25 Nov 2021

Major Projects & Construction 5 Minute Fix 89: NSW modern slavery laws, WA security of payment, public liability insurance

By THE MAJOR PROJECTS & CONSTRUCTION TEAM

Get your 5 Minute Fix of major projects and construction news. This issue: NSW modern slavery legislation commences; WA security of payment regulations open for consultation; failure to effect public liability insurance exposes subcontractor; differing approaches to interpreting "imperfect" contract explored by NSW Supreme Court; building disputes in Victoria causing tribunal backlogs.

NSW Modern Slavery Act set to commence

The NSW Modern Slavery Act 2018 (NSW Act) will commence on 1 January 2022, three years after its enactment.

As a result of amendments introduced by the Modern Slavery Amendment Bill 2021, a number of important changes to the NSW Act have now been made, including:

  • repeal of the reporting obligation under the NSW Act, which applied to commercial organisations with a consolidated revenue of not less than $50 million, meaning that the obligation to prepare modern slavery statements now resides in the Commonwealth Modern Slavery Act 2018 (Commonwealth Act). The Commonwealth Act applies to entities with an annual consolidated revenue of at least $100 million;
  • application to NSW government agencies and local councils, who will be required to take reasonable steps to ensure that goods and services procured by them are not the product of modern slavery;
  • clarification that a government agency under the NSW Act will not include a public or local authority constituted by an Act of another jurisdiction, and may be subject to modern slavery audits by the Auditor-General;
  • that no criminal or civil liability, apart from under the Act, attaches to a person for compliance, or purported compliance in good faith, with a requirement made under the Act or for providing information to the Commissioner;
  • that "modern slavery risk orders" may no longer be made;
  • that an organisation will commit a "modern slavery offence" if it engages in conduct in another jurisdiction that would, had it occurred in NSW, constitute a modern slavery offence;
  • that State owned corporations must make and publish voluntary modern slavery statements (if not already required to do so); and
  • to broaden the functions of the Anti-slavery Commissioner.

Certain key features of the NSW Act are preserved and enhanced, notably:

  • the establishment of Australia's first substantive Anti-slavery Commissioner;
  • riskbased audits of government agency procurements;
  • procurement guidelines for government agencies and a public register identifying those failing to comply with the requirements of the NSW Act;
  • §new offences prohibiting slavery, servitude, child forced labour, and child forced marriage;
  • access to financial support, counselling and recognition payments to victims of modern slavery; and
  • the establishment of a joint parliamentary committee on modern slavery.

Consultation on key elements on draft security of payment regulations now open in WA

As reported in our 5 Minute Fix 79, new security of payment legislation has been enacted in Western Australia (Building and Construction Industry (Security of Payment) Act 2021 (WA), the WA SOP Act). Before all sections of the WA SOP Act (except for sections 1, 2 and 98) can be proclaimed, certain administrative matters must be prescribed by regulations.

The draft regulations can be accessed here and the explanatory statement is here. Key elements of the draft regulations address matters such as:

  • certain construction contracts valued above $20,000 must be in writing;
  • a payment claim given to a principal (who does not fall within any of the exceptions) for home building work over $500,000 (including GST) must include a ‘homeowners notice’. This is in recognition that homeowners are not regular participants in the building industry and will be less familiar with industry legislation;
  • adjudicators cannot consider submissions for claims valued up to $50,000 that exceed 10 pages (back and front) in size 10 font and with margins of 2.54cm; and
  • a new review adjudication mechanism providing a limited right to review by a senior adjudicator in limited circumstances.

The consultation period remains open until 21 January 2022, in line with the WA Government's action plan for completing the overhaul of the State's security of payment legislation.

No public liability or indemnity coverage? No worries! Subcontractor liable for breach of contract for failing to take out public liability policy covering head contractor

The District Court of Western Australia recently considered the interplay between an indemnity clause and a contractual obligation to effect public liability insurance in the name of other project participants. The case confirms the importance of obtaining compliant insurance policies on construction projects. In Morton v Bechtel (Western Australia) Pty Ltd [2021] WADC 108, the subcontractor (NTC) had effected public liability insurance in its name only, and failed to include the main contractor (ATCO) as a named insured. A worker was injured on site and obtained compensation from the ATCO via an agreed settlement. ATCO had been unable to recover the settlement amount under NTC's public liability insurance policy, and therefore sought damages from NTC for breach of the subcontract obligation to obtain coverage on behalf of specified project participants.

NTC sought to narrow the scope of its insurance policy obligations by reference to limitations in a separate indemnity clause in the subcontract. NTC's liability under the indemnity for claims in respect of personal injury or death were limited to those arising out of, in connection with, or as a direct consequence of "a direct negligent act or omission" caused by NTC. It was submitted that the worker's injury was not caused by a direct negligent act or omission caused by NTC such that the indemnity did not apply, and that the separate obligation to effect public liability insurance in the name of other project participants should be read down.

