CONSTRUCTION LAW UPDATE NOVEMBER/DECEMBER 2014

WWW.CORRS.COM.AU

The information contained in this publication is intended as an introduction only, and should not be relied upon in place of detailed legal advice. Some information has been obtained from external sources, and Corrs cannot guarantee the accuracy or currency of any such information. The information contained in this publication was current as at November 2014.

CONTENTS

Our Thinking..................................... 3 Royal Commissions............................ 4 The Royal Commission into Trade Union Governance and Corruption.................. 4 Recent Developments In Arbitration...... 5 IAMA Arbitration Rules 2014 Adjudication: The New Security Of Payment Lanscape............................. 6 Recent Commonwealth Decisions......... 8 Brookfield Multiplex Ltd V The Owners— Strata Plan No 61288 (2014) 88 ALJR 911..................................................10 Australian Financial Services And Leasing Pty Ltd V Hills Industries Ltd (2014) 88 ALJR 552......................................14 Robinson V Kenny [2014] FCA 988 (26 September 2014)..........................16 Recent Western Australian Decisions.. 20 Pipelines Services WA Pty Ltd V ATCO Gas Australia Pty Ltd [2014] WASC 10 (S) (7 May 2014)......................................22 Kellogg Brown & Root Pty Ltd V Doric Contractors Pty Ltd [2014] WASC 206 (10 June 2014)...................................26 Alliance Contracting Pty Ltd V James [2014] WASC 212 (19 June 2014)...........28 Alliance Contracting Pty Ltd And Tenix SDR Pty Ltd [2014] WASAT 136 (13 October 2014)...............................30 All Roofs Pty Ltd V Southgate Corporation Pty Ltd [2014] WASC 155 (30 April 2014)...................................34 Recent Western Australian Legislative Developments...................................37

Recent Queensland Decisions............ 38 Conveyor & General Engineering Pty Ltd V Basetec Services Pty Ltd And Anor [2014] QSC 30 (7 March 2014)...............40 Melisavon Pty Ltd V Springfield Land Development Pty Ltd [2014] QCA 233 (16 September 2014)..........................44 J Hutchinson Pty Ltd V Cada Formwork Pty Ltd & Ors [2014] QSC 63 (7 April 2014)............................................ 46 Beyfield Pty Ltd V Northbuild Construction Sunshine Coast Pty Ltd [2014] QSC 12 (14 February 2014).............................48 Wiggins Island Coal Export Terminal Pty Ltd V Sun Engineering (Qld) Pty Ltd & Anor [2014] QSC 170 (31 July 2014).......50 Recent Queensland Legislative Development .................................. 52 Reform Of The Building And Construction Industry Payments Act 2004 (Qld).........52 Recent Changes To Domestic Building Contracts In Queensland.....................55 Recent New South Wales Decisions..... 56 Mainteck Services Pty Ltd V Stein Heurtey SA (2014) 310 ALR 113........................58 Recent Victorian Decisions................ 62 Brirek Industries Pty Ltd V Mckenzie Group Consulting (Vic) Pty Ltd [2014] VSCA 165 (6 August 2014)....................64 Subway Systems Australia V Ireland [2014] VSCA 142 (1 July 2014)...............66 Recent Victorian Legislative Developments................................. 68 Building Legislation Amendment Bill 2014 (Vic)..........................................68

Links To Our Recent Thinking............. 69 Contacts......................................... 70 Brisbane..........................................70 Melbourne........................................71 Sydney.............................................72 Perth...............................................73

WELCOME TO THE LATEST EDITION OF CORRS CONSTRUCTION LAW UPDATE

THIS PUBLICATION

This publication provides a concise review of, and commercially focussed commentary on, the major judicial and legislative developments affecting the construction and infrastructure industry in the past 5 months. It is a useful resource to assist in-house practitioners and commercial managers with keeping up to date with recent legal developments and current legal thinking. We hope that you find it interesting and stimulating.

OUR THINKING Corrs regularly publishes thinking pieces which consider issues affecting various sectors of the domestic and global economies. We have included at the end of this Construction Law Update links to some of our recent thinking on issues affecting development in arbitral practice as well as the construction industry generally.

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ROYAL COMMISSIONS

THE ROYAL COMMISSION INTO TRADE UNION GOVERNANCE AND CORRUPTION The Royal Commission into Trade Union Governance and Corruption was established on 13 March 2014 by the former Governor-General of the Commonwealth of Australia, Her Excellency the Hon Quentin Bryce AC CVO. The Hon John Dyson Heydon AC QC, former judge of the High Court of Australia, was appointed to lead the Royal Commission in accordance with the Terms of Reference as set out in the Letters Patent. The Commissioner is to make inquiries into and report upon the governance arrangements of separate entities established by employee associations or their officers. Each state has also established a commission into Trade Union Governance and Corruption in that and formally appointed the Commissioner the Honourable John Dyson Heydon AC QC to conduct the Inquiry. Counsel assisting are Jeremy Stoljar SC, Michael Elliott and Fiona Roughley.

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In the Terms of Reference the GovernorGeneral has directed the Commission to inquire into and report on: a. the governance arrangements and alleged financial irregularities associated with the affairs of trade unions, related funds, organisations, accounts and financial arrangements; b. m  atters relating to the activities of entities or funds established by, or related to, the affairs of trade unions, as well as the adequacy of existing laws as they relate to the governance and financial management arrangements of these entities; c.

allegations involving union officials establishing and benefitting from funds or accounts set up for purposes unrelated to the needs of their members, and the conduct of officers of relevant entities.

The inquiry will also cover bribes, secret commissions or other unlawful payments made in the context of these entities. The Royal Commission has conducted hearings since 9 April 2014 into the Workplace Reform Association, the Construction, Forestry, Mining and Energy Union, the Transport Workers Union, the Australian Workers Union, and the Health Services Union. The Attorney-General has written to the Governor-General requesting an extension of the Royal Commission. The Commissioner is to provide an interim report on or before 15 December 2014. The Commissioner is to provide a final report of his findings and recommendations on or before 31 December 2015.

RECENT DEVELOPMENTS IN ARBITRATION

IAMA ARBITRATION RULES 2014 In May 2014, the Institute of Arbitrators & Mediators Australia (IAMA) launched its new Arbitration Rules which apply from 2 May 2014 where parties submit a dispute to arbitration under the IAMA Arbitration Rules, the IAMA Fast Track Arbitration Rules or the Rules for the Conduct of Commercial Arbitrations (including the Expedited Commercial Arbitration Rules). IAMA commenced a review of its rules in 2013 following the overhaul of the domestic arbitration legislative regime through the introduction of the new Commercial Arbitration Acts across Australia. The review of the IAMA Arbitration Rules included consultation with IAMA’s members and stakeholders.

The IAMA Arbitration Rules 2014 are largely the UNCITRAL Rules. Where departures were required the drafting committee was guided by the Australian Centre for International Commercial Arbitration rules (the ACICA Rules). The IAMA Arbitration Rules 2014 are more comprehensive than the previous 2007 version and provide more detail on the arbitral procedure including pleadings, hearings and evidence. The new rules also deal with issues not previously dealt with such as the process for challenging an arbitrator, the arbitrator’s fees and the costs of the arbitration. The IAMA Arbitration Rules 2014 replace the Fast Track Arbitration Rules and require all awards in an arbitration to be delivered within 365 days of the appointment of the arbitral panel.

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ADJUDICATION: THE NEW SECURITY OF PAYMENT LANDSCAPE

CALLS FOR HARMONISATION AND REFORM In June 2014, the Society of Construction Law Australia published a ‘Report on Security of Payment and Adjudication in the Australian Construction Industry’, following an investigation including surveys of users of the security of payment regimes. The report (which was made available to the Society’s members) expressed the view that the East Coast Model “has not been successful, and is now causing considerable damage to the construction industry.” In the report, the Society calls for reform of the security of payment legislation and national harmonisation. The Society considers that appropriate national legislation would be along the lines originally proposed by the Cole Royal Commission, which is heavily based on the West Coast Model legislation in Western Australia and the Northern Territory. It appears that the Society’s call has not been heeded. Not only does there seem to be no desire by State and Territory governments to harmonise their legislation, current and proposed reforms are increasing the differences in the legislation between jurisdictions.

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“Competitive federalism” is a buzzword du jour. And it is also the trend for security of payment legislation across Australia, as has been demonstrated by recent developments.

NEW SOUTH WALES REFORMS Significant changes to the New South Wales legislation came into effect for contracts entered into from Easter Monday, i.e. 21 April 2014. Briefly, they are:

1. No magic words In general, payment claims under the New South Wales legislation do not require the statement that they are made under the Building and Construction Industry Security of Payment Act 1999 (NSW). Instead, all claims for payment (as long as they identify the construction work or related goods or services to which they relate, and state a claimed amount) will be claims under the Act.  he requirement for the magic words T remains for claims made under a “construction contract connected with an exempt residential construction contract” (i.e. a contract for residential building work under the Home Building Act 1989 (NSW)

2. Head contractor’s supporting statement Head contractors must accompany a payment claim with a “supporting statement”. This is a prescribed form with a declaration by a person in a position to know the truth of the matters that “to the best of [their] knowledge and belief, all amounts due and payable to subcontractors have been paid (not including any amount identified in [an] attachment as an amount in dispute).”1

WESTERN AUSTRALIAN REFORMS The failure to accompany a payment claim is an offence, punishable by a fine of $22,000. If the supporting statement is knowingly false, there is a further penalty of $22,000 or three months’ imprisonment (or both).

3. Possibility of trust accounts for retention money There are provisions for regulations to require a head contractor to hold retention money in trust for subcontractors. So far, there have been no such regulations.

4. Prohibition of long payment provisions For contracts entered into from 21 April 2014, payment terms from a principal to a head contractor cannot be more than 15 business days, and payment terms from a head contractor to a subcontractor cannot be more than 30 business days. As the changes only apply to contracts entered into from April 2014, there have been no published decisions relating to the operation of the new and amended provisions.

QUEENSLAND REFORMS Significant reforms have been enacted— but are not yet in effect—in Queensland. They make the Queensland regime radically different from the other “East Coast Model” statements. The reforms are generally—but not entirely—for the benefit of respondents.

The Construction Contracts Act 2004 (WA) required the Minister for Commerce to review the operation and effectiveness of the Act “as soon as practicable after the fifth anniversary of its commencement”, which occurred on 1 January 2010. Belatedly, that review has only recently commenced. Phil Evans, a Professor of Law at Curtin Law School (and also a registered adjudicator), has been engaged to conduct the review. In October 2014, Professor Evans released a consultation discussion paper, and there have also been discussion forums scheduled. Significant changes are unlikely, as the discussion paper notes:

The difficulty for Western Australia is that its model is considered by some legal academics to be largely better in practical operation than all other states. It is believed that little will be gained by adopting the majority legislative model [i.e. the ‘East Coast Model’] as this is viewed as inferior in practice. Further consultation will occur if the Western Australian government decides to take action based on the submissions and feedback following the consultation discussion paper. More information is available on the Department of Commerce’s website: http://www.commerce.wa.gov.au/.

The details of the Queensland reforms are dealt with later in this update.

1

Building and Construction Industry Security of Payment Regulation 2008 (NSW) sch 1.

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RECENT COMMONWEALTH DECISIONS

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RECENT COMMONWEALTH QUEENSLAND DECISIONS

BROOKFIELD MULTIPLEX LTD V THE OWNERS STRATA PLAN NO 61288 (2014) 88 ALJR 911 KEY TAKEAWAYS 1. It is in the interest of builders to include in their construction contracts provisions regulating the scope of liability for defects (as their existence may negate any duty in tort). Builders should pay close attention to the legal effect of the issue of the final certificate. 2. Subsequent purchasers of a building should try and get an assignment of rights against the builder and conduct due diligence about the terms of the original building contracts. Even with these additional steps, subsequent purchasers’ primary protection from latent defects will probably lie in professional pre-purchase inspection, and insurance.

THE FACTS Brookfield Multiplex Ltd (Brookfield) entered into an amended AS4300-1995 design and construct contract (D&C Contract) with developer Chelsea Apartments Pty Ltd (Chelsea) for the construction of a 22 storey building in Chatswood, New South Wales. Levels 1–9 of the building were to be operated as serviced apartments by a Stockland subsidiary (Park Hotel). The apartments were then sold off-theplan by Chelsea to investors, subject to the lease granted to Park Hotel (Sales Contract). By operation of law, the Owners Corporation came into existence on registration of the strata plan by Brookfield and the common property in the serviced apartments was vested in the Owners Corporation. In 2008 the Owners Corporation commenced proceedings against Brookfield to recover the cost of repairing certain latent defects in the common property. The Owners Corporation alleged Brookfield owed it a duty “to take reasonable care to avoid a reasonably foreseeable economic loss to the [Owners Corporation] in having to make good the consequences of latent defects caused by the building’s defective design and/or construction.”

DECISION AT FIRST INSTANCE

THE HIGH COURT’S DECISION

At first instance, the claim was dismissed and it was held that Brookfield did not owe the Owners Corporation any duty of care for the economic loss alleged.

Joint judgments were delivered by Crennan, Bell and Keane JJ and by Hayne and Kiefel JJ. French CJ and Gageler J both delivered separate judgments.

DECISION ON APPEAL

The court was unanimous in holding that Brookfield did not owe the Owners Corporation a duty of care.

