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

 

 

Regulatory Overhaul and Reform Pillars: building confidence and stronger foundations for the NSW building and construction industry

Transparency, accountability and quality of work are always issues at the forefront of the building and construction industry. In the wake of many high profile instances of defects in newly built developments, these are also the big issues that the NSW Government is tackling in 2020.

Where it began: the Shergold Weir Building Confidence Report

Back tracking to early 2018, the Shergold Weir Building Confidence Report recommended the implementation of a national best practice model. The purpose of this was to enhance public trust in the building and construction industry and strengthen the effective implementation of the National Construction Code. The best practice model comprises 24 recommendations relating to:

  • registration and training of practitioners;
  • roles and responsibilities of regulators;
  • the role of fire authorities;
  • integrity of private building surveyors;
  • collecting and sharing building information and intelligence;
  • adequacy of documentation and record keeping;
  • inspection regimes;
  • post-construction information management;
  • building product safety; and
  • how the above recommendations will be implemented.

The NSW Government’s Response: Building Stronger Foundations Discussion Paper

The NSW Government welcomed the Shergold Weir Report and announced that it is committed to improving the building and construction industry through a number of new reforms. In June 2019, the NSW Government presented its Building Stronger Foundations Discussion Paper seeking input from stakeholders on its four key reforms. These reforms are:

  1. requiring practitioners defined as ‘building designers’ (e.g. architects, engineers) to declare that their building plans/specifications/solutions are compliant with building regulations, including the Building Code of Australia;
  2. introducing a registration scheme for ‘building designers’ who will be making declarations;
  3. ensuring that building practitioners owe a duty of care to owners’ corporations and subsequent residential homeowners; and
  4. appointing a Building Commissioner who is a consolidated regulator for the whole of the NSW building and construction industry.

What to expect in 2020 and beyond

It has been just over a year since the NSW Government committed to implementing regulatory reform and six months since it consulted with stakeholders to shape the direction of these reforms. So what progress has been made in that time?

In October 2019, the first tranche of reforms was introduced with the Design and Building Practitioners Bill 2019 (the “Bill”). The Bill seeks to deliver the NSW Government’s first, second and third key reforms by imposing new obligations on design and building practitioners. The Bill is currently before the NSW Upper House. Make sure to read our next newsletter as we will be providing a detailed explanation of the substance of the Bill.

In relation to fourth key reform, the NSW Government has appointed David Chandler OAM as the NSW Building Commissioner. In January 2020, Mr Chandler announced the Six Reform Pillars, which is the public’s first insight into his plans and implementation strategies for the reforms. The Six Reform Pillars are:

Pillar Actions Outcomes
Building a better regulatory framework

 

Implementing legislation and regulation and transforming the focus of the regulator

 

Ensure that NSW has a strong customer focused regulatory framework
Building rating systems

 

Work with ratings agencies, insurers and financiers to assist in better selection of industry participants

 

Move away from one-size-fits-all participant recognition and better identify risky players

 

Building skills and capabilities

 

Improve accreditation of construction related programs through improved standard modules

 

Shared minimum learning content and open source resources for all institutions

 

Building better procurement methods

 

Establish clear standards for engagement and outputs

 

Viable risk allocation and performance accountability

 

Building a digital future

 

Digitise the NSW Building Industry and move away from analogue record keeping

 

Shared industry wide platforms that build confidence

 

Building the reputation for quality research

 

Evidence based approach to accessing and closing the gap via case studies and other research

 

Baseline and measurement against our ability to improve confidence in the industry

 

 

This article provides a snapshot of the NSW Government’s plans to implement effective and wide ranging regulatory reforms of building and construction industry. This summary demonstrates that there is a significant task ahead in implementing these reforms, so watch this space for future updates.

If you or someone you know wants more information or needs help or advice in relation to this article, please contact us on (02) 9248 3450 or email info@bradburylegal.com.au.

Prevailing in a “Battle of the Forms”

Late last year Bradbury Legal was successful in representing its client in the case of Samios Plumbing Pty Ltd v John R Keith (QLD) Pty Ltd [2019] QDC 237 (29 November 2019). The case related to a “Battle of the Forms” where the Court found that our client’s terms and conditions governed the relationship between the parties for the supply of goods, rather than the purported terms and conditions of the other party.

The Facts

Samios Plumbing Pty Ltd (Samios) sent John R Keith (QLD) Pty Ltd (JRK) their standard credit application form used to establish a credit facility. This was not an offer capable of acceptance but an invitation to treat. In February 2010, JRK sent a facsimile to Samios enclosing a cover letter, Samios’ completed credit application form as amended by JRK’s financial controller and JRK’s standard terms and conditions.

