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27 Jun 2019

Major projects & construction 5 Minute Fix 35

By the Major projects & construction team

Get your 5 Minute Fix of major projects and construction news. In this issue, Victoria's Supreme Court is asked if the Commonwealth owes a duty to take reasonable care in the design of fiscal policy to prevent economic loss to a single sector of the community; the NSW Supreme Court considers whether a "contract or other arrangement" existed between two parties as contemplated by the Building and Construction Industry Security of Payment Act 1999 (NSW); the Victorian Parliament amends the Building Regulations 2018 (Vic); and the NSW Government proposes amendments to the Modern Slavery Act 2018 (NSW).

Federal Government owes no duty to businesses to avoid financial loss

In Roo Roofing Pty Ltd & Anor v The Commonwealth of Australia [2019] VSC 331, the Victorian Supreme Court has rejected a class-action claim by insulation industry members to recover compensation for economic loss arising from the Commonwealth Government's administration of the ill-fated Home Insulation Project (HIP).

In 2009, the Commonwealth launched the HIP as part of a broader economic stimulus package adopted in response to the Global Financial Crisis. Due to safety reasons, the Commonwealth terminated the HIP much earlier than anticipated.  Insulation installers, manufacturers and suppliers launched the class action against the Commonwealth in a bid to recoup financial losses suffered as a result of the early termination of the HIP.

The class action relied on a number of different causes of action, namely, negligence, negligent misstatement, misleading and deceptive conduct, and breach of contract. The judgment is lengthy, but provides a useful detailed discussion of each of these causes of action, set against the backdrop of government policy-making. 

Ultimately, Justice Dixon concluded that the plaintiffs had no legal basis to recover from the Commonwealth.  Because he found that a contract did not exist between the Commonwealth and the plaintiffs, it was unnecessary to consider the issue of repudiation. He similarly held that the Commonwealth did not owe a duty of care to the plaintiffs.  However, if it had, Justice Dixon noted that the standard of care would not have been met.  Consequently the Commonwealth would have been negligent by terminating the HIP early without warning.

While Justice Dixon found that the Commonwealth had made representations to the plaintiffs, he held that they were not negligently made and the Commonwealth owed no duty to correct them.  Similarly, it was not necessary to consider whether the representations were misleading and deceptive because the Commonwealth was not "carrying on a business" within the meaning of the Australian Consumer Law.

The decision is not surprising, as it is in line with existing law as regards the imposition of a duty of care in negligence, in the context of government exercising its policy-making functions.  However, the decision provides valuable insight into the commercial considerations that underlie participation in government rebate schemes and programs. 

Adjudicator's decision void because no "contract or other arrangement" found to exist between the parties

In the case of Lendlease Engineering Pty Ltd v Timecon Pty Ltd [2019] NSWSC 685, the Supreme Court of New South Wales considered whether a "contract or other arrangement" existed within the meaning of the Building and Construction Industry Security of Payment Act 1999 (NSW) between the first defendant Timecon Pty Ltd and LLBJV, an unincorporated joint venture formed by Lendlease and Bouygues. The LLBJV sought a declaration that a determination purportedly made by an adjudicator under the SOP Act was void.

The determination related to an amount claimed by Timecon, under a contract or arrangement said to have been entered into between LLBJV and Timecon. Under this alleged agreement, Timecon purported to agree to a fee of $4.00 per tonne to permit the LLBJV to store spoil on their site which was produced by excavation and tunnelling work for the NorthConnex Project.

LLBJV contended that the adjudicator did not have jurisdiction to determine the payment claim because there was no "contract or other arrangement" between the parties. Alternatively, if one existed, it was not one under which Timecon undertook to carry out construction work or to supply related goods and services for the LLBJV.

Timecon argued that an arrangement did not need to be legally binding for it to be an "other arrangement" for the purposes of the SOP Act. As there was no authority supporting this argument, Ball J rejected this submission.

In determining the interpretation of "arrangement" under the SOP Act, Justice Ball considered several cases. Ultimately his honour found it unhelpful to look to cases interpreting "arrangement" in other legislative provisions and did not follow them. Instead, for the SOP Act to apply, Justice Ball held that the subject of the "contract or other arrangement" had to be the provision of construction work or the supply of related goods or service. Therefore under this Act, the expression "contract or other arrangement" gave rise to a legal obligation to provide something in return for the construction work or related goods or services.

Justice Ball was not persuaded by Timecon's claim that an arrangement existed between the parties, finding a key witness' evidence unreliable, due to a failure to address critical matters in his affidavit evidence and its inconsistency with a considerable amount of correspondence between the parties.

Overall, Justice Ball found that no contract or other arrangement existed between Timecon and LLBJV within the meaning of the SOP Act. As a result, he did not need to consider whether the contract or other arrangement related to construction work. Justice Ball did note however that, on the evidence, the work was not construction work, but rather an arrangement for the tipping of spoil at that site. 

Victoria passes amendments to the Building Regulations 2018 (Vic)

The Building Amendment Regulations 2019 (Vic) recently passed on 4 June 2019. The regulation seeks to amend the Building Regulations 2018 (Vic) to:

  • revoke regulations related to building permit levies;
  • clarify requirements relating to maintenance schedules;
  • improve the form of the protection works notice;
  • make amendments consequential to the commencement of the National Construction Code; and
  • make other miscellaneous amendments.

