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21 Feb 2020

Major projects & construction 5 Minute Fix 47

By THE MAJOR PROJECTS & CONSTRUCTION TEAM

Get your 5 Minute Fix of major projects and construction news. This issue: what’s next for Project Trust Accounts in Queensland; the regulatory landscape in 2020; the NSW Supreme Court on Anshun estoppel; and the scope of the 10-year statutory limitation under section 6.20 of the Environmental Planning and Assessment Act 1979 (NSW).

Call for submissions: Queensland's latest round of building industry fairness reforms

The Queensland Government has recently released draft legislation designed to consolidate security of payment reforms and make the building and construction industry fairer. The Building Industry Fairness (Security of Payment) and other Legislation Amendment Bill 2020 strengthens and expands the safeguards for subcontractor payments. The Bill gives effect to recommendations of the Building Industry Fairness Reforms Implementation and Evaluation Panel and also builds upon the work of the Special Joint Taskforce investigating subcontractor non-payment in the Queensland building industry.

The Bill introduces reform on a range of fronts:

  • expands the mandatory use of project trust accounts and retention trust accounts (previously known as project bank accounts) to all Government and private sector contracts for "project trust work" (essentially building work) over $1M (excluding GST). The Queensland Government has used project bank accounts but only on a limited range of Government projects – a trial phase. A phased roll-out of project and retention trust accounts to the private sector will allow businesses time to manage the financial transition to trust accounts and implement changes to business practices;
  • establishes "payment withholding requests" which may be served on parties higher in the contractual chain (including head contractors) following the making of an adjudication application. The Queensland draft legislation goes further than legislation in other States, providing head contractors with the ability to secure payment of an adjudication amount over a principal, via a payment withholding request to a financier;
  • enhances the regulatory and oversight powers of the Queensland Building and Construction Commission;
  • gives head contractors more protection (e.g. an ability to charge land of the principal in circumstances where the head contractor is not paid an adjudicated amount);
  • implements building certification reforms aimed at improving consumer confidence;
  • strengthens the Minimum Financial Requirements compliance framework for licensing; and
  • increases regulatory oversight of architects and engineers.

It is anticipated that the legislation will commence on 1 July 2020. There is a lot in the Bill for participants in the construction industry to absorb. Principals, contractors and subcontractors operating in Queensland will need to familiarise themselves with the new regime and prepare for the financial transition to project and retention trust accounts. If you haven't already, you should consider making a submission to the Transport and Public Works Committee, in light of the extensive nature of these proposed reforms. The closing date for submissions is Wednesday 26 February.

2020 provides an opportunity for regulatory reform

As 2020 is now well underway, we give you a snapshot of ongoing and upcoming legislative and regulatory reforms in the building and construction industry:

  • in addition to the Queensland Government's latest round of building industry fairness reforms, South Australia has recently released its draft Building and Construction Industry Security of Payment (Review Recommendations) Amendment Bill 2020 for consultation. It remains to be seen whether the WA Government will move to implement the recommendations proposed in the Fiocco Review;
  • at the 13 December 2019 Building Ministers' Forum, Ministers noted the important work of the Implementation Team established under the auspices of the Australian Building Codes Board (ABCB). The ABCB is undertaking an out-of-cycle amendment for the 2019 edition of the National Construction Code which will be adopted by States and Territories on 1 June 2020;
  • the NSW Government is aiming to revive public faith in the building and construction industry by significantly overhauling the regulatory framework and increasing enforcement powers to increase compliance across the industry. However, before the NSW Government can put in place its ambitious reform agenda, it must pass the Design and Building Practitioners Bill. Read here for more information about the NSW Government's Six Reform Pillars;
  • in Victoria, the state-wide cladding audit revealed hundreds of buildings containing combustible cladding. Cladding Safety Victoria is continuing its work with owners and owners corporations, helping them to rectify non-compliant cladding.

