29 Oct 2020

Major projects & construction 5 Minute Fix 64

By the major projects & construction team

Get your 5 Minute Fix of major projects and construction news. This issue: Victorian Court of Appeal stays enforcement of adjudication decision because of Claimant's financial position; adjudicator's misunderstanding of submissions doesn’t amount to jurisdictional error; and a case study involving concurrent liability.

Victorian Court of Appeal grants stay of execution based on perilous financial position

A decision of the Victorian Court of Appeal provides a useful example of how the court exercises its discretion to grant a stay of execution of a judgment debt obtained under the Building and Construction Industry Security of Payment Act 2002 (Vic SOP Act), pending appeal.

In Yuanda Vic Pty Ltd v Façade Designs International Pty Ltd [2020] VSCA 269, the applicant (Yuanda) argued that the likely inability of the respondent (Façade Designs) to repay the judgment debt if Yuanda's appeal was successful, justified the granting of a stay. 

The case provides a useful refresher on the key principles that the court will have regard to when deciding whether to grant a stay.  The central issue is whether, without the grant of a stay, the right of appeal will be rendered nugatory.  The Court observed: "In such a case, the Court will be required to balance the prospect that an appeal may be rendered nugatory in the absence of a stay, against the principle that the successful party in the proceeding should be entitled to the fruits of the judgment." 

The applicant is also required to demonstrate that there is "at least an arguable ground of appeal". 

Despite conflicting evidence about Façade Design's financial position, the Court considered that the evidence demonstrated its precarious financial situation, raising doubts about its viability as a going concern.  The Court considered there was a "real risk, beyond the usual commercial risk" that Façade Designs would be unable to repay the judgment debt if Yuanda's appeal turned out to be successful.  This financial risk amounted to "special or exceptional circumstances" that might justify a stay pending appeal.  An allegation of fraud was also relevant to the Court's exercise of its discretion to grant the stay.

Façade Designs argued that given the underlying prompt payment objective of the Vic SOP Act, something more than a "real risk" might be necessary to satisfy the presence of special or exceptional circumstances justifying a stay.  The Court was unwilling to express a view on whether something further was required, but identified in this case two factors that favoured a stay because they diminished the potential risk and impact on Façade Designs as a result of the payment of the judgment debt being delayed:

  • first, Yuanda was required to pay the judgment debt into Court; and
  • second, the Court granted an expedited hearing of the application for leave to appeal.

The decision is final: Adjudicator not in jurisdictional error for misunderstanding submissions and evidence

Acciona Infrastructure Australia Pty Ltd v Chess Engineering Pty Ltd [2020] NSWSC 1423 highlights the difficulty of succeeding in an application for judicial review of an adjudicator's decision and emphasises the need to provide clear evidence and submissions in an adjudication application.

Acciona sought to set aside an adjudication determination made in favour of the claimant, Chess, on the basis that the adjudicator failed to fulfil his function under the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act).  Acciona contended the adjudicator denied it procedural fairness by not considering aspects of its payment schedule and submissions and/or not forming a view as to what was properly payable for variation claims, as required to be considered under s 22(2) of the SOP Act.

Justice Henry determined that, although the adjudicator erroneously summarised aspects of Acciona's submissions and made statements contrary to the evidence before him, the majority of errors did not amount to jurisdictional error.  Her Honour held that, on review of the determination as a whole, the adjudicator had reviewed the material and made the considerations necessary.  It was immaterial that he had misunderstood some of the evidence and submissions, which, as the adjudicator noted, flowed from a complex and inaccessible payment schedule. 

This case is a reminder that a payment schedule, and the submissions and evidence provided in a subsequent adjudication application, should be as clear and concise as possible, because an adjudicator's misinterpretation of them is unlikely to an appealable error.

Geotechnical services contract unearths tangled liability issues

A recent NSW decision illustrates the complexity in working out liabilities under professional services contracts and their interplay with duties of care and contributory negligence under proportionate liability legislation; here, the Civil Liability Act 2002 (NSW).

In ADH Plumbing Pty Ltd v Glenashka Pty Ltd  [2020] NSWDC 593, ADH, a contractor working on the construction of roads and parking areas at Parkes district hospital, engaged K&H Geotechnical Services, to provide geotechnical and soil testing services. When problems with the roads later emerged, ADH sued K&H for damages in contract and tort (for negligence), claiming K&H breached its duty of care and skill in providing inspection and testing services.

At issue were:

  • what were K&H's contractual obligations
  • did K&H owe to ADH a relevant duty of care in tort
  • whether Glenashka (the road base supplier) was a concurrent wrongdoer

What were the services K&H was engaged to perform?

The scope of K&H's duties in its contract had a bearing on its liability in tort.  At issue, was whether the contact was for:

  • "Level 1 inspection and testing services" in accordance with the relevant Australian Standard; or
  • only ad hoc geotechnical inspection and testing services.

ADH claimed that the defendant owed it a duty of care to exercise due care and skill in providing "Level 1" services under the alleged contract between the parties.  The contract had been formed through an exchange of emails and other correspondence.  As part of the contract interpretation process, Dicker SC DCJ:

  • applied the well-established objective, businesslike approach to the construction of contracts. What would a reasonable businessperson in the position of the parties objectively conclude the contract to be?
  • considered post-contractual conduct to determine the contract's scope.His Honour found that, from January 2015, the plaintiff no longer referred to "Level 1 services" on its invoices.

Ultimately, Dicker SC J found in favour of K&H, concluding that the contract was only for ad hoc services and K&H had done what it had contracted to do. 

This case reflects a common situation with construction consultancy contracts where letters and emails, or a combination of written and verbal agreements, form the contract.  The problems in ascertaining the scope of the contract reinforce the importance of having a comprehensive written consultancy agreement in place, setting out the relevant services.

Duty of care

The finding on the scope of the consultancy contract was relevant to the duty of care owed.  The Court accepted that K&H owed ADH a concurrent duty of care but the scope of that duty was limited by the scope of the contractual retainer. 

Lastly, His Honour considered how any potential liability would be affected by:

  • Glenashka's role as a "concurrent wrongdoer" within the meaning of s34 of the CLA; and
  • whether damages should be reduced due to ADH's contributory negligence.

His Honour concluded that Glenashka did not breach its duty of care, but found that a reasonable person in the ADH's position would have obtained further geological testing before using the material. Accordingly, if a breach of duty had been established, the judge would have reduced damages awarded by 30%.

Proportionate liability provisions benefit defendants rather than plaintiffs.  Contracting out of the proportionate liability regime is permitted in NSW.  The parties had not sought to do so in this case.  However, many principals seek to contract out of the proportionate liability regime and ensure that downstream subcontractors and supply contracts contain equivalent "contracting out" provisions.

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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.