The New South Wales Court of Appeal reversed that decision and held that Brookfield owed both the developer (Chelsea) and subsequent owners of the building (the lot owners and the Owners Corporation) a duty of care. This was due to their vulnerability as a result of their reliance on Brookfield’s expertise, care and honesty in performing its obligations under the D&C Contract. However, the duty was limited to economic loss in relation to those defects which were structural, “dangerous” (in the sense that, if left unrepaired, they could cause personal injury or damage to property) or made the premises uninhabitable.

However, the judges differed in their reasoning for the decision.

Duty of care to Chelsea French CJ,1 Hayne and Kiefel JJ,2 and Crennan, Bell and Keane JJ3 found that Brookfield did not owe Chelsea a duty of care. French CJ, Hayne and Kiefel JJ, and Crennan, Bell and Keane JJ considered the detailed description of obligations between parties in the D&C Contract to be exhaustive. The obligations imposed on Brookfield could not extend beyond the limits of what was imposed by the D&C Contract. Hayne and Kiefel JJ viewed the making of contracts as denying the existence of a duty of care.4

1 2 3 4

Brookfield Multiplex Ltd v The Owners—Strata Plan No 61288 (2014) 88 ALJR 911, 922. Ibid 926. Ibid 938. Ibid 926.

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BROOKFIELD MULTIPLEX LTD V THE OWNERS

Duty of care to Owners Corporation French CJ,5 Crennan, Bell and Keane JJ,6 and Hayne and Kiefel JJ7 held that as the Sales Contracts gave the lot owners (for whom the Owners Corporation is proxy) set rights to have defects repaired by Chelsea, Brookfield did not owe the Owners Corporation a duty of care. The presence of clauses that addressed repairs demonstrated an awareness of the risk of latent defects and militated finding that the lot owners, and therefore the Owners Corporation, were vulnerable.

‘Disconformity’ of obligations The Owners Corporation relied heavily on the 1995 High Court case of Bryan v Maloney..8 In that case a builder of a house was liable to a subsequent purchaser for pure economic loss caused by latent defects (inadequate foundations). A key feature of that case was the building contract was informal, and the builder owed an equivalent duty to the original owner. The High Court considered whether it was necessary for Brookfield to owe a duty of care to Chelsea before it could be found to owe a duty of care to the Owners Corporation. Additionally, even if Brookfield owed a duty of care to Chelsea, could the duty of care owed to the Owners Corporation be wider in scope than that owed to Chelsea (i.e. could there be ‘disconformity’)?

5 6 7 8

Ibid 923. Ibid 939- 940. Ibid 926. (1995) 182 CLR 609.

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Crennan, Bell, and Keane JJ held that the common law would be incoherent if a builder owed a duty to a disappointed purchaser but not to the party for whom the building was constructed.9 Further, their Honours found that there was no ‘substantial equivalence’ in obligations owed to the respondent and Chelsea. French CJ at [28] did not consider disconformity in obligations to be a bar in establishing a duty of care but viewed it to be an important factor.10 Similarly, Gageler J regarded it as an important factor.11 Hayne and Kiefel JJ did not express a definitive view but noted that the absence of disconformity between the obligations owed to the original owner and the subsequent owner was ‘an essential step’ in the court’s reasoning in Bryan v Maloney.12

Justice Gageler’s separate reasons Gageler J’s separate reasons take a broader approach. Gageler J considered Bryan v Maloney should be confined to its facts: i.e. that a builder owes a duty of care to a subsequent owner only where the building is a dwelling house, and there are no relevant contractual provisions. Gageler J considered that, otherwise, parties should protect their interests by contract, and any further liability or duty should be imposed by legislation.

9

Brookfield Multiplex Ltd v The Owners— Strata Plan No 61288 (2014) 88 ALJR 911, 928. 10 Ibid 921-922. 11 Ibid 945. 12 Ibid 926-927.

OUR THINKING ON BROOKFIELD MULTIPLEX Relevance of a contract In determining whether a duty of care existed, their Honours’ judgments focused on the terms of the D&C Contract and the Sales Contracts, in particular their express provision for rectification of (some) latent defects. Hayne and Kiefel JJ said that “the making of those contracts denies vulnerability” as they provided for the quality of what was to be received.13 Gageler J appears to agree, emphasising the freedom to contract.14 Crennan, Bell and Keane JJ at [144] relied more upon the “detailed provisions relating to the risk of latent defects in [Brookfield’s] work”. French CJ seems to have adopted a similar approach.15 The exclusive focus on the existence of contractual provisions is a significant departure from previous authority where the contractual provisions were only one of the factors considered by the court.16 Further, in this case there was no exclusion clause or express limitation of liability for latent defects. Instead, in effect, any provision in a contract about a subject-matter appears to now deny a co-extensive duty of care.

13 14 15 16

Ibid 926. Ibid 945. Ibid 923. Woolcock Street Investments v CDG Pty Ltd (2004) 216 CLR 515, 552.

In the reasons of Crennan, Bell and Keane JJ, because the provisions of the building contract “regulated the [builder’s] obligations”, a duty in tort “would be unnecessary and indeed embarrassing”.1 Because the subsequent owners in the case before the Court were investors, the issue of whether the position would be different if the subsequent owner was not an investor but instead an owner or occupier did not arise. The judgments suggest that is unlikely to be a decisive factor.

Existence of superintendent denies vulnerability The court also suggested that the appointment of a superintendent under the D&C Contract means that Chelsea was not vulnerable.4 This is contrary to the understanding of most in the construction industry that, while a superintendent is expected to be generally familiar with the progress under the contract, they are not an expert in identifying what would be latent defects as construction occurs.

The fiction of negotiation While it was accepted that the D&C Contract was negotiated at arm’s-length (even though a related body corporate of Brookfield owned 40% of Chelsea), the Sales Contracts were in a standard form, which was the subject of an agreement between Brookfield and Chelsea. The Court did not appear to give any weight to these factors, with a focus instead on the ability of the purchaser to “[walk] away from the negotiation and invest elsewhere if a satisfactory warranty at an acceptable price was not forthcoming”.2 Their Honours’ judgments suggest that the subsequent owners bargained for the provisions they received about defects.3

1 2 3

Brookfield Multiplex Ltd v The Owners—Strata Plan No 61288 (2014) 88 ALJR 911 939. Ibid 939. Ibid 925-926 (Hayne and Kiefel JJ), 940-941 (Crennan, Bell and Keane JJ).

4

Ibid 926 (Hayne and Kiefel JJ), 929-930, 938-939 (Crennan, Bell, and Keane JJ).

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RECENT COMMONWEALTH QUEENSLAND DECISIONS

AUSTRALIAN FINANCIAL SERVICES & LEASING PTY LTD V HILLS INDUSTRIES LTD (2014) 88 ALJR 552 KEY TAKEAWAYS 1. In Australia, the basis of restitutionary relief is not unjust enrichment, it is founded in equity and unconscionability. 2. One category of case in which it would be inequitable to require a recipient to repay is where the recipient has changed its position on the faith of the receipt (and thereby suffered a detriment). 3. It is not always necessary to prove the value of the change of position (which operates as a defence to a prima facie case for restitution).

THE FACTS

THE HIGH COURT’S DECISION

A fraudster (Skarzynski) induced Australian Financial Services and Leasing Pty Ltd (AFSL) (a financier) to make payments to a range of businesses, including Hills Industries Ltd (Hills) and Bosch Security Systems Pty Ltd (Bosch), for the purchase of equipment that did not exist. Skarzynski advised Hills and Bosch that AFSL’s payments were for the discharge of debts owed by his companies (company debts).

A joint judgment was delivered by Hayne, Crennan, Kiefel, Bell and Keane JJ. French CJ and Gageler J both delivered separate judgments.

Relying on AFSL’s receipts, Hills and Bosch considered the company debts discharged, continued to trade with the companies and relinquished the option to claim remedies or pursue enforcement orders against the companies or their directors. Both Hills and Bosch also gave up the option of pursuing other steps to improve their position such as establishing security from third parties. Skarzynski’s companies subsequently became insolvent and, upon discovering the fraud, AFSL brought an action against Hills and Bosch to recover the mistaken payments. At first instance, it was accepted that the payments made by AFSL were made pursuant to a mistake induced by Skarzynski and were therefore prima facie recoverable. The question was whether Hills and Bosch had changed their position. AFSL obtained judgment against Hills but its claim against Bosch was dismissed. On appeal, the Court of Appeal held that AFSL could recover from neither. AFSL appealed, by special leave, to the High Court.

The Court was unanimous in its conclusion that a claim for restitution for money had and received is rooted in equity. The critical question is whether it would be inequitable in the circumstances to require the recipient to make restitution. In other words, whether or not the defence is available depends on whether it would be inequitable or unconscionable or “against conscience” for Hills and Bosch to refuse to repay the money. This of course leads to the question: what does this normative standard mean and when will it be satisfied? The plurality recognised that it does not involve a subjective evaluation of the justice of the case (presumably, by reference to the judge’s own perception of justice). Similarly, French CJ said the standard does not involve the acceptance of an arbitrary judicial discretion. French CJ also said the standard would develop on a case-by-case basis. One category of case in which it would be inequitable to require a recipient to repay is where the recipient has changed its position on the faith of the receipt and thereby suffered a detriment. Change of position may apply as a pro tanto defence where the detriment can be readily quantified (e.g. where the quantified detriment is less than the whole of the payment).

But, there may be changes of position which are difficult or impossible to value (e.g. loss of business opportunity or loss of right to take legal action as in this case). This does not mean the defence does not apply. Their Honours’ judgments support the view that an important guiding consideration for the application of the defence is whether the change of position is “irreversible”. In so doing, the High Court rejected the proposition that the rationale of the defence lies in the concept of disenrichment (which measures the extent of disenrichment subsequent to the receipt). This is because the adoption of disenrichment as the informing criterion for the application of the defence excludes changes of position that are difficult or impossible to value. In this case, the respondents suffered irreversible detriment when they decided, on the faith of the receipt of the payments, not to pursue their legal remedies against their fraudulent client. Accordingly, the decision is important for its assertion that it is not always necessary to value the detrimental change of position for the purpose of the defence. Further, the detriment need not consist of expenditure of money or other quantifiable financial detriment, but it must be substantial. This finding is particularly important in loss of opportunity cases which often deal with complex and fictional hypothetical scenarios.

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RECENT COMMONWEALTH QUEENSLAND DECISIONS

ROBINSON V KENNY [2014] FCA 988 (26 SEPTEMBER 2014) KEY TAKEAWAYS 1. The fact that a tender is not orthodox in a material way (e.g. it is subject to a qualification not apparent on the face of the tender documents submitted) is important information a client would reasonably expect to receive from a professional architect conducting a tender on his behalf. 2. In determining whether conduct has been misleading or deceptive, it will be relevant if the client does not have the same quality of information as the professional architect and the client would reasonably have expected his architect not to remain silent about that information.

THE FACTS This case concerned the application of s.52 Trade Practices Act 1975 (Cth)1 and s.42(1) Fair Trading Act 1987 (NSW) to representations made by an architect (Kenny, the sole director and controller of ABK Australia Pty Ltd) to a client (Robinson). Robinson owned land in Tweed Heads, New South Wales (the Property), which had a house on it that Robinson intended to demolish in order to builder a larger house. In 2004 Robinson retained Kenny (through ABK) to design the house. In 2006, after completing the initial design, Kenny sought quotes from various builders for the construction of the house. One of those builders was Simpson, the sole director of Simcorp Developments and Constructions Pty Ltd. On 19 December 2006, by fax to Kenny, Simcorp provided an “estimation and quotation” (the Simcorp Quote) of the cost to build the house on an alternative basis of: a. an “estimate” of $1.3m on a “cost-plus contract (20%)”; or b. a “quotation” of $1.4m on a “fixed time/fixed price contract”. Kenny gave the Simcorp Quote to Robinson, but did not tell Robinson that he had had a conversation with Simpson in which Simpson said that he could not complete the work for a total cost of $1.4m without specification and design changes (Qualification).

WHAT HAPPENED? Kenny also did not tell Robinson that the Simcorp Quote had, in the first instance, been prepared by him and subsequently signed by a Simcorp employee. In the subsequent months there were multiple communications between Kenny and Robinson about drawing and design changes, and about how the costs of the works might otherwise be kept down. In April 2007, Kenny sent Robinson two contracts for his consideration – one was a fixed price contract (which stipulated a price of $1,350,000 including GST) and one was a cost-plus contract.

The existing house on the Property was demolished and building commenced in July 2007. In December 2009, before the house was complete, the building contract was terminated. By that time, Robinson had spent $2.47m on building the house, and there was evidence that it would cost another $300,000 to complete. Robinson brought an action in the Federal Court, seeking compensation for misleading and deceptive conduct by Kenny and ABK.

Kenny told Robinson that, in his view, a cost-plus contract would be better than a fixed price contract in circumstances where it were well managed and as long as there was a transparent costing system and effective incentive scheme in place. Kenny also stated that he thought the “risk-reward” chart prepared by Robinson, for the cost-plus contract, was “well done and reasonable.” The parties ultimately entered into the cost-plus contract. At no time did Kenny communicate the Qualification to Robinson, or any belief that it would be difficult to build the house for a total cost of $1.4m.

1. Now s.18 of the Australian Consumer Law, found in schedule 2 of the Competition and Consumer Act 2010 (Cth).

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ROBINSON V KENNY [2014]

ROBINSON’S ARGUMENT Robinson made the following allegations against Kenny: a. Kenny impliedly represented to Robinson on 19 December 2006 that the Simcorp Quote was prepared by Simpson as an “orthodox response to tender at the conclusion of a properly conducted tender process” (the Tender Representation). b. ABK and/or Kenny conveyed an implied representation that if Simcorp built the house on a cost-plus basis the works would cost no more than around $1.35m (Building Cost Representation), and that representation was made in circumstances where ABK / Kenny had no reasonable basis for that view. Robinson argued that: a. if he had known that Kenny had prepared the Simcorp Quote in the first instance he would not have had any further dealings with Simcorp and/or Kenny; and b. if he knew the works could not be completed for a price of about $1.4m, he would have abandoned the plan to build the works, would have continued to lease the existing house on the Property, and would have invested his funds elsewhere until he could have engaged a builder to do the works for about $1.1m.