The District Court did not accept NTC's construction. The relevant insurance provision was not expressed in the same terms as the indemnity provision. Rather, it required NTC to effect and maintain a public liability policy whenever engaged in work under the subcontract. The District Court held that the two obligations were independent and that the scope of application of the indemnity clause did not affect the scope of application of the obligation to effect public liability insurance. ATCO established that the scope of the public liability policy required under the subcontract would have responded to the settlement agreement with the injured worker, and therefore the Court awarded ATCO damages for NTC's breach of contract in the amount of the settlement amount.

Construing an "imperfect contract": should you let the "tail wag the dog" or permit "distortion from the literal meaning"?

In Sui v Jiang [2021] NSWCA 285, the NSW Court of Appeal was required to decide between two competing interpretations of a contract..

Mr Sui had entered into a contract with Mr Jiang for the purchase of a 40% interest in a land-rich company. The central question was whether the contract gave Mr Sui rights to receive legal title over land owned by the company. Clause 4 of the contract provided Mr Sui with the following options:

  • remain a passive investor but seek to re-negotiate his guaranteed rate of return;
  • become an active investor and take part in the company's operations; or
  • choose to leave the company and to transfer his 40% interest at the then market price, with any shortfall measured against the original investment covered by Mr Jiang.

The final sentence of clause 4, which followed the third option, stated as follows: "Prior to the transfer, Party A [Mr Jiang] guarantees that Party B [Mr Sui] has legal ownership of 8 square kilometres of the agricultural land and shall provide Party B with relevant legal documents".

Mr Sui argued that the third option granted him the right to receive a transfer of freehold title over 40% of the land, while Mr Jiang argued that it only permitted the sale of Mr Sui's 40% shareholding in the corporate entity that owned the land.

Delivering the majority judgment, Leeming J held that the matter fell to be resolved by "a conventional process of ascertaining the legal meaning of a written document, replete with imperfections, by reference to the objective meaning deriving from the contractual text in light of its context and purpose". There were two difficulties with Mr Sui's interpretation. The first was that to give effect to it, a Crown lease would need to be converted to freehold title and then subdivided to create a 8 square kilometre parcel of land. The second was that the contract provided no mechanism to identify which 8 square kilometres would be transferred to Mr Sui. Other reasons for his Honour's judgment included that on Mr Sui's interpretation, the contract was silent as to how his shareholding would be treated once title in land was transferred to him. These factors indicated to Leeming J that the objective intention embodied by the contract did not involve the transfer of legal title to land.

Against the mechanical difficulties flowing from Mr Sui's preferred interpretation, Leeming J recognised that the natural meaning of the final sentence of clause 4 (extracted above) was that Mr Sui would be entitled to ownership of the land. The "measure of awkwardness" in Mr Jiang's interpretation was overcome by the majority identifying the court's task to be "to determine the meaning to be imputed to those words by reference to the contract as a whole and in context". To allow the natural meaning of one sentence in clause 4 to fix the meaning of the entire contract would have "a strong flavour of the tail wagging the dog". Accordingly, the majority held that by clause 4 Mr Sui obtained no rights to receive legal title in the land. This conclusion was reached with a recognition that there was "no way to construe this admittedly imperfectly drafted contract without there being some distortion of the literal meaning".

In a succinct dissenting judgment, Brereton J concluded that "the last sentence [or clause 4] is intractable" and consistent with pre-contract negotiations, and held in favour of Mr Sui. The dissenting judgment resolved the mechanical issues raised by the majority by recognising that the contract was drafted by lay persons and therefore should not be expected to adequately provide for such other matters as might have been addressed if the contract had been drafted by lawyers.

Victorian County Court suggests considering arbitration of domestic building disputes in Victoria in light of constraints of VCAT's capacity

The Victorian County Court recently dismissed an application for a stay on proceedings pursuant to section 57(2) of the Domestic Building Contracts Act 1995 (Vic) (DBCA). The ruling has significant implications for the assumption that "domestic building disputes" would, in practice, usually be heard in VCAT's Building and Property List.

Section 57 of the DBCA is titled "VCAT to be chiefly responsible for resolving domestic building disputes" and provides that Victorian Courts must stay proceedings arising from a domestic building dispute upon application of a party and if, among other things, "the action could be heard by VCAT". The defendant in Uber Builders and Developers Pty Ltd v MIFA Pty Ltd [2021] VCC 1677 (Burchell J, 28 October 2021) applied for a stay on proceedings in the County Court under section 57(2) of the DBCA on the basis that the proceeding "could be heard by VCAT".

Justice Burchell applied the interpretation of section 57 of the DBCA in her Honour's previous decision, Impresa Construction Pty Ltd v Oxford Building Group Pty Ltd [2021] VCC 1146, to find that plaintiffs have a "choice of jurisdiction" between VCAT and Courts. On her Honour's reasoning, the test in section 57(2)(a) of the DBCA imports case management considerations and the current backlog of matters and shortage of resources at VCAT meant that the requirements of section 57(2) were not satisfied. Burchell J made a number of important observations about the current capacity constraints of the VCAT Building and Property List, including that:

  • the next available date for a multi-day hearing in the list is approximately 14 months away; and
  • "[i]n the event the parties are interested in a faster and potentially more cost-effective determination, they are encouraged to consider whether arbitration of the dispute may be suitable".

Her Honour therefore denied the application for a stay of proceedings in the County Court.

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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.