Samios’ credit application included the sentence “All goods shall be sold in accordance with the “STANDARD TERMS AND CONDITIONS” as outlined on the purchase Invoice”. This sentence was struck out and initialled by JRK’s financial controller.

Later that month, JRK received a letter from Samios stating that its credit application had been approved and JRK subsequently placed orders.

JRK contended that the credit application (accompanied by JRK’s standard terms and conditions) was an offer to enter into an agreement for the future supply of goods on credit. The amendment to Samios’ credit application meant that JRK’s offer excluded Samios’ standard terms and conditions and substituted them with JRK’s standard terms and conditions. As such, JRK argued that Samios’ letter accepted that offer and all goods supplied by Samios were subject to JRK’s standard terms and conditions.

Samios denied that the credit application was an offer to enter into such an agreement. It contended that the credit application was a request that Samios extend credit to JRK for future orders and that each purchase order from JRK was a separate offer to purchase goods. For this reason, Samios contended that all goods were supplied with a delivery docket that referred to its standard terms and conditions available on its website and that JRK accepted each offer by taking delivery of the goods.

Decision

Barlow QC of the District Court of Queensland found that:

  • it was clear from JRK sending the credit application to Samios with its standard terms and conditions that it was an offer by JRK to enter into a contract for the provision of credit for the purchase of goods in the future;
  • by striking out Samios’ term that all purchases be made on Samios’ terms and conditions and including a copy of JRK’s own terms and conditions, JRK was offering to enter into a credit agreement on its own terms and conditions;
  • Samios’ letter approving JRK’s credit application, clearly conveyed to any reasonable business person, that Samios was accepting JRK’s offer to contract on the terms stated (i.e. JRK’s standard terms and conditions); and
  • thus, the credit agreement between JRK and Samios governed the terms of all subsequent orders and supplies of goods between the parties.

His Honour also considered Samios’ submission that the provision of a delivery docket with each order which made reference to Samios’ terms and conditions constituted an offer to supply goods on those terms. His Honour determined that the delivery dockets were not an offer to enter into a contract on Samios’ terms and conditions. Rather, as JRK’s orders were made using its own purchase order form and included a copy of JRK’s standard terms and conditions, by Samios’ conduct in delivering the goods in accordance with the purchase orders, Samios’ accepted JRK’s standard terms and conditions as governing the purchase order.

Key Takeaways

The scenario described above is not uncommon. Another example of where a ‘Battle of the Forms’ can arise is where a party provides a quotation that is subject to its standard terms and conditions and then the other party provides a purchase order stating that its own standard terms and conditions apply.

To avoid the ambiguity that these scenarios create and to minimise the chances of being involved in a costly dispute, it is important that it is clear which terms and conditions govern the relationship between the parties. The case law demonstrates that if parties proceed without agreeing on which terms and conditions apply, usually it will be determined that the last terms and conditions to be exchanged govern the relationship. While in these circumstances there is no express acceptance by a party of the offer of the terms provided by the other party, the court can find that there has been acceptance by conduct.

A worthwhile consideration if you are entering into an ongoing relationship that will involve multiple transactions is an “umbrella” or “master” agreement that sets out the terms and conditions that will apply to the future orders and supplies.

If you or someone you know wants more information or needs help or advice about avoiding a “Battle of the Forms”, please contact us on +61 2 9248 3450 or email info@bradburylegal.com.au

A copy of the case can be found here:

http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/qld/QDC/2019/237.html?context=1;query=john%20r%20keith;mask_path=

 

 

Builders licensing requirements – who is a “fit and proper person”?

Entry into various professions usually requires that a person be ‘fit and proper’, and that they be granted and continue to hold a licence or registration relevant to that profession.

An authority charged with the administration of a registration scheme or licensing scheme must be satisfied that an applicant is ‘fit and proper’ before granting the licence or registration.

Entering the building profession

The relevant certification authority will depend on the location of the builder’s work. Some examples are:

  • NSW Fair Trading, for licensing of builders and tradespersons in New South Wales;
  • Victorian Building Authority, for registration and licensing requirements for building and plumbing practitioners in Victoria; and
  • Queensland Building and Construction Commission, for  licensing in Queensland.

Although each jurisdiction has its own specific requirements, usually applicants must demonstrate that they firstly have the necessary qualifications, skills, knowledge and experience applicable for the registration or licence sought, and secondly that they satisfy certain probity conditions.

The requirement to be a fit and proper person not only applies to new applicants. It also extends to those wishing to maintain and renew their registration or licence.

How does an authority determine if an applicant is ‘fit and proper’?

The term ‘fit and proper’ is rarely defined in legislation. Rather, there are criteria and certain matters that an authority will consider, many of which relate to a person’s honesty, good character and integrity in commercial and other dealings. It is related to, but not the same as, being a person of good character.