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THE DECISION Her Honour Justice Farrell was satisfied that by making the Tender Representation and the Building Cost Representation Kenny and ABK engaged in conduct that was misleading or deceptive or was likely to mislead or deceive.

The Tender Representation In relation to the Tender Representation, Farrell J stated (at [129]): “Any material way in which the tender was not orthodox (including the fact that it was not wholly the product of Mr Simpson’s work and that it was attended by a Qualification not apparent on the face of the Simcorp Quote) was, in my view, important information which Mr Robinson would reasonably expect to receive from a professional architect conducting a tender on his behalf.” Her Honour was satisfied that the process was unfair to Robinson and that Kenny’s silence had the potential to lead him into error. Her Honour stated that if Robinson had known about the Qualification or the fact that the tender process had been unorthodox, he would have been in a better position to consider what course of action to adopt and to evaluate the cost estimation put to him.

The Building Cost Representation Although the Court was persuaded that Kenny genuinely believed the works could be completed for $1.35m, the Court was satisfied that Kenny had no reasonable basis for that belief (at [279]). Farrell J accepted Robinson’s evidence that if Simpson (or anyone else) had informed him that the works could not be built for $1.35m he would have abandoned the plan to build the house (at [286]). In reaching its decision, the Court stated that it was not an answer to Robinson’s pleaded case that the Simcorp Quote or the figures in the contracts were merely “estimates”. The Court also said it was not an answer that Robinson, a businessman, knew the difference between cost-plus and fixed price contracts. What mattered was that Robinson did not have the same quality of information as Kenny and he would reasonably have expected Kenny not to remain silent about the Qualification (at [293]-[294]).

RECENT WESTERN AUSTRAL DECISIONS

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LIAN

RECENT WESTERN QUEENSLAND AUSTRALIAN DECISIONS

PIPELINES SERVICES WA PTY LTD V ATCO GAS AUSTRALIA PTY LTD [2014] WASC 10 (S) (7 MAY 2014) KEY TAKEAWAY Parties who commence litigation and then resist a stay application in circumstances where there is a valid and binding arbitration agreement should proceed with extreme caution. In the first decision on costs following a stay application under the Commercial Arbitration Act 2012 (WA) (2012 Act), Chief Justice Martin has sent a strong signal that resistance to a stay application can sound in an indemnity costs order if the circumstances so permit.

Commencing proceedings in the face of a valid arbitration agreement? Don’t be hopeless.

THE FACTS Pipeline Services WA Pty Ltd (Pipeline) commenced proceedings in the Supreme Court of Western Australia ([2014] WASCA 10) relating to a dispute the subject of an arbitration agreement. ATCO Gas Australia Pty Ltd (ATCO) promptly applied for a stay of those proceedings. At the time ATCO applied for a stay, the Commercial Arbitration Act 1985 (WA) (1985 Act) was in force. ATCO’s application was, however, decided under the 2012 Act, which came into force prior to the hearing of the application. Unlike s.53 of the 1985 Act, s.8(1) of the 2012 Act does not confer any discretion upon the court with respect to the stay of legal proceedings relating to a dispute the subject of an arbitration agreement. Chief Justice Martin granted ATCO’s application for a stay,1 ordering that the issues raised in the proceedings be referred to arbitration pursuant to s.8 of the 2012 Act. ATCO applied for an order that Pipeline pay its costs of the application on an indemnity basis, relying on Justice Colman’s decision in A v B.2

AVAILABILITY OF INDEMNITY COSTS FOR PROCEEDINGS BROUGHT IN BREACH OF AN ARBITRATION AGREEMENT Chief Justice Martin granted ATCO’s application for indemnity costs, concluding that “the principles enunciated by Colman J in A v B should be applied in Western Australia.”3 According to Justice Colman’s reasons in A v B: a. a party commencing proceedings in breach of an arbitration or jurisdiction agreement should generally be ordered to pay legal costs reasonably incurred by the innocent party;4 and b. the availability of indemnity costs does not require any special circumstances beyond breach of the arbitration or jurisdiction agreement.5 Both Chief Justice Martin and Justice Colman also emphasised that the general principle should not be regarded as a mandatory or inflexible rule, but rather depends on the “particular circumstances of the case” and, in particular, whether the successful party’s conduct justifies it being deprived of an order for indemnity basis costs.6

3 1 See Pipeline Services WA Pty Ltd v ATCO Gas Australia Pty Ltd [2014] WASCA 10. 2 A v B [2007] EWHC 54.

4 5 6

Pipeline Services WA Pty Ltd v ATCO Gas Australia Pty Ltd [2014] WASCA 10 (S), [25]. A v B [2007] EWHC 54, [10]-[11]. Ibid [10]. Pipeline Services WA Pty Ltd v ATCO Gas Australia Pty Ltd [2014] WASCA 10 (S), [15]; A v B [2007] EWHC 54, [15].

Chief Justice Martin provided four reasons supporting his conclusion that the principles in A v B should guide the exercise of his discretion as to costs; namely, that: a. the rule in Berry v British Transport Commission7 would arguably preclude the innocent party from claiming damages in respect of any unrecovered costs in subsequent proceedings (despite that such costs would otherwise be recoverable as damages for breach of contract) and that, in any event, requiring the innocent party to commence subsequent proceedings “would be productive of unnecessary litigation, inefficient and unjust”;8 b. the object and purpose of the 2012 Act “requires the courts to support and enforce arbitration agreements”;9 c.

the principles enunciated and adopted in England and Wales merit particular attention, given the clear legislative purpose of aligning the legal regime governing domestic commercial arbitration with the UNCITRAL Model Law;10 and

d. adopting the principles enunciated in A v B accords with the objectives of O 1 r 4B of the Rules of the Supreme Court 1971 (WA), including the efficient and timely disposal of the court’s business, and maximisation of the efficient use of available judicial and administrative resources.11

Berry v British Transport Commission [1962] 1 QB 306. Pipeline Services WA Pty Ltd v ATCO Gas Australia Pty Ltd [2014] WASCA 10 (S), [18]. 9 Ibid [19]-[22]. 10 Ibid [23]. 11 Ibid [24]. 7 8

PAGE 23

PIPELINES SERVICES WA PTY LTD V ATCO GAS AUSTRALIA PTY LTD

Chief Justice Martin considered the circumstances of the case12 in his decision, pointing to Pipeline’s “apparent strategy of running every conceivable argument in opposition to the application for a stay, irrespective of its strength or prospects of success.”13 His Honour was particularly critical of Pipeline’s persistent resistance to the stay application following the enactment of the 2012 Act, which removed any discretion upon the court with respect to the stay of legal proceedings relating to a dispute the subject of an arbitration agreement. His Honour did not, however, confine the award of indemnity costs to period of time after the 2012 Act came into force, observing that an order for indemnity costs does not – according to the principles in A v B – require any special circumstances beyond breach of the arbitration or jurisdiction agreement.14

12 Ibid [26]-[33]. 13 Ibid [30]. 14 Ibid [33].

PAGE 24

RECENT WESTERN QUEENSLAND AUSTRALIAN DECISIONS

KELLOGG BROWN & ROOT PTY LTD V DORIC CONTRACTORS PTY LTD [2014] WASC 206 (10 JUNE 2014) KEY TAKEAWAYS 1. This decision provides further guidance on the interaction between the statutory demand regime under the Corporations Act 2001 (Cth) (Corporations Act) and the adjudication regime under the Construction Contracts Act 2004 (WA) (Act). 2. Where a party seeks to enforce an adjudication under the Act by issuing a statutory demand, it must first seek leave of the court under s.43(2) of the Act. Failure to do this may mean that the statutory demand will be set aside.

THE FACTS

THE COURT’S DECISION

KBR engaged Doric to carry out design and construction works on two buildings at BHP Billiton’s Jimblebar iron ore project in the Pilbara. Doric subcontracted KBR to provide engineering services. Both buildings were completed in July 2013. KBR issued its final invoice under the contract on 24 July 2013. Three months later, Doric issued two invoices to KBR under which Doric sought payment for expenses that Doric said it had incurred as a result of KBR’s poor performance. KBR did not pay the invoices and disputed its liability.

Acting Master Gething indicated he would allow Doric’s statutory demand to be set aside because:

Doric then successfully made two separate applications for adjudication regarding those amounts. KBR then commenced proceedings in the Supreme Court seeking judicial review of both of the adjudicator’s determinations. Subsequently, Doric served a statutory demand (under s.459E(1) of the Corporations Act) on KBR for $1,010,508.50. This was the total of the two debts that Doric said arose out of the two adjudications. Doric did not obtain the leave of a court to enforce the determinations under to s.43(2) of the Act before issuing the statutory demand. The present case arose when KBR commenced further proceedings in the Supreme Court by which it applied to have the statutory demand set aside.

a. Doric had failed to obtain leave as required by s.43(2) of the Act; b. Doric’s failure to obtain leave would constitute “some other reason” for setting aside the statutory demand pursuant to s.459J(1)(b) of the Corporations Act (on the basis that KBR’s commencement of judicial review proceedings prior to the statutory demand could enliven the Court’s discretion under s.459J(1)(b) of the Corporations Act); and c.

Doric should be restrained from enforcing the statutory demand, using the Court’s inherent jurisdiction, because Doric had sought to use the statutory demand process to recover the adjudication debts rather than as a step in winding up KBR.

The Acting Master reached this view on the basis of the recent Western Australian Court of Appeal decision in Diploma Construction (WA) Pty Ltd v KPA Architects Pty Ltd [2014] WASCA 91. It would appear that the Acting Master’s view that leave must first be sought under s.43(2) applies in all circumstances and not just, as in this case, where judicial review proceedings are on foot at the time that the statutory demand is issued. He did, however, make it clear that the existence of parallel judicial review proceedings is relevant. This was because a court, in determining whether to grant leave under s.43(2), should consider whether the determination creating the debt is invalid.

PAGE 27

RECENT WESTERN QUEENSLAND AUSTRALIAN DECISIONS

ALLIANCE CONTRACTING PTY LTD V JAMES [2014] WASC 212 (19 JUNE 2014) KEY TAKEAWAYS 1. Section 31(2) of the Construction Contracts Act 2004 (WA) (the Act) empowers an adjudicator to determine whether “any party” to a payment dispute is liable to make a payment. This decision clarifies that if the respondent counterclaims, the adjudicator cannot determine a net payment in favour of the respondent. 2. The adjudicator must determine the payment dispute on the basis of the application for adjudication, which is usually restricted to whether the recipient of the payment claim is liable to make a payment. This has important implications for claimants and respondents. 3. This decision also confirms Queensland authority that an adjudication determination that is infected by jurisdictional error cannot be severed.

THE FACTS

THE COURT’S DE CISION

Tenix SDR Pty Ltd (Tenix) subcontracted Alliance Contracting Pty Ltd (Alliance) to undertake works on a wastewater treatment plant in Karratha.

Beech J held that where a respondent under the Act asserts a counterclaim to the effect that the claimant is in fact liable to the respondent, the counterclaim is not subsumed into initial payment dispute. This is so even if the payment claim and the counterclaim are factually overlapping or intertwined. Instead, the respondent’s counterclaim is itself a separate payment claim the rejection of which will give rise to a further payment dispute.

Alliance submitted its final claim, for $8,928,986. Tenix issued a final certificate rejecting Alliance’s claims and assessing the final as $3,676,815 – payable by Alliance to Tenix. Alliance did not apply for adjudication. Instead, Alliance submitted a notice disputing Tenix’s claims under the final certificate. Tenix made its own application for adjudication. Tenix sought a determination that Alliance pay Tenix a revised sum of $3,342,560. In its adjudication response, Alliance essentially reproduced the claims that it had advanced in its final claim under the subcontract. The adjudicator provided his determination on 20 December 2013. He considered that in order to assess Tenix’s payment claim, he needed to assess the merits of Alliance’s competing and interdependent claims. The adjudicator largely preferred Alliance’s claims and found that Tenix owed Alliance $6,242,232. However, he considered that s.31(2)(b) of the Act limited his power to determining whether payment should be ordered in respect of Tenix’s claims, and not the counterclaims advanced by Alliance in its adjudication response. The adjudicator thus determined that no amount was payable from Alliance to Tenix, but did not order Tenix to pay Alliance. Alliance applied for judicial review of the adjudicator’s decision on the grounds that the adjudicator had failed to exercise his jurisdiction. This put the proper construction of s.31(2)(b) of the Act squarely before the Supreme Court.

His Honour thus ultimately held that, on a proper construction of s.31(2)(b) of the Act: a. an adjudicator’s power to determine that a party is liable to make a payment arises only in respect of the initial payment claim the subject of the adjudication application; and b. the adjudicator’s function is to determine the merits of that payment claim, and to determine whether any party to that payment dispute is liable to make a payment in respect of that payment claim alone. For these reasons, His Honour concluded that the adjudicator’s approach was correct. The decision has interesting consequences for the administration of construction contracts and the preparation of applications for adjudication, at least in Western Australia. Respondents should carefully consider: a. the substance of the relevant “payment claim” and “payment dispute” and whether any claims or counterclaims that are sought to be raised are, in fact, responses to the initiating payment claim and not to a separate (although related) payment claim; and b. whether the adjudicator has the power to provide relief on any counterclaim.

