05 Sep 2019

Major projects & construction 5 Minute Fix 40

By the Major projects & construction team

Get your 5 Minute Fix of major projects and construction news. This issue we look at Infrastructure Australia's release of the Australian Infrastructure Audit Report 2019 and the call for infrastructure delivery to evolve to meet Australia's needs in the future; the risks with being prescriptive and "having regard to" in contracts; the Construction Industry Leadership Forum practice notes; and we finish up (because it wouldn't be a 5 Minute Fix without it) with a recent SOP Act decision from the NT Court of Appeal.

Infrastructure Australia Audit Report – A future of uncertainty

In August, Infrastructure Australia released the Australian Infrastructure Audit Report 2019. The 642 page Report urges industry to reconsider infrastructure delivery and how we can adapt existing networks to changing user needs.

"We need to evolve the way we plan for Australia’s infrastructure to embrace this uncertainty. Historically, infrastructure planning has sought to predict future conditions and then provide infrastructure to meet anticipated demand. Today, we require a more robust approach.

Rather than projecting forward the status quo, our infrastructure planning should set an ambitious vision for the country, anticipate and adapt to change, manage risk, and deliver infrastructure that works towards – rather than against – the current and future needs of Australians."

In order to navigate our uncertain future, Infrastructure Australia has taken a new approach to the development of the Report, informed by the strategic foresight method, which is described as a field of research that seeks to understand the future in a way that does not simply extrapolate past trends forward. The Report is addressed to users and providers of infrastructure and aims to help the sector understand the challenges and opportunities faced by the Australian infrastructure sector over the next 15 years and beyond, rather than identify solutions to the problems faced.

The Report covers "transport, energy, water, telecommunications and – for the first time – social infrastructure". It identifies public transport inequality as a key challenge "access to and the quality of our passenger transport networks is unequal…[it] can be particularly difficult to access for the financially stressed, people with disability, older Australians, people in regional and remote communities… our larger and fast-growing cities suffer from congestion while our remote communities often have poorly utilised and maintained assets. Our passenger transport networks are at risk of becoming financially and environmentally unstainable. There is a lack of transparently about why and how money is spent."

The Report though does more than highlight the challenges; it also stresses the many positive developments and rapid growth happening in the sector, including rapid technological innovation and capacity for opportunity in the transport sector.

The meaning of "having regard to" and the problem of being prescriptive

The phrases "have regard to" and "having regard to", are often used in construction and project documents, including as limitations on discretions such as decisions to grant or withhold consent or as inputs into the valuation of extensions of times or variations. The NSW Court of Appeal recently had cause to consider these phrases in the context of an expert determination about the operation of a rent review clause. The decision serves as a reminder that where a principal does not intend criteria in a contract to be exhaustive, this should be plainly set out.

The decision in Strike Australia Pty Ltd v Data Base Corporate Pty Ltd [2019] NSWCA 205 involved Strike Australia Pty Ltd who sub-leases from Data Base Corporate Pty Ltd premises at the King St Wharf in Sydney. Strike gave notice to Data Base that it was exercising the first option to renew their rent agreement. The key contentious provision in the sub-lease stated "the valuer must have regard to market rents for comparable premises in the vicinity of the Premises". The valuer in determining the rent had regard to four comparable properties, two in the Sydney CBD, one in Macquarie Park and one in Bondi Beach.

The primary judge held that valuer had not carried out his determination in accordance with the sub-lease. Strike appealed on three grounds. Strike submitted that the determination of market rent is an inherently discretionary exercise and that the sub-lease did not explicitly state what comparable premises the valuer can consider.

There was a split between the Court of Appeal over an interpretation issue whether the valuer ought to have taken into account comparable properties. Justices Basten and Ward said that the identification in the clause of specified properties for the expert to consider operated as an implied exclusion of other properties and they heavily favoured the premise that commercial contracts should be construed by reference to the language used by the parties to the contract. President Bell considered whether the expression "have regard to" means on proper construction "only have regard to" and found that it did not. President Bell took the natural meaning of "have regard to" in its context (including the nature of valuation and the role of experts) to mean that the list of properties was not exhaustive.

