Is a contract for mining-related work and services still excluded from being a "construction contract" for the purposes of the Building and Construction Industry (Security of Payment) Act 2021 (WA) (SOPA)?
The short answer is: Yes, but now in even narrower circumstances.
Construction works associated with mining operations were previously excluded from the security of payment regime to a large extent. However, section 6(3) of the SOPA now provides the narrowest exception WA has adopted so far, no longer excluding contracts relating to the fabrication or assembly of items of plant used for extracting or processing oil, natural gas, or any mineral bearing or other substance.
Moving forward, the only mining-related activities that will not be considered "construction work" for the purposes of the SOPA include:
- drilling for the purposes of discovering or extracting oil or natural gas, whether on land or not; and
- constructing a shaft, pit or quarry, or drilling, for the purposes of discovering or extracting any mineral or other substance.
Participants involved in offshore oil, gas and energy projects should be aware that SOPA's application is far-reaching, extending to any area of water adjacent to WA that:
- is within WA's territorial limits; or
- is outside territorial limits, where the contract is governed by the law of the State of Western Australia.
What does this mean for your contracts?
Specific contracts previously excluded under the Construction Contracts Act 2004 (WA) (CCA) may now be considered a construction contract under the SOPA – for example, a contract for the construction of a desalination plant on a mine site will now be covered by the SOPA.
Contractors that have a construction contract may:
- have a statutory right to make a payment claim and recover payment;
- be able to make a claim for payment that operates independently of their contractual rights and entitlements; and
- the new adjudication process, which differs considerably from the CCA process.
How will the mining exception apply?
WA courts have not yet had the opportunity to decide how the mining exception shall apply and it remains to be seen what approach WA will take. However, we expect WA courts will construe the mining exception narrowly as this is the approach the courts in NSW and Queensland (jurisdictions which have similar legislative provisions) have taken, and is an approach which benefits the persons SOPA is intended to protect (ie. those in the building and construction industry who have performed construction work or supplied related goods and services).
For now, we can be guided by Justice Stevenson's obiter remarks in Cadia Holdings Pty Ltd v Downer EDI Mining Pty Ltd [2020] NSWSC 1588:
- The mining exception will not be engaged unless the work called for by a contract is for the actual purpose of extracting oil, natural gas, minerals or other substance (as the case may be).
- Whether work required under a contract was for a relevant purpose is to be determined objectively "by reference to what a reasonable person in the position of the parties would conclude" to be the purpose of the contract.
- Work which is for the "ultimate purpose" of the extraction of minerals (for example) will not be sufficient to engage the mining exception – there must be a "close and proximate" connection between the work and the relevant purpose.
So what can you do if…
… your contract only calls for construction work or related goods and services?
- Check that you do in fact have a construction contract – you will most likely have one if you can answer "yes" to the following questions:
- Is it an oral or written contract, agreement or other arrangement?
- Is one party undertaking to carry out "construction work" within the meaning of section 6(1), or to supply "related goods and services" within the meaning of section 7(1), for another party?
- Is your contract to undertake construction work or to supply related goods and services within WA? Or is your contract for an offshore project to which SOPA applies?
- Ensure that the terms of your construction contract align with SOPA requirements. Click here for practical steps as to how you can start preparing your contracts to address the new SOPA changes.
- Ensure that your contract does not fall within the other exclusions described in section 10 of the SOPA.
The statutory regime operates independently of any contractual rights that the parties may have, so contractors that have entered into a construction contract after 1 August 2022 may have rights over and above ordinary contractual rights.
… your contract calls for some construction work or related goods and services?
If a party is engaged to perform or supply some but not all construction work or related goods and services, the contract (as a whole) will mostly like be considered a construction contract.
Parties should amend their contractual terms so they are consistent with SOPA requirements to ensure that they can rely on any statutory rights available to them.
Even if you ordinarily operate with one set of T&Cs which apply to various purchase orders or contracts for different scopes of work, we recommend that you review those T&Cs for any inconsistencies.
… your contract calls for work which clearly falls within the mining exception?
The SOPA will simply not apply.
The "pay now, argue later" system that the SOPA prescribes to is not a suitable dispute resolution approach for complex mining and oil and gas payment disputes. Such disputes should be resolved through the usual formal processes such as arbitration or court proceedings.
If you are uncertain about whether SOPA applies to your contract, we recommend that you seek legal advice.