Corrs High Vis tackles the issues that matter in the construction industry. The podcast series, brought to you by the Corrs Construction team, provides professionals with key commercial insights into the issues shaping the industry.
In this very first episode of Corrs High Vis, Partners Ben Davidson, Andrew McCormack and Consultant Wayne Jocic consider the key takeouts from our latest Construction Law Update and tell host David Hastie what these findings mean for your business.
These podcasts do not provide legal or other advice. Obtain legal or other professional advice as required.
David Hastie: Commentator
Ben Davidson: Corrs Chambers Westgarth – National Practice Group Managing Partner
Andrew McCormack: Corrs Chambers Westgarth – Construction Partner, Brisbane
Wayne Jocic: Melbourne University Senior Lecturer and Co-Director of Studies in Construction Law
DAVID: Hello and welcome to Corrs High Vis – Corrs Construction’s very first podcast and the first of many more in the pipeline. My name is David Hastie and today we will be giving our listeners a taste of Corrs Chambers Westgarth’s November division of our quarterly construction law update. Joining me today is Corrs Construction’s National Practice Group Managing Partner, Ben Davidson; Andrew McCormack, Construction Partner in Brisbane; and Melbourne University Senior Lecturer and Co-Director of Studies in Construction Law, Wayne Jocic. It’s also an opportune time to note that Wayne is the Editor-in-Chief of Corrs’s construction law update. Wayne, Ben, Andrew – welcome to High Vis.
ANDREW: Thank you.
DAVID: Well, it’s another big edition of the construction law update. Wayne, before getting into it, are there any particular issues, particular themes, that stood out for you.
WAYNE: Yes, I think there are quite a few interesting themes that we can see in the cases over the last few months. One is that the courts are really giving effect to express terms. That’s a long trend. A second thing is that we’re seeing really interesting developments in security of payment legislation. And then the last thing that I’ve noticed is that we’ve seen a couple of interesting decisions about the enforcement of international arbitration in Australia.
DAVID: So Wayne, touching on that first point you raised about express terms, I believe there are some interesting developments with regards to, for example, bank guarantees.
WAYNE: Yes. That’s really been an interesting area where we’ve started to see more consistency than we have for a while. And really it’s the Sugar Australia decision from the Court of Appeal in Victoria a little while ago that’s led that. The basic point is that it’s become much harder for contractors to seek an injunction to stop a principal from calling on a bank guarantee or unconditional undertaking and there are cases in the New South Wales Supreme Court and in the Western Australian Supreme Court in the last few months that have really followed that line. So in short the message is it’s become much harder to seek an injunction and I think that’s really where the courts are headed in all the jurisdictions.
DAVID: So, Andrew, touching on Wayne’s first point with regards to express terms, can you please just talk us through the developments in particular about bank guarantees that we’re seeing.
ANDREW: I think what we’ve seen is that courts have been unwilling to interfere with the bargain the parties have made when providing security and allocating a cash flow risk. So when it comes to injunctive proceedings to try and restrain a party from calling on a performance security, the courts have been unwilling to interfere with the parties’ bargain. So even in situations where a party says “I am going to suffer reputational damage if my security is called upon”, the courts have taken the view “well, that was a risk you knew about when you entered into the contract and it is not of itself good enough for us to grant an injunction”. The parties have effectively, by one party providing security, agreed that the party providing security will bear the cash flow risk of any adverse outcome until the matter is finally determined. Interestingly even if there is an allegation of a potential insolvency risk such that the party calling on the security may go insolvent and therefore the party whose security has been called against cannot get repayment of that security, the courts have said there must be very sound evidence that this is a real risk, not just mere speculation that there is some insolvency in the offing. And these principles are reflected in the Duro and FLS Smith decision recently made by the Western Australia Supreme Court which we cover in this construction law update.
DAVID: So Wayne the second point that you raise was surrounding security of payment. There are also some issues of jurisdictional error there. Would you be able to talk us through some of the issues that are arising.
WAYNE: Yes, look, this is an area where I think we’ve got interesting developments on two fronts. One is that legislation is constantly changing and in Western Australia that’s a particularly pressing issue so that’s something that we can look at in detail. The other thing is that we’re seeing a consistent flow of really interesting cases both in the Supreme Courts and in Southern Han in the High Court.
DAVID: So, Wayne, having a read myself, there was a Victorian decision recently for Sar Treatment Engineering. Would you be able to walk us through what that judgement told us?
WAYNE: Look, this is a really interesting Court of Appeal decision so it’s great on a variety of points including rights of setoff and those things. But to me the most important point is that the Court of Appeal here has said that essentially, if you’re in liquidation, you don’t get the benefit of the Act. You can’t seek the protections under it because you don’t fall within the definition of a claimant.
DAVID: And you also mentioned a recent decision in WA. I guess there has been a lot of developments, not just here in Victoria but nationally. Would you be able to give us an idea and a flavour of the decision that was handed down in WA.
