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21 Feb 2019

Major projects & construction 5 Minute Fix 27

By the Major projects & construction team

Get your 5 Minute Fix of major projects and construction news. This issue: Federal funding for driverless vehicle infrastructure, IA's plan to get infrastructure ahead of population growth and case law wrap-up (including the court's discretion to find an arbitral award invalid, insolvent claimants and liquidated damages under adjudication regimes, and strict enforcement of recourse to guarantees).

NSW Government on preferred procurement methods and forms of security on construction projects

The Construction Leadership Group, representing the major construction procurement agencies of the NSW Government, released two discussion papers to industry in support of its commitment to procure construction projects in a more collaborative way.  The key points and next steps are summarised by Lina Fischer and Edwina Higgins here

Accelerating Australia's driverless future

The Federal Government has implemented a financial framework to make good on its promise to invest $9.7 million in its initiative to facilitate the safe and timely deployment of automated vehicles in Australia. 

In October 2018, the Deputy Prime Minister and Minister for Infrastructure, Transport and Regional Development, the Hon Michael McCormack MP, announced the automated vehicle initiative, with $9.7 million to be provided over four years, commencing in 2018-19.  In December 2018, the Financial Framework (Supplementary Powers) Amendment (Infrastructure, Regional Development and Cities Measures No. 3) Regulations 2018 (Cth) was enacted, establishing legislative authority for government spending on this initiative.

Funding will be used to prepare Australia for the reality of automated vehicles, including:

  • fostering Australian industry development in vehicle automation and related technologies;
  • addressing the digital and physical infrastructure needs of new vehicle technologies; and
  • raising public awareness of the social and economic issues associated with automated vehicles. 

No more playing catch-up: Infrastructure Australia calls for change

In its latest report, "Planning Liveable Cities: A place-based approach to sequencing infrastructure and growth" (published December 2018), Infrastructure Australia calls for greater coordination and sequencing of housing and infrastructure to break the cycle of urban infrastructure failing to keep pace with housing growth.  

Australia's population is expected to increase by approximately 11 million people within the next 30 years. Eighty percent of this population growth is forecast to occur in Australia's five largest cities.  Sequencing the delivery of infrastructure and housing will be critical to ensuring the future liveability of Australia's cities given this rapid projected population growth.  The report provides advice to government and industry on how to appropriately sequence the delivery of housing and infrastructure to avoid future lags in the provision of essential infrastructure and services. 

Duelling arbitration Acts: Supreme Court untangles applications under Victorian and Queensland legislation

The Victorian Supreme Court recently considered competing applications made under Victorian and Queensland commercial arbitration legislation in Mitchell Water Australia Pty Ltd v McConnell Dowell Constructors (Aust) Pty Ltd [2018] VSC 753.  The dispute before the court involved:

  • an application by Mitchell Water Australia's Pty Ltd to the Victorian Supreme Court under section 33(5) of the Commercial Arbitration Act 2011 (Vic) to correct an initial arbitral award between the parties (on the basis that it failed to address its claim for delay costs);
  • an application by McConnell Dowell Constructors (Aust) Pty Ltd (MacDow) to the Queensland Supreme Court under section 16(9) of the Commercial Arbitration Act 2013 (Qld) challenging the arbitrator's jurisdiction to determine Mitchell Water's claim; and
  • the arbitrator's subsequent award in respect of Mitchell Water's claim.

In response to MacDow's application to set aside the Award under the Qld Act, Mitchell Water applied under section 35 of the Vic Act for enforcement of the Award.  In turn,  MacDow sought an adjournment of that proceeding on the basis of its ongoing application under section 16(9) of the Qld Act.

To untangle this web of applications and cross-applications, Croft J granted the adjournment sought by MacDow allowing MacDow to pursue its application under the Qld Act.  In arriving at this decision, Justice Croft observed that:

  • section 36(2) of the Vic Act is sufficiently broad to "comprehend an application under section 16(9) of the [Qld] Act";
  • the arbitrator's determination that it had jurisdiction to make the Award may not itself constitute an "award", with the result that MacDow was at risk of not being able to challenge that determination in the enforcement proceedings commenced by Mitchell Water; and
  • if the adjournment was not granted and MacDow was required to resist enforcement of the Award in the Victorian Supreme Court, it would involve judicial findings which could conflict with matters in dispute under MacDow's ongoing application under section 16(9) of the Qld Act.  This potential for conflicting findings might then prevent MacDow "from prosecuting … its section 16(9) application… on the basis of issue estoppel".    

Therefore, to avoid a scenario that would prejudice MacDow's ability to exercise statutory rights under both the Vic and Qld Acts, the Victorian Supreme Court adjourned Mitchell Water's enforcement application. 

