Long-Stop Action: Deadlines for Bringing Building Claims

The New South Wales Court of Appeal has recently given guidance to difficult questions about time limits for bringing claims for defective building work. It has confirmed the brutal reality that building claims must be brought within 10 years of completion of the work (and in most cases, much sooner).

The case centred around the all-important ‘long-stop’ limitation period for making building claims for defective works, which is 10 years from the date that the works were completed. It was a case of fine distinctions, and heavy on statutory interpretation.

The argument centred around Environmental Planning and Assessment Act 1979 (NSW) (Act).

No doubt the parties involved could never have imagined that so much ink would be spilled because of the simple fact that the development consent concerned was issued before 1998. The three-member Court split 2-1 on whether the current version of the long-stop limitation period applied to building work completed under development consents issued before 1998.

However as always, there are broader and more universal lessons that can be taken from the case.

In this article, we dive into the current section 6.20 of the Act (Current Long-Stop), and its similar predecessor, section 109ZK of the Act (Previous Long-Stop). We then consider the facts of the case, the points on which all judges agreed, and the majority decision where there was disagreement. We conclude with what we can take from this case going forward.

Long-Stop Limitation Period

All people involved in building need to be aware of limitation periods. These are time limits for bringing claims. If an otherwise meritorious claim is brought outside the limitation period, then a court will not consider it, no matter how well-supported it is or how “unjust” it may seem.

For this reason, anyone who believes that they have a claim, or will face a claim, needs to seek legal advice as soon as possible. This is especially true for building cases. Very often the clock will have started ticking as soon as the work was finished, regardless of when the problems first appeared. A few days can very well be the difference.

It is also important to bear in mind that multiple limitation periods may apply for a particular case. This article discusses the ‘long-stop’ limitation period, but there are other limitation periods that may take priority. For example, for residential building jobs, the Home Building Act has a very complicated regime for limitation periods, which range from two years to six years depending on the type of claim brought. These limitation periods apply notwithstanding anything in this article. Again, legal advice must be sought for the individual case.

The “long-stop limitation period” in broad terms is a 10-year limit from the date of completion of the work on when building claims can be brought to a Court. In most cases, this will be the date when the final occupation certificate was issued.

The Case

The case concerned works of a subcontractor for a main contractor completed in 1997 for a shopping centre and hotel on George Street, Sydney. The subcontractor had constructed an exhaust duct system that serviced the shops and restaurants in the shopping centre.

After the works were complete, Sydney Capitol Hotels Pty Ltd (Sydney Capitol) occupied the building. Meanwhile, Bandelle Pty Ltd (Bandelle) assumed the liabilities of the subcontractor under a scheme of arrangement sanctioned by the Federal Court of Australia in 2014.

In 2017, fire and smoke from kitchen exhaust at the bottom of a building spread to the hotel in the upper levels of the building. This caused the sprinkler system to activate. Sydney Capitol alleged that the subcontractor had breached its duty of care, as the shaft for the exhaust duct system was not constructed in accordance with the certified plans. The shaft did not extend beyond the roof sheeting, and so it was alleged that it was not properly fire-rated in accordance with the Building Code of Australia.

Bandelle denied that the subcontractor’s construction was defective. However, it also claimed that Sydney Capitol’s claim was a “civil action for loss and damage arising out of or in connection with defective building work within the meaning of s 6.20 of the Planning Act”, which was required to have been brought within 10 years of the completion of the building works.

If true, Sydney Capitol would be prevented from making the claim at all.

The Laws

The Current Long-Stop (s 6.20), commencing in 2018, provides:

“(1) A civil action for loss or damage arising out of or in connection with defective building work or defective subdivision work cannot be brought more than 10 years after the date of completion of the work.”

The Previous Long-Stop (s 109ZK of Part 4C) provided:

“(1) Despite any Act or law to the contrary, a building action may not be brought in relation to any building work:

(a) more than 10 years after the date on which the relevant final occupation certificate is issued, or …”

Clause 34 of the Environmental Planning and Assessment (Savings and Transitional) Regulation 1998 (NSW), applied to the Previous Long-Stop until 2012. Clause 34 provided:

“Part 4C of the amended EP&A Act 1979 does not apply to or in respect of any development carried out under the authority of:

(a) a development consent granted under the unamended EP&A Act 1979 …”

The upshot was that because of Clause 34, the limitation period in the Previous Long-Stop did not apply to a development carried out under the authority of a development consent that was issued before 1998.

The Issues

The big issue for the Court of Appeal was: whether the Current Long-Stop was affected by the Clause 34. The answer may have seemed like an obvious “no”, as Clause 34 had been repealed in 2012. However, Parliament had confusingly stated its intention that the Current Long-Stop was to carry on the effect of the Previous Long-Stop. The two laws had very similar drafting. Moreover, there was an argument that the rules of statutory interpretation required that the effect of Clause 34 continue after its repeal for some cases.

If the Current Long-Stop was affected by Clause 34, then there was a good chance that Sydney Capitol could bring its claim, unrestrained by the limitation period. However, if the Current Long-Stop was not affected, then Sydney Capitol’s claim could be dismissed.

There was a second issue: essentially, if it applied to a case, how wide should the Current Long-Stop be interpreted? Should it prevent all types of claims that result from building work, even if the building work was not completed by the other party, as was the case here?

Does the Current Long-Stop Apply to pre-1998 Developments?

The casenote for this issue appears simple, but in the words of White JA: “Even the experienced lawyers engaged in the litigation did not come to grips with the intricacies of the legislation and regulations at the hearing before the primary judge, and in some respects, not even on appeal.” Showing that laws are complex even for the best legal minds in NSW, the Court of Appeal was required to undertake a lengthy process of statutory interpretation, and it arrived at a 2-1 split on the main issues of the case. At the end of His Honour’s judgment, White JA called for Parliament to make the intention of the Acts and their amending Acts clear for those who are not minded to read the judgment.

The 2-1 majority found that the Current Long-Stop applied to the construction completed under a development consent issued before 1998.

The majority also found that the Current Long-Stop was not affected by Clause 34. Building carried out pursuant to development consents issued before 1998 (or any time) were covered by the Current Long-Stop.