Anshun estoppel thwarts contractor's ability to bring later SOP claim

A recent decision in NSW demonstrates the courts' strong position on the practice of re-agitating claims under security of payment (SOP) legislation where the claim should have been pursued in earlier proceedings (known as "Anshun estoppel").

In TWT Property Group Pty Ltd v Cenric Group Pty Ltd [2020] NSWSC 72, the builder (Cenric) served a payment claim, for work done before its wrongful exclusion from the building site, on the developer (TWT). The payment claim proceeded to adjudication under the SOP legislation. Cenric had previously commenced proceedings in the Supreme Court in which it claimed damages for its wrongful exclusion from the building site, but it did not claim for the work it did on site in those proceedings. Justice Stevenson held that Cenric was estopped (or prevented) from using the adjudication process because it should have pursued the claim for work done in the earlier Supreme Court proceedings. Service of the payment claim was an abuse of process because of an Anshun estoppel in the earlier Supreme Court proceedings.

This decision is a cautionary reminder for claimants. Claimants must be careful to put forward their whole case in support of a claim in the course of existing proceedings, otherwise they run the risk that they may lose the right to bring their claim in subsequent proceedings. Previous decisions in NSW and Queensland make it clear that issue estoppel applies in adjudication to prevent attempts by claimants to re-agitate claims in a subsequent payment claim in an attempt to get a second go. However, this decision is noteworthy because it highlights that claimants should not consider adjudication procedures in isolation. Instead, they should always consider all avenues for bringing a claim.

When is a 10-year limitation period not a 10-year limitation period?

In Sydney Capitol Hotels Pty Ltd v Bandelle Pty Ltd [2019] NSWSC 1825, Justice Hammerschlag gave a restricted meaning to the phrase "arising out of or in connection with defective building work" for the purpose of the 10-year limitation period under section 6.20 of the Environmental Planning and Assessment Act 1979 (NSW). This ruling on a preliminary issue meant that the plaintiff was able to proceed to the trial of whether the defendant builder owed it a duty of care in respect of work it did on an exhaust system on a building in Sydney in 1997.

The plaintiff alleged that that work was defective and that it resulted in a fire in 2017 which caused material loss to the plaintiff. Crucially, the plaintiff and defendant did not have a contract for the work, meaning that the plaintiff's action was in breach of duty (presumably, in negligence, which generally has a limitation period of six years from the date on which the cause of action first accrues under section 14 of the Limitation Act 1969 (NSW)). It was common ground that, if the EPAA Act limitation did not apply (the section provides that relevant actions cannot be brought more than 10 years after completion of the work), the plaintiff would be able to proceed with its action.

Justice Hammerschlag initially appeared to favour a wide interpretation, noting that, "[o]n the plain and grammatical meaning of the section, the damage suffered by the plaintiff arises out of or is in connection with the defective work". He also noted the intention of the section (and its predecessor, section 109ZK of the same Act), "that a builder should not be liable for defective building work ten years after it is done, irrespective of who suffers damage by it".

He considered himself bound, however, by the NSW Court of Appeal's adoption (in Dinov v Alliance Australia Insurance Limited (2017) 96 NSWLR 98) of the Victorian Supreme Court's restrictive approach to the equivalent provision in section 134 of the Building Act 1993 (Vic) (in Australian Rail Track Corporation Ltd v Leighton Contractors Pty Ltd [2003] VSC 189). In turn, while Justice Hammerschlag would (though this was itself a "strictly obiter" observation), if "deciding the matter afresh, [have reached] a different conclusion", he concluded that:

"the plaintiff was merely an occupier of part of the building where the fire occurred, as a consequence of which it suffered damage. That loss and damage was caused by the defective building work in only an accidental, incidental or indirect sense… Hence, the section does not apply."

The decision provides a reminder to building practitioners (and, the insurers which stand behind them) that the so-called building-specific limitation period in place in NSW (and some other states and territories, in varying forms) should not be assumed to provide a bar to all actions in respect of defective work after 10 years.

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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.