Allens

Construction & Major Projects

Constructive knowledge 

21 March2006

In brief: Editor Nick Rudge and Articled Clerk Victoria Foster provide a brief summary of new legislation and recent cases in the construction area.

Recent cases

Energetech Australia Pty Ltd v Sides Engineering Pty Ltd [2005] NSWSC 801
Key issues
  • Entitlement to adjudication of payment under the Building and Construction Industry Security of Payment Act 1999 (NSW) (NSW SOPA).
  • Whether a determination under the NSW SOPA was void due to an adjudicator's alleged failure to correctly calculate the date a valid payment claim could be submitted by reference to work carried out under the contract.
  • When right to serve a payment claim accrues if no actual date has been specified.
Key facts

In June 2004, Sides Engineering Pty Ltd (Sides) entered into a construction contract with Energetech Australia Pty Ltd (Energetech) in which Sides was to be paid on reaching 'milestones', the second of which was 'practical completion'.

Sides claimed to reach practical completion and submitted a payment claim. Energetech responded, stating that practical completion had not been achieved and therefore nothing was payable. Sides made an adjudication application under the NSW SOPA, which was accepted by the adjudicator who found that practical completion had been reached and that payment was due. Energetech brought an action in the Supreme Court of New South Wales on the grounds that the adjudicators determination was void for failing to adhere to the principles set out in Brodyn Pty Ltd v Davenport (204) 61 NSWLR 421.

Key findings

The issue before the court was whether the adjudicator had erred in his calculation of the date a payment claim could be submitted. The court's decision rested on whether the adjudicator's determination was vitiated by the principles set out in Brodyn, which require examination of the validity of the payment claim pursuant to section 13 of the NSW SOPA.

Justice McDougall identified ss 8(2) and 13 as the provisions relevant to a payment claim. According to Justice McDougall the milestone dates set out in the contract were the reference dates for the purpose of s8(1) and therefore the right to payment accrued on the date that the milestone was achieved; ie on practical completion. His Honour stated that the issue before the court was not a factual issue of whether practical completion was reached, but rather, whether the decision should be vitiated due to the conduct of the adjudicator.

Counsel for Energetech submitted that if the payment claim was not served within the period determined in accordance with the contract then it was not a valid payment claim and there was no service pursuant to section 13(1). Justice McDougall referred to various decisions of Appeal Justice Hodgson, including Brodyn, and held that, provided that the adjudicator considers the five 'basic and essential requirements' outlined in Brodyn for the existence of a valid determination or 'bona fide addresses them', the adjudicator's decision will not be invalid.

The essential issue regarding validity in this case turned on whether practical completion had been achieved. Justice McDougall stated that it was 'strange to think' that an issue of invalidity could arise from a question of fact. His Honour decided that the document served was a payment claim for the purposes of s13(1) and that pursuant to s8(2), entitlement to serve the payment claim accrued after Sides claimed practical completion had been achieved. Furthermore, His Honour held that whether a payment claim was served in accordance with s13(4) of the NSW SOPA was a matter for the adjudicator to determine, which he had done, and therefore the adjudicator's determination was not void.

Summary
  • Where a construction contract does not specify a date for the accrual of an entitlement to a progress payment (except with reference to the work having been completed), the right to serve a payment claim accrues after the claimant claims the relevant work has been completed – it is for an adjudicator to determine whether the payment claim is valid.
  • Consequently, even an incorrect decision by the adjudicator regarding the validity of the claim will be valid provided the issue is bona fide addressed.

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Energetech Australia Pty Ltd v Sides Engineering Pty Ltd [2005] NSWSC 1143
Key issues
  • Whether applicant can be prevented from submitting a payment claim to adjudication under the Building and Construction Industry Security of Payment Act 1999 (NSW) (NSW SOPA) on basis that payment claim not made with respect to reference date under contract or was made with respect to reference date concerning which another payment claim had already been adjudicated.
  • Whether submission of payment claim to adjudicator would be misleading or deceptive in trade and commerce.
  • Whether appropriate for court to intervene at all at this stage.
Key facts

This judgment relates to the determination of preliminary questions arising from a dispute between the same parties as the case of Energetech Australia Pty Ltd v Sides Engineering Pty Ltd [2005] NSWSC 801 and in relation to the same contract. In this case, Energetech alleged that Sides was not entitled to submit the relevant payment claim to adjudication because the payment claim purported to be for a date which in truth was not a reference date under the construction contract.

The background to this dispute related to Energetech engaging Sides under a construction contract to do work which involved attaching an electricity producing device to the seabed in Port Kembla. The relevant tender documentation pointed out that the site was extreme and that sea conditions and weather were likely to impede work from time to time. Sides was to be paid on reaching 'milestones', the second of which was 'practical completion'.

The first milestone under the contract was achieved and payment made. After that milestone was achieved however, the barge that Sides used in carrying out the work was damaged by seas so large that Sides claimed they were unpredictable, resulting in significant delay in completing the contract. Sides contended that it had reached practical completion on 14 April 2005, however Energetech did not accept this because of debris on the sea floor not having been removed.

On 18 April 2005, Sides submitted to Energetech a document described as a 'final payment claim' and nine days later Energetech called on the bank guarantees. A month later, Sides served on Energetech a payment claim (First Payment Claim) under the NSW SOPA and nominated 18 May as the relevant reference date. Energetech responded by serving a payment schedule, asserting that practical completion had still not been achieved and therefore the second milestone payment was not due. It also asserted that the date for practical completion had never been extended and claimed liquidated damages. On June 2005, Sides lodged an adjudication application concerning this First Payment Claim The adjudicator issued an adjudication in favour of Sides. Sides later obtained a judgment and payment was made in August 2005. In the meantime, the sea floor debris was removed and Energetech issued a certificate of practical completion on 7 July 2005.

In August 2005, Energetech requested Sides to return to the site to remove some dynobolts that had been placed there during Sides' work. On its completion Sides forwarded the bill of its subcontractor (for $684) on to Energetech, but Energetech never paid. On 31 October 2005, Sides served another document, purporting to be a payment claim (Second Payment Claim), for a total of $983,992, after giving credit for the judgment debt it had received, with a reference date of 31 August 2005. This Second Payment Claim sought to recover claims which the adjudicator had disallowed in the First Payment Claim; the only claim for work not contained in the First Payment Claim was the $684 subcontractor bill.

Preliminary questions

The following preliminary questions were posed:

  • Whether it was appropriate to answer the following question:

'Is the reference date of 31 August 2005 referred to in the Second Payment Claim a reference date as defined in section 8 of the NSW SOPA?'

  • Whether, on the true construction of the contract and the NSW SOPA, the service by Sides on Energetech of the document purporting to be the Second Payment Claim was service of a document which would entitle Sides to apply for adjudication of the Second Payment Claim pursuant to section 17 of the NSW SOPA.
  • Whether, if Sides were to submit the Second Payment Claim to an adjudicator for adjudication under the Act, would constitute, in trade or commerce, conduct which was misleading or deceptive or likely to mislead or deceive, contrary to the Trade Practices Act 1974 (Cth) (TPA).
Key findings

No reference date argument

Justice Campbell discussed, but did not decide whether the Second Payment Claim had a reference date as defined in the Act. Justice Campbell, however, held that following the decision in Brodyn Pty Ltd v Davenport (2004) 61 NSWLR 421, the service of a payment claim without a reference date was, although a breach of ss 13(2) and 13(5) of the Act, not an essential matter for there to be a valid determination. While breaches of those provisions would provide a sound basis for an adjudicator to decline any payment pursuant to that payment claim, the non essential nature of compliance with ss 13(2) and 13(5) meant that the Second Payment Claim could still give rise to a valid adjudication.

