Major Projects & Construction 5 Minute Fix 95: Qld trust account rollout; Infrastructure Australia's new roadmap; security of payment

31 Mar 2022
Get your 5 Minute Fix of major projects and construction news. In this issue: Queensland pushes back its trust account roll-out for remaining phases; we look at Infrastructure Australia's new roadmap, ensuring a more productive and resilient future; a case deals with the statutory requirement for a person who "is or may be liable to make" payment under the SOP Act; misleading marketing leads to rescission of an off-the-plan sale contract, and a bank guarantee injunction refresher.

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Queensland delays roll-out of Phases 3 and 4 of project trusts

The Queensland Government has deferred the commencement dates for the provisions of the Building Industry Fairness (Security of Payment) Act 2017, which relate to Phases 3 and 4 of the new project trust framework. According to a recent media statement, the revised timetable gives the Queensland construction industry an extra nine months to adjust to the changes. In the aftermath of the Queensland floods, the effects of Covid-19 and the challenges facing supply chains, we anticipate that financial institutions, principals and contractors will welcome the revised implementation schedule.

The following table highlights the changes to the remaining phases of project trust roll-out:

Phase table

Infrastructure Australia's roadmap to achieving a more productive and resilient infrastructure sector

On 21 March 2022, Infrastructure Australia (IA) released its "Delivering Outcomes" report, a roadmap to improve infrastructure industry productivity and innovation. The roadmap's broad scope encompasses all public infrastructure, including transport, energy, waste, water, telecommunications, and social infrastructure sectors, and spans the entire infrastructure investment lifecycle.

With a record investment pipeline of over $218 billion over the next five years, the report seeks to deliver this investment as efficiently as possible, improving productivity in infrastructure delivery and supporting innovation. The report makes a series of recommendations for reform, which are organised under seven key focus areas, these being:

  • Outcomes for people and places – Infrastructure investment is driven by delivering economic, social and environmental outcomes to enable people and places to flourish and prosper;
  • Systems – Managing and planning infrastructure as a system drives more informed decision-making leading to higher quality, faster and cheaper infrastructure solutions that better align to the needs of people and places;
  • Digital – Digital transformation will drive productivity and innovation in infrastructure delivery;
  • Collaboration – Collaboration and integration across the ecosystem will drive a financially sustainable and high performing infrastructure industry;
  • Commercial – Commercial alignment and optimisation drives industry financial sustainability and enables innovation;
  • Innovation – Delivery integration and innovative techniques enable increased productivity; and
  • People – Wellbeing and resilience is the foundation for a flourishing sector.

Within those seven key focus areas, IA has identified and elaborated upon 30 "best practice principles".

The recommendations for commercial optimisation will be of particular interest to practitioners. We outline the best practice principles underpinning this focus area:

  • Delivery model selection and procurement should place greater emphasis on choosing the right partners to deliver the required outcomes;
  • Risks should be allocated (not transferred) to the party or parties best placed to manage them, enabling collaboration and more productive delivery;
  • Contracts should be profitable and offer a fair return for a more financially sustainable and innovative infrastructure market;
  • Owners should adopt "Should Cost Models" (to understand whole of life costs) to inform decision-making; and
  • Owners should adopt standardised contracts, avoiding bespoke contracts or amendments to existing standard forms.

More detailed recommendations sit underneath each of the above summaries. We expect these recommendations to be widely read and debated across the industry.

IA invites comments on the report. Comments can be provided via Infrastructure Australia’s website until 29 April 2022.

What's in a name? An invalid payment claim in this case

In Elenberg Fraser Pty Ltd v Brady Lonsdale Pty Ltd [2022] VCC 294, the Court had to determine whether the defendant ("Brady") was a person who "is or may be liable to make" payment under s14(1) of the Victorian Building and Construction Industry Security of Payment Act 2002 ( SOP Act) .

The plaintiff architect ("Elenberg") claimed that Brady failed to provide a payment schedule within the prescribed timeline and sought a summary judgment from the Court under s 16(2) of the&nbsSOP Act. However, Brady contended that the SOP Act was not engaged since the contract was between Elenberg and Brady Lonsdale Ventures (ACN 134 167 114) (a separate legal entity) and not Brady itself.

In this case, Elenberg argued that Brady was, in fact, liable for the payment claims because:

  • Elenberg had received instructions from the Brady Group accounts department to issue all future payment claims under the Contract to Brady instead of Brady Lonsdale - Brady was the wholly-owned subsidiary of Brady Lonsdale; and
  • previous payments were sent to Brady direct, which were then paid. Until the current proceedings, neither Brady nor Brady Lonsdale complained about payment claims being issued to Brady.

However, ultimately, the Court found that Elenberg's payment claims to Brady were invalid under s 14(1) of the SOP Act. Brady was not a party to the contract. Nor did it satisfy the requirement that it was a person who "is or may be liable to make payment" under s 14(1) of the SOP Act.