Unfortunately for Sydney Capitol, this meant that the very wide phrasing of the Current Long-Stop applied to its own case. A different majority found that had the Previous Long-Stop still applied today, Sydney Capitol could have brought its claim.

The Operation of the Current Long-Stop

Accepting that the Current Long-Stop applied, what was the effect of this?

Essentially, claims for economic loss from defective building work must be brought at a maximum within 10 years of the completion of the work, irrespective of when the defects become manifest.

As the judges observed, the Current Long-Stop is designed to create some certainty for parties in the case of latent defects, which may only become known after some time and in piecemeal way. Other limitation periods (contract law or negligence) that also apply will often kick in only when damage becomes manifest.

In contrast, the long-stop limitation period applies notwithstanding any timing of defects becoming visible. The only relevant date is when the building work is completed, which is usually defined to be when the final occupation certificate is issued. From this time, there is a 10-year period during which a claim for economic loss must be brought. This provides builders with some degree of protection.

The Current Long-Stop has very wide phrasing. It applies to all who seek to bring claims for property or economic loss that arise from defective building work, including for negligent design and certification. The only apparent exceptions are for claims brought for death or personal injury.

Unfortunately for Sydney Capitol, the majority found that the damage that it suffered arose out of or was in connection with defective building work. The smoke damage from the fire was caused by the allegedly defective building work (or so the claim ran). Even though the building work failed to prevent the damage, rather than causing it directly, it was still caught by the Current Long-Stop.

More brutal for Sydney Capitol was that the company was not even the original owner of the property or the successor in title. Further, its opponent Bandelle had not completed the work but (in effect) guaranteed the work. Essentially, both parties had taken over the pre-existing rights and obligations of the owner and the builder. Yet the Court was unanimous in finding that these facts did not matter. All that mattered was that the claim concerned defective building work.

Consequently, even though the damage only became apparent to it in 2017, almost twenty years later, Sydney Capitol was barred from bringing a claim.

One final note, once again: very often, claims must be brought even sooner than 10 years. Depending on the type of building and the type of claim brought, another limitation period may make this period even shorter.

The Implications

Much will be written about this case, and a lot of it will be relevant to lawyers rather than builders.

Nevertheless, the case demonstrates the brutal reality of limitation periods. Sydney Capitol was not even a successor in title, and it occupied a commercial premises in 1998. It only became aware of a defect in 2017. Nevertheless, it was prevented from claiming damages against anyone involved in the defect.

The case also shows the need for rigorous inspections prior to occupying or owning an older property. Sometimes, the only protection that incoming purchasers will have is prevention rather than the cure, if problems take years to become obvious.

However, the Current Long-Stop gives little comfort for those whose property suffers from latent defects, that only make themselves known long after building work is completed. Parliament has decided that after 10 years of completing a job, builders can live with relative certainty that they can be free of claims.

The case does not settle the question of whether parties can contract out of the long-stop limitation period, or similarly enter into a deed to that effect. The courts in NSW have not yet been required to resolve this question definitively.

Fitz Jersey under fire: Building Commissioner issues Prohibition Order under new powers

Whilst the Residential Apartment Building (Compliance and Enforcement Powers) Act 2020 (NSW) (RAB Act) was only enacted 6 months ago, the Building Commissioner has shown his commitment to exercising the new powers conferred on his Department to regulate non-compliant developers and protect the interests of buyers in new residential developments.

The RAB Act commenced on 1 September 2020 and introduced a range of measures to regulate the carrying out of residential building work by developers, including:

  1. a new occupation certificate notification scheme; and
  2. the conferral of broad investigatory and enforcement power on the Building Commissioner.

(For more information on the RAB Act generally, please see our article from last year.)

As part of the Building Commissioner’s enforcement powers, on 21 December 2020, a Prohibition Order was issued to property developer, Fitz Jersey Pty Ltd (Fitz Jersey), preventing the issue of an occupation certificate and the registration of a strata plan in relation to its development at 563 Gardeners Road, Mascot NSW 2020.

Pursuant to section 9(1)(c) of the RAB Act, the Building Commissioner can make an order prohibiting the issue of an occupation certificate and/or the registration of a strata plan for a strata scheme in relation to a residential apartment building, if it is satisfied that a serious defect exists in the building. On two separate occasions last year, compliance officers from the Department of Customer Services conducted inspections of the building at Gardeners Road. During these inspections it was observed that building work carried out in relation to the fire safety systems was non-compliant with the performance requirements in the Building Code of Australia, which could result in serious defects.

The issue of a Prohibition Order has serious implications on a developer. Not only does it reflect poorly on their reputation in the industry (a register of Prohibition Orders issued is published publicly on the Fair Trading website), but it also has serious financial consequences as a developer cannot settle on contracts for sale and purchasers cannot lawfully occupy a building without an occupation certificate.

In November 2020, the Building Commissioner issued a Building Work Rectification Order pursuant to section 33 of the RAB Act also in relation to the building’s inadequate and non-compliant fire safety systems.

Residential developers should take heed of this as an example of the Building Commissioner’s willingness to exercise the new powers conferred by the RAB Act.

If you have questions about how the RAB Act may affect your project or would like further information on any of the above, please contact us at info@bradburylegal.com.au or (02) 9248 3450.

10 things that residential builders need to get right

1. Contracts – make sure they comply with the requirements under the Home Building Act (HBA)

The contracts should:

• comply with the contract requirements under the HBA if the builder is carrying out work with a value of $5,000 (including GST) and above, for example the contracts should be in writing, provide a sufficient description of the work etc. Its best to use the standard forms as they contain all of the required information;

• not just be a quote or a purchase order as they do not comply with the HBA requirements and the builder will be in breach of the HBA and unable to rely on the quote or purchase order to get paid when contracting directly with a homeowner. Of course, there are exceptions to these requirements in the case of any emergency work concerning a hazard or a safety issue;

• ensure that builders don’t exceed the maximum deposits and maximum progress payments;

• ensure that the works are clearly defined in terms of scope and price and that any ambiguity is resolved before the contract is signed; and

• make it clear that the contract price can change for variations, PC and provisional sums etc.