Entitlement to adjudication of the Second Payment Claim and whether the court ought to intervene

Justice Campbell held that it was not the court's proper role to answer the second question posed for decision when that answer was sought as a way of pre empting the possibility that an adjudicator might make a mistake in coming to a determination. Justice Campbell considered the scheme of the Act, the speed of the process, the novel obligations created by the Act, and the ability of the parties to ask the court whether an adjudication was valid in accordance with the Act after it had been delivered. Justice Campbell held that this decision reflected the scheme of the Act which is of a pay-now-argue-later basis and that the time for the final adjustment of rights and remedies was not at the adjudication stage.

Whether submitting to adjudication constitutes breach of the TPA

Energetech claimed that if the Second Payment Claim was submitted it would constitute misleading and deceptive conduct, in trade or commerce, and that the TPA provides a basis for granting an injunction to prevent such conduct. Justice Campbell held that the payment claim was not misleading and deceptive nor likely to mislead and deceive the adjudicator, within the meaning of s52 of the TPA.

Energetech did not claim that it was mislead by the Second Payment Claim, rather it had the tendency to mislead the adjudicator. Justice Campbell stated that this, in itself, was not a reason why it could not be misleading and deceptive within the meaning of s52 of the TPA. However the fact that the Second Payment Claim did not purport to be a statement of anything more than what Sides claimed it was owed by Energetech, pointed towards it being unlikely to be read by an adjudicator as anything other than a contention by Sides. Further, Justice Campbell held that it was not the sort of contention that an adjudicator would simply accept without applying his or her own mind to whether it ought to be accepted. Justice Campbell also held that submitting a disputed payment claim to an adjudicator for adjudication under the New South Wales SOPA was not conduct 'in trade or commerce' within the meaning of s52 of the TPA.

Summary
  • The court will not ordinarily involve itself in the operation of a statutorily prescribed scheme, except when called on to decide where the operation of that scheme resulted in a valid decision.
  • Submitting an application for adjudication was not conduct 'in trade or commerce' as defined in s52 of the TPA.

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Hometeam Constructions Pty Ltd v McCauley [2005] NSWCA 303
Key issues
  • Whether a notice of default was valid.
  • Whether a warranty to perform building works with due diligence and within the time stipulated in the contract imposed a combined obligation.
Key facts

In July 1999, Hometeam Constructions Pty Ltd (Hometeam) contracted with McCauley for Hometeam to construct a house using the existing foundations and walls from a previous dwelling. During construction the foundations were discovered to be unsuitable for the proposed building and rectification works were undertaken in order to demolish the existing foundations and lay a new foundation slab. Numerous other delays were also encountered during construction and McCauley began to complain about the slow progress of the builders, serving a notice of default asserting that Hometeam had failed to proceed with the works regularly and with due diligence and without delay. The original expected date of completion was May 2000. On 8 August 2000 McCauley terminated the contract claiming that Hometeam had not remedied the default specified in the notice.

The contract required a notice of default to state 'the details of the breach'. The breach in question was the general obligation to perform the works 'with due diligence and within the time stipulated in the contract'. The builder submitted that the notice was invalid because it failed to provide details of the breach as required by the contract and that it only referred to the failure to proceed with due diligence.

There were three key issues before the Court of Appeal. First, whether the notice was sufficiently detailed to be valid. Secondly, whether there was a breach by Hometeam at 14 July 2000 (the date on which McCauley served the notice of default). Thirdly, whether this breach had been remedied by 8 August 2000.

Key findings

Validity of default notice

The Court of Appeal considered and affirmed the cases of Stewardson Stubbs & Collett Pty Ltd & Bankstown Municipal Council [1965] NSWR 1671 and Brenmar Building Co Pty Ltd v University of Newcastle (1999) 15 BCL 467. Appeal Justice McColl (with whom Appeal Justices Ipp and Tobias agreed) held that the practical approach to construction of notices in Stewardson Stubbs and Brenmar Buildings was consistent with the view that such notices should be interpreted in accordance with business commonsense and that 'having regard to the "contextual scene" a reasonable recipient would have had no difficulty in understanding the notice'.

The court held that notices of default are required only to direct the builder to what is said to be wrong, rather than specific items. The default in question related to a general rather than specific obligation on the part of the contractor, being the breach of a general obligation to perform the works with due diligence and within the time stipulated in the contract. As the default was of a general nature only, the level of specificity required in the notice was of a lower degree, and the test of whether the notice contained sufficient 'details of the breach' as required under the contract, was one of reasonableness.

As McCauley had complained to Hometeam over a period of time about the progress of works, in the context of the particular contract, a reasonable recipient in the position of the appellant would have been aware of the basis of the notice. Further, Hometeam's response indicated it understood what the notice alleged and the court therefore found it was not open to Hometeam to argue that the notice inadequately set out the alleged defects.

Hometeam had also argued that the contract imposed on it a joint obligation to proceed with the works 'with due diligence' and 'within the time stipulated' and that there could be no breach of this obligation unless the works were undertaken both with an absence of due diligence and beyond the contractual time stipulated. Hometeam therefore argued that the default notice was invalid as it had not identified that a time stipulation that had been exceeded or referred to any other aspect of the works that had not been undertaken with due diligence. Appeal Justice McColl rejected this argument on the basis that such a construction of the contract would not accord with a commercial and practical approach to the contract. Her Honour explained that an owner could suffer damage from both delay in completion and delay in progress during construction and that the contract intended to give McCauley the opportunity to prepare the basis for termination if Hometeam had been guilty of either sort of delay, if the delay constituted a substantial breach of the contract.

Breach and remedying the breach

The NSWCA found that the trial judge had erred in finding Hometeam was undertaking progress at a 'desultory pace'. Therefore there was no basis for McCauley to issue the notice. This finding was primarily due to two factors:

  • First, the Court of Appeal recalculated the allowable time for completion under the contract, and hence the proportion of work that should have been completed. It took a broad view of what was an agreed variation under the contract which extended the allowable time. This was particularly important given the lack of agreement by McCauley that the relevant works constituted variations.
  • Secondly, the Court of Appeal overturned the trial judge's finding that Hometeam had inadequately explained the delays. In considering the standard of proof, the court required the respondent to show that there were no circumstances reasonably preventing the builder from carrying out work and that at that rate of progress, the work would not have been completed within the relevant period.

The Court of Appeal further found that even if Hometeam was in breach when the notice of default was issued, this defect was remedied by 8 August 2000, the date that McCauley purported to terminate the contract.

Onus

The onus of proving that a contractor is in substantial breach of the requirement to carry out the building works with due diligence lies with the principal.

