of those declarations are false, meaning that the owner paid out more than it should have in respect of that subcontract work?

These issues have been considered by the NSW Court of Appeal in Maaz v Fullerton Property Pty Ltd [2021] NSWCA 79, dismissing an appeal from the District Court in relation to an apartment building project in Bankstown. The case was made more complicated because the head contractor (Project.Built Pty Ltd – "PB") was insolvent, meaning that the owner (Fullerton) brought its action against PB’s sole director, Mr Maaz.

In the District Court, Mr Maaz was ordered to pay Fullerton $388,318, primarily comprising Fullerton’s loss for having to make payments to the subcontractors directly (via a contract provision) which it had already reimbursed to PB. It also included $50,000 in exemplary damages. PB brought its claims against Mr Maaz in the tort of deceit and for misleading and deceptive conduct under section 18 of the Australian Consumer Law.

The main issues on appeal revolved around the evidentiary value of the subcontractors’ business records in order to support Fullerton’s case that the subcontractors had not been paid by PB. These were mainly by way of emails, internet banking summaries and similar documentation provided by the subcontractors (Justices Basten and Brereton gave examples of these in their separate judgments). The Court confirmed that, because these comprised business records from personnel with personal knowledge of the asserted facts, they were admissible via an exception to the hearsay rule under section 69 of the Evidence Act 1995 (NSW).

A further ground of appeal by Mr Maaz was that Fullerton could not claim damages unless it was able to show that the cost of the development, including Fullerton’s further payments to the subcontractors, exceeded the contract price under the head contract. Justice Basten (with whom Justice Gleeson agreed) observed that this argument was "based upon a misapprehension" because the action by Fullerton was against Mr Maaz, not PB (Fullerton’s counterparty under the head contract) and was in deceit and misleading and deceptive conduct. This meant that the head contract was irrelevant to the damages calculations in those actions. Rather, as Justice Brereton noted, the amount which Fullerton had paid to PB in respect of subcontractors (which it later had to pay directly to the subcontractors) and which, but for PB’s contravening conduct, it would have withheld was "at least a proper starting point for calculating Fullerton’s loss".

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