2. Licencing – don’t carry out any residential building work that the builder is not licenced to do

Builders must ensure:

• that all of its sub-contractors that carry out specialist work (and any sub-contractors that are required to be licenced) such as its water proofers, plumbers and electricians are appropriately licenced;

• that the entity which has entered into the contract with the homeowner is licenced to carry out the work. It is not good enough for a builder to engage a licenced sub-contractor to carry out the work, the entity entering into the contract has to be licenced to carry out the work; and

• that there are no restrictions on the licence if the builder is contracting directly with homeowners. We have seen too many times to count, instances where the entity in the contract does not hold an open licence to carry out the work and has a condition on the licence which says that the entity is not licenced to carry out works for which HBCF insurance is required, that is, work with a value of over $20,000.

3. Insurance – no insurance = big problems

Remember that:

• the entity which is entering into the contract must have its insurance in place including insurance under the Home Building Compensation Fund (HBCF) if the value of the work is $20,000 or over;

• it is a breach of the HBA to take any money from a homeowner (including a deposit) when a certificate of HBCF has not been provided to the homeowner; and

• if HBCF insurance is not in place, the builder is not entitled to make any claims for payment even on a quantum meruit basis, unless the Court or Tribunal considers it “just and equitable” for the builder to recover money in the absence of insurance. Also, if there are defects in the work carried out, it would be much harder to satisfy a Court or Tribunal that the builder should be paid and also, harder to obtain retrospective insurance.

4. Increases in the contract price/variations/PC and provisional sums

• ensure that the builder complies with the variation procedure in the contract.

All variations should be approved in writing by the homeowner including not only the approval to carry out the variation itself but also approval of the cost of the variation. No variations should commence until written approval has been obtained from the homeowner. By taking this simple step will avoid a lot of headaches down the track in terms of getting paid; and

• All PC and provisional sums should be based on firm estimates or quotations to limit any surprise and of course disputes.

5. Quality of sub-contractors – find the good ones

• find good quality sub-contractors and pay them well.

Most defect claims will come down to the quality of the work carried out by the builder’s sub-contractors and so it’s a worthwhile investment to have quality trades carrying out the works.

• good quality water proofers are in hot demand carrying out rectification work and it’s easy to see why given that most defect claims include water ingress issues caused by failed waterproofing in wet areas, balconies and planter boxes [we could have a whole section dedicated to why planter boxes may look good but are a nightmare for builders in terms of defect claims but that’s for another day].

6. Practical Completion – what does it mean?

• clearly define what practical completion is as this can be a point of contention between builders and homeowners as homeowners may be under a misapprehension of what practical completion actually means; and

• as a practical suggestion, ensure that the works are practically complete and all minor defects are rectified before the homeowner inspects as this will help to avoid the common dispute about when PC has been reached and the homeowner withholding the final progress claim because they are unhappy with the works. Remember the homeowner is buying “the dream” and expects that the house will be ready to occupy. It is better in the long run, in terms of cost and time, to try and meet that expectation if possible.

7. OC – clearly specify the builder’s obligations in relation to obtaining the OC?

• clearly specify in the contract what the builder’s obligations are in relation to providing the certificates and documents required in order to obtain the OC (which is usually the homeowner’s responsibility to obtain from Council or a private certifier) and also stipulate whether the builder has an ongoing obligation to assist the homeowner in obtaining the OC.

8. Claims by the builder – have the paperwork in order

• if the builder is making claims for the payment of money due under the contract, ensure that the contractual provisions are complied with concerning the builder’s entitlement to those moneys and that all supporting documentation is provided; and

• ensure that progress claims are not issued prematurely when the work the subject of the claim has not been completed (as this could be deemed to be a breach of the contract and a breach of the HBA).

9. Claims by homeowner – defects/incomplete work/negligence

• use the defences available under the HBA if the builder has been instructed to carry out works by the homeowner or a professional such as an architect or engineer, contrary to the builder’s advice. The builder must put any objection to carrying out any such works in writing to the homeowner;

• use every opportunity to rectify defects to limit the issues in dispute. There is no strategic advantage in delaying rectification in exchange for the payment of money as this will only end up in litigation as builders are liable to fix defects regardless of whether payment has been made; and

• any items not agreed can be resolved with the assistance of NSW Fair Trading, mediation or proceeding to a Court of Tribunal to determine as a last resort.

10. Keep up to date with the changes in legislation

By way of example, some of the recent changes (some of which apply to class 2 buildings only) include:

• From 10 June 2020, owners with defects will benefit from the statutory duty of care that applies to new buildings, and existing buildings where an economic loss first became apparent in the previous 10 years;

• From 1 September 2020, the NSW Building Commissioner will be able to stop an occupation certificate from being issued, order developers to rectify defective buildings, and issue stop work orders;

• From 1 March 2021, residential builders can rely upon the Building and Construction Industry Security of Payment Act (SOPA) and issue payment claims against homeowners. See our attached article here; and
• From 1 July 2021, there will be compulsory registration for practitioners involved in design and building work, including professional engineers

If you would like to discuss any of the above, please contact us.

Injunctions and bank guarantees: When can a contractor prevent a developer having recourse to bank guarantees or performance bonds?

Case: Uber Builders and Developers Pty Ltd v MIFA Pty Ltd [2020] VSC 596

One feature of construction contracts which is distinctive and unique from other types of contracts is the provision of security from the contractor to the principal. Commonly, security takes the form of retention monies or bank guarantees. The consequences of having recourse to bank guarantees can be serious for the party providing the security (the security provider). In September 2020, the Supreme Court of Victoria handed down a decision in relation to bank guarantees. The decision Uber Builders and Developers Pty Ltd v MIFA Pty Ltd [2020] VSC 596 (Uber), sets out a helpful summary of the principles in respect of bank guarantees, interlocutory hearings and recourse to bank guarantees.