Delay in progress during construction could amount to failure to perform the building works with due diligence if there was a failure to carry out a reasonable amount of work by a given time, measured by reference to all the work performed under the contract or, in absolute terms, by reference to a lack of activity on the site over a significant period that could not be satisfactorily explained.

If facts established are capable of giving rise to an inference of lack of due diligence, the contractor may discharge any evidentiary onus that may pass to it, be explaining why the work progressed at that rate and adducing evidence which should be 'sufficient ... to turn the scale'.

Summary
  • Where a principal claims that a contractor has breached the term of the construction contract which requires the contractor to proceed with the work with due diligence, the notice given by the principal in relation to such breach need not identify precisely the nature of the asserted breach - merely identifying the default by repeating the words of the condition allegedly breached will be sufficient notice, as long as a reasonable recipient would understand the notice.
  • A builder may satisfactorily remedy a lack of due diligence by its activity in the period between the notice of default and the notice of termination.

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J-Corp Pty Ltd v Gilmour [2005] WASCA 136
Key issues
  • Calculation of damages for defective building work.
  • Whether damages should be based on demolition and reconstruction where mere rectification insufficient.
Key facts

In January 1996, J-Corp Pty Ltd (J-Corp) entered into an agreement with Gilmour (Gilmour) for J Corp to prepare plans (including engineer's drawings) for the construction of a house. The agreement provided that the footings were to be designed using 'engineer's detail E2', however, the certificate of inspection issued by the engineer J-Corp had retained to assess the site, stated that the site had been assessed as a class 'S' site. It recommended the use of footing detail B1, subject to the discovery of clay, in which case the recommendations would be reviewed.

J-Corp and Gilmour subsequently entered into a contract for the construction of the house. The contract referred to B1 detail footings, rather than E2 detail footings, despite the discovery of clay in the soil. This was not drawn to Gilmour's attention and the contract price was not reduced to reflect the lower costs associated with the construction of B1 detail footings. Following construction, cracking began to appear in the floor slab and the walls of the house. The house did not conform to the B1 detail footing specifications and the thickness of the floor slab measured 25 mm less than the specifications required in one area adjacent to a crack. Expert evidence established that there had been subsequent movement and cracking due to inadequacies in both the footings and the reinforcement in the slab, in addition to evidence that the house did not conform to the Australian Standards for that area's classification as a 'seismic zone'.

Original proceedings

When Gilmour did not make the final payment, J-Corp commenced proceedings in order to recover the outstanding final progress payment. Gilmour counterclaimed for damages for breach of the construction contract, among other things. The Magistrate dismissed J-Corp's claim, finding in favour of Gilmour, on the basis of the expert evidence presented in support of Gilmour's claim.  Damages were assessed on the basis that the house had to be demolished and reconstructed in accordance with the contract as the Magistrate was of the opinion that this was appropriate in order to provide Gilmour with a dwelling constructed in accordance with the contract. 

J-Corp appealed to the District Court and District Court Justice Macknay ruled that the Magistrate had failed to make a number of findings relevant to the basis for assessing damages. The appeal was allowed and remitted to the local court for determination in accordance with the reasons of District Court Justice Macknay.

J-Corp appealed from the remittal order and submitted that the Judge erred in failing to:

  • find the dwelling did not require demolition; and
  • conclude the Magistrate erred in assessing damages on the basis of the demolition and reinstatement.
Key findings

Principles

The Court of Appeal (Appeal Justices Steytler P, Wheeler and McLure) referred to Belgrove v Eldridge (1954) 90 CLR 613 where the calculation of damages was based on the difference between the contract price of the work contracted for and the cost of making the work as constructed conform to that contract. The court was of the view that the defective footings in question gave rise to 'grave instability in the building' and that in the circumstances, demolition and reconstruction were the preferred course of action, as an attempt to replace the foundations would have been a doubtful remedy in the sense that it could not be regarded as ensuring substantial performance of the contract.

The Court considered cases at different ends of the spectrum, such as Ruxley Electronics and Construction Ltd v Forsyth [1996] AC 344 and Jadon Constructions (A Firm) v Lyons [1999] WASC 310. In Ruxley, a swimming pool did not conform to the contractual specifications as to depth in a particular area. The discrepancy was minor and in no way diminished the value of the works leading the House of Lords to find that the cost of reconstruction was unreasonable in the circumstances and disproportionate to any benefit. In contrast, the court in Jadon calculated damages on the basis of demolition and reinstatement where inadequate footings had allowed movement in the foundations resulting in extensive cracking. 

Application of principles to the case

In light of the Gilmour's expert evidence, the Court of Appeal concluded that any attempt at rectification would be at best, unsatisfactory. Demolition and reconstruction would be required if the dwelling was to be compliant with the Building Council of Australia requirements. The footings as constructed proved to be grossly inadequate causing significant cracking to the slab and the dwelling and there was a significant risk of further cracking. Any attempt at rectification or repair would expose Gilmour to the risk of further cracking and would fall short of fulfilling the performance of the contract. 

Despite the dwelling being 'structurally adequate', expert opinion suggested the house would be both below the standards required by the building contract and the applicable Earthquake Standard. On the balance of probabilities the Court of Appeal viewed the defects as adversely affecting the market value of Gilmour's property and concluded that:

  • the proposed rectification works would be inadequate, impractical and deny Gilmour substantial performance of the building contract;
  • having regard to the authorities on point, the cost of the reconstruction was not out of proportion to the benefit obtained; and
  • the Magistrate was correct in requiring J-Corp to bear the cost of bringing the works into conformity with the building contract by way of demolition and reinstatement.
Summary
  • The decision is indicative of the court's willingness to calculate damages on the basis of demolition and reconstruction where the alternative will result in an inadequate and piecemeal solution to problems stemming from a builder's breaches of contract or building standards.
  • When determining how damages are to be assessed, the courts will have regard to:
  1. the significance of the defects;
  2. the practicality of rectification or repair;
  3. the reasonableness of demolition and reconstruction and the associated costs;
  4. the impact of the defects on the value of the property in question; and
  5. the level of conformity with contractual obligations.
  • The test in Bellgrove v Eldridge remains the touchstone in this area – demolish and reconstruction is recoverable where that work is necessary to achieve conformity with the contract and is a reasonable course to adopt.

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JJ McDonald & Sons Engineering Pty Ltd v Gall [2005] QSC 305
Key issues
  • Whether the adjudicator's determination was of an administrative character made under enactment (as required by section 4 of the Judicial Review Act 1991 (Qld) (JRA)).
  • Whether the adjudicator made an error of law.
  • Whether the adjudicator's determination should be subject to review.
Key facts

This case concerned an application made by a head contractor, JJ McDonald & Sons Engineering Pty Ltd (McDonald), as respondent to an adjudication application made by its subcontractor, CEPM Pty Ltd (CEPM), seeking to set aside the determination of the adjudicator made under the Building and Construction Industry Payments Act 2004 (Qld) (QLD SOPA). CEPM's progress payment claim was for $175,296, while McDonald's payment schedule admitted an amount of $22,223. In support of this amount, the schedule referred to an attached 'Day Works Evaluation Schedule', and McDonald's adjudication response included a copy of this schedule and submissions about it. CEPM had stated in its adjudication application that the schedule was not attached to the payment schedule and on request of the adjudicator provided a statutory declaration confirming its absence. The fact that McDonald included a copy of the schedule in its response came into issue due to s24(4) of the QLD SOPA prohibiting an adjudication response from including any reasons for withholding payment which were not included in the payment schedule originally served on the claimant.

