04 Jul 2013

Security of payment legislation may not apply to energy and resources projects

by Frazer Moss, Chris Slocombe

Contractors might not be able to claim under the Security of Payments regime for any work done on an energy and resources project.

Whether security of payment (SOP) legislation applies to construction work performed as part of an energy or resource project may depend on the type of land tenure relating to the work site.

The recent Queensland Supreme Court decision in Agripower Australia Limited v J&D Rigging Pty Ltd [2013] QSC 164 (25 June 2013) concluded that contractors performing work for the leaseholder of a mining lease granted under the Mineral Resources Act 1989 (Qld) cannot claim progress payments or have disputes adjudicated under the Building and Construction Industry Payments Act 2004 (Qld) (BCIPA).

By extension of the reasoning of the Supreme Court:

  • BCIPA may also not apply to construction work performed on land the subject of other similar tenements granted with respect to energy and resources projects;
  • the implications of the decision may not be confined to BCIPA, given the similarity in other jurisdictions of SOP legislation and legislation granting mining leases or similar tenements.

Why didn't BCIPA apply to construction work on mining leases?

Justice Wilson concluded that the definition of "construction work" under BCIPA did not include the dismantling of mining plant performed on the relevant mining leases because:

  • the mining plant was brought onto the relevant land for the purposes of the mining leases;
  • in so far as the mining plant was attached to the land, it was done so to stabilise it and allow its efficient operation rather than to add some additional feature to the land on which it rested;
  • the mining plant had to be removed before the expiry of the mining leases, under the terms of the mining leases;
  • the mining leases granted the holder only a right to extract minerals, but not an interest in the land;
  • the mining leases did not themselves comprise "land" as this term is understood under the Acts Interpretation Act 1954 (Qld) and the common law; and
  • the mining plant may have formed part of the mining leases, but it did not form part of the land the subject of those mining leases, and accordingly did not form part of "land" within the meaning of BCIPA.

Justice Wilson concluded that the work was not "construction work" for section 10 of BCIPA, because this term requires work to relate to structures forming, or to form part of, "land".

What could happen next?

Many might question whether Justice Wilson's interpretation of section 10 reflects the intention of the legislature, and it is unclear if the decision would withstand appeal.

That said, pending an appeal or a legislative amendment to clarify the meaning of section 10, the Agripower decision will stand as authority for the proposition that BCIPA does not apply to work carried out on an area over which a mining lease has been granted, where the work is performed for the purpose of the mining lease, and where the work must be removed at the expiry of the mining lease.

Given the significant volume of construction work currently being carried out in the mining industry in Queensland, the case is of significance to contractors and mine operators alike.

Also, it is possible that the courts will take a similar approach to construction work in other resource gathering industries, for example the coal seam gas industry, where work is carried out on petroleum leases which, like mining leases, do not confer an interest in the land upon which the lease is granted, and with respect to which installations and equipment require to be removed at the expiry of the lease.

It is also possible, given the existence of security of payment legislation around Australia, that the decision could have wider application outside of Queensland.

What you should do now

In practice, unless and until the decision is overturned or the definition of "land" in section 10 of BCIPA is clarified, potential claimants and respondents of BCIPA payment claims for construction work performed on mining leases and similar tenements will have to take into account the potential jurisdictional issue that exists regarding the application of that legislation.

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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.