However, the Court was unanimous in finding that the other premises taken into account by the valuer were objectively outside "the vicinity" of the premises and the appeal was dismissed.

Ten Point Plan – Practice notes

In consultation with industry leadership groups, the Construction Industry Leadership Forum (CILF) has developed a number of key practice notes aimed at encouraging behavioural change through equipping procurement and delivery personnel with insight into the key challenges affecting the industry.

The eight practice notes have been designed to complement the NSW Government’s Action Plan which recognised, among other things, that the NSW Government can only achieve its infrastructure objectives through reduced industry costs and collaboration with the private sector. 

Each practice notice provides a principle-based strategy and options for addressing recognised industry challenges, in order to:

  • ·optimise risk allocation between government and industry;
  • reduce time and cost of tendering;
  • identify innovative procurement models and forms of contracting to achieve best value for government projects; and
  • maintain a sustainable construction industry.

In light of the varied range and complexity of the identified challenges, the nature and extent of the options differ between practice notes.  For some, a more targeted response is proposed (see for example, Collaborative procurement: Early contractor involvement) while others provide a broader range of options (see for example, Interface risk management).

Industry participants are encouraged to take guidance from the practice notes when procuring and delivering major infrastructure projects.

The practice notes can be found here:

Adjudicator to consider set-off as a valid defence to a payment claim under the NT SOP Act

The NT Court of Appeal in a joint judgment dismissed an appeal in relation to a security of payment determination being rendered void due to jurisdictional error (James Engineering Pty Ltd v ABB Australia Pty Ltd & Anor [2019] NTCA 7). The judgment provides useful guidance on the NT Act and its differences from the East Coast model Acts.

The relevant contract was for the design, manufacture, transport and delivery of modular switch rooms for the Ichthys Onshore LNG Facilities project in Darwin. James served a payment claim for $2.1m, to which ABB responded indicating it proposed to pay $0, for reasons including that ABB claimed a set off for liquidated damages of $1.7m against James.  James referred it for adjudication under the Construction Contracts (Security of Payments) Act (NT) (NT Act). The adjudicator awarded $1.5m to James, with no allowance for the set off claimed by ABB.

ABB successfully challenged the adjudication determination in the NT Supreme Court. The determination was set aside for jurisdictional error, essentially because of the adjudicator’s failure to deal with the merits of ABB's claimed set-off, which had been raised as a "shield and not a sword" to the payment claim.

James appealed, however, the Court dismissed the three grounds of appeal against Justice Kelly’s judgment. It dealt rapidly with the first of these – that the trial judge concluded the case on a basis not put to her Honour. The disposition of the two other grounds provides useful guidance, especially about the scope of jurisdictional error under the NT Act:

  • The Court upheld Justice Kelly’s finding at trial that the adjudicator had misstated the legal position under the NT Act by referring to the ability of ABB (as respondent) to apply the liquidated damages in response to the payment claim in the payment schedule. The Court pointed out that unlike in the East Coast model security of payment Acts (ie. NSW, QLD and VIC which impose strict requirements in relation to responding to a payment claim eg. certain particulars must be pleaded in the initial payment claim / payment schedule stages, otherwise they may be precluded from being relied upon in an adjudication response), the NT Act does not refer to or require a "payment schedule" and expressly requires the adjudicator to take into account the adjudication response served under section 29 of the NT Act. As a consequence, the adjudicator fell into jurisdictional error by failing to take into account ABB’s response, including the merits of any counterclaim or set off in reaching his determination.
  • The Court also upheld the finding that, by failing to determine the merits of ABB’s set-off claim, the adjudicator had not discharged the requirement to make (at least) a bona fide attempt to determine the matter before him (namely to determine on the balance of probabilities whether there was actually an amount owing by ABB to James, and if so, how much on the basis of the application and response). The Court agreed with ABB's submission that the adjudicator wrongly decided that ABB's claim to set off liquidated damages fell outside the payment dispute he was obliged to determine. By refusing to consider the set-off claim as part of the payment dispute, this failure was a jurisdictional error and was “material” as, if the adjudicator had taken the set-off into account, the adjudicator “could have made a different decision”.

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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.