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Is the arbitration agreement “not applicable”?

In Gemcan Constructions Pty Ltd v Westbourne Grammar School [2020] VSC 429, Lyons J of the Victorian Supreme Court (VSC) was required to consider whether the terms of the contract contained a valid arbitration agreement within the meaning of s 7 of the Commercial Arbitration Act 2011 (Vic) (CAA). His Honour found that inserting the words “Not Applicable” or “N/A” into corresponding items of Annexure Part A in an otherwise unamended Australian Standard (AS) contract may not evince the necessary intention that relevant clauses do not otherwise apply.

The case not only provides insight into when the court will find that a binding arbitration agreement exists, but also suggests that caution is required at the time of drafting an AS contract.

The case is relevant Australia-wide concerning the application of the CAA because uniform legislation has been enacted in all Australian states and territories.

Facts

On or about 25 July 2016, Gemcan Constructions Pty Ltd (Gemcan) entered into a contract for works to take place at Westbourne Grammar School’s (WGS) Williamstown Campus in Victoria. The contract was a standard form AS 4000-1997 which included the usual:

  • AS 4000 -1997 General Conditions of Contract;
  • particulars at Annexure Part A; and
  • deletions, amendments and additions at Annexure Part B.

A dispute arose between the parties via the exchange of a payment claim and payment certificate issued under their contract. The value of the dispute was circa $1.4 million and included contract works claims, variations, other heads of additional cost, extensions of time, liquidated damages, interest and retention.

Clause 42 of the contract was the dispute resolution clause. Clause 42.2 provided that (inter alia):

If the dispute has not been resolved within 28 days of service of the notice of dispute, that dispute shall be and is hereby referred to arbitration.

Clause 42.3 then went on to provide:

If within a further 14 days the parties have not agreed upon an arbitrator, the arbitrator shall be nominated by the person in Item 32(a). The arbitration shall be conducted in accordance with the rules in Item 32(b).

However, Items 32(a) and 32(b) respectively in Annexure Part A were completed with the words “Not Applicable”.

As the dispute had not been resolved in the time specified in clause 42.2, Gemcan sought to refer the dispute to arbitration and put WGS on notice of its preferred arbitrator.

WGS responded disputing that there was an arbitration agreement in existence because by the parties completing Annexure Part A items with “Not Applicable”, the parties had evinced an intention that its disputes would not be referred to arbitration. If there was no valid arbitration agreement within the meaning of the CAAs, the CAA would not apply and WGS could not be forced to arbitrate.

WGS also disputed Gemcan’s choice of arbitrator, chiefly because he was around twice as expensive as WGS’s selection – a more junior barrister. Gemcan’s view was that its arbitrator was much more experienced in arbitrations generally and had greater legal expertise, as he was senior counsel.

Decision

Lyons J determined:

  • clause 42.2 of the contract constituted a valid agreement to refer the dispute to arbitration, so that the CAA applied; and
  • Gemcan’s arbitrator should be appointed pursuant to s 11 of the CAA.

Whether or not there has been a valid arbitration agreement is a precondition to the application of the CAA. Section 7 of the CAA provides the requirements for a valid arbitration agreement.

Lyons J held that an agreement to arbitrate was evident on the terms of the contract because:

  1. clause 42.2 is ‘clear and unambiguous in its terms’.[1] The last sentence of the standard-form clause evince a clear and objective intention that disputes arising under the clause are to be referred to arbitration if they are not resolved within 28 days of the notice of dispute issuing;
  2. the use of the words “Not Applicable” in Items 32(a) and (b) of Annexure Part A do not evince an intention to negate the referral to arbitration because they only refer back to clause 42.3, not clause 42.2. Clause 42.3 only provides for the procedural aspects of the arbitration, not the agreement to arbitrate itself. In the absence of an agreement regarding procedural aspects (including the arbitrator to be appointed and applicable rules, ss 11(3) and 19(2) of the CAA steps in to provide a mechanism for decisions to be made on those issues). Those procedural mechanisms ‘are not essential characteristics of an enforceable arbitration agreement[2];
  3. the parties could have used Annexure B to make necessary amendments to delete the offending words from clause 42.2, but they did not do so.

Further, Lyons J accepted Gemcan’s proposed arbitrator on the basis that the arbitration was:

  1. likely to be both factually and legally complex;
  2. significant in quantum (and thus the importance to the parties);
  3. likely to require clear and precise written reasons.

The arbitrator proposed by Gemcan was more expensive, however he had more experience in contested and complex arbitration decisions such that the choice was ‘likely to result in the arbitration being conducted in the most efficient way’.[3]

Take Home Tip

If you do not want your standard-form contract to refer you to arbitration, you must do more than insert “Not Applicable” into relevant Items in Annexure Part A. You must ensure that the General Conditions of Contract are correctly amended so that you are not forced into arbitration.

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.

CHANGE HAS ARRIVED

Amendments to the Building and Construction Industry Security of Payment Act are finally in force

Late last month changes to the Building and Construction Industry Security of Payment Act 1999 (Act)’ (‘the Act’) came into effect under the Building and Construction Industry Security of Payment Amendment Act 2018 (‘the amendments’), passed in November 2018.
The overarching purpose of the amendments is to address issues of insolvency and late-payments within the industry. They aim to alleviate the impact of these issues on small businesses and subcontractors by promoting cash flow and greater transparency in the contracting chain.
Our regular readers may recall, we have been discussing these changes and their potential consequences over the course of the year, but here is a refresher now that the amendments are in force.

What do the changes mean again?
As of 21 October 2019 the amendments are effective and apply prospectively to all building and construction as contracts covered by the Act, entered into on or after this date.
The changes are extensive and place significant new responsibilities on parties within the NSW building and construction industry. In broad terms, the legislative changes cover the following points:

Investigation, Enforcement and Penalties

Officers of the Department of Finance Services and Innovation have been given a suite of new powers to investigate monitor and enforce compliance with the Act, including but not limited to powers of entry to premises to gather information.
Directors and managers may now be personally prosecuted in circumstances where a corporation has committed an offence, under new provisions introducing the concept of executive liability.
Tougher maximum penalties have been applied, particularly when supporting statements are not supplied.

Adjudication

Confirming previous decisions of the Court, the amendments confirm jurisdictional errors made by adjudicators are now reviewable by the Supreme Court, with the power to effectively ‘carve’ out the invalid sections of adjudicator’s decisions.
The amendments also provide parties with an option to withdraw their application for adjudication in circumstances where the adjudicator is not yet appointed. In circumstances where the adjudicator has been appointed, parties are still able to object to the adjudication application being determined.

Progress Claims and Progress Payments

The amendments have removed the concept of the reference date in making a progress claim, and the due date for payments to subcontractors has been reduced from 30 business days to 20 business days.
The amendments again require payment claims to state that they are in fact payment claims made under the Act.

Conclusion

The changes have far reaching consequences for parties operating within the building and construction industry. It is important for all parties operating within the industry to be aware of the changes and the way in which the amendments may affect their rights and obligations under building and construction contracts.
For an in-depth review of each amendment please see our detailed review on the changes here.
If you or someone you know wants more information or needs help or advice in relation to NSW’s security of payments legislation, please contact us( 02) 9248 3450 or email info@bradburylegal.com.au.