Her Honour Judge Burchell acknowledged that a person could become liable under a construction contract in some cases due to an agency relationship. For example,3D Flow Solutions Pty Ltd v LTP Armstrong Creek Pty Ltd [2018] VCC 674 and Shells Venture Management v Agresta [2019] VSC 863 involved such agency principles. However, the evidence did not support such an agency relationship in this case. Her Honour observed if the payment instructions had come from Brady Lonsdale as the contracting party (rather than Brady Group), the outcome might have been different. In this case, Elenberg needed something more to establish that Brady was a person who "is or may be liable to make payment", beyond the mere fact that previous payments were sent to and paid by Brady directly.

From "hero" to "zero": misleading marketing leads to rescission of off-plan sale contract for luxury apartment

In Ripani v Century Legend Pty Ltd [2022] FCA 242, the Federal Court ordered rescission of an "off the plan" sale contract for a $9.58 million Melbourne apartment on the basis of misleading and deceptive conduct under s 18 of the Australian Consumer Law (ACL). The case concerned whether representations conveyed by a "hero shot" digital render photo used in promotional material amounted to misleading or deceptive within the meaning of s 18 of the ACL. The key representation was by way of a "hero shot" digital render photo, showing step-free access from the interior to the exterior of the apartment – in the owners' view, "a space where the indoor and outdoor areas flow seamlessly into each other when the doors are drawn back".

However, the developer contended that the render should not be regarded in isolation. When taken in context, the render did not convey a misleading representation because:

  • it was an "artist’s impression" only;
  • the effect of disclaimers; and
  • various iterations of the floor plans showed the opening would not be built as depicted in the render.

Anastassiou J posed three questions to establish whether providing the hero render to the Ripanis constituted misleading and deceptive conduct in contravention of s 18 of the ACL:

  • first, did the render convey that there would be a free span opening and seamless transition between the internal living areas of the apartment and the terrace?
  • second, did the Ripanis rely upon any representations conveyed by the render when they entered into the contract of sale?
  • third, would the Ripanis have entered into the contract "had they not believed at the time that the apartment would be constructed in conformity with the image depicted in the render?"

Anastassiou J considered that an impression was "clearly communicated" by the hero render. In particular that there would be a large free span opening between the terrace and the internal living areas when constructed. However, his Honour found that the developer's use of this render was "deliberately misleading" as it was aware that it was impossible from a design and construction point of view to obtain the "seamless" result shown.

Furthermore, the Ripanis' understanding at all relevant times before entering into the contract of sale was that the apartment would be constructed in conformity with the hero render. Therefore, Anastassiou J held that had the Ripanis been told that the as-built apartment would not conform to the design depicted in the render, they would not have proceeded with the purchase.

The decision illustrates fine print, contractual disclaimers and exclusion clauses are of limited efficacy when it comes to claims founded upon misleading or deceptive conduct. Anastassiou J considered that the words "artist impression" were insufficient to amount to a disclaimer which would have had "the effect of curing the misleading representation conveyed by the render". Further, a lengthy disclaimer in the marketing brochure was considered not only to have been "hidden at the very back of the brochure" but also "vague, ambiguous and meaningless".

The respondent developer has since filed a Notice of Appeal. We will keep you abreast of further developments.

WA Court gives bank guarantee injunction refresher

In Lanskey Constructions Pty Ltd v Westrac Pty Ltd [2022] WASC 90, the Western Australian Supreme Court refused an injunction to restrain a call on bank guarantees. While the case necessarily turns on its facts, it provides a useful example of how these types of applications are dealt with in the courts, including emphasis on the two-limb test to be satisfied by the applicant ("serious issue to be tried" and balance of convenience). The issue arose under an AS4902 form (albeit apparently significantly amended).

On the "serious issue" limb, Lanskey sought to argue that an alleged oral agreement as to not enforcing Liquidated Damages (which gave rise to Westrac's call on the guarantees) meant that the defendant did not have a bona fide claim as required by the (amended) clause 5.2. Hill J rejected this argument, essentially on the basis of giving a liberal interpretation of bona fide claim from Westrac's point of view:

"a demand that is made in good faith in relation to an amount due under the Contract. This requires Westrac to honestly and genuinely believe it is entitled to recover the amount claimed under the Contract and that it is a genuine claim which is not fraudulent or untenable. …"

"the language of cl 5.2(d) confers on the defendant a wide discretion which is constrained only by the need that it act honestly. In this regard, it is important to note that the parties have not included a contractual requirement that the defendant also act reasonably."

"However, this does not mean that objective considerations are irrelevant. In my view, the phrase 'bona fide claim' requires more than a subjective belief as to the claim (which could be irrational or misconceived)."

This finding meant that Hill J did not need to consider the balance of convenience limb. Nonetheless, her Honour observed that the issue put forward by Lanskey – that a call on the guarantees would affect its ability to secure such security in the future or cause it reputational damage – were "risks that necessarily arise in the event that a bank guarantee is presented for payment. As such, each is a risk the plaintiff assumed when it agreed to provide the bank guarantees on the terms of the Contract."

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.