McDonald argued that regardless of whether the schedule was attached, the information in the schedule could be introduced in its response as it was not new information, having been referred to in the payment schedule. The adjudicator disagreed, determining that as the schedule had not been attached to the payment schedule, it was 'new information' and therefore could not be introduced at the time of the adjudication response.

Appealing the adjudicator's decision McDonald submitted to the court that the schedule could not be treated as a new reason for withholding payment as it was merely particulars of a reason already advanced and the failure by the adjudicator to consider the schedule was a reviewable error under the JRA.

Key findings

Justice Dutney referred to the test stated by the majority of the High Court in Griffith University v Tang (2005) 213 ALR 724 for determining whether a decision is 'made under ... an enactment', being the fulfilment of the following criteria:

  • the decision must be expressly or impliedly required or authorised by the enactment; and
  • the decision must arise from the enactment and confer, alter or otherwise effect legal rights or obligations.

Justice Dutney held that although the adjudication under the QLD SOPA was of an interim and not final nature, such an adjudication did have a material effect on the parties given that the certificate of adjudication can be lodged with the court and take effect as a judgment, therefore affording the determination sufficient finality. Accordingly, Justice Dutney held that the adjudicator's decision satisfied both limbs of the Griffith test and was therefore subject to judicial review.

His Honour then moved on to consider the determination itself. Accepting that there could be debate as to whether the unattached schedule could be later referred to in the adjudication response, Justice Dutney felt however that the question as to whether the reference in the response to the schedule without it having been attached to the payment schedule was enough to constitute a reason for withholding payment was a question of fact. Errors of fact of a decision maker are not reviewable under the JRA and according to His Honour there was no evidence of any error of law, breach of natural justice, misunderstanding of the statutory requirements or failure to comply with any professional requirement on behalf of the adjudicator. Therefore, although Justice Dutney was persuaded that the decision was reviewable, His Honour held that no relevant error had been demonstrated and the application was dismissed.

It should be noted that Justice Dutney drew attention to the fact that the QLD SOPA was enacted with the express object of providing for progress payments to contractors or subcontractors irrespective of the terms of the contracts entered into. His Honour expressed concern that unless decisions made under the QLD SOPA are excluded from the operation of the JRA, the benefit of the prompt periodic payments to contracts which is enabled by the QLD SOPA (and the stated purpose of it), is likely to be defeated by applications for review.

Summary

An adjudicator's determination can be classified as a decision made under an enactment due to the ability to lodge a certificate of adjudication with the court and so that it takes effect as a judgment. Unless parliament takes steps to exclude decisions under the QLD SOPA from the operation of the JRA, such a determination will be open to judicial review.

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Lanskey Constructions Pty Ltd v Noxequin Pty Ltd (in liq) t/as FYNA Formwork [2005] NSWSC 963
Key issues
  • Validity of the adjudicator's determination.
  • Whether the adjudicator adhered to principles of natural justice and good faith.
Key facts

Lanskey Constructions Pty Ltd (Lanskey) was engaged to construct apartments in Wollongong and subcontracted out the formwork for the apartments to Noxequin Pty Ltd (Noxequin). When Noxequin sought final payment of $145,849 for the works, Lanskey rejected the claim and in turn claimed that Noxequin owed it $21,481. Noxequin lodged an adjudication application against Lanskey and the adjudicator found in Noxequin's favour. Lanskey commenced proceedings in the New South Wales Supreme Court.

Lanskey submitted that the adjudicator failed to engage in a bona fide exercise of power resulting in a denial of natural justice when assessing Lanskey's deductions to Noxequin's claims and the timing of Noxequin's payment claim. Lanskey sought an order that the adjudicator's determination was void.

Key findings

Appeal Justice Macready reviewed the principles relating to natural justice and the requirement of good faith under the NSW SOPA, referring to Brodyn v Davenport (2004) 61 NSWLR 421, a case that articulated the fundamental elements essential for a valid determination under the NSW SOPA. In Brodyn, the Court held that the NSW SOPA excluded judicial review of an adjudicator's determination as it intended for determinations to only have to comply with basic requirements. However, it held that where an adjudicator fails to comply with the basic requirements, does not exercise his powers relating to the subject matter of the legislation in a bona fide or reasonable manner, or there is some other substantial denial of natural justice, then the determination will be void. Of particular relevance in the Brodyn case was the inference drawn by the court that the legislature intended the adjudicator's receipt and consideration of the parties' submissions (as referred to in section 22(2) of the NSW SOPA) as central to the facilitation of natural justice.

Considering further the bona fide exercise of power and the requirement of good faith, Appeal Justice Macready referred to the case of Timwin Construction v Façade Innovations [2005] NSWSC 548 J in which Justice McDougall stated that for a determination to be made in good faith, 'there must be an effort to understand and deal with the issues in the discharge of the statutory function.'

Appeal Justice Macready held that Lanskey was denied natural justice by the adjudicator and declared the adjudicator's determination void. Appeal Justice MacReady held that the failure to accord the parties the fundamental requirements of natural justice necessary for a valid determination stemmed from the following:

  • the adjudicator's determination of the timing of Noxequin's payment claim was not based on evidence presented by the parties, did not deal with the argument that the parties had presented for resolution and was instead made with reference to matters that the parties had no notice of; and
  • the adjudicator failed to engage in a bona fide exercise of power in assessing Lanskey's claim for deductions. It was apparent that the adjudicator had regarded all of Lanskey's claims for deductions as set-offs and determined that set-offs could not be considered due to no superintendent having been appointed under the subcontract and the subcontract not providing Lanskey with a right to assess its own entitlement to set off. The adjudicator failed to notice, however, the clause of the subcontract that gave Lanskey an the express right to set off. Having determined there was no right to set-off, the adjudicator did not consider the submissions and evidence of Lanskey in relation to those claims such as issues of defective and incomplete work, even though section 22 of the NSW SOPA imposes obligations on the adjudicator to consider such submissions. Justice Macready held that the adjudicator was obliged to determine the amount that Noxequin was entitled to by reference to the work it had completed. Failure to do so therefore resulted in a denial of natural justice.
Summary

Where an adjudicator fails to engage in a bona fide exercise of power by failing to consider relevant submissions made by the parties or makes a determination on the basis of matters which the partners have not presented or have no notice of, the adjudicator may be taken to have denied natural justice to one or both of the parties involved.

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Pioneer Sugar Mills Pty Ltd v United Group Infrastructure Pty Ltd [2005] QSC 354
Key issues
  • Whether a payment claim was subject to the Building and Construction Industry Security of Payment Act 2004 (Qld) (QLD SOPA).
  • Whether a payment claim relating to a contract entered into before the commencement of the QLD SOPA could be subject to the Act, where the payment claim specifically related to a variation agreed to after the commencement of the Act.
  • Whether a variation agreement constituted a replacement of the original contract such that the original contract was extinguished.
Key facts

Pioneer Sugar Mills Pty Ltd (Pioneer Sugar) and United Group Infrastructure Pty Ltd (United Group) entered into a written construction contract on 15 March 2004 for the upgrade of a sugar mill for a renewable electricity generation facility. The QLD SOPA applies only to construction contracts entered into after 1 October 2004, however, the parties subsequently entered into negotiations for additional works, which became subject to a variation agreement brought into existence on 14 October 2004. The fact that this variation was concluded after 1 October 2004 was the central consideration in the dispute.

