Major projects & construction 5 Minute Fix 121: contracting out and construction contracts under the ACL, NSW net zero and infrastructure, variations

24 Nov 2023
5 minutes

High Court declines opportunity to consider "contracting out" misleading and deceptive conduct under Australian Consumer Law; hears important case on proportionate liability and arbitrations

On 9 November 2023, the High Court of Australia dismissed Viterra Malt Pty Ltd's Special Leave application in relation to proceedings decided against them by the Victorian Court of Appeal in Viterra Malt Pty Ltd v Cargill Australia Limited [2023] VSCA 157.

The Victorian Court of Appeal's decision cast doubt on the effectiveness of relying on disclaimers to avoid liability for engaging in misleading or deceptive conduct, in contravention of section 18 of the Australian Consumer Law, during an acquisition. Similar considerations come into play in other contexts, including tendering processes for construction contracts.

As is usual in dismissing such applications for appeal, the High Court gave no specific detail about the reasons for the dismissal, beyond the formulaic indication that the application did not raise an issue of sufficient importance or have sufficient prospects of success (see [2023] HCASL 165). In the absence of such further guidance, the Court of Appeal decision stands as an important reminder of the need to carefully and holistically consider contracting strategies in the shadow of the ACL.

The following week, on 15 November, the Full Bench of the High Court heard the appeal in Tesseract International Pty Ltd v Pascale Construction Pty Ltd [2023] HCATrans 160. As we noted when Special Leave to appeal was granted, the case offered the Court the opportunity to consider the interaction of state-based proportionate liability schemes with arbitration processes. While little should be read into the Court's intentions from the exchanges between counsel and the Bench, the transcript reveals that those exchanges were wide-ranging and details, offering the prospect of an important ruling in due course.

Key takeaway: Parties entering construction contracts or engaging in bidding and tendering processes should consider Viterra Malt as a reminder to carefully and clearly document their agreement as to what information may or may not be relied upon (and the extent and nature of that reliance). Meanwhile, we will watch with interest for the High Court's ruling on proportionate liability and arbitration in Tesseract.

Unfair contract terms and the potential impact of legislative amendments on construction contracts

On 9 November 2023, the final amendments from the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Cth) came into effect, expanding the unfair contract terms (UCT) regime under the Australian Consumer Law (ACL).

As we have previously noted, the amendments make it unlawful to include, apply or rely on an "unfair" term in a standard form "consumer contract" or "small business contract" and include:

  • expanded definitions of "standard form contract" and "small business", broadening the number of contracts and small businesses captured;
  • increased pecuniary penalties for non-compliance; and
  • enhanced court powers to make determinations.

The regime for what makes a term "unfair" under the ACL is detailed: we provided a five-part overview of this when the current reforms were first being discussed back in 2021. Essentially, though, under section 24 of the ACL, a term is "unfair" if it:

  • would cause a significant imbalance in the parties’ rights and obligations;
  • is not reasonably necessary to protect the legitimate interests of the advantaged party; and
  • would cause detriment (financial or other) to the party if it were relied on.

The definition of a "small business" now covers contracts where at least one party, at the time the contract is entered into:

  • employs fewer than 100 employees (increased from 20 people); or
  • had an annual turnover of less than $10 million in the previous income year (previously limited to contracts where the upfront price payable was less than $300,000 for shorter contracts, or $1,000,000 for multi-year contracts).

NSW releases decarbonisation and infrastructure pipeline reports

New South Wales has released two key policy documents in November which outline steps that the NSW Government is taking towards meeting its net zero targets. Together, these policy documents point towards opportunities for private sector investment in moving the energy transition forward in NSW.

In October 2021 we reported on the NSW Government's policy steps towards its zero net emissions targets, one aspect of the NSW Governments approach to achieving its zero net emissions targets was a 2020 study into the "challenges and opportunities for meeting emissions targets and adapting to climate change, while generating economic development, prosperity and jobs growth in NSW" (Decarbonisation Innovation Study 2020).

More recently, the NSW Government has released a further study to expand upon the 2020 study in light of changes in the decarbonisation landscape (Decarbonisation Innovation Study 2023). The 2023 study provides further updates on the challenges and opportunities for meeting emissions targets and adapting to climate change.

The 2023 study has identified 26 new opportunities for innovative decarbonisation and emission reduction across a number of sectors. In respect of the energy sector, the report identifies further opportunities such as:

  • deploying distributed energy resources technologies and smart systems, including as an enabler of more effective demand-side management;
  • integrating vehicle to grid and other technologies into the electricity system to enable distributed energy storage, as well as deployment of battery storage at a community and regional scale;
  • initiatives to develop local manufacturing and recycling capability for new solar technologies and a NSW-based renewable energy export ecosystem;
  • offshore wind generation off the NSW coast; and
  • developing long duration and fast responding energy storage solutions and growing the battery supply chain.

The acknowledges that access to finance is "paramount" and that "building an investment-ready finance system for sectoral decarbonisation and transition pathways" is an essential step towards capitalising on these opportunities.