The Facts

Uber Builders and Developers (Uber) sought an injunction preventing MIFA from calling on its bank guarantees. MIFA asserted that it was entitled to have recourse to the bank guarantee as the Superintendent had certified amounts as payable by Uber in respect of rectification costs for defective and incomplete work, liquidated damages, credit allowances and purported variations. As a result of non-payment by Uber of these amounts, MIFA sought to have recourse to the bank guarantees to recover the amounts certified against Uber. To prevent MIFA from having recourse to the bank guarantee, Uber sought interlocutory relief (lawyer jargon for an interim/immediate court order) that MIFA was not allowed to have recourse to the bank guarantee.

The Principles

Nichols J summarised the governing principles in respect of where interlocutory relief is sought to restrain the calling of a performance bond/bank guarantee that has been given under a contract. There principles are:

  1. The applicant for interlocutory relief must show there is a serious question to be tried. The applicant, in this case Uber, must show that there is sufficient reason to think that the applicant would be successful if the matter were to progress to a final hearing;

 

  1. The applicant must show that the ‘balance of convenience’ favours the granting of the injunction. This means that the court should take whichever course appears to carry the lowest risk of injustice should it be wrong in either granting pr not granting the injunction;

 

  1. The court must consider whether damages would be an inadequate remedy. This means that the court has to consider whether the applicant would suffer irreparable injury for which monetary compensation would not be an adequate option; and

 

  1. These questions and factors to consider must be considered together and not as isolated issues.

 

In the context of setting out these guiding principles, Nichols J set out some drafting considerations for security clauses in construction contracts. These are summarised below:

  • Purpose: Bank guarantee or performance bonds may be stipulated for two reasons.
    • The first is to provide security against the risk that the security holder will not recover a sum owing by the defaulting party. In this way, the security acts as a means of ensuring the principal or security holder can recover some money if an amount is payable to the principal/security holder.

 

  • The second is to allocate risk as to who will be out of pocket while a resolution of a dispute is pending. If the security is to allocate risk, then the party holding the security may have recourse, even if it turns out that the other party was not actually in default.

 

  • Conditions of Recourse: If the purpose of the security is to act as an interim allocation of risk, then it is important to consider in what circumstances the principal/security holder will be entitled to have recourse to the security. The parties may agree to allow the security holder to have recourse to the security pending a final determination, but this right should be limited to certain circumstances. For instance, the parties may agree that recourse to the security can only occur if notice is given and/or where the dispute relates to damage caused by the security provider to the works/the project and/or adjoining properties.

 

  • Conditions imposed by the Courts: Where there are no contractual conditions under the contract, the Courts will prevent a party from calling on security where the security holder acts fraudulently or unconscionably in calling on the security.

 

  • Interim Risk Allocation: If the security is intended to be an interim risk allocation tool, the security holder will be entitled to have recourse to the security even if it turns out that the other party was not in default, notwithstanding the existence of a genuine dispute and a serious issue to be tried as to underlying entitlements.

 

Interim Risks

So far, this article has discussed a lot about ‘interim risk allocation’ but what does this actually mean and when is it relevant? Throughout the projects, various issues (such as the valuation of variations and defective work) may arise and payments are generally made on account only. At the end of the contract, the Superintendent will generally issue the final certificate. The final certificate will determine if there has been any over or underpayment by the principal to the contractor, whether there are any liquidated damages, and any other interim issue (such as the valuation of defective work and variations). If a party does not agree with payments to be made under the final certificate, they are generally able to issue a notice of dispute under the contractual provisions or can commence proceedings in relation to the contract. In these circumstances, the interim risk is the amount certified under the final certificate and a final determination of the issue made pursuant to a Court or the dispute resolution process set out in the contract. As the dispute resolution process (whether it be Court, expert determination, arbitration, or another dispute resolution forum under the contract) can take substantial time to finally determine the issues, if the security is an interim risk allocation tool, the principal will be able to have recourse to the security until the matter is finally determined. If it turns out the final certificate was incorrect, this will not prevent the principal from having recourse to security. It will mean that the decision maker will generally order for the principal to make payment of however much they have been overpaid so that the parties’ entitlements are finalised and concluded.

Bringing it back to the case study, Uber, the Superintendent certified that an amount was payable by the contractor to the principal. The contractor disputed the amount that was payable and did not make payment as and when required by the final certificate. As a result, the principal was entitled to have recourse to the security once it had complied with the conditions of recourse under the contract. As these conditions were predominantly notice requirements, the principal was not prevented from having recourse to the security. If Uber had made payment of the final certificate amount and issued the notice of demand, it is arguable that MIFA would not have been able to have recourse to the security. This is because MIFA would not be able to claim that the amount in the final certificate remained unpaid. As a result, contractors are put in the difficult position of paying a disputed amount or the principal may have recourse to the security.

The Takeaways

Intention of the Security

Parties need to be clear about the intentions behind providing security. This can be achieved by drafting the purpose of the security into the security clause of the contract. If there is an intention for the security to be an interim risk allocation tool, it will be much easier for the security holder/principal to have recourse to the security. If the security is only to protect against the failure to pay a sum owing by a party, then the security holder will be able to have recourse to the security if the amount is not paid as and when required under the contract.

Conditions of Recourse

Conditions of recourse essentially mean the security holder promises that they will not have recourse to the security unless those conditions are met. If the parties agree on the circumstances where the security holder can or cannot have recourse to the security, this will bind the security holder irrespective of the terms of the bank guarantee. Typical conditions include where the principal is entitled to payment under the contract.

If the security provider seeks to prevent the security holder from having recourse to the security, the security holder (generally the principal) will be required to show that it has met and/or followed the contractual process.

It is important to note that some jurisdictions, such as Queensland, may impose restrictions on when a party can have recourse to security. For example, under the Queensland Building and Construction Commission Act 1991 (QLD) section 67J(1)-(2), a principal may use a security or retention amount only if they have given 28 days’ notice in writing to the contractor advising of the proposed use and the amount owed. In these jurisdictions, the additional conditions will be imposed in addition to with the conditions of recourse under the contract.

Interim amounts owed

The crux of the purpose of security comes to a head in circumstances where a party disputes the amount owed. For instance, when the Superintended issues that final certificate (as was the case in Uber). If the security clause is drafted to allow for the security to be an interim risk allocation tool, the principal will be entitled to have recourse to the security. This will mean that contractor holds the risk of being out of pocket until the matter is finally determined.