Pioneer Sugar sought a declaration in the Supreme Court of Queensland that the payment claim relating to the work under the variation was not a payment claim subject to the QLD SOPA regime. United Group contended that the variation was construction work to which the QLD SOPA applied on the basis that the variation itself was a 'construction contract' within the meaning of the Act and that the variation agreement evidenced an intention on the part of the parties to abandon or rescind the original contract, substituting in its place, the variation with effect from the agreed variation date of 14 October 2004.

Key findings

The court declared the payment claim was not one which fell within the meaning of payment claim in the QLD SOPA and therefore the QLD SOPA did not apply.

Justice Byrne was of the view that the QLD SOPA 'contains indications that it was not intended to comprehend variations which of themselves fall within a literal interpretation of "construction contract" '. Such indications included s14(1)(b)(iii), which his Honour held looks to presuppose that the QLD SOPA does not treat each variation as a separate construction contract to which the Act is to apply, as well as s15, which is concerned with a due date for payment of progress claims. On the basis of these sections, Justice Byrne held it would be highly unlikely that Parliament intended for different regimes to apply to obligations with respect to payment under the principal contract and payment of a variation which did not expressly provide for a date for payment. His Honour held therefore, that the QLD SOPA ought be interpreted in a way to restrict it to the principal contract, even where the nature of a variation is such that it would fall within the literal interpretation of the expression 'construction contract'. Unless the variation was to supplant the provisions of the original contract, the progress payment claim made in relation to that variation would not be subject to the QLD SOPA regime.

The court held that the answer to whether the variation agreement extinguished the original agreement between the parties, depended upon an objective assessment of the parties' intention. Justice Byrne acknowledged that the variation involved a substantial expansion of the scope of works to be performed by United Group and that there were several other significant alterations brought about by the variation. His Honour held however, that the 'proper conclusion to be drawn from the way in which the parties have set about putting together the restated contract', including the terms and effect of that contract, was that the consolidation of the contract was created merely for convenience and not for the purpose of extinguishing and replacing the earlier agreement.

Summary

Where a construction contract has been entered into prior to the commencement of the QLD SOPA, any subsequent variations will not invoke the statutory scheme for due date for payment. If parties intend for a varied contract to invoke this statutory scheme, the parties should make clear their intention for the varied contract to become a new contract by stating that the original contract is extinguished and is replaced by the reconstituted contract.

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Rapid Metal Developments (Aust) Pty Ltd v Anderson Formrite Pty Ltd [2005] WASC 255
Key issues
  • Whether the documentation imparted to an engineering consultant in preparation of an advice is confidential.
  • Whether the court has power to restrain an expert witness engaged by one party from giving evidence on behalf of another party.
  • Whether the role of an expert witness imposes the same duty to disclose information as that of an officer of the court.
Key facts

In September 2001, Anderson Formrite Pty Ltd (AF) subcontracted Rapid Metals Development (Australia) Pty Ltd (RMD) to supply formwork on a construction project at the Woodside Building Site (the Project). AF employed Van de Meer Consulting Pty Ltd (VDM) to inspect and certify formwork and act as consulting engineer to project. AF also retained VDM to provide advice on the cause of subsequent formwork failures (the Report). AF and RMD's relationship later became litigious and RMD's solicitors requested VDM's expert opinion on several matters in preparation for the trial.

AF sought orders that RMD be restrained from utilising, in the course of preparing its case for trial, any materials in its possession relating to dealings with VDM which comprised information associated with formwork carried out during the construction of the Project (unless the information was approved by AF or has legitimately become public knowledge).

AF claimed that VDM should be prevented from acting as an expert witness for RMD due to VDM's former employment with AF and the confidential nature of the information acquired by VDM in the process of preparing the Report. RMD claimed that like a solicitor, an expert witness has a duty as an officer of the court to employ all material available to benefit the client.

Key findings

Justice Johnson of the Supreme Court of Western Australia stated that in contrast to the role of a solicitor or barrister, the role of a professional adviser called as an expert witness is limited to specified factual assumptions made known to the court. The Court therefore lacks the power to prevent an expert witness giving evidence on behalf of another party unless the information gained from the original employing party is confidential. Having considered relevant case law in detail, His Honour held that VDM's relationship with AF imposed an obligation of confidentiality in respect of all documentation not in the public arena and granted the application sought by AF to return those documents.

His Honour was not prepared to make any order restraining the expert from giving evidence.

Summary
  • While an expert witness does not have the same duty to the court as a barrister or solicitor, an expert witness' former role as an adviser to the other party to the proceedings does impose an obligation of confidentiality towards that party.
  • That obligation does not prevent the expert from 'changing sides', unless the preservation of confidential information is at risk.

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Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd (2004) 220 ALR 267
Key issues
  • Valid assignment of a cause of action in contract.
  • Whether duty of care was owed by engineers to the contractor.
Key facts

Mayne Nickless (Mayne) contracted Rickard Constructions Pty Ltd (Rickard Constructions) to construct some paving. The services of civil engineers Rickard Partners Pty Ltd (Rickard Partners) and geotechnical engineers Jeffrey & Katauskas (J&K) were also employed. The paving failed three days after it was completed and Rickard Constructions agreed to rectify the defective paving in return for Mayne assigning any claims or causes of action it may have against Rickard Partners and J&K to Rickard Constructions. Pursuant to this assignment, Rickard Constructions sued Rickard Partners and J&K for breach of contract. In the alternative, Rickard Constructions sued Rickard Partners and J&K for negligence.

Key findings

Assignment of claims

The court held that Mayne could not assign its causes of action against Rickard Partners and J&K to Rickard Constructions stating that a cause of action in contract may only be assigned if the assignee has 'a genuine and substantial or genuine commercial' interest in the enforcement of that contract. In practical terms, a deed of assignment will not create a sufficient interest - the interest must exist (somewhat at least) independently from the assignment. Justice McDougall held that Rickard Constructions did not have a sufficient interest because it did not have to rely on the causes of action to be compensated; while Mayne had the resources to pay Rickard Constructions. Further, Rickard Constructions did not have a pre-existing interest in the cause of action or an interest in Mayne's business affairs.

Negligence

Justice McDougall held that neither Rickard Partners or J&K owed a duty of care to Rickard Constructions, in essence due to Rickard Constructions not being in a position of vulnerability. To show such a duty of care was owed, Rickard Constructions' vulnerability and its 'inability to protect itself from the consequences of [Rickard Partners or J&K's] want of care' needed to be found. In assessing any vulnerability on Rickard Constructions' part, the existence and terms of any contract or retainer were considered. In this case, Rickard Constructions was not vulnerable to Rickard Partners' (potential) negligence because Rickard Partners, not Rickard Constructions, was liable to compensate Mayne for a design defect. Further, the limited scope of J&K's retainer prevented a duty of care arising in favour of Rickard Constructions.

