Major Projects & Construction 5 Minute Fix 113: separable portions and practical completion, Qld statutory trust roll-out

30 Mar 2023
5 minutes

Conditional notices of practical completion invalid in the absence of contractual separable portions

Parkview Constructions Pty Ltd v Futuroscop Enterprises Pty Ltd [2023] NSWSC 178 offers a useful reminder from the NSW Supreme Court that unless a contract expressly divides work under the contract into separable portions, a superintendent cannot issue a certificate of practical completion for some of the Works.

The case concerned the design and construction of two buildings, a hotel and a carpark, under an AS4902-2000 contract. "Practical Completion" was defined as completion of the Works except for minor defects, where the "Works" did not distinguish between completion of the hotel and the carpark. These aspects of the Works were referred to as Building A (hotel) and Building B (carpark).

The Superintendent issued a "Notice of Practical Completion (Conditional) – Building A" which retrospectively certified practical completion for Building A on 12 September 2017, subject to the Contractor completing or rectifying several items relating to Building A. The notice expressly stated that it was not a certificate of practical completion for Building B.

Soon afterwards, the Superintendent issued a "Notice of Practical Completion (Conditional) – Building B" which retrospectively certified practical completion for Building B on 25 September 2017, subject to the Contractor completing or rectifying several items relating to Building B.

A dispute arose between the parties concerning the release of security provided by the contractor and liquidated damages payable to the Principal for delayed completion. To determine those issues, Justice Rees was required to assess the effectiveness of the certificates of practical completion. Her Honour held that the certificates had no contractual effect because:

  • the Works relating to Building A and Building B were not separable under the contract, which meant that the Superintendent could not issue a certificate of practical completion in respect of only one building; and
  • the two certificates could not be construed together to arrive at a "composite" certificate of practical completion because they provided different and retrospective dates for practical completion.

It fell to the Court to determine the date of practical completion, which the Court found to be the later date of 25 September 2017. As a result, the Court overturned the Superintendent's assessment of liquidated damages and required the amount payable to be based on a longer delay.

Enforcement of international arbitral award

Australia is considered a “pro-arbitration” jurisdiction including because, courts generally enforce domestic and foreign arbitration awards. This was illustrated in Guoao Holding Group Co Ltd v Xue (No 2) [2022] FCA 1584, which involved an unsuccessful attempt to set aside a Chinese arbitral award under section 8(7)(b) of the International Arbitration Act 1974 (Cth).

Section 8(7)(b) permits a court to decline to enforce an international arbitral award on public policy grounds. The international arbitral award unwound a contract and required Xue to repay loans and legal costs but did not require the transfer of shares back to Xue. Xue had unsuccessfully sought to have the award set aside in the Chinese jurisdiction.

When Guoao Holding Group sought to enforce the award in the Federal Court of Australia, Xue argued that to enforce the award would be contrary to public policy under section 8(7)(b) because the lack of share transfer in the award would cause an "imbalance of rights and obligations".

The Federal Court declined to set aside the award, emphasising that it was important to have “a degree of international harmony and concordance of approach”. This was especially so in circumstances where Xue had challenged the award in China on the same grounds, but Chinese courts and a supervisory body had refused to set it aside. The Federal Court held that Xue's arguments did not "rise to the level of the award being contrary to fundamental norms of justice and fairness in Australia" and did not enliven the public policy ground for resisting enforcement.

Court declines stay application despite concurrent proceedings under Residential Apartment Buildings (Compliance & Enforcement Powers) Act

In Strata Plan 99576 v Central Construct Pty Ltd [2023] NSWSC 212, the NSW Supreme Court has rejected a contractor and developer's (Builder) application to stay proceedings for 12 months, commenced against the Builder in relation to building defects the subject of an investigation by the Department of Fair Trading's "Project Intervene" – an initiative under the Residential Apartment Buildings (Compliance & Enforcement Powers) Act 2020 (NSW) (RAB Act).

The key takeaway is that the Court is reluctant to stay proceedings where RAB Act processes are on foot. This does not prevent owners' corporations and builders from agreeing to a stay in appropriate circumstances.

The Builder applied for a stay of proceedings on the basis that:

  • there were prospects that the allegedly defective work may be required to be rectified by the Builder under an undertaking or building rectification work order or by the Secretary under section 42 of the RAB Act;
  • there were risks of inconsistent findings of fact in different courts about the same subject matters (given potential appeals under the RAB Act);
  • a stay would be consistent with one of the stated purposes of Project Intervene (to "avoid costly and time-consuming litigation");
  • it was vexatious and oppressive for the OC to have initiated Project Intervene where proceedings were "well underway"; and
  • the Government's resources under Project Intervene were potentially wasted if not for the stay.