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RECENT WESTERN QUEENSLAND AUSTRALIAN DECISIONS

ALLIANCE CONTRACTING PTY LTD AND TENIX SDR PTY LTD [2014] WASC 212 (19 JUNE 2014) KEY TAKEAWAYS 1. It is critical to define carefully what is alleged to be the “payment claim” and the “payment dispute” in an application for adjudication under the Construction Contracts Act 2004 (WA) (the Act). The decision confirms that only “payment disputes” which fall under s.6 of the Act can be the subject of an adjudication application. 2. An application for adjudication of a dispute not falling under that section will not have been prepared in accordance with s.26 of the Act and must be dismissed. 3. The relationship between the adjudication process and the performance security regime common in construction contracts is complex and requires careful thought where one party has called on security. 4. The case also exposes (but does not resolve) the interesting issue of why certain non-resource industry related processing plants are captured by the s.4(3)(c) exclusion while other similar processing plants may not be.

THE FACTS This case concerned the same project as the previous case. In short, Tenix SDR Pty Ltd (Tenix) subcontracted Alliance Contracting Pty Ltd (Alliance) to undertake works on a wastewater treatment plant in Karratha. Alliance applied to the Tribunal for review of an adjudicator’s decision which dismissed Alliance’s application for adjudication (Application). Under the subcontract, Alliance had to provide Tenix two unconditional undertakings for a total of $548,416.46. Both were required to be returned (if not used) at the end of the defects liability period. Tenix notified Alliance that, because it considered Alliance had failed to achieve practical completion by the required date, Alliance was obliged to pay Tenix liquidated damages (Tenix Notice). In the same notice, Tenix also advised that it had had recourse to the unconditional undertakings to recover part of the liquidated damages. The same day, Alliance advised Tenix that it considered that Tenix had no current entitlement to recourse to the security and Tenix’s actions were a breach of the subcontract. Alliance also issued a notice of dispute alleging that Tenix had no legal right to levy liquidated damages against Alliance and consequently had no legal right to recourse to the security. Alliance subsequently made its Application, which was for an amount equivalent to the value of the two unconditional undertakings.

The adjudicator dismissed Alliance’s Application without making a determination on the merits in accordance with s.31(2)(a)(ii) of the Act. Alliance applied to the Tribunal for a review of the adjudicator’s decision. There were two issues for Member Aitken of the Tribunal to consider: a. whether Alliance’s Application was in respect of a “payment dispute” for the purposes of the Act; and b. whether the subcontract was, by operation of s.4(3)(c) of the Act, excluded from the rapid adjudication regime provided for by the Act.

THE TRIBUNAL’S DECISION The Tribunal dismissed Alliance’s application on the basis that Alliance had, in its Application, sought to have determined a dispute that was not a “payment dispute” for the purposes of the Act.

IDENTIFYING THE RELEVANT “PAYMENT CLAIM” AND “PAYMENT DISPUTE” Alliance contended that the Tenix Notice was the relevant “payment claim” which gave rise to the “payment dispute” on which its Application was grounded. The Tribunal held that a claim for liquidated damages could give rise to a payment dispute under the Act, but rejected Alliance’s contention that it was the relevant payment claim here. The Tribunal held that Alliance had conflated Tenix’s claim for liquidated damages with Tenix’s recourse to the unconditional undertakings. The recourse to the unconditional undertakings was the “payment claim” upon which Alliance’s Application was actually grounded. Although Tenix’s recourse to the unconditional undertakings flowed from its liquidated damages claim, the recourse was a matter separate and distinct from Tenix’s liquidated damages claim.

PAGE 31

ALLIANCE CONTRACTING PTY LTD AND TENIX SDR PTY LTD

DESCRIBING, WITH PRECISION, THE PAYMENT DISPUTE AND THE RELIEF SOUGHT The Tribunal confirmed that an adjudicator may determine whether a party against whom a payment claim has been made must pay the amount claimed, provided that it falls within the circumstances set out in s.6 of the Act. Tenix’s claim for liquidated damages could thus be the source of a payment dispute in respect of which Alliance could bring an adjudication application. The Tribunal found that, rather than seeking a determination of Tenix’s liquidated damages claim, Alliance’s Application sought a determination of one or other of two matters: a. whether Alliance was entitled to be paid the equivalent of the value of the unconditional undertakings; or b. whether those undertakings were to be “returned”. As to the first, the Tribunal held that a dispute about whether a party is entitled to the value of security to which the other party has had recourse is not an application for the adjudication of a payment dispute under s.26 of the Act. As to the second, it was clear that the unconditional undertakings were not due to be returned until the end of the defects liability period, which was many months away. Thus, the Tribunal held that it could not have been a payment dispute which enlivened the adjudicator’s jurisdiction.

OPERATION OF S.4(3)(C) OF THE ACT Tenix also argued that the exclusion in s.4(3)(c) of the Act (commonly referred to as the “mining exclusion”) applied so the Application should have been dismissed on this ground. The Tribunal found that the works that Alliance performed were “work constructing a plant” for the purposes of s.4(3)(c) of the Act. The Tribunal distinguished the decision of Re Graham Anstee-Brook, Ex parte Karara Mining Ltd1 and applied the reasoning of the Tribunal in Conneq Infrastructure Services (Australia) Pty Ltd and Sino Iron Pty Ltd 2 (Conneq). The question then was whether that plant was for the purposes of extracting or processing “oil, natural gas or any derivative of natural gas, or [relevantly] any mineral bearing or other substance.” The Tribunal relied on its earlier decision in Conneq in concluding that the exclusion in s.4(3)(c) did not apply because, on the evidence before it, it could not conclude that the purpose of the wastewater treatment plant was to process a mineral bearing substance. In particular, it could not conclude that the process involved the extraction of minerals (as had been the case in Conneq). In essence: a. the ratio of Conneq is that the phrase “processing ... any mineral bearing ... substance” is not restricted to the processing of substances which are processed as part of the mining and resources industry, which gives the phrase “mineral bearing ... substance” a wide meaning;

1 2

PAGE 32

[2012] WASC 129. [2012] WASAT 13.

b. however, in its comments on the phrase “processing ... any ... other substance”, the Tribunal found that this phrase should apply narrowly, only to any substance associated with the resources industry. The effect of the Conneq and Alliance decisions, therefore, appears to be this: a. a municipal desalination plant (not only one which operates on a mine site, as was the case in Conneq) is excluded because it processes salt water, a mineral bearing substance; b. however, a wastewater treatment plant, even though it has a similar public purpose to a desalination plant, is not excluded (perhaps unless the wastewater happens to contain minerals that are processed in some way). This, of course, raises the question: why should the Act apply differently to the construction of: a. a plant that is used for extracting a mineral from mineral-bearing water (to produce fresh water); and b. a plant that is used for extracting waste (including, possibly, minerals) from waste-bearing water, to produce fresh water (and possibly potable water)? The Tribunal in the Alliance decision did not consider it necessary to grapple with this question and so this apparent anomaly remains for consideration on another occasion.

RECENT WESTERN QUEENSLAND AUSTRALIAN DECISIONS

ALL ROOFS PTY LTD V SOUTHGATE CORPORATION PTY LTD [2014] WASC 155 (30 APRIL 2014) KEY TAKEAWAYS 1. The Commercial Arbitration Act 2012 (WA) (2012 Act) changes the requirements for orders for security of costs in relation to arbitrations. Section 17 of the 2012 Act removes the Supreme Court’s power to make interlocutory orders in arbitration proceedings, instead giving the arbitral tribunal power to grant interim measures. 2. Section 17A sets out the conditions for granting an interim measure. With respect to orders for security of costs, it is unclear whether s.17A requires the tribunal to consider of the same factors as under s.1335 of the Corporations Act 2001 (Cth) (Corporations Act) and O 25 of the Rules of the Supreme Court 1971 (WA) (Supreme Court Rules). On balance, it seems the 2012 Act sets a higher bar as it ostensibly requires that the claimant’s inability to pay the respondent’s future costs be “likely”, rather than there be some “reason to believe” that this will be the case.

THE FACTS All Roofs Pty Ltd (All Roofs) engaged Southgate Corporation Pty Ltd (Southgate) to replace an asbestos and tin roof. All Roofs carried out the work and a certificate of practical completion was issued in December 2010. Shortly thereafter, Southgate paid the contract sum of $340,000. In December 2011, All Roofs made a claim for an additional $301,035 for an alleged variation. In March 2012, All Roofs issued a notice of dispute under the contract and commenced arbitral proceedings, increasing its variation claim to $317,212. The arbitral proceedings were temporarily stayed at All Roofs’ request. Southgate sought an order from the Supreme Court that All Roofs provide security for its costs in the amount of $24,158.75, pursuant to s.1335 of the Corporations Act and O 25 of the Supreme Court Rules. All Roofs had been the subject of three recent unsuccessful attempts by third parties to have it placed under external administration.

SECURITY FOR COSTS UNDER S.1335 OF THE CORPORATIONS ACT AND O 25 OF THE SUPREME COURT RULES It is relevant to note that the old Commercial Arbitration Act 1985 (WA) (1985 Act), not the 2012 Act, governed the Supreme Court proceedings. Section 47 of the 1985 Act conferred upon the Supreme Court the same power to make interlocutory orders in arbitration proceedings as it has in proceedings in the Court. Acting Master Gething dealt separately with the requirements for an order for security for costs under the Corporations Act and under Supreme Court Rules. He held that the power in s.1335 contains a threshold requirement and a discretion – the threshold requirement being whether “it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence.”1 Once this threshold requirement is met, according to Acting Master Gething, the discretion to order security for costs is unlimited or unfettered, though it must be exercised by reference to established principles.2

Despite finding that the threshold requirement in s.1335 is a “fairly modest” test,3 or “low threshold”,4 Acting Master Gething held that his discretion to order security for costs under the Corporations Act was not enlivened5 on the facts, where the likely costs were under $25,000. In respect of the discretion to order security for costs under O 25, Acting Master Gething held that it is “unfettered and depends upon an examination of all of the relevant circumstances.”6 His Honour opined, however, that where the plaintiff is an Australian registered company not under external administration, “its financial position will perhaps be the most significant factor in the exercise of the discretion.” Acting Master Gething held that Southgate had failed to move the Court to exercise its discretion under O 25 despite finding that: a. the merits of All Roofs’ claim in the arbitration were “sufficiently weak so as not to be a neutral factor”;7 and b. Southgate had been put to delay, inconvenience and expense in the arbitration.8

1

2

All Roofs Pty Ltd v Southgate Corporation Pty Ltd [2014] WASC 155, [8], [18] (All Roofs v Southgate), citing Western Areas Exploration Pty Ltd v Streeter [2008] WASCA 218, [2] (Pullin JA) (Western Areas); BBC Nominees (WA) Pty Ltd v Yangebup Developments Pty Ltd [2008] WASC 81, [11] (Beech J). All Roofs v Southgate [2014] WASC 155, [8], citing Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57, [5] (Edelman J); Sugarloaf Hill Nominees Pty Ltd v Rewards Projects Ltd [2011] WASC 19, [36] (Corboy J); Darwin Offshore Logistics Base Pty Ltd v Cox [2010] WASC 356, [3] (Allanson J); FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd (2000) 22 WAR 241, [21] (Pidgeon and Owen JJ).

3

4 5 6 7 8

All Roofs v Southgate [2014] WASC 155, [19], citing Western Areas [2008] WASCA 218, [4] (Pullin JA); Meni's Tailoring & Alterations Pty Ltd v Jeanswest Corp Pty Ltd [2003] FCA 1108, [4] (Merkel J). All Roofs v Southgate [2014] WASC 155, [21], quoting Livingspring Pty Ltd v Kliger Partners (2008) 20 VR 377, [16] (Maxell P and Buchanan JA) (Livingspring). All Roofs v Southgate [2014] WASC 155, [23]-[24]. Ibid [27], citing Mabrouk Minerals Pty Ltd v Mabrouk Holdings Pty Ltd [2008] WASC 132, [57] (Newnes J). Ibid [32]-[37]. See ibid [38]-[39].

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ALL ROOFS PTY LTD V SOUTHGATE CORPORATION PTY LTD

THE SIGNIFICANCE OF THE 2012 ACT The 2012 Act removes the Supreme Court’s express power to make interlocutory orders in relation to arbitrations. a. Section 17(1) provides that the arbitral tribunal may, at the request of a party, grant interim measures. b. Section 17(3)(a) specifically provides that the tribunal may make orders with respect to security for costs. Further, it does not appear that the Supreme Court has any inherent or supervisory jurisdiction to make interlocutory orders in arbitration proceedings, particularly in the light of s.5 of the 2012 Act, which provides that “no court must intervene [in matters governed by this Act] except where so provided by this Act.” Section 17A of the 2012 Act sets out the conditions for granting an interim measure under s.17:

he party requesting an interim 1. T measure under section 17(2)(a), (b) or (c) must satisfy the arbitral tribunal that — a) harm not adequately reparable by an award of damages is likely to result if the measure is not ordered, and that harm substantially outweighs the harm that is likely to result to the party against whom the measure is directed if the measure is granted; and b)there is a reasonable possibility that the requesting party will succeed on the merits of the claim.

