Major Projects & Construction 5 Minute Fix 134: contamination notices; security of payment and arbitration wrap-ups; mid-project resets; liquidated damages

Victorian Court of Appeal puts pen to paper on the validity of notices and consultant opinions despite mistakes

In Alphington Development Pty Ltd v Amcor Pty Ltd [2025] VSCA 48, a residential developer successfully appealed over the validity of its contamination notices. This case concerned the purchase of the former Alphington Paper Mill by Alphington Development Pty Ltd (referred to in the judgment as Glenvill) from Amcor Pty Ltd.

Prior to sale, Amcor procured an environmental assessment of the site identifying contamination. Glenvill agreed to undertake demolition and remediation work of the known contamination, provided Amcor pay the remediation costs properly and reasonably incurred. Glenvill promised to use reasonable endeavours to keep costs under $14 million, however that figure could be exceeded if Glenvill found additional contamination onsite and notified Amcor as specified. Widespread contamination was identified during demolition and Glenvill issued several notices. Amcor objected to nearly all the notices.

The trial judge found that most of the notices were invalid due to deficiencies in the accompanying reports prepared by the project's environmental consultant, including that they did not reference contractual provisions. The Victorian Court of Appeal held that this would be implying a quasi-legal role for the consultant. The notice obligation was to provide a report which "stated" where and what the contamination was, an opinion as to whether it must be remediated, and a proposed remediation strategy. No contractual language was necessary. Further, the existence of a mechanism to contest and replace the consultant's opinions in the notice meant that the notices themselves could not be invalidated by reason of a mistake in the consultant's report.

Having determined that the notices were valid, a majority of the Court of Appeal held that the parties had abandoned the contractual process for calculating remediation costs and so contractual failure had occurred. The Court remitted the determination of a method for calculation to the trial division.

Amcor has since filed a special leave application to the High Court.

Security of payment wrap

In Martinus Rail Pty Ltd v Qube RE Services (No.2) Pty Ltd [2025] NSWCA 49, the NSW Court of Appeal held that a $71 million adjudication in relation to the Moorebank Intermodal Terminal Project was not affected by jurisdictional error. The Court reiterated that the risk of non-jurisdictional errors is allocated to the party who receives a payment claim, even where payment claims are very large.

Errors alleged by the principal in this case (Qube) included:

• not expressly dealing with every argument raised in the principal's adjudication response – in this case, it was sufficient that the adjudicator dealt with every argument in the payment schedule;

• any errors in construing the construction contract;

• miscalculating a progress payment; and

• failing to correct typographical errors in a payment schedule.

None of the above issues invalidated the adjudicator's jurisdiction and therefore they did not provide grounds for avoiding the adjudication determination. The Court also refused to grant a stay of court proceedings under the security of payment legislation until the outcome of an arbitration process, notwithstanding the principal's concern that the contractor would be unable to pay a later award in its favour. Qube has sought special leave to appeal to the High Court.

In York Property Holdings Pty Ltd v Tomkins Commercial & Industrial Builders Pty Ltd [2025] QSC 44, the Queensland Supreme Court held that an adjudication was invalid for jurisdictional error because there was no evidence that the Adjudicator had considered that the amount claimed by the Contractor was in dispute at the time, nor the evidence relating to that dispute. Accordingly, the adjudication was not in accordance with section 88(2) of the Building Industry Fairness (Security of Payment) Act 2017 (Qld), which requires the Adjudicator to take into account the "submissions and material in relation to the correct amount claimed”.

In Procon Developments (Australia) Pty Ltd v Hi-Cal Bricklaying [2025] QSC 67, the Queensland Supreme Court held that a decision was void for jurisdictional error because the adjudicator did not allow the parties to make submissions in relation to the reference date. The adjudicator determined a reference date that differed from the uncontested date submitted by the applicant. If the applicant's submission had been accepted, it would have invalidated the payment claim. The adjudicator's failure to consider submissions from the parties accordingly gave rise to a jurisdictional error.

Arbitration wrap

Two recent decisions provide further evidence of Australian courts' pro-arbitration stance.

In Clarke Energy (Australia) Pty Ltd v Power Generation Corporation (Trading as Territory Generation) and Robert Holt KC [2025] QSC 64, orders were sought to set aside a partial award (issued in two consolidated arbitrations) under section 34(2)(b)(ii) of the Commercial Arbitration Act 2013 (Qld), on the grounds of a denial of natural justice.

Clarke contended that the arbitrator failed to have regard to issues relating to the contractual extension of time mechanism, including the requirement to act fairly and reasonably in assessing extension of time claims (which was in issue in the precedent judgment of Alstom Ltd v Yokagawa Australia Pty Ltd [2012] SASC 49), and alleged that the issues were "central" or "crucial" to the dispute. However, Clarke had not raised these issues until closing submissions in reply (that is, after the final hearing). Justice Kelly held that the arbitrator had determined, correctly, that the issues did not come within the tribunal's jurisdiction, and that it was Clarke's conduct in raising them late that caused them to be outside jurisdiction. Instead of raising the issues for the first time in closing submissions, Clarke should have applied to amend its pleadings to bring the issues within jurisdiction.