Justice Darke did not award the stay. His Honour accepted that there may be a risk of "inconsistent findings" but that such risk should not affect the OC's ability to exercise its legal rights in the Supreme Court and obtain an award of damages, and had taken into account the prejudice caused by concurrent processes against the Builder.

Queensland Government pauses its statutory trust roll-out until 2025

The Queensland Government has announced that the expansion of the statutory trust scheme will be "paused" for up to two years. According to the Government's media release, further work is required to ensure accounting software packages keep pace with the trust account compliance and audit requirements.

This change won't affect contracts where a project trust is already required. In particular, the scheme will continue to apply to eligible private sector, local government, statutory authority, and government-owned corporations' contracts with a value of $10 million or more. 

But the Government's plan to roll the trust account requirements out to lower-value contracts is on hold until 2025. As a result, head contractors (who carry primary responsibility for establishing and auditing trust accounts) for phases 3 & 4 (see below) will have extra time to adapt and prepare for their new compliance and administrative obligations.

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

Will now commence              Was supposed to commence              Applies to             
Phase 3: from 1 March 2025 1 April 2023 Projects with a value ≥ $3 million where more than 50% of the contract price is for project trust work 
Phase 4: From 1 October 2025 1 October 2023  Projects with a value ≥ $1 million where more than 50% of the contract price is for project trust work

Security of payment wrap-up

Key issues arising from four recent judgments regarding adjudication determinations under security of payment legislation in NSW and Queensland are below. In NSW, three adjudication determinations were set aside (in part or in full), while in Queensland an adjudication determination was left in place.

  • NSW: valid service: In BCFK Holdings Pty Ltd v Rork Projects Pty Ltd [2022] NSWSC 1706, under the Building and Construction Industry (Security of Payment) Act 1999 (NSW) (NSW SOP Act), the NSW Supreme Court quashed an adjudication determination on the basis that two payment claims had been served and section 13(1C) of the NSW SOP Act prohibits more than one payment claim being served after termination of a construction contract. Despite being delivered to the Superintendent (who was not authorised to accept service), because the first payment claim was forwarded by email to, and then read by, the Principal, it was held that the Principal was validly served under the NSW SOP Act because it ultimately came to the Principal's attention. The second payment claim was therefore invalid.
  • NSW: parties to a "construction contract": In Ratcliffe v Horizon Glass & Aluminium Pty Ltd [2023] NSWSC 196, the NSW Supreme Court quashed an adjudication determination because there was no "construction contract" between the claimant (Horizon) and the respondent (Mr Ratcliffe in his personal capacity). Rather, the relevant contract was between Horizon and Mr Ratliffe's company, which was not a party to the adjudication or the court proceeding.
  • NSW: jurisdictional errors and natural justice: In Ceerose Pty Ltd v A-Civil Aust Pty Ltd [2023] NSWSC 239, the NSW Supreme Court heard two applications to set aside adjudication determinations relating to developments on sites at Elizabeth Bay and York Street. The Court held that the adjudicator made five jurisdictional errors in his determination regarding the York Street development (including failures to actually assess the value of works under the construction contract as part of the determination). In the Elizabeth Bay determination, the Court held that the adjudicator fell into jurisdictional error by failing to afford natural justice to Ceerose, because the adjudicator did not invite the parties to make further submissions on an issue pertinent to his determination. This was in circumstances where "it is reasonable to think that had the adjudicator received submissions on this point, his decision might have been different".
  • Qld: procedural fairness: In Insite Construction Services Pty Ltd v Daniels Civils Pty Ltd & Anor [2023] QSC 33, the Queensland Supreme Court did not set aside an adjudication determination under the under the Building Industry Fairness (Security of Payment) Act 2017 (Qld). Insite claimed (unsuccessfully) that the adjudicator had denied it procedural fairness because the determination was based on matters beyond the scope of submissions. The Court held that Insite was afforded the opportunity to, and did, make submissions on the issue in question. The Court also held it was open to the adjudicator to award the claimed amount in full without performing his own valuation, in circumstances where Insite's submissions on the adjudication application only challenged the adjudicator's jurisdiction, and did not challenge the value of the payment claim.

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