In addition to providing evidence of relevant insurances, qualifications and experience, applicants are requested to disclose details of certain adverse or relevant matters. These are matters that may indicate that he or she is not a fit and proper to practise as a building practitioner. The disclosure of an adverse or relevant matter may trigger a request for further information or investigation.

Details of prescribed offences, convictions, licence or registration suspensions or disqualifications, and court or tribunal orders are amongst those matters investigated by an authority, as is the solvency of an individual or corporate entity.

Also relevant will be any examples of dishonesty or carelessness by the builder when dealing with the regulatory body itself. Even where there is no actual intention to deceive the authorities, failure to declare relevant information can lead to the regulatory body refusing the application. The authorities take a very dim view of builders who do not understand the regulatory regime and the importance of accuracy when dealing with it.

A failure to deal promptly with, or take seriously, customer complaints can also be relevant.

The fit and proper person requirement applies to individuals as well as directors of company entities seeking registration or licensing.

What is a relevant or adverse matter?

The following are common matters that must be disclosed, and will be considered, by an authority when determining if a person is fit and proper to enter (and remain in) the building profession:

  • the applicant’s criminal history and whether he or she has been convicted of an offence that involves fraud or dishonesty;
  • whether the applicant has had a licence or registration cancelled or suspended;
  • whether the applicant has been disqualified from managing a corporation;
  • whether the applicant is or has previously been bankrupt;
  • whether the applicant is or has previously been involved in the control of a corporate entity under administration or liquidation;
  • any previous breaches of the consumer law or contraventions of relevant building legislation and regulations;
  • the failure to disclose an adverse matter or the making of false or misleading representations in an application, which subsequently becomes known to the authority;
  • whether any court or tribunal orders have been made against the applicant;
  • whether the applicant has had an unreasonable number of complaints, penalty notices or cautions issued against him or her;
  • any disciplinary or legal action previously taken against the applicant by a regulatory body, authority or person; and
  • whether the applicant has previously been refused relevant insurance as a building practitioner.

Disclosure of an adverse or relevant matter does not necessarily mean that registration or licensing will not be granted. The authority will consider all matters, in all circumstances, and whether they establish a pattern of conduct that might deem the applicant does not have the appropriate standards to be considered a fit and proper person. The authority may also consider how recently the conduct took place as well as any relevant or mitigating circumstances. Further, it will assess whether the matters show that improper conduct in the future is likely.

The importance of disclosure – case study

It is important to disclose all information concerning a relevant or adverse matter when seeking registration with a building authority. Failing to do so can seriously jeopardise the application. Such was the case in Taouk v Director General, NSW Fair Trading [2016] NSWCATOD 41.

In this case the applicant was refused a contractor’s licence by NSW Fair Trading on the grounds that he did not meet the relevant industry experience required for the licence sought, and that he was not a ‘fit and proper person’ as required by the relevant legislation.

The applicant sought review by the NSW Civil and Administrative Tribunal.

There were various irregularities and omissions of relevant matters in the application, including a failure to disclose the applicant’s previous directorship of a liquidated company.

While satisfied that the applicant had ‘probably’ met the requirement of relevant experience for the licence sought, and that there was insufficient evidence showing that he was deceptive, the Tribunal nevertheless considered he was:

…careless in his response to the application form questions that related to previous business difficulties and in regard to the accuracy of the information that he provided…

[The] discrepancies and irregularities and the applicant’s failure to declare his directorship of [the liquidated company] are consistent with the approach that he took in regard to his application. It is apparent from his evidence that he held the view that in order to obtain the licence he just needed to establish that he had two years’ building experience and that any other considerations were secondary … They show a cavalier attitude to the regulatory regime.

The Tribunal pointed out the consumer protection purpose of the legislation, stating that being fit and proper “involves more than honesty and integrity, it involves knowledge and ability.”

The issues raised regarding the applicant’s honesty and his attitude to the regulatory requirements of the scheme led the Tribunal to believe that he did not demonstrate such knowledge and ability. The Tribunal confirmed that the licence should not be granted until such time as the applicant could satisfy the authority otherwise.

Conclusion

In addition to holding the relevant qualifications and experience, an applicant must be a fit and proper person to be granted registration or a licence in the building industry.

When seeking or renewing registration, applicants must ensure they provide full disclosure of any relevant or adverse matters, have a sound understanding of the regulations, and demonstrate the ability to properly deal with a regulator. Honesty and accuracy when dealing with the regulator are essential.

Applicants who are refused registration and licensing, or have their registration or a licence suspended or cancelled, for failure to meet the fit and proper person test may have a right to an internal review or appeal through the Tribunal of their state.

If you or someone you know wants more information or needs help or advice, please contact us on +61 (2) 9248 3450 or email info@bradburylegal.com.au.