The determination on the possibility referred to in subsection (1)(b) does not affect the discretion of the arbitral tribunal in making any subsequent determination. 2. With regard to a request for an interim measure under section 17(2) (d), the requirements in subsection (1)(a) and (b) and subsection (2) apply only to the extent the arbitral tribunal considers appropriate. Much like s.1335 of the Corporations Act or O 25 of the Supreme Court Rules, s 17A of the 2012 Act (and, in particular, s.17A(2)-(3)) confers a wide discretion in determining whether to make an order for security. Significantly, however, s.17A of the 2012 Act does not expressly require that the tribunal consider the claimant’s financial position, or whether there is reason to believe that the claimant will be unable to pay the respondent’s costs in the event the respondent succeeds in the arbitration. It is likely, though unclear, that the party requesting an order for security would need to produce evidence to this end under s.17A(1)(a).

If this is in fact the case, it appears that the “threshold requirement” for an interim order under the 2012 Act (requiring that an inability to pay the respondent’s costs is “likely”) is much higher than the “low threshold” in s.1335 of the Corporations Act (which merely requires “reason to believe” that a corporation will be unable to pay the defendant’s costs). As their Honours Maxwell and Buchanan held in Livingspring: “The phrase ‘reason to believe’ ... requires a rational basis for the belief – and no more.” 1

In particular, it appears the party requesting the order would need to satisfy the tribunal that the possibility that the claimant would be unable to pay its costs (being “harm not adequately reparable by an award of damages”) would be likely to result if security is not ordered, and that this outweighs the harm likely to result to the claimant (providing security for the respondent’s likely future costs).

1

PAGE 36

Livingspring (2008) 20 VR 377, [15] (Maxell P and Buchanan JA), quoted in All Roofs v Southgate [2014] WASC 155, [21].

RECENT WESTERN AUSTRALIAN LEGISLATIVE DEVELOPMENTS A discussion paper has been circulated for a review of the Construction Contracts Act 2004 (WA). Written submissions are due by 14 November 2014. The discussion paper is available HERE

RECENT QUEENSLAND DECISIONS

page 38

RECENT QUEENSLAND DECISIONS

DROPBOX AS A MODE OF SERVICE CONVEYOR & GENERAL ENGINEERING PTY LTD V BASETEC SERVICES PTY LTD AND ANOR [2014] QSC 30 (7 MARCH 2014) KEY TAKEAWAYS 1. Dropbox links are not a reliable or useful mean of service for application adjudication under the Building and Construction Industry Payments Act (BCIPA). 2. In the absence of an express provision in the construction contract, documents or data kept in Dropbox links are not served until the person being served becomes aware of the contents of the documents. 3. When drafting provisions for service of documents, it is prudent to include all appropriate methods of service, taking into consideration electronic service of large documents where email would not be appropriate. 4. If parties intend to use a portal such as Aconex (or a bespoke portal peculiar to a particular organisation) to manage the flow of contractual correspondence and notices, they should be clear in their contractual terms on what documents can be “served” using this portal and what documents may not be validly “served” using it.

THE FACTS A contractor (CGE) entered into two contracts for the supply of preassembled pipe rack units for water treatment facilities with a subcontractor (Basetec). One contract was for a water treatment facility at Condabri (the Condabri Subcontract) and the other was for a water treatment facility at Reedy Creek (the Reedy Creek Subcontract). On 30 July 2013, Basetec delivered payment claims for each subcontract. On 12 August 2013, CGE disputed the entirety of both claims in its payment schedules. On 23 August 2013, Basetec made adjudication applications for both claims. Basetec provided CGE with the two adjudication applications via email. The email attached three documents, being the two adjudication applications and a letter to the Institute of Arbitrators and Mediators Australia (Institute).

THE DECISION The email also contained a copy of an email from Basetec to the Institute containing the same three documents but, additionally, two Dropbox links for the adjudication applications. These Dropbox links contained additional materials not contained in the email or the three attached documents. CGE did not realise the additional materials existed until 2 September 2013 when it emailed its adjudication response. The adjudicator determined that the time for adjudication response started running on 23 August 2013 (when Basetec emailed CGE and the Institute) and he was precluded from considering any submission from CGE which was received after 30 August 2013. As a result, he decided the adjudication without regard to CGE’s adjudication response. CGE applied to the Supreme Court of Queensland to have the adjudication application for the Condabri Subcontract declared void on the basis that it was denied the opportunity to provide an adjudication response as the adjudicator erred in concluding that the time for response commenced on 23 August 2013 because the application was not properly served.

The Queensland Supreme Court held that the adjudication application was not properly served on 23 August 2013 and the adjudicator had erred in not taking into consideration CGE’s adjudication response in his decision. Accordingly, the adjudicator’s decision was void. It was held that the materials in Dropbox, which formed part of the adjudication application, were not served until 2 September 2013, when CGE became aware of them. In arriving at this conclusion Justice McMurdo considered whether the adjudication application was “served on the respondent” in accordance with clause 21(5) of BCIPA. Section 103 of BCIPA provides that service may be effected in accordance with the relevant construction contract. In the present case, the construction contract did not make any provision for the service of a document. Justice McMurdo also referred to s.39 of the Acts Interpretation Act 1954 (Qld) (AIA), sections 11 and 24 of the Electronic Transactions (Queensland) Act 2011 (Qld) (ETA) and the common law.

PAGE 41

Section 39 of the AIA Section 39 of the AIA does not specifically mention sending documents via email. However, Justice McMurdo acknowledged that there are case authorities supporting the proposition that an email is a “similar facility” to “post, telex [or] facsimile”.1 Even so, Justice McMurdo held that only the three documents actually attached to the email were “sent” in accordance with s.39 of AIA. The additional Dropbox materials were not “sent” in accordance with s.39 of AIA; CGE was simply told where they were located.

The ETA Section 11 of the ETA provides that service can be effected if the person gives the information by an electronic communication if the information would be readily accessible and if the recipient has given consent to the information being given by an electronic communication. This section also failed to assist Basetec in the present case for two reasons:2 a. CGE did not agree to be electronically served; and b. the additional materials in Dropbox were not part of an “electronic communication” as defined.

1 2

[2014] QSC 30, [25]. Ibid [28].

PAGE 42

The additional materials in Dropbox are stored remotely by a third party and do not form part of the data which was contained in the email and its attachments. It was held that there was only “electronic communication” of the means by which the additional information could be found, but not the additional information itself. In obiter, Justice McMurdo noted that if the whole adjudication application had been in the email, and such a document could be served by email, by virtue of s.24 of the ETA service would have been effected when the email was capable of retrieval.

Common law Under common law, actual service does not require the recipient to read the document. However, service must result “in the person to be served becoming aware of the contents of the document”.3 Applying this principle, the additional Dropbox materials were served on 2 September 2013 at the earliest, when CGE first became aware of the materials. Again, Justice McMurdo observed that the email and the three attachments were served on 23 August 2013. However, the entire adjudication applications (including the additional Dropbox materials) were not served until 2 September 2013.

3

Ibid [37] citing Capper v Thorpe (1998) 194 CLR 342.

RECENT QUEENSLAND DECISIONS

MELISAVON PTY LTD V SPRINGFIELD LAND DEVELOPMENT PTY LTD [2014] QCA 233 (16 SEPTEMBER 2014) KEY TAKEAWAYS In cases of latent defects caused by negligent building design where: a. damage appears incrementally; and b. the defendant, upon whose advice the plaintiff could be expected to rely, advises that the damage was caused by issues other than the defendant’s defective design, the limitation period will not commence until the causal link between the damage and the underlying defect becomes known or is discoverable by “reasonable diligence”. Defendants applying for summary judgment based on a limitation of actions defence are unlikely to succeed where the factual circumstances that triggered the limitation period are unclear or in dispute.

ISSUE The Queensland Court of Appeal was asked to determine whether the primary judge erred in dismissing an application for summary judgment based on the defence that the claim was statute barred under the Limitations of Actions Act 1974 (Qld).

THE FACTS In January 2000, Springfield Land Development Corporation (Springfield) contracted civil and structural engineering consultant Melisavon Pty Ltd (Melisavon) to design the clubhouse and surrounds for a residential golf course community that Springfield was developing. Melisavon completed the design in mid2003. On 16 June 2011, Springfield filed a claim for economic loss of $866,258 as a result of latent defects allegedly caused by Melisavon’s negligent engineering design. The alleged latent defect was inadequate tolerance in the slab design for “ground heave”, which resulted in cracking. Both parties had been advised of the risks of “ground heave” cracking in a geotechnical report commissioned by Melisavon. The parties became aware of cracks in the lower slab of the clubhouse as early as 2003. Relevantly, Melisavon advised Springfield that the cracking was likely due to over watering of the landscaping and defective drainage works (i.e. not as a result of faulty engineering design on Melisavon’s part). Springfield accepted this advice and completed relatively minor works to repair the cracking.

It was not until the cracking subsequently worsened after 2006 that Springfield conducted further investigations, which revealed Melisavon’s alleged faulty engineering design and resulted in Springfield’s latent defect claim. Melisavon contended that Springfield’s claim was statute barred under the Limitations of Actions Act 1974 (Qld),1 as cracking in the slab was evident as early as 2003, and sought summary judgment to dismiss Springfield’s claim with costs. The primary judge dismissed Melisavon’s application with costs, citing the need to resolve the parties’ differing accounts of the facts, at trial.

THE APPEAL In dismissing the appeal, the Court of Appeal2 found that when considering the application of limitation of actions legislation to a claim for damages resulting from a latent defect, the courts must carefully consider when a causal link between the damage itself and the underlying defect became known or was discoverable by “reasonable diligence”.3 Only then will a plaintiff have suffered an actual diminution in the market value of its asset, and will the limitation period begin to run.

The Court considered that Springfield was entitled to rely on this advice and that therefore the damage was not discoverable by “reasonable diligence” until the subsequent investigations in 2006 (hence time did not begin to run until 2006, and the claim was well within the limitation period). The Court also emphasised that this is an area of the law in Australia that is developing incrementally as courts apply the principles set out in the High Court judgments Heyman4 and Hawkins v Clayton5 to “the infinitely variable factual circumstances arising in individual cases”.6 In relation to applications for summary judgment based on a limitation of actions defence, the Court repeated the doctrine that it will require unequivocal evidence that the relevant limitation period has elapsed before granting such an application.

In making this finding, the Court placed particular importance on the fact that Melisavon had advised Springfield that the damage had been caused by factors unrelated to the engineering design.

1

2 3

Under s.10(1)(a) of the Limitations of Actions Act 1974 (Qld) actions in tort (e.g. negligent building design) can not be brought before the courts if six years has elapsed since the cause of action first accrued. McMurdo P and Lyons J agreeing and Lyons JA dissenting. Melisavon Pty Ltd v Springfield Land Development Corporation Pty Ltd [2014] QCA 233, [43] (McMurdo P).

4 5 6

Sutherland Shire Council v Heyman (1985) 157 CLR 424. Hawkins v Clayton (1988) 164 CLR 539. Melisavon Pty Ltd v Springfield Land Development Corporation Pty Ltd [2014] QCA 233, [44] (McMurdo P).

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RECENT QUEENSLAND DECISIONS

ADJUDICATION DECISIONS, NATURAL JUSTICE AND S.26(2) OF THE BCIP ACT (QLD) J HUTCHINSON PTY LTD V CADA FORMWORK PTY LTD & ORS [2014] QSC 63 (7 APRIL 2014) KEY TAKEAWAYS When giving an adjudication decision under the Building and Construction Industry Payments Act 2004 (Qld) (BCIP Act), an adjudicator is limited to considering the matters listed under s.26(2) of the BCIP Act. The adjudicator cannot have regard to (and make a determination relying upon) material provided by one party to which the other party has not had an opportunity to respond. If the adjudicator does so, he will breach the rules of natural justice as well as s.26(2) of the BCIP Act and the adjudication determination will be invalid.

THE FACTS J Hutchinson Pty Ltd (Hutchinson) entered into a contract to construct residential units in Gladstone. On 15 November 2012, it subcontracted CADA Formwork Pty Ltd (CADA) to carry out formwork services for the project. On 13 May 2013, CADA issued three payment claims to Hutchinson under the BCIP Act. On 27 May 2013, Hutchinson served a payment schedule to CADA under the BCIP Act. On 3 June 2013, CADA lodged an adjudication application under the BCIP Act with Adjudicate Today Pty Ltd (Adjudicate Today). A copy of the adjudication application was served on Hutchinson on 5 June 2013. On 10 June 2013, CADA sent an email to Adjudicate Today (10 June email) enclosing a site instruction dated 5 February 2013 (February site instruction). The email explained that the February site instruction demonstrated that the delays were due to wet weather, for which Hutchinson accepted responsibility. On 11 June 2013, Adjudicate Today nominated Callum Campbell as the adjudicator (the Adjudicator), and provided him with the adjudication application, the 10 June email and the February site instruction. On 13 June, Hutchinson delivered its adjudication response to the Adjudicator and served a copy on CADA. On 21 June 2013, the Adjudicator gave his determination that CADA was entitled to an amount of $222,625.70 plus interest from 27 May 2013.

Hutchinson commenced proceedings asking the Supreme Court of Queensland to consider whether: a. there was a breach of natural justice because the Adjudicator received and considered evidence without Hutchinson’s knowledge; and

This was considered to be a breach of the rule in Kioa v West5 that a person whose interests might be affected by a decision must be given the opportunity to deal with “adverse information that is credible, relevant and significant to the decision to be made.”6

b. in doing so, the Adjudicator failed to comply with s.26(2) of the BCIP Act.