Summary
  • A cause of action for breach of contract may only be assigned if the assignee has a genuine and substantial or genuine commercial interest in the enforcement of that contract, independent from the assignment itself.
  • Vulnerability and an inability to protect oneself from the consequences of another party's want of care are relevant factors in establishing the existence of a duty of care. In assessing vulnerability, the existence and terms of any contract or retainer should be taken into account.

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Scott Carver Pty Ltd v SAS Trustee Corporation [2005] NSWCA 462
Key issues
  • Whether a right to damages was affected by the value of the property not being affected by defects.
  • Whether contractual limitation period protected against liability.
  • Whether defendant's liability reduced by settlement between plaintiff and third party.
Key facts

This case involved an appeal by the architect, Scott Carver Pty Ltd (Carver) to the New South Wales Court of Appeal from orders made by Master Macready in favour of SAS Trustee Corporation (SAS), adopting in part a special referee's report. The project involved the joining of two towers owned by SAS by means of a glazed pavilion. Defective waterproofing, paving and steel pergola works were alleged.

The waterproofing claims were founded on water penetration of the pavilion. Carver had specified a membrane to prevent water penetration, but part of that membrane was mistakenly cut away before installation of the glass and the glass contractor went ahead and installed the defective membrane. Carver devised remedial measures which were not adequately carried out by the contractor under the supervising construction manager.

After the works were completed, but with the defects still in place, SAS sold the property to a trust in which it had a 50 per cent interest.

Referee's findings

SAS's claims were heard by a referee who found Carver to be partly liable for the waterproofing claims, alongside the contractor and construction manager, but found that Carver was protected from liability due to a limitation clause in the contract. The referee also found that if Carver had not been protected from the proceedings. Carver's liability would have been reduced by 25 per cent due to the terms of a settlement entered into by SAS with the glass contractor (which provided for a reduction in the amount payable under a judgment obtained by SAS against Carver to account for the glass contractor's liability). Carver was not found to be liable for either the pergola steel works or the paving claims.

The referee found that the defects did affect the value and utility of the works and that it was reasonable to rectify the defects, even though the defects did not affect the valuation of the property at sale. The referee rejected the general submission that SAS should recover no damages as:

  • it had not performed any rectification work;
  • the defects had not resulted in any diminution in the value of the property; and
  • SAS had sold the property.
Master's findings

The Master found that Carver was liable to contribute 15 per cent of the total sum of $601,276 for the waterproofing claims. Having adopted the referee's findings that Carver was entitled to a 25 per cent reduction in its liability because of the terms of settlement, the Master found that Carver was liable for 25 per cent less than the other defendants and adjusted the contributions accordingly. He did not adopt part of the referee's report however, in finding that Carver was not protected by the limitation clause included in its contract.

On the general submission that SAS was not entitled to any damages, the Master agreed with the referee's conclusions finding that SAS was entitled to the costs of rectification of the defects regardless of the fact that the defects did not reduce the value of the property or the fact that the property had been sold.

Key issues on appeal

The relevant issues on appeal included:

  • whether SAS could recover any damages having regard to the referee's findings as to value and the sale of the property;
  • whether Carver was protected by the limitation provision in its contract; and
  • whether the damages recoverable from Carver should be reduced by 25 per cent because of the settlement with the glass contractor.
Key findings

Recovery of damages regardless of value and sale of property

All three judges came to the conclusion that damages should be awarded on the basis of reasonable cost of rectification and upheld the Master's decision on this issue. Appeal Justices Bryson and Ipp had slightly different approaches however to that of Appeal Justice Hodgson.

Appeal Justice Hodgson considered the parties' submissions and the case law put forward by their respective counsel. Appeal Justice Hodgson stated that Bellgrove v Eldridge (1954) 90 CLR 613 establishes that damages can be recovered on the basis of cost of rectification where the owner may or may not carry out such rectification as long as it would be reasonable to do so, and that this would only be displaced if there were supervening circumstances that show with substantial certainty that the rectification would not happen. According to Appeal Justice Hodgson the sale of the property and the finding that the value of the property was not affected by the defects was not sufficient to displace the Bellgrove principle.

In contrast to Justice Hodgson's finding that certain circumstances might displace the Bellgrove principle, Appeal Justice Bryson (with whom Appeal Justice Ipp agreed) held that Bellgrove remains the binding authority and the sale of the property was not a valid reason for concluding SAS did not suffer loss. His Honour paralleled the situation with that if SAS had continued to own the building, left it unrepaired and decided to spend its damages on something else, rather than it being a case of the building becoming useless or repairs achieving nothing due to some supervening change in planning law or administrative decision. According to Appeal Justice Bryson the Master had disposed of the issues correctly and in accordance with the authority of Bellgrove.

Limitation clause

The court held that Carver was not protected by the limitation provision in its contract with SAS.

Justice Hodgson agreed with the Master that the period of liability need not have coincided with the duration required for the insurance policy. The provisions in the contract relating to liability were wider that the liabilities that would have been covered by the professional indemnity insurance and the period covered by the professional indemnity insurance may have been in respect of claims made rather than the occurrence of liability. The court also agreed with the Master that the selection of six years suggested that the parties did not intend to abridge the limitation period of liability for contract, but rather to remove indeterminacy concerning the liability for tort. Although there was some question as to whether the six years was to run from the conclusion of services or from each breach of the contract, Justice Hodgson found it unnecessary to decide on this issue given that in either case, the limitation would not protect Carter. Appeal Justice Ipp held that the period of six years never commenced to run at all as on the terms of the liability provisions, it should have commenced from the date of an agreement required to be reached between the parties as to the requirements of Carver's insurance policy and such an agreement was never made.

Reduction of liability due to settlement agreement

The Court also agreed with the Master's finding that Carver's liability should be reduced as a result of SAS's settlement with the glass contractor. SAS had challenged the Master's decision that Carver's liability should be reduced by 25 per cent arguing that the glass contractor's breach was not an operative cause due to the subsequent conduct of the other defendants. The court held that the issue to be addressed was whether, notwithstanding the intervening acts of Carver, the contractor and the construction manager, the glass contractor's breach was to be seen, as a matter of common sense and experience, as having caused SAS's loss . It was held that the glass contractor's breach impeded the performance of works intended to waterproof the pavilion and the fact that the efforts to overcome the problem created by the glass contractor were not fully effective was insufficient to destroy the causal connection between the glass contractor's breach and the waterproofing problems.

Summary

The principle of Belgrove v Eldridge (1954) 90 CLR 613 remains good law and the sale of property at a non-reduced value prior to rectification of defects will not disentitle a principal from recovering the costs of rectifying the defects.

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Swintons Pty Ltd v Age Old Builders Pty Ltd [2005] VSCA 217
Key issues
  • Whether a determination was void for breach of the Domestic Building Contracts Act 1995 (Vic) (DBCA) where the dispute had been referred to an independent referee.
Key facts

On 28 April 1999 Age Old Builders Pty Ltd (AOB) entered into a contract with Swintons Pty Ltd (Swintons) for the construction of four townhouses on Swintons' land costing over $2 million. The contract was a 'major domestic building contract' as defined by section 3 of the DBCA. The contract was 'silent' as to whether any dispute between the parties was to be referred to arbitration, but gave either party the right to resort to litigation in respect of such a dispute.