If you are a developer, a contractor or a subcontractor and you or someone you know needs advice in respect of whether it is possible to have recourse to security, please get in touch with the staff at Bradbury Legal. Alternatively, if you are in the process of drafting and negotiating a contract, including the clauses relating to security, Bradbury Legal is able to assist and help you know exactly what you are signing up to.

Construction Industry Lockdown: Stage 4 Restrictions for Metro Melbourne

The second wave of COVID-19 has continued to spiral in Melbourne in recent weeks, causing the implementation of Stage 4 Restrictions in Metropolitan Melbourne. The Stage 4 Restrictions will be in force from 6:00PM on Sunday, 2 August 2020 for a period of 6 weeks until Sunday 13 September 2020.

Described by Victorian Premier Daniel Andrews as the ‘lifeblood’ of the Victorian economy, the building and construction industry has largely avoided previous restrictions. However, the Stage 4 Restrictions sees authorities issuing a specific directive to the industry to significantly reduce their operations.

We have compiled some relevant information detailing how the restrictions apply to the building and construction industry below.

Who is caught by the Stage 4 Restrictions?

The Stage 4 restrictions will apply to building and construction industry participants operating on construction projects located within the 31 local government areas that make up Metropolitan Melbourne.

For all businesses operating in these areas, the standard order is that any employee who can work from home is required to do so. This would likely apply to any employee who is providing an administrative or supportive function that can be performed remotely.

Building and construction industry workplaces, whilst permitted to continue operations, are deemed high risk, and are required to design and implement COVID-19 Safety Plans to ensure the prevention and management of COVID-19 transmission.

The level of restrictions that apply to a business will depend on the size of the project it is working on. Projects have been classified as either Small Scale, Large Scale or State and State Civil as follows:

  • Large Scale Construction: defined as any building or construction project of more than 3 storeys (excluding a basement level) and would typically include projects such as high rise apartment buildings or factories;
  • Small Scale Construction: defined as any building or construction project of 3 storeys or less (excluding basement level) and would typically include residential or domestic home building projects; and
  • State and State Civil Construction: defined as any large infrastructure project funded by the state, typically including projects such as trainlines, roads, schools and hospitals.

What are the Restrictions

Large Scale Projects

Businesses who are working on a large scale project are required to limit their operations on the project site to a maximum of 25% of the employees that would normally be on site, and to implement a High Risk COVID-Safe Plan.

Small Scale

Businesses operating on a small scale project are to limit the number of employees on site at any one time, inclusive of supervisors. Small scale projects also require employers to implement a COVID-Safe Plan.

State and State Civil

Whilst businesses who are currently working on state and state civil projects are exempt from the strict limitations above, they are required to implement a High-Risk COVID Safe Plan on their sites.

Employers who are operating on either large or small scale projects are required to be able to demonstrate that they are complying with the above limits, without blending shifts.

In addition, workers who would typically work across multiple worksites are permitted to work at just one worksite during the Stage 4 Restriction period.

Who is enforcing the lockdown and how?

Ultimately, the onus of ensuring compliance with the new restrictions, as well as the implementation of an appropriate COVID-Safe Plan will fall on the employer.

The Victorian Department of Health and Human Services has advised that it will work together with industry bodies, WorkSafe and Victoria Police to undertake the necessary enforcement and compliance activities.

The Department of Health and Human Services will also work together with WorkSafe to co-ordinate intelligence on potentially non-compliant businesses.

Businesses found to be non-compliant with their obligations under the Stage 4 Restrictions can be issued on the spot fines of up to $9,913, for:

  • refusing or failing to comply with the emergency directions;
  • refusing or failing to comply with a public health risk power direction; and
  • refusing or failing to comply with the Public Health Directions to provide information.

It is also possible for a business to be fined up to $100,000 through the courts for non-compliance.

Is there any assistance if my business is suffering?

The Victorian Government has announced an extension of its Business Support Fund scheme, offering grants to eligible businesses. Eligible businesses may be able to apply for a one-off grant of:

  • $10,000 if in Metro Melbourne and Mitchell Shire; or
  • $5,000 if in regional Victoria except Mitchell Shire.

Conclusion

The unprecedented stage 4 restrictions, whilst only applying to Metropolitan Melbourne, will likely see a significant slowdown of the building and construction industry in Victoria. Flow on effects are likely to be felt by suppliers, sub-contractors and services to the building and construction industry.

We previously published a short list of issuesshort list off issues to be mindful of when drafting and administering contracts during COVID-19. It is crucial for Victorian building industry participants to review their relief entitlements.

This article is based on current government recommendations and advice current as at the date of writing. It is intended to provide information and assistance to members of the building and construction industry who are affected by the Stage 4 Restrictions in Melbourne only. The above discussion is not intended to be legal advice, and readers should bear in mind that every case is different.

If you or someone you know wants more information or needs help or advice, please contact us on 02 9248 3450 or email info@bradburylegal.com.au.

NCC 2019 Amendment 1: Changes starting on 1 July 2020

In response to the recommendations of the Shergold Wier Building Confidence Report, the Australian Building Codes Board (ABCB) and the Building Ministers’ Forum have undertaken an out of cycle amendment to the National Construction Code (NCC). While the NCC was not due for review until 2022, the amendment known as “NCC 2019 Amendment 1” will be adopted by all Australian jurisdictions on 1 July 2020.

The NCC is a performance-based code containing technical standards for the design, construction and performance of buildings as well as for plumbing work and drainage systems. It is published and maintained by the ABCB and adopted by each Australian jurisdiction through its own legislation. For example, in NSW the NCC is given effect by the Environmental Planning and Assessment Act 1979 (NSW), the Plumbing and Drainage Act 2011 (NSW) and subordinate legislation.

The aim of the NCC is to create a uniform set of technical standards that apply to all Australian jurisdictions. However, as identified in the Shergold Wier Building Confidence Report, there have been a number of systematic issues with the implementation and enforcement of the NCC which has prompted NCC 2019 Amendment 1.

What will change?