In Oil Basins Limited vs Esso Australia Resources Pty Ltd [2025] VSC 34, the Victorian Supreme Court made orders under section 7 of the International Arbitration Act 1974 (Cth) to stay court proceedings in favour of arbitration. Oil Basins argued that an exception to the "kompetenz-kompetenz" principle (under which the arbitral tribunal has power to determine whether an arbitration agreement applies) contained in the Canadian case of Dell Computers Corp v Union des Conformateurs [2007] 2 SCR 801 applied. In that Canadian case, the challenge to the tribunal's jurisdiction was confined to a short question of law and so was determinable by a court.

The judge held that the arbitration clause was couched in a suite of complex provisions and documents and had a long history of amendments and prior disputes, and that it would be "absurd" to suggest the issues involved a confined question of law.

The decision also reaffirmed the remarks in Hancock Prospecting Pty Ltd v Rinehart [2017] FCAFC 170 that the court's role for the purpose of the International Arbitration Act is not to act as a court of summary disposal, and a court should not seek to filter matters suitable for arbitration.

No illegality in mid-project reset deed

In Merkon Constructions Pty Ltd v Residence Company Pty Ltd, the Victorian Supreme Court examined the consequences of a mid-project reset where a builder entered into a contract with a developer which caused the builder to breach an existing contract with a lender.

Residence Company (developer) engaged Merkon (builder) to construct an apartment building, with a lender providing a construction finance facility. In a side deed to the finance facility, the builder undertook to obtain consent from the lender before taking or maintaining any security interest over the property or any of the developer’s other assets.

The builder breached this undertaking when it entered into a deed of variation with the developer, under which the builder would be granted a mortgage over the project if the developer failed to pay the contract sum in full. The developer did not pay the contact sum and argued that the deed of variation was an illegal contract because it caused the builder to breach its undertaking to the lender in the side deed.

Justice Osborne held that even though there was a breach of the side deed, it did not render the deed of variation illegal and unenforceable, because there was no indication on the facts that the builder intended to commit a legal wrong.

NSW Court denies use of Cessnock "facilitation principle" to establish alleged loss

In Andrews & Andrews Construction Pty Ltd v Yao; Yao v Andrews & Andrews Construction Pty Ltd [2025] NSWSC 322, the NSW Supreme Court declined to use the "facilitation principle", derived from Cessnock City Council v 123 259 932 Pty Ltd [2024] HCA 17, to draw inferences in favour of the plaintiff on causation. That principle allows a court to draw inferences in favour of a plaintiff where the defendant's wrongdoing has made quantification or proof of loss difficult.

The owners entered into a cost-plus contract with the builder for the construction of a house. The dispute turned on the proper construction of a handwritten clause of the contract (special condition) which provided to the effect that:

• the builder and owners would work together and co-operate to obtain the most competitive price for each element, trade or material and would obtain a minimum of two quotes for each item; and

• all contracts were to be approved by the builder and owners as to cost and quality.

The owners paid approximately $4 million under the first 17 invoices issued by the builder but refused to pay approximately $800,000 in further invoices issued after practical completion. The owners argued that the builder had breached the special condition by failing to obtain two quotes for each item, which entitled them to damages or set-off against the amount owing to the builder.

The owners also sought to rely on the "facilitation principle" to prove their alleged loss, inferring that had the builder obtained two quotes, it would have carried out work in relation to each "item" at a reasonable cost.

The Court held that the proper construction of the special condition was that obtaining two quotes was a joint obligation on the builder and owners. Further, it would be unjust for the owners now to rely on the "facilitation principle" after the proceedings had been on foot for several years and the owners had only recently sought to raise it.

The Court stated that the "facilitation principle" is not a substantive rule of law. It only permits, but does not require, the court to draw relevant inferences about plaintiffs' alleged loss.

Ambiguous drafting prevents setting off LDs and recourse to performance security

In Pacific Diamond 88 Pty Ltd v Tomkins Commercial & Industrial Builders Pty Ltd [2025] QCA 50, the Queensland Court of Appeal was required to interpret an amended AS4902-2000 contract between the appellant (Principal) and respondent (Contractor).

Prior to the achievement of Practical Completion, the Superintendent certified both liquidated damages (LDs) and an amount owing to the Contractor. After setting off the LDs, the result was a negative balance, meaning that the Contractor would be required to pay the Principal. The Principal asserted that this created a debt due and owing by the Contractor and gave notice of its intention to access the security under the Contract.

However, the parties had deleted paragraph (b) from clause 37.2 of the standard form (but not other references to that paragraph in the balance of the clause). This created an ambiguity in the Principal's right to set off amounts owed by the Contractor during the payment process.

The primary judge declared that the Principal was not entitled to set-off in the purported manner. The leading appeal judgment was delivered by Justice Bond, who noted that on appeal it was not in dispute that:

• clause 37 was ambiguous, eliminating the need to consider the limits of the "ambiguity threshold" in Australian common law; and

• the Court could take account of the deleted words from the standard form contract for the purpose of construing ambiguous language.

The Court examined the contract as a whole and found that by making the relevant deletions, the parties had removed the only contractual mechanism by which the Superintendent's assessment of moneys due by the Contractor (including any certified liquidated damages) was to be brought to account during the payment process. The Court noted that the deletions did not impact on the Principal's ability to set-off amounts due in the final payment claim.

The Court considered that this conclusion was supported by communications during negotiations, where the Contractor had stated that it would not accept a right to set off LDs against the amounts payable to the Contractor or the Principal's access to security for LDs. The Principal responded positively to this request and produced the updated version of the Contract. The Court held that this extrinsic material was admissible to contextualise and clarify the parties' mutual intention. The appeal was dismissed.