Breach of s.26(2) of the BCIP Act

THE DECISION

Justice Lyons further held that the Adjudicator had breached s.26(2) of the BCIP Act by considering the 10 June email and February site instruction, as it was not a properly made submission and Hutchinson had not been given the opportunity to respond to it.7

The Supreme Court of Queensland held that the Adjudicator’s determination was invalid due to breach of natural justice and a failure to comply with s.26(2) of the BCIP Act.1

Natural justice Justice Lyons found that the Adjudicator had failed to comply with the rules of natural justice by basing his determination on material which contained information adverse to Hutchinson’s interests and to which Hutchinson was not given the opportunity to respond.2 CADA could not prove that Hutchinson was served with a copy of the 10 June email. Hutchinson therefore did not have a proper opportunity to address the information contained in the 10 June email.3 Justice Lyons found that the Adjudicator had substantially based his determination on the information contained in the 10 June email and the February site instruction, noting that the language used by the Adjudicator in rejecting Hutchinson’s submissions on delay “[matched] rather closely the language found in the February site instruction.”4

1 2 3 4

[2014] QSC 63, [84]. Ibid [57] – [58]. Ibid [57]. Ibid [54].

Section 26(2) limits the matters which an adjudicator can consider in determining an adjudication application. Under this section, a relevant submission must have been “properly made” before an adjudicator can have regard to it. The 10 June email and accompanying February site instruction did not constitute or form part of a properly made submission under s.26(2) of the BCIP Act due to CADA’s failure to include them in its adjudication application.8 A ruling of invalidity may depend upon the significance of the material considered.9 However, in this case, it was clear that the 10 June email and the February site instruction were of significant importance to the adjudication determination. The Adjudicator’s determination was therefore also held to be invalid due to breach of s.26(2) of the BCIP Act.10

5 6 7 8 9 10

(1985) 159 CLR 550. Ibid 609 (Brennan J). [2014] QSC 63, [63]. Ibid [61]. Ibid [63]. [2014] QSC 63, [63].

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RECENT QUEENSLAND DECISIONS

CALLING ON SECURITIES UNDER A BUILDING CONTRACT IN QUEENSLAND BEYFIELD PTY LTD V NORTHBUILD CONSTRUCTION SUNSHINE COAST PTY LTD [2014] QSC 12 (14 FEBRUARY 2014) KEY TAKEAWAYS A contractual right of recourse to security for amounts which are not “amounts owed” under the contract is inconsistent with s.67J of the Queensland Building and Construction Commission Act 1991 (Qld) (QBCC Act) and therefore unenforceable to the extent of the inconsistency due to the operation of s.67E of the QBCC Act. Similarly, a security clause that does not provide for notice requirements consistent with those in s.67J of the QBCC Act may be unenforceable. Parties wanting a right to call on security in their building contracts should ensure that the clause is consistent with s.67J of the QBCC Act by confining the right to debts due under the contract and complying with the notice requirements.

THE FACTS

THE DECISION

Northbuild entered into a contract for the construction of a Chronic Disease Centre on Thursday Island. Northbuild subcontracted performance of the mechanical works to Beyfield.

The Supreme Court of Queensland held that clause 5(e)(ii) was inconsistent with s.67J of the QBCC Act, and therefore s.67E of the QBCC Act operated to make the clause unenforceable to the extent of the inconsistency.

It was further held that the notice provisions in s.67J of the QBCC Act “are limitations or restrictions upon the capacity to have recourse to retention amounts” 4and are “conditions” for the purposes of s.67E of the QBCC Act.

In reaching this decision, Justice Martin noted that ambiguities in the construction of s.67J of the QBCC Act should be resolved by reference to the purpose of the Act, which is “to regulate the building industry and to limit the scope of set-offs to contracting parties.”1

The notice requirements of s.67J will therefore apply “no matter what a contract might say” unless the circumstances set out in s.67J(4)5 of the QBCC Act exist. 6

Clause 5(e) of the subcontract provided:

“The Builder may, upon the giving of written notice to the Subcontractor, have recourse to the Retention, or convert into cash any Bond or Instruments substituted by the Subcontractor: a. where an amount is due to the Builder under the Subcontract; or b. in respect of any claim to payment (liquidated or otherwise) the Builder may have against the Subcontractor under the Subcontract or otherwise.” Beyfield provided Northbuild with two bank guarantees under the subcontract as security for the performance of its work. Between May and August 2013, Northbuild gave notice to Beyfield that it intended to call on the bank guarantees for its claims for various alleged breaches of the subcontract by Beyfield. The Court was required to consider whether clause 5(e)(ii) of the subcontract was unenforceable under the QBCC Act.

Section 67J of the QBCC Act Section 67J of the QBCC Act confines the operation of retention clauses to “amounts owed under the contract.” 2 “Amount owed” is defined under s.67J(5) of the QBCC Act as “a debt due from the contracted party for the contract to the contracting party for the contract because of circumstances associated with the contracted party’s performance of the contract.” Justice Martin accepted Beyfield’s submissions that clause 5(e)(ii) of the subcontract was inconsistent with s.67J of the QBCC Act to the extent that it empowered Northbuild to call on the security for its unliquidated claims, where there was no debt due as defined under s.67J(5) of the QBCC Act.3

1 [2014] QSC 12, [40]. 2 Ibid. 3 Ibid [41].

4 Ibid [39]. 5 Section 67J(4) of the QBCC Act states: “[Section 67J] does not apply if, under the contract – a) work has been taken out of the hands of the contracted party or the contract has been terminated; or b) the security or retention amount is to be used to make a payment into court to satisfy a notice of claim of charge under the Subcontractors’ Charges Act 1974.” 6 [2014] QSC 12, [39].

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RECENT QUEENSLAND DECISIONS

ENTITLEMENTS TO PAYMENT UNDER BCIPA WHERE INTERLOCUTORY INJUNCTION SOUGHT WIGGINS ISLAND COAL EXPORT TERMINAL PTY LTD V SUN ENGINEERING (QLD) PTY LTD & ANOR [2014] QSC 170 (31 JULY 2014) KEY TAKEAWAYS To be granted an interlocutory injunction, an applicant must show there is a prima facie case and that the applicant has satisfied the balance of convenience test. The balance of convenience is determined by whether the inconvenience the applicant would suffer if an injunction was refused, outweighs the inconvenience the respondent would suffer if an injunction was granted. Where there may be doubt as to the respondents financial capacity to refund monies paid by the applicant (pursuant to an adjudicator’s decision), the legislature has assigned this risk to the applicant. This policy outweighs the inconvenience the applicant might endure if the respondent is not able to refund its monies.

THE FACTS Wiggins Island Coal Export Terminal (WICET) entered into a contract with Sun Engineering for the construction of a rail retrieval facility, an overland conveyer and a substation, as part of the WICET project. On 3 July 2014, Sun Engineering obtained an adjudicator’s decision under s.26 of BCIPA for the payment of work performed in the sum of $17,660,610.35. WICET only paid Sun Engineering an amount of $4,710,955.19.1 On 11 July 2014, WICET filed an originating application that sought a declaration that the adjudicator’s decision of 3 July 2014 was void. The final hearing of that originating application was set down for 14 and 15 August 2014. WICET and Sun Engineering consented to orders by which interim injunctions and directions were made, to permit the application for an interlocutory injunction to be heard. WICET paid the remaining amount of the adjudicator’s decision (plus an amount for interest and the adjudicator’s fees) into Court. Sun Engineering undertook not to enforce the adjudicator’s decision until the interlocutory application was determined.

a. Whether WICET had a prima facie case2 that the adjudicator’s decision was void, and b. The balance of convenience test (i.e. whether the inconvenience WICET would suffer if an injunction was refused would outweigh the injury to Sun Engineering of non-payment if an injunction was granted3.)

Prima Facie Case WICET’s prima facie case is based on the view that the adjudicator made a jurisdictional error. This was firstly demonstrated by the adjudicator’s finding that WICET waived its rights from relying on the strict time frames for submitting extension of time (EOT) claims pursuant to clause 35 of the contract, without having regard to submissions put forward by WICET. Secondly, that the adjudicator did not disclose his methodology or seek further submissions as to an 81 day EOT claim. In any event, Sun Engineering conceded that WICET had shown a prima facie case. Justice Daubney made preliminary observations for the final hearing on 14 and 15 August 2014 that WICET had a “good arguable case.”4

THE DECISION

Balance of Convenience

The Supreme Court of Queensland held that the application by WICET for an interlocutory injunction be dismissed.

WICET argued that there was doubt as to Sun Engineering’s financial capacity regarding the large quantum of the sum to be paid and WICET should not be required to bear the risk that Sun Engineering would be unable to repay the money where the adjudicator’s decision was declared void in the final hearing.

In arriving at this conclusion, Justice Daubney considered the well established interlocutory injunction principles:

Sun Engineering submitted that as a matter of policy under BCIPA, the adjudicated amount ought to be paid to Sun Engineering. WICET submitted that this legislative policy cannot apply in the present situation as the cases are distinguishable. R J Neller Building Pty Ltd v Ainsworth5 was decided at a time when it was invalid for state legislation to remove the Supreme Court’s power to grant interlocutory relief on account of jurisdictional error.6 Furthermore, WICET argued that the policy is only to apply to valid adjudicator decisions. Accordingly, WICET contended that as there is a prima facie case of jurisdictional error, the policy no longer applies.

Risk assigned as a matter of legislative policy However, Justice Daubney found that on the authority of R J Neller Building Pty Ltd v Ainsworth,7 the risk, as a matter of legislative policy, is assigned to WICET.8 Obiter, Justice Daubney noted that there is nothing in BCIPA to suggest that the risk allocation is affected by the quantum of the sum to be paid.

5 6 2 3 1

An amount WICET had accepted was due and payable under the payment schedule served under s18 BCIPA.

4

The strength of the prima facie case was addressed in Live Earth Resource Management Pty Ltd v Live Earth LLC (2007) 73 IPR 289. Affirmed by the High Court in Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57. Wiggins Island Coal Export Terminal Pty Ltd v Sun Engineering (Qld) Pty Ltd & Anor [2014] QSC 170 [14].

7 8

[2009] 1 Qd R 390. R J Neller Building Pty Ltd v Ainsworth was decided prior to the judgment of the High Court in Kirk v Industrial Relations Commission of New South Wales (2010) 239 CLR 531. See Brodyn Pty Ltd v Davenport (2004) 61 NSWLR 421 when relief in the nature of certiorari did not lie for nonjurisdictional error of law by the adjudicator. [2009] 1 Qd R 390. R J Neller Building Pty Ltd v Ainsworth was affirmed in Kingston Building (Australia) v Dial D Pty Ltd [2013] NSWSC 2010.

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RECENT QUEENSLAND LEGISLATIVE DEVELOPMENTS

REFORM OF THE BUILDING AND CONSTRUCTION INDUSTRY PAYMENTS ACT 2004 (QLD) Need to know Legislation1 amending the Building and Construction Industry Payments Act 2004 (Qld) (BCIP Act) was passed by the Queensland Parliament on 11 September 2014 and has received royal assent. It will commence on a date to be set by Proclamation. The changes follow recommendations in a Final Report on payment dispute resolution in the Queensland construction industry. The amendment Act aims to address “widespread dissatisfaction with the way adjudicators are appointed and what was felt to be unreasonable timeframes for responding to claims”.2 To achieve this objective the amendment Act:

Building and Construction Industry Payments Amendment Act 2014 (Qld). 2 http://statements.qld.gov.au/Statement/2014/4/9/ construction-industry-to-become-fairer-more-transparent 1

PAGE 52

•

reforms the process for the appointment of adjudicators;

•

introduces a dual model regime for “standard” and “complex” payment claims;

•

amends the timeframes for making and responding to “complex” payment claims and adjudication applications for “complex” claims;

•

allows the inclusion of additional reasons (not included in the respondent’s payment schedule) in an adjudication response for “complex” payment claims;

•

introduces the opportunity to submit a “second chance” payment schedule; and

•

allows severance to occur in decisions affected by jurisdictional error.

The amendments largely benefit respondents (i.e. principals under construction contracts), in that they attempt to balance the perceived “claimant-friendly” operation of the BCIP Act.

Application of the amendment Act It is important to note that the amendments in relation to the recovery of progress payments will only apply to contracts entered into after the commencement of the amendment Act. They will not have retrospective effect. Parties to construction contracts entered into before the commencement of the new legislation will continue to make claims under the current BCIP Act regime, (except for changes relating to Authorised Nominating Authorities (ANAs) outlined below).

Key changes to the BCIP Act Appointment of adjudicators The existing legislation permits claimants to apply for adjudication of payment claims to one of seven (commercially operated) ANAs. On receipt of an adjudication application, the ANA nominates an adjudicator to decide the claim. The amendment Act will establish an Adjudication Registry operating under the Queensland Building and Construction Commission as the sole body authorised to accept adjudication applications. The Adjudication Registry will maintain a list of “active” adjudicators, and appoint adjudicators based on their skill, experience and areas of expertise. On commencement of the amendment Act, all functions of the ANAs will be transferred to the Adjudication Registry. The change in the way adjudicators are appointed was introduced, in part, due to feedback from respondent stakeholders about the perceived bias of ANAs. The Final Report refers to a “common perception” in the industry that ANAs (and their adjudicators) might be

encouraged to favour claimants in their decision making to attract more business (i.e. more adjudication applications).

Dual model – “standard” and “complex” payment claims The amendment Act will introduce a dual model regime for “standard” and “complex” payment claims. A “complex” payment claim is a claim for an amount more than $750,000 (excluding GST), or any greater amount prescribed by regulation. A payment claim which is not a complex payment claim is a “standard” payment claim. A payment claim will not need to state whether it is a standard or complex claim. If a dispute arises as to whether or not a payment claim is complex or standard this will be dealt with as a jurisdictional issue by the adjudicator.