Following a period of key stakeholder consultation last year, NCC 2019 Amendment 1 will introduce the following changes:

  • a new provision regarding egress from early childhood centres (NCC Volume One);
  • clarification of the concession that permits the use of timber framing for low-rise Class 2 and 3 buildings (NCC Volume One);
  • clarification that anti-ponding board requirements only apply to roofs where sarking is installed (NCC Volume Two);
  • an update to the Governing Requirements for all Volumes to require labelling of aluminium composite panels in accordance with SA Technical Specification 5344; and
  • correction of minor errors, including the correction of typographical errors and errors in diagrams.

In addition to the above, the ABCB announced last month that NCC 2019 Amendment 1 will also include a provision mandating the process for developing Performance Solutions. This process is based on the ABCB’s existing Development of Performance Solution Guideline and requires that the process for documenting Performance Solutions be commensurate with the complexity and risk of the design.

Unlike the other amendments, this amendment will not commence until 1 July 2021. However, as the process is included in NCC 2019 Amendment 1 there is plenty of time for industry participants to prepare necessary documentation to encompass the process for Performance Solutions prior to the amendment taking effect next year.

Other changes expected

It was also proposed that NCC 2019 Amendment 1 would include the new defined term of “building complexity”. The draft definition proposes a risk-based system from levels 0 to 5 for classifying complex buildings, which assists to identify buildings where additional regulatory oversight is needed during the design, construction and certification processes.

 

The ABCB announced last month that this new definition would not be included in NCC 2019 Amendment 1, however it has been published on their website with a six month consultation period for comments and feedback.

A copy of the preview of NCC 2019 Amendment 1 is available on the ABCB website via the NCC Suite.

If you or someone you may know is in need of advice regarding NCC 2019 Amendment 1 or the NCC generally, please contact our office by phoning (02) 9248 3450 or by email at info@bradburylegal.com.au.

A tale of two Acts

Last week the NSW Parliament passed two significant pieces of legislation for the construction industry. The first, passed on Tuesday 3 June 2020, was the Design and Building Practitioners Bill 2019 (at the time of writing, awaiting assent). The second, passed on 4 June 2020, was the Residential Apartment Buildings (Compliance and Enforcement Powers) Bill 2020 (which will commence on 1 September 2020).

Design and Building Practitioners Act 2020 (the DBP Act)

The DBP Act sets up a legislative regime which regulates design practitioners who provide designs for certain types of building works.

The DBP Act introduces a number of new regulatory provisions in relation to:

  • obligations of design practitioners, principal design practitioners and building practitioners;
  • restrictions on carrying out of professional engineering work and specialist work;
  • introduction of a statutory duty of care in favour of owners corporations and associations; and
  • registration, disciplinary action, investigations and enforcement decisions in relation to design practitioners

Important definitions:

The Act introduces several new terms into the law in order to set up the regulatory framework. The most notable definitions are set out below:

Building element means:

  • fire safety systems for a building within the meaning of the Building Code of Australia;
  • waterproofing;
  • an internal or external load-bearing component of a building that is essential to the stability of the building or a part of it;
  • a component of a building that is part of the building enclosure;
  • those aspects of the mechanical, plumbing and electrical services for a building that are required to achieve compliance with the Building Code of Australia;
  • other things prescribed by the regulations.

Design compliance declaration means a declaration as to whether or not:

  • a regulated design prepared for building work complies with the requirements of the Building Code of Australia;
  • the design complies with other applicable requirements prescribed by the regulations;
  • other standards, codes or requirements have been applied in preparing the design.

Essentially, the design compliance declaration confirms that the design practitioner has complied their obligations at law and under contract.

Regulated designs means:

  • a design that is prepared for a building element for building work;
  • a design that is prepared for a performance solution for building work (including a building element); or
  • any other design of a class prescribed by the regulations that is prepared for building work.

Being an incredibly broad definition means that anyone that provides design services, such as engineers, architects and other design consultants, will likely be covered by the DBP Act and therefore subject to its requirements.

Compliance declarations

The DBP Act requires a registered design practitioner and principal design practitioners to provide a compliance declaration to a person if:

  • the practitioner provides the person with a regulated design prepared by the practitioner; and
  • the design is in a form suitable for use by that person or another person in connection with building work.

Failure to comply with the compliance declaration provisions by registered design practitioners can result in fines of up to $165,000 for corporations and $55,000 for other persons. However, if a person makes a design compliance declaration that the person knows to be false or misleading, they could face a fine of up to $220,000, two years imprisonment, or both.

Duty of Care

The DBP Act imposes a duty of care on persons who carry out construction work to exercise reasonable care to avoid economic loss caused by defects:

  • in or related to a building for which the work is done; and
  • arising from the construction work.

The legislation states that this duty of care is owed to each owner of the land that the construction work is carried out. The duty of care also owed to all subsequent owners of the land.

The consequence of this provision is that builders and developers may end up having a duty of care in respect of defects for up to 6 years from the date that the loss was suffered. Builders will also want to consider these potential liabilities in conjunction with the 10 year limitation period for defective building work under the Environmental Protection and Assessment Act. The 10 year period for defective building work commences from the date of completion.

Other things to note with the statutory duty of care:

  • it cannot be delegated;
  • it cannot be contracted out of;
  • it operates in addition to the statutory warranties in the Home Building Act.

Practical considerations:

  • Like the Environmental Protection and Assessment Act, the DBP Act relies on the Regulations to give form and substance to many of the operative provisions of the DBP Act. At the time of writing, the Regulations for the DBP Act were not available for review.
  • Design professionals and head contractors will need to update their insurances to ensure they are compliant with the new provisions and duties of design professionals.
  • Builders and others that engage in construction work will now have a much greater duty of care to the land owners.

Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020 (the RAB Act)

The RAB Act is more restricted in its application, applying only to residential apartment buildings. The purpose of this legislation is to prevent developers from carrying out building work that might result in serious defects to building work or result in significant harm or loss to the public, current occupiers and future occupiers of the building.

Notification for intended completion

From 1 September 2020, developers will be required to provide the Secretary of the Department of Customer Service a notification that they expect completion to occur and an occupation certificate issued within 6 – 12 months from the application. The Secretary is given the ability to make orders prohibiting the issue of an occupation certificate in relation to residential apartment buildings and may prevent the registration of a strata plan for a strata scheme in certain circumstances.