During the course of the works a number of disputes arose between the parties and they engaged an independent building consultant to assess these matters and make a determination, agreeing that the determination delivered by the referee would be final and binding. The referee first made a determination as to the quality of the builder's work, finding largely in Swintons' favour and requiring that AOB fix various defects before a certificate of practical completion could properly be issued. After AOB fixed the defects and a further certificate of payment was issued, Swintons refused to pay the amount required by the certificate of payment.

Months after the first determination, the referee delivered the second determination on the remaining issues in dispute. The referee determined that AOB was entitled to be paid $150,979 by way of extension of time costs and that the Swintons be paid $25,300 by way of liquidated damages. In the meantime, however, prior to this second determination, AOB had issued a proceeding in the Victorian Civil and Administrative Tribunal (VCAT) claiming the money owed under all of the unpaid certificates, plus interest. AOB subsequently added to its claim a claim of $150,979 for extension of time costs.

VCAT determination

Swintons claimed that the second reference to the independent building consultant was an 'arbitration agreement' which was therefore void by reason of the operation of section 14 (a provision prohibiting terms in domestic building contracts from requiring a dispute under the contract to be referred to arbitration) and s132 (a provision preventing contractual exclusion of the DBCA) of the DBCA, and that as a consequence the second determination had no effect. VCAT made orders in accordance with Swintons argument and AOB appealed with leave to the Victorian Supreme Court. The primary judge allowed the appeal holding that the second reference did not breach ss 14 and 132 of the DBCA and concluded that, on its proper construction, s14 only prohibited compulsory references to arbitration of future disputes, not ad hoc references to arbitration of existing disputes. His Honour held that, since the second reference was concerned only with a dispute that was current, it was not rendered void by the section.

Swintons successfully sought leave to appeal to the Victorian Court of Appeal.

Key findings

The Court of Appeal dismissed Swintons' appeal and upheld the primary judge's findings. In rejecting Swintons' submissions, Justice Chernov held the following:

  • although the DBCA contemplates that the Tribunal is to be the primary forum for the resolution of disputes, it is not the sole forum;
  • the contention that s14 encompassed both future and existing domestic building disputes was premised on the assumption that the DBCA was primarily concerned with benefiting and protecting owners. In Justice Chernov's view the DBCA operates to confer benefits on both owners and builders who are parties to such agreements;
  • on the plain reading of s14 it is apparent that it only prohibits requirements in contracts that future domestic building disputes be referred to arbitration; it does not render void agreements that refer an existing dispute to arbitration; and
  • examination of extrinsic parliamentary materials makes it clear that s14 was implemented in order to eliminate the compulsion in standard domestic building contracts to refer all future disputes to arbitration and that Parliament did not intend to prevent parties from agreeing to refer an existing domestic building dispute to arbitration. According to the Second Reading Speech, relevant reports had made recommendations that 'mandatory arbitration clauses be prohibited', but arbitration be retained as an avenue for dispute resolution in circumstances where both parties agreed to that course in a specific instance.

Justice Chernov held that it was clear that Parliament specifically contemplated that there would be no prohibition of references to arbitration of domestic building disputes where both parties agreed to such a course. 'What Parliament intended to proscribe by s14 were clauses in domestic building contracts that compelled reference to arbitration of future disputes under them'.

Summary

Although the DBCA prohibits mandatory arbitration clauses, where both parties agree on an ad hoc basis to arbitration, they will not be prevented from following such a course

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Thiess Services Pty Ltd v Mirvac Queensland Pty Ltd [2005] QSC 364
Key issues
  • A Remediation Action Plan (RAP) under the Environmental Planning Act 1995 (Qld) (EPA) is formulated by the parties identifying the process by which contaminated sites are to be remediated.
  • Whether the contractor was obliged to remediate the site to render it suitable for any land use or only if it could be done economically.
  • Whether the obligation to remediate was to be determined by reference to the RAP.
Key facts

On 25 September 2003, Thiess entered into a lump sum contract with Mirvac in the form of AS 2124-1992 in relation to a parcel of land which included the site of a former gas works (the Contract). The land was heavily contaminated. The history of the site and its extensive contamination were made known to Thiess prior to the contract being entered into and Thiess was furnished with an RAP and various technical reports on the contaminants. The contract included a warranty that required the works, when completed, to comply with the contract, other requirements of the RAP and the requirements of all authorities (including the authority administering the EPA). The definition of works in this warranty expressly included the remediated site.

Parties' claims

Mirvac asserted that Thiess had an absolute obligation under the Contract to remediate the land to the extent necessary to render it suitable for any land use; Mirvac's intention being to undertake a large residential and commercial development on it. Thiess contended that the obligation to remediate the site to such a standard only existed if it could be done economically. Thiess sought a declaration as to the contents of the obligation to remediate the land under the Contract.

Key findings

The court applied the well recognised principles that commercial contracts are to be construed with a view to making commercial sense of, and giving effect to, the intentions of the contracting parties. With this principle in mind, Justice Muir considered and compared the factors leaning towards each party's interpretation of the Contract, eventually ordering that Thiess' application be dismissed after having come to the conclusion that the considerations favouring Mirvac's construction of the Contract outweighed those favouring Thiess.

The identification of the scope of the work required to be undertaken by Thiess was critical to the resolution of the problem as to the extent of remediation required, and how the Contract was to be interpreted in this respect. Justice Muir also considered it was necessary to undertake an analysis of the language of the Contract and the words alleged to limit Thiess' duty to perform the works. His Honour embarked on a detailed examination of the meaning of the words 'Works' and 'Remediate' in the context of the Contract, the object of the Contract and the requirements under both the technical specification and the RAP. Justice Muir came to the conclusion that although these factors, particularly references to the technical specification and the RAP, tended to support the construction of the Contract advanced by Thiess, namely, that the obligation to fully remediate the site only existed if it could be done economically, such a construction was likely to lead a to a commercially unrealistic result.

Justice Muir held that a consideration operating strongly against Thiess' construction of the Contract was the difficulty it would cause the administration of the Contract: it would mean that full remediation would not be required on parts of the site which could not be economically remediated or where it would be unreasonable to require full remediation on grounds that such remediation would be uneconomic. In addition, Muir J was of the view that the Contract being a lump sum meant that the parties had negotiated a price with regard not only to estimates of the quantum of the works made by Thiess, but also to the risk that site conditions might be worse and necessary remedial works might be more difficult than anticipated. This was also made clear in the tender documentation provided to Thiess. Further, by a special condition, the contract specified that any form of contamination would not constitute a latent condition and expressly excluded any warranties or representations on Mirvac's behalf as to the existing site or subsurface conditions. Justice Muir concluded that it was clear from the terms and proper effect of the Contract that the work was to be undertaken by Thiess at its own risk for the lump sum price.

Justice Muir accordingly ordered that Thiess' application be dismissed.

Justice Muir stated:

It is apparent from the foregoing that, although there are strong indications in favour of the construction advanced by the contractor, it is possible to arrive at that conclusion only by a circuitous route which attributes contractual roles to provisions which are not worded in the usual language of contract. This gives rise to the concern that such a construction might give [the relevant technical specification clauses] an effect which was never intended.

