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19 Mar 2020

Major projects & construction 5 Minute Fix 49

By THE MAJOR PROJECTS & CONSTRUCTION TEAM

Get your 5 Minute Fix of major projects and construction news. This issue: the 2020 Infrastructure Priority List's focus on climate and sustainability projects; the Design and Building Practitioners Bill 2019 and Building and Development Certifiers Regulation; and the issues that can arise in the interpretation of security recourse clauses and the importance of consistency.

Infrastructure Priority List: environment and resilience given top billing in 2020

The 2020 Infrastructure Priority List (2020 IPL) expands the traditional focus beyond rail, ports and roads to place climate and sustainability projects at the forefront of the nation's priorities, aiming to increase Australia's resilience in the face of natural disasters.

Developed by the nation's independent infrastructure adviser, Infrastructure Australia (IA), the 2020 IPL acts to direct governments towards projects and initiatives that will establish valuable transport, social, water, energy and telecommunications services for Australia. It is a key reference point for all levels of government when planning and making decisions on infrastructure.

Worth a potential $58 billion and incorporating a record 147 proposals (with 6 new high priority projects and 17 new priority projects since the last publication in February 2019), the 2020 IPL attempts to address the environmental changes, severe drought and unprecedented infrastructure demand currently facing Australia. However, a vast number of projects remain on the list from previous years with very few graduating from proposal status to fully-fledged projects at the delivery or construction stage.

Some of the key 2020 IPL proposals include:

  • water security strategies for both towns and cities, particularly where towns are reliant on a single supply source, as well as a national water strategy given the potential for severe urban water restrictions or shortages (New to 2020 IPL – High Priority Initiative);
  • national water strategy (New to 2020 IPL – High Priority Initiative);
  • national waste and recycling management strategies to increase Australia's recycling rates from the current 55% to the 2014-2021 waste avoidance 70% target (New to 2020 IPL – High Priority Initiative);
  • coastal inundation protection and prevention initiatives (New to 2020 IPL  – High Priority Initiative);
  • establishment of a national electric vehicle fast-charge network (High Priority Initiative);
  • a national road maintenance strategy to address growing maintenance costs and delays (New to 2020 IPL – High Priority Initiative;
  • preservation of the land corridor for an east coast high speed rail from Brisbane to Melbourne (High Priority Initiative);
  • an east coast deep water container port facility to increase available capacity for large container ships (New to 2020 IPL – Priority Initiative);
  • a focus on regional and remote Australia, including improvements to regional road safety and mobile telecommunications coverage in remote areas, and construction of remote housing to address overcrowding issues (New to 2020 IPL – Priority Initiative); and
  • more efficient connections to increase reliability of the national electricity market (High Priority Initiative).

 

Design and Building Practitioners Bill 2019: accountability through proposed registration and compliance obligations

The NSW Government aims to improve the quality of design documents and compliance with building standards, toughening accountability across the construction industry through the proposed Design and Building Practitioners Bill 2019. The proposed reforms apply to specific categories of regulated designs as well as multi-storey and multi-unit residential apartment buildings.

The Bill forms part of the first-stage of the NSW Government's response to the Shergold-Weir Report released in April 2018 which considered the effectiveness of compliance and enforcement systems for the Australian building and construction industry and provided multiple recommendations. See our earlier Insights piece here.

Key reforms proposed by the Bill are:

  • compliance declaration: introducing compulsory "compliance declarations" to be given by designers and builders that designs or building work complies with the Building Code of Australia;
  • duty of care to land owner: requiring that owners and subsequent owners of the land (including owners corporations but excluding owners who are developers or large commercial entities) are owed a duty of care by the person who carries out construction work to exercise reasonable care to avoid economic loss caused by defects in or related to the building for which the construction work is carried out. Owners and subsequent owners will be entitled to damages for breach of this duty irrespective of who the contract to carry out the construction work was entered into with (Part 3 of the Bill);
  • registration of compliance declaration makers: establishing minimum registration requirements and a register of design practitioners, including most engineers and people designing systems for fire safety, waterproofing, building enclosures (e.g. windows, doors and roofs), and any load-bearing components of a building; and
  • minimum insurance requirements: creating insurance obligations for design practitioners included on the above-proposed register.

Currently, the Bill proposes limited retrospective application. The duty of care will apply retrospectively (which picks up on Recommendation 13 in the NSW Parliament's Public Accountability Committee report titled Regulation of building standards, building quality and building disputes November 2019) with specific exceptions, and compliance declarations will be required for all designs and buildings work, even where there is an existing arrangement.

The Bill is currently before the NSW upper house.

New proclamation: Building and Development Certifier's Act and Regulations to commence 1 July 2020

Certifiers, builders and other stakeholders have four months to prepare and adjust to changes introduced by the Building and Development Certifiers Act 2018 and Building and Development Certifiers Regulation 2020 which will both come into effect from 1 July 2020. The Regulation specifically applies to residential buildings.