Investigations

The RAB Act authorises the following people to carry out investigations:

  • Building Commission;
  • an employee of the Department of Customer Service;
  • investigators under the Fair Trading Act 1979;
  • a council investigation officer under the Environmental Planning and Assessment Act 1979; and
  • a person set out in the regulations of the RAB Act.

These authorised officers are given various information gathering powers including being able to request information or records from persons where it is connected with an authorised purpose. Further, an authorised officer is able to enter premises without the need for a search warrant and will be able to undertake actions including:

  • examine and inspect any thing;
  • take and remove samples of a thing;
  • take photographs or other recordings that the authorised officer considers necessary;
  • copy of any records; and
  • seize a thing that the authorised officer has reasonable grounds for believing is connected with an offence against the RAB Act or its regulations or a serious defect in a building.

These powers are extensive and serious. Builders and developers should be seek legal advice. The Secretary for Customer Service is also empowered to issue stop work orders and rectification orders. Failure to comply with these orders may result the Secretary taking any action necessary or convenient to ensure the order is complied with. The cost of these actions are then able to be recovered by the Secretary.

Practical considerations:

  • Developers are required to give at least 6 months’ notice (but no more than 12 months) before an application is made for an occupation certificate.
  • Developers and builders should seek legal advice as to their rights in respect of the RAB Act. The powers of the authorised officers are extensive and the consequences for breach are serious.

Summary

The DBP Act and the RAB Act represent a major regulatory change from the NSW Parliament which will have serious consequences for building professionals. While these legislative reforms are aimed at promoting confidence in the building industry in light of developments such as Mascot Towers and Opal Tower, they radically shift the current status quo for building professionals. Those who carry out building work, from consultants and designers to builders and developers should seek specific legal advice as to where they stand in respect to these new legislative regimes.

One small stroke of a pen, one giant leap for legal procedure

On 22 April 2020, the NSW government enacted the Electronic Transactions Amendment (COVID-19 Witnessing of Documents) Regulation 2020 (COVID-19 Regulation), which can found here.

Anyone who under NSW law must witness signatures for the documents below, take note: the signature may now be witnessed by audio visual link.

The COVID-19 Regulation affects witnesses of those signing documents, including:

  • a will;
  • a power of attorney or an enduring power of attorney;
  • a deed or agreement;
  • an enduring guardianship appointment;
  • an affidavit including annexures or exhibits; and
  • statutory declarations.

The regulations commenced on 22 April 2020, and this brave new world is expected to last for a minimum of six months.

The essential steps are as follows:

  1. The witness and the person making the statement must have a real time “audio visual link”; and
  2. The witness must observe the person signing the document in real time; and
  3. The witness must themselves sign the document as soon as practicable after the link; and
  4. The witness must endorse the document with a statement about the method of witnessing the signature, and state that it was witnessed in accordance with the Electronic Transactions Amendment (COVID-19 Witnessing of Documents) Regulation 2020.

The link must be audio and visual, and it must be “continuous and contemporaneous”. Video conferencing is the prime example.

A witness does not need to sign the same hard copy document. They can either (a) sign a separate counterpart, or (b) sign a scanned version of the document that they witnessed being signed. Whatever they choose, they would do well to carefully store all original copies of signed documents, and prepare a file note of the experience.

Readers should be aware that the COVID-19 Regulation does not change what actually needs to be signed and how it is to be signed. Certain documents, such as wills, have very particular requirements that still must be followed.

Nevertheless, another face-to-face process has been put on pause to keep society safe.

 

COVID Update – Environmental Planning and Assessment (COVID-19 Development – Construction Work Days) Order 2020

Yesterday (April 2,2020), the Environment Planning and Assessment (COVID-19 Development – Construction Work Days) Order 2020 came into effect. The Order allows for building work and demolition work to be carried out on Saturdays, Sundays and public holidays, provided that the development is approved through development consent and continues to comply with all other conditions of the development consent. Further any work that is performed on a Saturday, Sunday or public holiday must:

  1. comply with the conditions of consent that restrict hours of work on any other day as if the condition applied to work on a Saturday, Sunday or public holiday;

 

  1. not involve the carrying out of rock breaking, rock hammering, sheet piling or similar activities during the weekend and public holiday work hours; and

 

  1. all feasible and reasonable measures are taken to minimise noise.

 

So what does this mean for the construction industry? Where a project is subject to development consent conditions that restrict the days of working to Monday to Friday, the Order allows for the approved working hours in the development consent to apply to weekends and public holidays. The purpose of this Order is to allow for construction sites to implement social distancing measures which may require smaller workforces on site but prevent or minimise loss of productivity by allowing works to be carried out on more days.

As a result, construction programs may need to be reconfigured to balance the slower rate of progressing the works due to social distancing and/or team splitting, any EOTs claimed and the greater number of days that can be worked.

The Order may also result in contractors and subcontractors being able to make a claim in relation to a change in legislative requirements under their contracts. This may result in entitlements for time or cost relief arising from complying with the Order and other government orders made in response to the COVID-19 outbreak.

If you need advice as to how this order affects your contractual obligations or are negotiating a contract, please contact us. We are committed to providing the highest quality of legal services at competitive prices to help you and your business get through these challenging times.

Coronavirus (COVID-19) and Construction Contracts: What are your options?

Coronavirus (COVID19) and the construction industry: What are your options?

We recently published an article about how construction contracts can incorporate concepts of force majeure events. A copy of our article can be found here.

As the disruptions of corona virus begin to become more extensive with government mandates coming into effect, we believe it’s important for those in the construction industry to have a quick reference guide as to their options or important things to think about.

 

Pre-contract: Tendering, negotiating and drafting of contract
Force Majeure clause ·         Manages the relationship between the parties where there has been an ‘Act of God’ or other similar severely disrupting event

·         Depends on the contractual definition of the term

·         Generally, suspends the obligations until the force majeure event has concludes

·         Important to consider when the parties’ obligations will resume – what will indicate the end of the force majeure event

Scope of Works and mitigation of supply chain risk ·         Where possible, alternative supply or materials should be specified in the scope of works with pre-agreed variation prices
Extensions of Time ·         Can include force majeure event as a qualifying cause of delay

·         What circumstances can the contractor or subcontractor seek an EOT?