Differences between a “standard” and a “complex” payment claim a. Time to prepare the payment schedule and adjudication response Respondents are currently allowed 10 business days to serve a payment

schedule and 5 business days to lodge an adjudication response, irrespective of the size or nature of the payment claim. The timeframes cannot be extended. In circumstances where the claim requires a considerable factual analysis, or comprehensive legal or expert opinion, it can be difficult to prepare a thorough response within the time allowed. The new time frames which apply pursuant to the amendment Act are set out in the table below. b. Providing new reasons for withholding payment Respondents are presently prohibited from including in the adjudication response reasons for withholding payment which are not identified in the payment schedule. The amendment Act will remove that prohibition if the claim is a “complex” payment claim. Claimants will have the opportunity to respond to any new reasons for withholding payment included in an adjudication response that were not in the payment schedule. A claimant must notify the adjudicator

Time to lodge documents under the amended Act Document

“Standard” payment claim

“Complex” payment claim

Payment schedule

10 business days after receipt of payment claim (no change)

15 business days after receipt of payment claim*

Adjudication application

10 business days after receipt of payment schedule (no change)

10 business days after receipt of payment schedule (no change)

Adjudication response

10 business days after receipt of adjudication application

15 business days after receipt of adjudication application

Extension for adjudication response

N/A

May apply to the adjudicator for an extension of time of up to 15 business days

* Unless the claim was served more than 90 days after the reference date, in which case the payment schedule must be served within 30 business days of the payment claim (s.18A(3)(b)(ii) of the Act). When this occurs, there is an apparent inconsistency between the time within which a respondent can provide a payment schedule (30 business days) and the time within which a respondent must pay the scheduled amount (which cannot be more than 15 business days after receipt of a payment claim, being the maximum time allowed under s.67W of the Queensland Building and Construction Industry Act 1991). It appears a respondent would be liable to pay any amount it intends to schedule before the date it is required to provide a payment schedule for that amount.

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RECENT QUEENSLAND LEGISLATIVE DEVELOPMENT

of its proposal to lodge a reply within 5 business days after receiving the adjudication response and the claimant’s reply must be lodged within 15 business days.3 c.

e. Jurisdictional error Where the Court finds that only part of an adjudicator’s decision is affected by jurisdictional error, the amendment Act provides that the Court may identify the part affected by the error and allow the part of the decision not affected by the error to remain binding on the parties. The Queensland Court of Appeal has previously held that an adjudication decision affected by jurisdictional error should be void in its entirety.4

Compulsory second chance payment schedules Where the respondent does not provide a payment schedule, or there is an unpaid scheduled amount, the amendment Act requires that before: •

lodging an adjudication application; and

•

commencing court proceedings to recover an unpaid portion of a claimed amount,

a claimant provide notice to the respondent stating that the respondent may serve a (“second chance”) payment schedule on the claimant within 5 business days after receiving the notice. d. Time to submit payment claims Payment claims will be required to be served within 6 months after the construction work to which the claim relates was last carried out (unless the contract allows a longer period). The BCIP Act presently allows claimants 12 months. Final payment claims may only be served within 28 days of the expiration of the defects liability period, six months of completing all construction work (or supplying all goods), or the period stated in contract (whichever is later).

Shutdown periods The definition of “business day” in the BCIP Act will be amended to exclude (in addition to public holidays and weekends) the three days prior to Christmas (22 to 24 December) and the period up to 10 January, reflecting industry shutdown during that time of year. This will prevent ambush claims on the eve of the holiday period when both clients (and their consultants) may be unavailable.

No requirement for payment claims to be endorsed as claims under BCIP Act Amendments to the NSW security of payment legislation,5 which came into effect on 21 April 2014, do not require contractors to endorse a payment claim as a claim being made under the NSW Act in order to enliven the procedure under the Act. Every payment claim in NSW is a claim under the NSW security of payment legislation.

4 3

However, an application for an extension of up to 15 business days may be made to the adjudicator if the new reasons are voluminous or complex

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5

BM Alliance Coal Operations Pty Ltd v BGC Contracting Pty Ltd & Ors [2013] QCA 394. Building and Construction Industry Security of Payment Act 1999 (NSW).

The amendment Act will not remove the requirement for an endorsement in Queensland. Claimants still need to mark their claims as being made under the BCIP Act to trigger the statutory process for the assessment and adjudication of payment claims.

RECENT CHANGES TO DOMESTIC BUILDING CONTRACTS IN QUEENSLAND Need to know The Queensland Parliament has recently passed the Queensland Building and Construction Commission and Other Legislation Amendment Act 2014 (the Act) which repeals the Domestic Building Contracts Act 2000 (Qld) (DBC Act). The Act received assent on 27 October 2014. Domestic building contracts are construction contracts governing “domestic building work”, which includes:6 •

erection and construction of detached dwellings;

•

renovation, alteration, extension, improvement or repair of a home; and

•

removal or resiting work for a detached dwelling.

Domestic building contracts do not include: •

contracts between building contractors and subcontractors or;

•

contracts for the construction of 2 or more detached dwellings.7

This position will not change under the proposed new legislation.

Background The Act consolidates the statutory regulation of domestic building contracts by inserting a new Schedule 1B

(Domestic building contracts) into the Queensland Building and Construction Commission Act 1991 (Qld) (QBCC Act), the principal piece of legislation governing building contracts in Queensland.8

Domestic Building Contracts Act 2000 (Qld) s.8. Domestic Building Contracts Act 2000 (Qld) s.7(2).

•

a provision stating the start date for the subject work;

•

plans and specifications (including those required for carrying out work in compliance with development approvals or similar authorisations);

•

a statement of each of the statutory warranties that apply to subject work; and

•

a warning placed next to the contract price if the contract price (or its method of calculation) can be varied under the contract.

Click here to access a full copy of the Act.

The Act The Act introduces two levels of domestic building contracts based on the value of the work being performed. Contracts will be considered either a “level 1 regulated contract” or a “level 2 regulated contract”. Level 1 regulated contracts are contracts for more than $3,300 but less than $20,000. Level 2 regulated contracts are contracts with a value above $20,000. In practical terms, the two tier system will see level 1 contracts subject to less regulation than level 2 contracts.

Differences between requirements – Level 1 and Level 2 regulated contracts a. Requirements for the contract Level 1 regulated contracts must contain inclusions substantially similar to those required under the DBC Act. (i.e. a regulated contract must be in written form, include any plans and specifications for the subject work and contain other specified matters such as the location of the works, the contract price and the building contractor’s licence number).

8 6 7

Level 2 regulated contracts must also contain:

The Act forms part of the Government’s response to the recommendations of the Transport, Housing and Local Government Committee’s Report No. 14, Inquiry into the Operation and Performance of the Queensland Building Services Authority 2012.

The Act provides that both level 1 and level 2 contracts will only have effect when the contract is in written form, dated and signed by both parties. Importantly, while the Act preserves the requirements for level 1 and level 2 contracts (listed in sections 13 and 14 of Schedule 1B respectively), s.44 of Schedule 1B provides that failure of a building contractor to comply with a requirement under the Act in relation to domestic building contract does not make the contract illegal, void or unenforceable.   b. Deposits A building contractor cannot receive a deposit which is: •

more than 10% of the contract price for level 1 regulated contracts; or

•

more than 5% of the contract price for level 2 regulated contracts.

For level 1 or level 2 regulated contracts under which the value of off-site work is more than 50% of the contract price, a deposit of no more than 20% of the contract price can be claimed.

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RECENT NEW SOUTH WALES DECISIONS

page 56

S

RECENT NEW SOUTH WALES DECISIONS

JUST WHEN YOU THOUGHT IT WAS SAFE TO IGNORE “SURROUNDING CIRCUMSTANCES” MAINTECK SERVICES PTY LTD V STEIN HEURTEY SA (2014) 310 ALR 113 KEY TAKEAWAY In Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 310 ALR 113, the New South Wales Court of Appeal revisited, in the context of a building and construction subcontract, the question of when it is permissible for the court to consider the “surrounding circumstances” of a transaction in the construction of a term of a written contract. The court also made some salient observations on the position of the law in Australia on the subject of “global claims”.

REFERENCE TO “SURROUNDING CIRCUMSTANCES” IN THE CONSTRUCTION OF WRITTEN CONTRACTS When a court interprets a fully written contract, is it necessary to identify ambiguity before the court may consider evidence of the circumstances surrounding the transaction? This controversial question affects the conduct of disputes and may, on occasion, affect the meaning a court ascribes to a contract. The Mainteck decision holds that no ambiguity is needed. The legal principle in issue concerns when a court may have regard to “surrounding circumstances” of a transaction for the purpose of interpreting the meaning of a term of a written contract.

The “true rule” It is well established that, in circumstances where the language of a contract is ambiguous or susceptible to more than one meaning, a court may have regard to “surrounding circumstances” of a transaction for the purpose of interpreting the meaning of a term of a written contract. This is often referred to as the “true rule” as espoused by Mason J in the seminal High Court decision of Codelfa.1

The issue is whether, in circumstances where there is no such ambiguity and the ordinary grammatical meaning of the language is clear, the court may still nevertheless have regard to “surrounding circumstances” when interpreting the meaning of a written contractual term? The “true rule” would suggest that this question should be answered in the negative.

The “commercial purpose passage” However, in Codelfa Mason J also cited,2 with apparent approval, the following comments of Lord Wilberforce:3 “In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.” This is often referred to as “the commercial purpose passage” of the Codelfa judgment. The application of the “true rule” was deemphasised in several subsequent High Court decisions,4 and in other appellate decisions, including by the NSW Court of Appeal in Franklins v Metcash.5

2 3 4

1

Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337.

5

Ibid 350. with whom a majority of the House of Lords agreed, in Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR at 995. Pacific Carriers Ltd v BNP Paribs (2004) 218 CLR 451 at [22] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ); Toll (FCGT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, [40] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ); International Air Transport Association v Ansett Holdings Ltd (2008) 234 CLR 151, [22] (Gleeson CJ) and [52] (Gummow, Hayne, Heydon, Crennan and Kiefel JJ). Franklins Pty Ltd v Metcash Trading Pty Ltd (2009) 76 NSWLR 603, [14] (Allsop P).

Reference was made in those decisions to the “commercial purpose passage” of Codelfa.

The decision in Western Export The position appeared to have been clarified by the High Court in the Western Export case where the “true rule” was cited with approval by the High Court as the correct rule of interpretation (although there was some doubt as to the status of the comments as the decision in Western Export was a decision on an application for special leave).

Mainteck – a change in position following EGC v Woodside? The New South Wales Court of Appeal elected not to follow the High Court’s decision in Western Export6 on the basis that it is inconsistent with aspects of the judgment of the High Court in the (more recent) case of EGC v Woodside.7 While the High Court in that case, did not consider the “surrounding circumstances” issue in any detail, French CJ, Hayne, Crennan and Kiefel JJ commented that:8

6 7 8

Western Export Services Inc v Jireh International Pty Ltd (2011) 282 ALR 604. Electricity Generation Corp v Woodside Energy Ltd (2014) 306 ALR 25. Ibid 33.

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RECENT NEW SOUTH WALES DECISIONS

“The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating.” The citations have been omitted from the above quotation, but it is noteworthy that, in the last sentence, their Honours were citing the commercial purpose passage in Codelfa, and that Pacific Carriers, Toll and IATA were cited after the third sentence. The true rule passage in Codelfa was not cited, and neither was Western Export. In relation to the contract in issue in EGC v Woodside (a gas sales agreement, or GSA), French CJ, Hayne, Crennan and Kiefel JJ stated that:9 “The construction which has been accepted is consistent with surrounding circumstances known to both parties at the time of entering the GSA, which include the circumstances that the sellers sell and supply gas to customers and buyers in the market other than Verve, some essential services depend on gas supply, and the prevailing market price of gas at any particular time may be greater (or less) than [a particular price expressly referred to] in the GSA.”

9

Ibid 37.

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Overview of the NSW Court of Appeal’s reasoning in Mainteck

This makes it quite distinct from evidence which is apt to assist the process of construction (of contractual terms).

The leading judgment in Mainteck was delivered by Leeming JA10 who set out the following principles of construction of contracts:

Decisions Post Mainteck

a. every legal text requires legal interpretation, in order to ascertain its legal meaning; b. very often, but not always, nothing in the context will come close to displacing the ordinary grammatical meaning of the legal text; c.

in order to determine whether more than one meaning is available, it may be necessary first to turn to the context;

d. the approach to construction of written commercial contracts reflected in Woodside ... accords with what had been said in familiar passages in Pacific Carriers, Toll and Gordian Runoff and also means that the Australian approach mirrors that adopted in England, New Zealand, Singapore and Hong Kong; and e. although evidence of context and purpose expands the scope of the litigation, none of the foregoing should be seen as opening the door to lengthy litigation in commercial causes. In Mainteck, the evidence of “surrounding circumstances” sought to be relied on by Mainteck was lengthy, contested, vague, and divorced (by many months in time) from the execution of the agreement in issue.

10 With whom Ward JA agreed (Emmett JA also agreed in the outcome, although it is not clear whether his Honour agreed with Leeming JA’s remarks regarding ‘surrounding circumstances’).

Some cases seem to suggest an ongoing need for caution before admitting evidence of surrounding circumstances. (These include Tatts Group v Victoria [2014] VSC 312 and Technomin Australia Pty Ltd v Xstrata Nickel Australasia Operations Pty Ltd [2014] WASCA 164.) Nonetheless, the bulk of appellate authority supports the view taken in Mainteck that there is no need to identify ambiguity before a court may admit evidence of the surrounding circumstances. This approach has been specifically endorsed: a. by the New South Wales Court of Appeal in Newey v Westpac Banking Corporation [2014] NSWCA 319, [89] (Gleeson JA, Basten and Meagher JJA); and b. by the Full Court of the Federal Court in Stratton Finance Pty Limited v Webb [2014] FCAFC 110, [40] (Allsop CJ and Siopis, Flick JJ).