The amendment mostly deals with minor changes to 2018 regulation. A couple of notable changes are:

  • building surveyors must now provide an additional notice under section 25AA(1) of the Building Act. This is under section 30 of the Building Act, which requires building surveyors to give copies of permits and documents to council that are prescribed in the regulation;
  • the revocation of regulation 46, which required building surveyors to record the details of a levy received in an application for a permit;
  • the removal of prescribed temporary structures such as scaffolding or a marquee from the classes of inspection under section 35B(b) of the Act;
  • the increase in essential safety measures that must be listed in a maintenance schedule for a building or place of public entertainment; and
  • the insertion of regulation 245A, which requires a person applying for registration to become a building practitioner to disclose whether they were an officer of a body corporate within two years immediately before the body corporate was subject to external administration. 

Informal "book-up" scheme is not unconscionable conduct

In a majority decision in ASIC v Kobelt [2019] HCA 18, the High Court has dismissed an appeal by ASIC and ruled that a "book-up" credit system operating within a remote Indigenous community did not engage in unconscionable conduct as prohibited by section 12CB(1) of the Australian Securities and Investments Commission Act 2001 (Cth).

Mr Kobelt operated "Nobby's" general store within the remote Anangu Pitjantjatjara Yankunytjatjara Lands. Mr Kobelt's book-up system allowed customers to purchase goods, such as second-hand cars, in return for handing over debit cards and PINs. Mr Kobelt would withdraw from his customer's wages or welfare payments shortly after they were deposited. While most of the money was used to service the debt, customers could use some of the withdrawn money to purchase essentials from the store, effectively tying customers to Mr Kobelt's store. Customers were predominately Anangu people, with low levels of financial literacy and significant dependence on welfare payments. Despite this, an overwhelming majority of the customers understood and approved of the book-up system.

On appeal from the Full Federal Court, ASIC maintained that there was a lower standard of consumer protection for remote Anangu customers, and that the book-up system's compatibility with cultural norms was used to justify unconscionable conduct.

The High Court reinforced that the question of statutory unconscionable under the Act requires an evaluative judgement of the circumstances. Divergence between the majority judgments (Chief Justice Kiefel and Justice Bell, and Justices Gageler and Keane) and the dissents (Justices Nettle and Gordon and Justice Edelman) reflect different conclusions about the relationship between Mr Kobelt and his Anangu customers.

Chief Justice Kiefel and Justice Bell maintained that there was an absence of unconscientious advantage maintained through the book-up system. The book-up system was not prevalent due to exploitation of financial illiteracy. Instead it was popular as it reflected Anangu culture, protecting customers from "boom and bust" pay day cycles and offering an outlet from "humbugging" (demand sharing). Justices Nettle and Gordon instead found Mr Kobelt took unconscientious advantage of his Anangu customer's special disadvantage and the terms and provision of his book-up system would be unconscionable anywhere in Australia – customer approval did not offset this.

Along with finding no evidence of unconscionable conduct, Justice Gageler devoted time to providing a thorough definition of the standard by which unconscionable conduct is judged. He rebuked the "high level of moral obloquy" definition of section 12CB unconscionable conduct he had provided in Paciocco v Australia & New Zealand Banking Group Ltd (2016) 258 CLR 525 as arcane terminology. Instead he offers a new definition:

"conduct proscribed by the section as unconscionable is conduct that is so far outside societal norms of acceptable commercial behaviour as to warrant condemnation as conduct that is offensive to conscience."

Judicial guidance surrounding statutory unconscionability is of broad interest given the growing attention on statutory unconscionability in construction law disputes  – see for example Justice McDougall in Probuild Constructions (Aust) Pty Limited v Shade Systems Limited [2018] NSWSC 540. Section 12CB(1) of the ASIC Act reflects the prohibition on unconscionable conduct in section 21(1) of Australian Consumer Law (Schedule 2 to the Competition and Consumer Act 2010 (Cth)) (ACL), albeit in respect to supply or possible supply of financial services, rather than goods or services. Therefore issues of statutory unconscionability arising in construction disputes and falling under section 21 of the ACL can draw upon the evaluative judgment in ASIC v Kobelt [2019] HCA 18 for reference.

Modern Slavery Act 2018 (NSW) update

Commencement of the NSW Modern Slavery Act 2018 has stalled amid concerns that various provisions may be inoperable and vulnerable to constitutional challenge.

The Act was passed in June 2018, a significant step in the recognition of the scourge of modern slavery practices.  The Act, however, has not commenced, and importantly, regulations prescribing what it is that reporting entities are required to disclose in their modern slavery statements have not been released.

While all of this was to have occurred by 1 July 2019, the NSW Government has now confirmed that commencement of the Act has been deferred. According to statements made during question time on 19 June, the Department of Premier and Cabinet has advised that the Act, in its present form, contains "defects requiring urgent attention", and that the constitutionality of other provisions is unclear.

The passing of the Act, of course, was closely followed by the commencement of the Commonwealth Modern Slavery Act (2018) on 1 January 2019. The NSW Act differs from the Federal legislation in a number of key respects, including:

  • the substantially lower monetary threshold for reporting applies under the Act; and
  • the imposition of penalties under the Act for a failure to prepare a modern slavery statement.

The inconsistencies between these two regulatory regimes has been a source of concern for the business community and prompted questions as to potential constitutional tensions.

The NSW Government has now referred the Act, together with a draft amending bill and draft regulations, to the Standing Committee on Social Issues for its inquiry and report. Interestingly, it was also remarked during question time that it will be "open to the committee to determine whether the Commonwealth's comparable legislation renders part of possibly all of the New South Wales Act unnecessary".

Businesses will need to monitor these developments closely. 

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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.