·         Generally appropriate for an EOT to be granted where there is suspension of works, variation, act, omission or breach of the other party, force majeure events and/or industrial action occurring across the relevant state or territory

·         Are there any duties to mitigate the delay which are a precondition to receiving an EOT

Delay Costs and/or damages ·         Does the contract provide for any delay costs or damages?

·         What are the circumstances that the contractor or subcontractor is entitled to costs and are there any relevant caps?

Legislative Provisions ·         How are the change in legislative requirement provisions worded?

·         Consider the definition of legislative requirement (and/or equivalent and related definitions)

·         Consider whether legislative provisions should include a carve out for where there is a change in the legislative requirements in relation to COVID19. Given the uncertainty around how the government will proceed, it is difficult to predict how the legislative regimes or executive orders will change as the response to COVID changes and adapts

Labour and Key Personnel ·         Are there any key personnel of the contractor or the subcontractor that should be specifically identified?

·         Are there specific measures the Principal/Contractor want to specifically implement? Examples may include split teams

Security ·         Consider what types of security will protect against insolvency risk of contractors or subcontractors – Parent guarantee, retention monies, material security and/or bank guarantees

·         Consider circumstances where there may be recourse to the security such as where a party becomes insolvent or there are defective works that require rectification

·         Consider Principal security for payment if there are any solvency concerns

Insurance ·         Principals should consider whether there are suitable insurance policies to protect from any delays to the works or any consequences that the delays may have at the end of the project

·         For example, Principals may wish to discuss delay in start-up insurance with their insurance broker

Warranty deeds and defects ·         Principals may wish to require warranty deeds from the subcontractors to insure against any insolvency risk from contractors and to allow for any defects to be rectified independent of the contractor
Financial capacity of the tenders ·         When assessing potential contractors, Principals should consider the financial capacity of contractors and whether there are any solvency concerns and if there are any parent companies that can provide guarantees
Project deadlines ·         What deadlines are imposed by related contracts such as sale of land for off the plan properties

·         How long are the deadlines and timeframes of the project? Can they be extended to account for coronavirus

Contract structures ·         Profit/cost-saving sharing models of contract or guaranteed maximum price may be considered by Principals to minimise cost exposure of contracts that may be affected by coronavirus (such as supply chain risk)
Contract administration
Extension of time ·         Principals and Superintendents generally have the power to issue an EOT even when a claim may not be made by the Contractor. While they are not obliged to use this power for the benefit of the contractor, there may be practical and goodwill benefits in using these powers

·         Contractors should seek legal advice in terms of the relevant EOT clause and whether they have a right to seek an EOT or what other options are available to them under the contract

Suspension ·         Suspension is generally a grounds for an EOT

·         Consider who bears the cost of suspension under the contract

·         Is there a right for the contractor to claim any suspension costs or costs associated

Change to legislative requirements ·         In the event of government mandated shutdown, there is likely going to be claims for legislative changes. These will largely depend on the wording of the clauses, who bears the risk on legislative changes and the form of the government shut down

·         Other considerations include whether construction work is considered an essential service and to what extent

Variations ·         Where there is a supply chain breakdown due to closed borders, there may be claims for variations being made by Principals or Contractors to allow the project to continue

·         Variations will be linked to the scope of work and whether there are alternatives that can be sourced

Payments ·         Principals may wish to change payment terms to accommodate contractors or subcontractors

·         As the effects of coronavirus move throughout the economy, there will undoubtedly be businesses that struggle and become insolvent. Where possible, Principals may want to consider changing milestone payments or frequency of payment claims to assist contractors’ cashflows

·         Any agreement between the Principal and relevant contractor should be evidenced in writing

Acceleration ·         If there is relatively small amount of work left, Principals may consider giving directions to accelerate

·         While this may increase the cost of the project, the Principal may be able to ensure the project is completed before shutdowns come into effect

Employment ·         Employment law advice should be sought about how to manage employee relationships while projects are on hold by reason of coronavirus
Teams and social distancing ·         Head contractors may wish to implement policies that flow down the contracting chain in relation to splitting teams and social distancing where possible
Other arrangements agreed between the parties ·         Sometimes the best changes are those made between the parties and not from the lawyers

·         However, even where this is the case, ensure that such agreements are evidenced in writing and you seek legal advice on the impacts of the agreement and whether there are any potential consequences that you may not have considered

Other issues
Financiers ·         In many developments, there may be a financier involved and different obligations that arise under these loans and security documents

·         Principals should consider their obligations to notify their financier(s) where appropriate

Other stakeholders ·         There may be a range of other stakeholders that may have an interest in the construction contracts

·         It is important to manage these aspects of the development to reduce or eliminate any potential problems later on

Dispute resolution
SOPA claims ·         At the time of writing, there have been no changes to the strict deadlines imposed on submitting and responding to payment claims under the NSW Security of Payment legislation

·         SOPA is a contractor friendly forum, allowing for money to flow down the contracting chain

·         SOPA claims can be challenged on jurisdictional grounds or can be settled at the end of the contract if there has been an overpayment

Alternative dispute resolutions ·         Many alternative dispute resolution professionals are not taking new appointments. This can create a delay in parties complying with the relevant dispute resolution clauses

·         Parties may consider teleconferences or videoconferences to resolve disputes, rather than physically meeting

Courts ·         Many courts are operating via videoconferencing, with physical appearances limited

·         The court process may have more delays than usual as judges and parties adjust to the temporary measures of case management

·         Where a party is seeking urgent injunctive or other relief, it is important to seek legal advice as soon as possible to ensure that an application can be made efficiently and protect your interests

Contract termination ·         If you are seeking to terminate the contract it is important to terminate in accordance with the contractual provisions and to consider any common law rights or duties in relation to termination

·         Those seeking to terminate where the counterparty has become insolvent will also need to be aware of the recent insolvency changes and the restrictions on terminating pursuant to insolvency