Exclusion of time-related costs from scope of adjudication strikes in both directions, excludes claims to recoup liquidated damages

The Victorian Supreme Court recently confirmed that claimants under the Building and Construction Industry Security of Payment Act 2002 (Vic) are not able to recoup by way of supplementary payment claim, any liquidated damages deducted from earlier payment claims by the respondent.

In Shape Australia Pty Ltd v The Nuance Group (Australia) Pty Ltd [2018] VSC 808, the contractor applied for judicial review of an adjudicator's determination that it lacked jurisdiction to hear the application and, in any event, a nil amount was payable by the principal to the contractor in respect of the relevant progress claim (Payment Claim).

It was not in dispute between the parties that when the individual items of work in the Payment Claim were adjusted and reconciled, the total claim was for an amount equal to the liquidated damages that the principal had previously deducted from earlier progress claims. 

A central issue to be resolved was whether the Payment Claim was a claim to recoup liquidated damages (rather than a claim for construction works carried out), and by extension whether a claim to recoup liquidated damages was an "excluded amount" under section 10B(2) of the Act.  Ultimately, Justice Digby held that a claim to recoup liquidated damages is excluded under section 10B(2) of the Act.  It was held that a different conclusion could cause prejudice, if the Act allowed a contractor to recoup liquidated damages imposed upon it by the principal, but simultaneously disallowed countervailing claims by the principal for time-related compensation (which cannot be taken into account pursuant to section 10B(2)(b)(ii) of the Act). 

Courts of Appeal uphold decisions in Seymour Whyte, SMS v Tulip Bay and Santos v BNP Paribas

The Courts of Appeal in New South Wales, Western Australia and Queensland have recently upheld the trial decisions of Seymour Whyte, SMS v Tulip Bay and Santos v BNP Paribas respectively.

Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (In liquidation) [2019] NSWCA 11

The Court of Appeal upheld Justice Stevenson's finding that the Security of Payment (SOP) legislation could be relied upon by an insolvent contractor, and that in doing so Façade Treatment Engineering Pty Ltd (in liq) v Brookfield Multiplex Constructions Pty Ltd [2016] VSCA 247 should not be followed.  Justice Sackville held:

"in my opinion the Security of Payment Act, as a matter of construction, is capable of operating for the benefit of a builder or sub-contractor which has gone into liquidation in insolvency. To the extent that the Victorian Court of Appeal decided to the contrary in Façade, I consider, with the greatest respect, that it was plainly wrong and should not be followed."

Legislative amendments have been enacted in New South Wales which, upon commencement, will expressly permit the use of the SOP legislation by insolvent claimants.  However, this decision may cause some uncertainty in Victoria.  For more detail, see our Insights article on the trial decision here.

Santos Limited v BNP Paribas [2019] QCA 11

Santos v BNP serves as an important reminder of the need to strictly adhere to the requirements of a demand on a bank guarantee.  The Court of Appeal upheld the trial decision, in which it was held that the failure to include confirmation that the signatory was an "authorised signatory of Santos Limited", as stated on the pro forma demand letter, invalidated the demand.

If you would like to know more, see Dan Fitts' Insights article on the trial decision here.

Structural Monitoring Systems Ltd v Tulip Bay Pty Ltd [2019] WASCA 16

An arbitrator's failure to engage meaningfully in an arbitration may pose a risk to the validity of an award, however the case of SMS v Tulip Bay demonstrates that any conclusion of invalidity will be subject to the Court's discretion.  Notwithstanding the Court of Appeal's departure from the trial judge's by finding that there had been misconduct on the part of the third arbitrator, the Court of Appeal concluded that the misconduct did not affect the outcome and therefore no prejudice or miscarriage of justice occurred.  On that basis, the Court of Appeal elected not to exercise the statutory discretion to set aside the award. 

This case was brought under the repealed and replaced Commercial Arbitration Act 1985 (WA), so its application will be limited, and as are the prospects of special leave to appeal to the High Court being granted should SMS seek to appeal the Court of Appeal's refusal to exercise its discretion.

Sean Kelly and Jonathan Tong's Insights article on the trial decision is available here. 

Building Ministers' Forum meeting in Hobart: unsafe cladding and national security of payment model on the agenda

The Building Ministers' Forum (BMF) met in Hobart on 8 February 2019 to discuss priority issues relating to the safety of Australian buildings and confidence in the building industry.  The communiqué records that:

  • the BMF will release a joint implementation plan setting out the direction of proposed reforms in each jurisdiction by the end of February 2019;
  • the respective Ministers agreed in principle to a national ban on unsafe use of combustible aluminium composite panels, subject to a cost/benefit analysis being undertaken; and
  • the BMF continued to the discuss the potential for a national model for security of payment legislation, and model legislation for deemed statutory trusts will be developed.

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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.