At the same time, Infrastructure NSW has released its updated NSW Major Infrastructure Pipeline and the 2023-2024 State Infrastructure Plan in November 2023, setting out a five-year plan for major infrastructure projects. It identifies transport, education, health, water and justice infrastructure as the sectors in which the public sector should deploy capital. However, the priorities identified in the State Infrastructure Plan also include "prioritising reliability, affordability, and the transition to renewable energy" with the stated objective of "stimulating private investment in the renewable energy transition" with the intention to "preserve a marketbased approach to the energy transition and minimise the need for government subsidies".

Key takeaway: These plans suggest that the NSW Government expects to leverage substantial private sector investment in moving the energy transition forward over the next five years.

Variations clauses – even the widest clauses have limits

The UK Court of Appeal has decided that the work the subject of two change orders purported to be issued under a contract variation clause was so different from the original scope of work that the change was not a variation, but amounted to a new contract.

Cobalt Data Centre 2 LLP, Cobalt Data Centre 3 LLP v Commissioners for His Majesty's Revenue and Customs [2023] BLR 147 concerned the question of whether or not developers were entitled to generous tax concessions called "Enterprise Zone Allowances" (EZAs) for expenditure incurred by them in the construction of two data centres in a prescribed enterprise zone in northern England. Under relevant legislation, to obtain the EZAs the expenditure had to be incurred under a contract that was entered into within a 10-year period. The construction contract in issue was entered into the day before the expiry of that 10-year period with the objective of securing the EZAs on the future construction work. However, at that time, no decision had been made on what was to be constructed. So, under a complex set of arrangements, the contract provided six options to be later chosen by the developers, with each being specific (but all different) as to the contract sum, the site within the zone and the building to be constructed. The options included industrial board factories, office business park, light industrial and mixed-use office and industry. Subsequently, none of those options were pursued and change orders were issued under the contract's variation clause for the construction of three data centres.

HM Revenue and Customs denied the claimed entitlement to the EZAs. It argued that the change orders were of such a magnitude that they amounted in law to a new contract that was made outside the required 10-year period. The Court of Appeal agreed, holding that the two works orders involved a "radically different" scope of works, involving a "different building, different site, radically different price". In his judgment, Lewison LJ affirmed that the extent of a contractual power of variation is a question of interpretation of the contract in question. However, his Honour observed that "even a widely drawn variation clause has its limits", the acid test being whether the variation is consistent with the root of the original contract.

It will often be the case that the issue of limits around the scope of a variation clause does not arise, as both principal and contractor want to see the varied work done. However, as this case highlights, care needs to be taken about the exercise of a variations power and its limits. At times, the contractor may not want to perform the varied work and a dispute arises or, as here, there is some external consequence for one or other party if a variation is made outside the scope of the clause.

Federal Court confirms an objective, contextual approach to ACT Payment Claims

In Bloc Constructions (ACT) Pty LTD v ABS Facade (ACT) Pty Ltd [2023] FCA 1282, the Federal Court refused an application to overturn an adjudicator's determination. These types of security of payment applications usually run in state courts; it came to the Federal Court from the ACT via its cross-vesting jurisdiction for that jurisdiction, offering the Court an opportunity to provide a detailed review of the legislation.

The Applicant sought judicial review on three grounds, none of which were established:

1. The payment claim failed to identify the construction work or related goods and services

As required by section 15(2) of the Building and Construction Industry (Security of Payment) Act 2009 (ACT), the payment claim satisfied the requirement to identify the relevant goods and services. While the payment claim in question differed from the previous claims made by the contractor by including an additional "PDF Breakdown", it did not "radically depart" from the valuation methodology adopted in the previous payment claims. Any changes to the payment claim format were deemed insufficient to prove a radical departure, taking into account the parties' background knowledge, especially since the additional PDF Breakdown was supplemental to the main document (consistent with previous claims that the applicant had previously accepted as sufficiency).

2. The Adjudicator failed to determine the precise amount

Section 24(1)(a) of the Act requires the adjudicator to calculate the precise amount the respondent must pay to the claimant. The Court determined that the adjudicator had indeed calculated the payment amount as it was explicitly stated in the adjudication document under "Adjudication Amount". The Applicant argued that the adjudicator's calculation was imprecise as the reasoning included the words "no evidence that it had been previously paid" and "[i]n the event that the amount has in fact been paid ... the parties will need to take that into account". However this did not negate the fact that the adjudicator had determined an amount as the purpose for this wording was so that an amount could ultimately be pursued in later claims if previously paid.

3. The Adjudicator had no jurisdiction as there was no "reference date" for the payment claim

The Applicant contended that the payment claim was for the "final payment claim" and the date of such final payment claim specified in the contract had not arisen. However, the payment claim, viewed objectively, was not a "final payment claim" but a progress claim, which was described as a "final claim" due to the subcontractor handing over the remaining works to a replacement subcontractor. The relevant definition in the contract of "Progress Claim Date" as the 23rd day of every month satisfied section 10(3) of the Act.

Key takeaway: The Court's dismissal indicates a strong endorsement of the security of payment adjudication process in the ACT, emphasising its limited scope for judicial review. The case further highlights the importance of a contextual approach, considering the background knowledge and previous interactions between the parties in the adjudication process.

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