The Regulation sets out:

  • the minimum necessary qualifications, skills and experience required for certifier registration;
  • the Code of Conduct standards; and
  • a new accreditation framework.

The Regulation aims to clarify the responsibilities of certifiers with the intention of improving consumer confidence in the residential building industry. This follows from audit findings released in August 2019, identifying ongoing issues for private certifiers, including failures to confirm building licences and issuing occupancy certificates inconsistent with the relevant development consent.

The Regulation is likely to have the greatest impact on private certifiers. The most significant change stems from provisions relating to conflicts of interest which act to effectively preclude certifiers from providing professional services regarding design or the development application as well as acting as the principal certifier.

Upon commencement, the Act and Regulation will replace the Building Professionals Act 2005 and Building Professionals Regulation 2007.

"Opal Towers" builder unsuccessful in bid to restrain principal's call on security

The conditions under which a principal will be entitled to have recourse to an unconditional bank guarantee have been revisited by the NSW Supreme Court in Icon Co (NSW) Pty Ltd v Australia Avenue Developments Pty Ltd [2020] NSWSC 178.

The principal of the beleaguered "Opal Towers" project in Sydney gave notice to the builder that it proposed calling on an unconditional and irrevocable bank guarantee (Guarantee) for moneys in the order of $3.9 million. The builder sought an injunction restraining the principal. In issue was whether the condition to recourse by the principal had occurred.

Under the design and construct contract between the parties (Contract), the principal was entitled to call on the Guarantee:

  • if it was entitled to exercise a right under the Contract in respect of the security (clause 5.2(a)(i));
  • if the builder had failed to comply with a material obligation under the Contract (clause 5.2(a)(ii));
  • if there was a debt payable by the builder to the principal (clause 5.2(a)(iii)); or
  • subject to clause 37.4, to meet any genuine bona fide claims that the principal may have against the builder arising out of or in connection with the termination of the Contract (clause 5.2(a)(iv)).

The "right" relied on by the principal for the purposes of clause 5.2(a)(i) resided in clause 37.4, which provided that the principal could deduct from moneys otherwise due to the builder:

  • any debt due from the builder to the principal; or
  • "moneys claimed" by the principal from the builder "under or in connection with" the Contract or the work under contract.

A point of contention was the meaning of the expression "moneys claimed". While the builder submitted that the “right” exercisable by the principal under clause 5.2(a)(i) only arose if moneys were “actually” due, Justice Stevenson concluded:

"The use in the chapeau to cl 37.4 of the words 'any debt due' in conjunction with, only a few words later, “or moneys claimed” suggests that the parties intended those words to have different consequences."

Referencing Lucas Stuart Pty Ltd v Hemmes Hermitage Pty Ltd, His Honour observed that a “debt due” might need to be established "as a matter of objective fact”, whereas “moneys claimed”, consistent with FMT Aircraft Gate Support Systems v Sydney Ports Corporation, seemed to require no more than that the principal's claim be “genuine” and “bona fide”, and not "specious, fanciful, or untenable”.

The builder further argued that the superintendent's ability, in the payment provision, to certify amounts that the principal was entitled to retain, deduct, withhold or set-off in effect deprived the principal of the ability to deduct, under clause 37.4, amounts that had not been so certified. Stevenson J disagreed, noting the "primacy" accorded to the principal’s “claim” was confirmed by the provision in clause 37.2 that a failure by the superintendent to account for such an amount in a progress certificate would "not prejudice the Principal’s right to subsequently exercise its right to retain, deduct, withhold or set-off any amount under the Contract.”

The principal also asserted that it was entitled to call on the Guarantee under clause 5.2(a)(ii), by reason that the builder had “failed to comply with a material obligation under the Contract”. Clause 2.2(h) of the Contract was primarily relied on by the principal for this purpose, being the provision pursuant to which the builder warranted that it would "execute the WUC in a proper and workmanlike manner and in accordance with the high quality workmanship of the various trades involved”.

The builder submitted that any breach of clause 2.2(h) could not be assessed until final completion, as the process of post practical completion defect rectification was ongoing. Citing Justice Hammerschlag in Owners of Strata Plan 80458 v TQM Design & Construct Pty Ltd, he noted:

“If a contract requires work to be done in a proper and workmanlike fashion and the builder does defective work, it is difficult to understand why, even if the work is later remedied, there was no initial breach."

Observing that the “Works” were not fit for use and occupation as at practical completion and that residents were subsequently evacuated when defects emerged, Justice Stevenson was satisfied there was a failure by the builder “to comply with a material obligation of the Contract”. The Court therefore held that the builder had failed to establish a negative stipulation, namely that the principal was not entitled to recourse to the Guarantee.

The case is a further example of the issues that can arise in the interpretation of security recourse clauses and the need to ensure consistency with related provisions in a contract.

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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.