WAYNE: Yes, so there are plenty of really interesting cases decided in WA that have pointed out some potential difficulties in the WA legislation. The Construction Contracts Act led to a big review. Now what we’re seeing is that a Bill has been put before parliament that proposes a lot of changes. Some of those changes are fairly uncontroversial. Things like changing references from calendar days to business days. And the great thing about that is it helps to avoid that Christmas ambush that you can get with security of payment claims. That’s sort of one set. But broadly the other changes favour the claimants, favour contractors, favour subcontractors by giving them a bit more time to apply for adjudication by reducing the time within [which] payment must be made and a variety of other things that are broadly helpful for the claimant. So big news in the Construction Contracts Act in WA and we can probably expect to see those amendments through reasonably soon.
DAVID: How do you believe these changes will be received? You just mentioned that it might be controversial. What’s your take?
WAYNE: Well I think mostly the changes are sensible and they do come out of a very extensive review process that Phil Evans conducted so there was substantial opportunity for people to comment on this so I think it’s likely to be well received on the whole.
DAVID: Andrew, I might throw to you. Are there any additional observations or developments here that are worth noting?
ANDREW: Another important change is to the definition of the mining exclusion under the Act. Now only the fabricating and assembling of items and plant and equipment that are going to be used for the actual extraction or processing of oil or gas or minerals will be excluded. So normal construction work associated with processing facilities at a mine is not excluded and a payment claim could be brought under the Act for contracts for those works.
DAVID: Wayne, having a look at the construction law update, the High Court has just heard its first consideration of a security of payments decision. The case was Southern Han Breakfast Point. What happened there and would you be able to walk us through that?
WAYNE: Well this is a bit exciting, isn’t it? The first opportunity for the High Court to consider the security of payment legislation.
DAVID: You’re genuinely excited, aren’t you?
WAYNE: I certainly am. Now it takes place in the context of the New South Wales legislation and the case potential raised all sorts of really interesting issues but the ones that the High Court is going to decide are primarily about reference dates. So it’s actually a really important issue because there is some conflicting authority and the case is interesting for that alone. But it’s also really interesting I think for all of the side comments, because we’ll get the first opportunity for the High Court to say something about the operation of this legislation generally. And I think everybody will be mining that decision very closely. It’s certainly a decision that will produce many [buildings 7:56] on. We just can’t wait for that decision to come out and it may well be by the end of the year.
DAVID: Now, Wayne, having a read of the construction law update, there’s one particular case that is particularly interesting and that is the case of Sino Dragon Trading. Now, correct me if I’m wrong, but this involves the challenging of a decision under international arbitration. It was in the Federal Court. Would you be able to give me an idea of what this particular case involved and what the decision was that was handed down?
WAYNE: Yes. This is a classic example where you have an arbitral award and the attempt to challenge it on various grounds. And the Federal Court, consistent with a lot of earlier authority here is fairly clear: if you’re going to seek to challenge a decision, it’s not an opportunity for some general rerunning of all of the arguments; you’ve got to make the challenge within the relevant rules. Here they were the [inter trial] rules and that challenge failed. If you want to make the challenge on general public policy grounds, which is another possibility, then you really need to show that there is a real prejudice, some real unfairness that might flow from the determination. So it’s not easy to challenge the determination once it’s been issues.
DAVID: So, Ben, I might throw to you. So we’ve just heard from Wayne and there’s obviously some very interesting developments that are taking place. Ben, are there any obvious commercial implications that our listeners should be mindful of?
BEN: Dave, thanks. It’s interesting to actually reflect and listen to the guys talk today about these issues. I think there are two big themes that are coming through at the moment in terms of the material that we looked at. The first is that invariable tension that exists between the courts and the parliament that’s playing out again and again. So we see at the moment a judicial strictness coming through in terms of the interpretation of terms and the manner in which it is going treat bank guarantees being balanced up by the legislature in terms of, particularly in WA, significant changes around project bank accounts and the security of payment legislation. So I think that’s a constant tension that plays out in the construction industry and it’s interesting to watch it continue to evolve. I think the second theme is around the constant backbone of litigation disputes that exist in the construction industry. Again it’s interesting to see over some 80 pages the number of cases that we can come up with in a quarter that are both interesting and on topic in terms of disputes. In that context the Arcadis Global dispute report that was released last year is very interesting and is well worth people focussing on in the material because it gives a really interesting snapshot globally of the disputes that are playing out around the world both in terms of the value, the cause, the duration and the ease with which they are being knocked off. So I think they’re the two big themes that we are seeing at the moment: that constant tension and the ongoing nature of dispute that’s operating in our industry.
DAVID: So there you have it. As we heard from Wayne, Andrew and Ben, the courts are continuing their recent approach of giving full force to express terms. Secondly, keep a close eye on developments in security of payment legislation nationally and we also looked at a recent decision in the Federal Court concerning a decision of international arbitration. My name is David Hastie. Thank you for listening. We look forward to your company again on the next edition of Corrs High Vis. And join us for our next podcast where we will be looking at a market forecast of the next decade ahead. Thanks for joining us.
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