Summary

  • Courts continue to apply the well-recognised principles that commercial contracts are to be construed with a view to making commercial sense of them and giving effect to the intention of the parties.
  • Parties to construction contracts need to ensure that the detail in any technical specification document and other documents incorporated by reference into the contract are consistent with the contractual purpose and intention of the parties' agreement.

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Walker v CitiGroup Global Markets Pty Ltd [2005] FCA 1866
Key issues
  • Interest on damages awarded for breach of section 52 of the Trade Practices Act 1974 (Cth) (TPA).
  • Basis of costs to be awarded.
Key facts

The applicant (Walker) sought payment of interest on damages previously awarded under s52 of the TPA pursuant to s51A of the Federal Court Act 1976 (Cth) (FCA). The respondent argued interest should be denied because Walker delayed his application and because there were procedural defects in his application.

Walker also sought costs on an indemnity basis up to October 2003, and costs on a party-party basis after that date.

Key findings

Interest was awarded at the current commercial rate of interest. Under s51A of the FCA, there is a presumption that interest is to be awarded unless good cause is shown to the contrary. In this case, Walker applied for interest almost immediately after reasons for judgment were delivered and before judgment was pronounced and final orders entered. Therefore, there was no relevant delay in making the application for interest and no procedural defect. In determining the interest rate to be applied, the only relevant consideration is the current commercial interest rate – the applicant's financial position is irrelevant.

Costs were (partly) awarded on an indemnity basis because the respondent failed to provide adequate discovery. These costs were to be awarded for the time period (not determined in the case) that the inadequate discovery affected the proceedings.

Summary

Where no good cause is shown to the contrary s51A of the FCA contains a presumption that interest is to be awarded. In determining the interest rate to be applied, the only relevant consideration is the current commercial interest rate.

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New or proposed legislation

State Development and Public Works Organisation and Other Legislation Amendment Act 2005 (Qld)

The State Development and Pubic Works Organisation and Other Legislation Amendment Act 2005 (Qld) was assented to and commenced on 28 November 2005. The objectives of the Act are to:

  • update and clarify certain provisions regarding environmental coordination for significant projects in Queensland;
  • improve the process for environmental assessment of significant projects in Queensland; and
  • provide for a coordinated system of public works organisation.

More specifically, the Act imposes time lines for the finalisation of terms of reference and for the completion of an environmental impact statement (EIS), removes the requirement to give reasons for each condition of recommendation in the Coordinator General's report evaluating the EIS and enables the Coordinator General to evaluate changes made to a significant project after the completion of his or her report. The Act also enables the Coordinator General to include environmental and planning conditions for significant projects in a lease or a licence under the Petroleum and Gas (Production and Safety) Act 2004 (Qld) and makes a number of other minor and consequential amendments to that Act.

Proposed Victorian Building Regulations

The Victorian Building Commission has released the Building Regulations Exposure Draft and the accompanying Regulatory Impact Statement, with both documents open for public comment until 17 February 2006.

The proposed Regulations will replace the current Building (Interim) Regulations 2005 (Vic). One of the objectives of the proposed regulations includes remaking amendments, regulating matters and prescribing standards relating to the design, construction, demolition, use and maintenance of buildings and places of public entertainment. Further objects consist of prescribing matters and requirements in relation to:

  • the design and siting of single dwelling buildings;
  • swimming pool, spa and fire safety;
  • registration of cooling tower systems;
  • accreditation of building products, construction methods, designs, components and systems connected with building work;
  • registration of building practitioners; and
  • fees in respect of matters before the boards and committee.
Creation of the Housing Guarantee Claims Fund in Victoria

As at 25 January 2006, all provisions of the House Contracts Guarantee (Amendment) Act 2005 (Vic) have now been proclaimed by Government Gazette. The Act amends the House Contracts Guarantee Act 1987 (Vic) by establishing the Housing Guarantee Claims Fund, giving administrative responsibility for this fund and for the Domestic Building (HIH) Indemnity Fund to the Victorian Managed Insurance Authority. The act also result in consequential amendments to the Building Act 1993 (Vic) and the Domestic Building Contracts Act 1995 (Vic).

Building and Construction Industry Security of Payment (Amendment) Bill 2006 (Vic)

This Bill was introduced into the Victorian Parliament on 7 February 2006.

In introducing the Bill, the Minister stated that the Bill would 'amend the Building and Construction Industry Security of Payment Act 2002, to make further provision with respect to payments for construction work and for the supply of related goods and services under construction contracts and for other purposes.' In addition, he stated that it would 'improve the Act's clarity and also its operation, and it will increase the consistency between our legislation and that of New South Wales and Queensland.'

Debate on the Bill has been adjourned until the resumption of parliament. Parliament is not due to sit again until 28 March 2006.

The Bill:

  • expands the application of the Victorian Act to include a wider range of payments, including final payments, single payments and milestone payments;
  • allows subcontractors to use the adjudication process to access amounts clients or head contractors hold on trust for subcontractors until works are completed;
  • excludes claims for damages, delay costs and latent conditions from progress payment claims — these cannot be claimed under the Victorian Act;
  • excludes certain disputed variation claims from progress payment claims where the contract provides a mechanism for determining whether there is an entitlement to be paid for a variation and for determining the quantum and due date for such payment — a progress payment claim for such amounts cannot be made under the Victorian Act;
  • provides that, where an adjudicator's determination steps beyond the scope of the Victorian Act, those parts of the determination that are within the adjudicator's power are saved;
  • introduces a review process for aggrieved parties to seek review of an adjudicated determination (but only in circumstances where the respondent has supplied a payment schedule prior to adjudication and where the adjudicated amount is at least $100 000 and only on the ground that the adjudicator has taken into account amounts which are excluded by the Victorian Act);
  • creates an expedited process (through 'adjudication certificates') for enforcing statutory liability through the courts — essentially an alternate means of recovering adjudicated amounts — modelled on the New South Wales system (under which a respondent may not bring any cross claim or raise any defence in relation to any matters arising under the construction contract);
  • removes the entitlement of the respondent, after an adjudicator has made a determination, to provide security for payment rather than money, and requires the respondent to pay the adjudicated amount;
  • requires the respondent, if the respondent applies for review of an adjudicator's determination, to pay undisputed amounts to the claimant and to pay disputed amounts into a trust account;
  • confers on claimants a statutory entitlement to a lien over unfixed goods to the value of unpaid amounts (although this right will not take precedence over any pre-existing right over the goods such as where the client has already paid for them);
  • introduces time limits on the making of payment claims;
  • introduces further restrictions on the claimant's right to suspend work when payment is not made by the due date and requires the claimant to promptly return to work when paid;
  • introduces protections for claimants against any liability for losses resulting from the suspension of works;
  • extends the scope of the current 'no contracting out' provision; and
  • prevents 'adjudicator shopping' by claimants seeking favourable determinations.

Contributors: Nick Rudge, Jim Ritchie, Victoria Foster, Fiona Galbraith, Paul Klug, Chris Munroe and Laura Deschamps.

For further information, please contact:

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