GLOBAL DAMAGES CLAIM

KEY TAKEAWAY The decision in Mainteck was also noteworthy for its treatment of Mainteck’s global damages claim. The Court rejected the suggestion, based on a number of Scottish decisions, that apportionment between causes may be available in a global claim where it is established that the defendant’s breaches were a material, but not the dominant cause of the losses for which damages are claimed. A global claim will fail where a significant cause of loss is not attributable to the defendant.

Mainteck also appealed against the referee’s (and the primary judge’s) rejection of its claim for delay and disruption. Leeming JA noted that Mainteck’s contention was that:1 “it was sufficient for it to establish a causal connection between some breaches by Stein Heurtey and disruption, as a result of which it said it was entitled to either the whole of its claim, or an apportionment.” His Honour’s response to this submission was direct and clear: “[t]hat is not the law.”2 After a review of the case law, particularly Byrne J’s decision in John Holland Construction & Engineering Pty Ltd v Kvaerner RJ Brown Pty Ltd (1996) 8 VR 681 and that of Inner House of the Court of Session in Laing Management (Scotland) Ltd v John Doyle Construction Ltd [2004] BLR 295; 2004 SC 713, Leeming JA concluded:

“[a] plaintiff seeking damages will fail unless he, she or it establishes breach, causation and loss” (at [187]); a. although “some decisions on breach of contract in building cases have used the language of “global claim”, such claims do “not involve any special principles of fact or of law” (at [188]). A “global claim” is one where a claim “where the total loss is sought and causation is sought to be inferred” (at [201]); b. “[i]n a global claim, a significant cause of loss not attributable to the defendant is fatal” (at [205] to the entire claim; c.

the suggestion, in some Scottish decisions, that apportionment between causes may be available in a global claim, where it is established that the defendant’s breaches were a material, but not the dominant cause of the losses for which damages are claimed “goes well beyond anything held by an Australian court” (at [203]).

Mainteck Services Pty Ltd v Stein Heurtey (2014) 310 ALR 113, 151. 2 Ibid. 1

PAGE 61

RECENT VICTORIAN DECISIONS

page 62

RECENT VICTORIAN DECISIONS

BRIREK INDUSTRIES PTY LTD V MCKENZIE GROUP CONSULTING (VIC) PTY [2014] VSCA 165 (6 AUGUST 2014) KEY TAKEAWAYS In the recent decision of Brirek Industries Pty Ltd v McKenzie Group Consulting (Vic) Pty Ltd [2014] VSCA 165, the Victorian Court of Appeal rejected the limitation period of 6 years provided for in the Limitation of Actions Act 1958 (Vic) for building actions. The Court of Appeal held that such actions are subject to the 10 year limitation period provided for in s.134 of the Building Act 1993 (Vic) (Act). The case clarifies the uncertainty that had previously existed when reading s.134 of the Act against the Limitation of Actions Act 1958 (Vic) for Victorian building actions. It also enlivens an avenue for recovery in disputes that had previously been time barred under the six year limitation period.

THE FACTS Brirek engaged Bailey Heights to build on a property purchased on a proposed plan of subdivision, and Bailey Heights subsequently engaged McKenzie as building surveyor in 2002. Brirek alleged that McKenzie had agreed, among other things, to issue building permits pursuant to the relevant authorities. Brirek also alleged that there were implied terms requiring McKenzie to exercise all due care and skill, and to comply with all relevant statutory obligations.

In respect of claims arising under the 2004 contract, the trial judge and counsel for both parties assumed that the amendment was to be analysed as if it had been issued on the date of the amendment. On this assumption, the trial judge held that the amendment to the statement of claim “spoke” from the date of the amendment, and therefore that it did not “relate back” to the date of the original pleading. This meant that any claim against McKenzie for breach of the 2004 contract accruing after September 2004 was statute-barred, as the date was six years prior to the date of the amendment.

In purported compliance with its obligations, McKenzie issued seven building permits between November 2002 and May 2004, the final two being issued after the planning permit had expired in October 2003.

The trial judge also held that McKenzie did not owe Brirek a duty of care in tort with respect to the particular loss and damage for which Brirek claimed damages.

Brirek alleged that the permits had been issued in breach of McKenzie’s duty to advise Brirek if any building permit had not been issued in compliance with the Act. Brirek also alleged that McKenzie had breached its duty of care in tort to exercise due care, skill and diligence.

DECISION ON APPEAL

Late in the trial in September 2004, the trial judge allowed Brirek to amend its statement of claim. The effect of the amendment was to plead, as an alternative to the 2002 contract, that a contract arose between Brirek and McKenzie in April 2004 which had the same content as the 2002 contract.

Findings at first instance The trial judge found that there was no contract between Brirek and McKenzie in 2002, and rejected Brirek’s contention on s.134 of the Act regarding the limitation period on the basis that s.134 had no application to claims in contract. His Honour concluded that the limitation period was six years as provided in s.5(1)(a) of the Limitation of Actions Act 1958 (Vic).

Redlich, Whelan and Santamaria JJA considered the following issues on appeal.

Contract between Brirek and McKenzie in 2002 The Court of Appeal held that the trial judge was correct in finding that there was no 2002 contract as the terms of s.17(a) of the Act did not create a contract between Brirek and McKenzie.

Applicability of s.134 of the Building Act regarding the limitation period The Court of Appeal held that the construction given to s.134 of the Act by the trial judge imposed unwarranted limitations on the scope and applicability of the section. The Court stated that, not only actions founded in tort, but those founded in contract equally fall within the scope of s.134 of the Act and may be brought within 10 years from the date of issue of the occupancy permit.

The amendment did relate back to the original pleading The Court of Appeal further held that, even if s.134 of the Act was not applicable, the amendment to the statement of claim to add the 2004 Contract did “relate back” to the date of the original pleading. The amendment “constituted nothing more than a different legal conclusion based upon facts already in issue in the proceeding”. The Court of Appeal stated that the trial judge had been mistaken in assuming that the amendment to the statement of claim to add the 2004 contract “spoke” from the date of the amendment.

No duty of care owed by building surveyor to owner The Court of Appeal held that the trial judge was right to hold that McKenzie was under no duty to avoid causing Brirek the loss for which it claimed damages. The Court distinguished the vast amount of case law in which it has been held that a building surveyor owes a duty of care in negligence to an owner or subsequent owner of a building on the basis that, in those cases, the claim related to defective workmanship causing diminution loss. Here, Brirek claimed financial loss in the nature of its holding costs as it awaited completion of the building, and of its inability to lease or sell it sooner than might otherwise have been the case. The Court of Appeal concluded by saying that the only claims made by Brirek which remained open to be established were its contractual claims arising after April 2004 based upon alleged implied terms. The trial judge had found that the alleged breaches of the 2004 contract were barred by limitation, so made no findings as to whether there were implied terms in the 2004 contract.

PAGE 65

RECENT VICTORIAN DECISIONS

SUBWAY SYSTEMS AUSTRALIA V IRELAND [2014] VSCA 142 (1 JULY 2014) KEY TAKEAWAY The Court of Appeal of the Supreme Court of Victoria has held that the Victorian Civil and Administrative Tribunal (VCAT), irrespective of its nomenclature as a “tribunal”, is to be considered a “court” for the purposes of s.8 of the Commercial Arbitration Act 2011 (Vic). This section requires a “court” to refer matters to arbitration where they are subject to an arbitration agreement.

THE FACTS Aaron Ireland and Lynette Ireland (the Irelands), operated a Subway business in a suburban shopping centre. This was undertaken pursuant to a franchise agreement, which included an arbitration clause, with Subway Systems Australia Pty Ltd (Subway Systems). When disputes arose, the Irelands initiated proceedings in VCAT alleging a breach of the franchise agreement, negligence and misleading and deceptive conduct. A central issue in the matter was the interpretation of the word “court” for the purposes of s.8 of the Commercial Arbitration Act 2011 (Vic) (the Act). Section 8 of the Act requires that a “court before which an action is brought in a matter which is the subject of an arbitration agreement must, if a party so requests not later than when submitting the party’s first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.”

The Decision at First Instance During proceedings before VCAT,1 Subway Systems contended that VCAT was required to refer the matter to arbitration in accordance with s.8 of the Act. VCAT held that it was not a “court” for the purposes of s.8 of the Act which therefore had no application.

THE DECISION ON APPEAL TO THE SUPREME COURT OF VICTORIA An appeal by Subway Systems to the Supreme Court of Victoria was dismissed in Subway Systems Australia v Ireland [2013] VSC 550 (18 October 2013) which confirmed that VCAT is not a “court” for the purposes of the Act.

THE DECISION ON APPEAL TO THE COURT OF APPEAL OF THE SUPREME COURT OF VICTORIA An appeal was again initiated by Subway Systems, this time to the Court of Appeal of the Supreme Court of Victoria in Subway Systems v Ireland [2014] VSCA 142 (1 July 2014). The Court of Appeal (by majority) overturned the prior decision and held that VCAT is indeed a “court” for the purposes of s.8 of the Act. Section 2A of the Act provides that “in the interpretation of this Act, regard is to be had to the need to promote so far as practicable uniformity between the application of this Act to domestic commercial arbitrations and the application of the provisions of the Model Law...to international commercial arbitrations...”. The Model Law is a reference to the UNCITRAL Model Law on International Commercial Arbitration.

President Maxwell placed great weight on interpreting the Act in the context of promoting uniformity with the Model Law. Article 2 of the Model Law defines “court” to mean “a body or organ of the judicial system of a State” and Maxwell P was not prepared to adopt a narrower interpretation of “court” for the purposes of the Act which would be “attributable ultimately to nothing more than a difference in nomenclature – the very thing UNCITRAL said in 1985 was irrelevant in this context.”2 Beach JA considered that the interpretation of “court” most appropriately included VCAT, and was influenced by the reasoning that “the underlying purpose of the Act was not merely to express a preference for low cost speedy arbitrations over longer more expensive court trials – but rather, and partly in the interests of uniformity, to express a preference for holding parties to their bargains that in terms involve preferring arbitration of whatever kind has been agreed between the parties over State sponsored dispute resolution (no matter how cost efficient or time effective the relevant State body or arm might prove to be.”3

2 1

Ireland v Subway Systems Australia Pty Ltd & Anor Retail Tenancies) [2012] VCAT 1061 (20 July 2012).

3

Subway Systems v Ireland [2014] VSCA 142 (1 July 2014), [47]. Subway Systems v Ireland [2014] VSCA 142 (1 July 2014), [90].

PAGE 67

RECENT VICTORIAN LEGISLATIVE DEVELOPMENT

BUILDING LEGISLATION AMENDMENT BILL 2014 (VIC) Background The Building Legislation Amendment Bill 2014 (Bill) passed its First Reading on 6 May 2014 and its Second Reading on 8 May 2014. The amendments proposed by the Bill will cause the most significant changes to the Victorian building industry since the introduction of the Building Act in 1993 and the Domestic Building Contracts Act in 1995. The purpose of the Bill is to improve and strengthen efficiency, fairness, accountability and confidence in the building industry. The changes include governance, dispute resolution, builders’ licensing and insurance.

Changes to governance arrangements The Bill will establish the Victorian Building Authority (VBA) as a single, integrated, statutory body to which consumers can look for all aspects of protection – from responding to consumer complaints, to providing cover if a builder defaults through to deregistering builders. The Building Practitioners Board, Building Appeals Board and Architects Registration Board of Victoria are abolished as part of the amendments.

Dispute Resolution The Bill amends the Domestic Building Contracts Act 1995 (Vic) (DBCA) to enhance the jurisdiction of the VBA by adding an option to refer to domestic building work dispute to the VBA prior to going to VCAT. The VBA will have the power to issue rectification orders if the parties have not been able to resolve a dispute. A rectification order can require party to do a number of things including rectify defective work, complete the work or pay the costs of rectifying work.

PAGE 68

Licensing / regulation of building practitioners A partnership and body corporate will be able to be registered as a building practitioner. Currently only natural persons may be registered. A body corporate can be registered if there is at least one director who is a registered building practitioner in the appropriate category or class. Partnerships may also be registered if at least one member of the partnership is a registered building practitioner. It will be an offence under the Building Act for bodies corporate to carry out work as a building practitioner under a major domestic building contract unless at least one director is registered in the relevant category of domestic builder. Registration will be limited to five years before renewal is required.

Insurance The Bill establishes a new Domestic Building Consumer Protection Fund (Fund). The Fund will be managed by the Victorian Managed Insurance Authority from 1 July 2016. The Fund provides coverage to major domestic building contracts of a value of $16,000 or more. Losses claimable against the Fund will be extended beyond when the builder is dead, disappeared or insolvent to also include where: •

a rectification order has not be complied with and the contract has been completed or terminated; or

•

the builder has been deregistered or suspended; or

•

the builder is permanently incapacitated and therefore cannot undertake rectification work.

The statue of limitation periods are 2 years after completion for non-structural defects and 6 years for structural defects. The maximum loss which may be claimed will increase from $200,000 to $300,000 per certificate. Coverage will also be extended to losses arising from the actions of subcontractors, and provides that losses will be covered to the extent that the costs of rectification or completion have increased during the time between when the loss was incurred and when the work is rectified or completed. VCAT will have jurisdiction to hear and determine disputes relating to the Fund.

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PAGE 69

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