This issue: international arbitration, the scope of jurisdictional error in security of payment applications and potential implications of a High Court decision, establishing a valid payment claim, overhaul of rights to review Commonwealth procurement decisions, will a non-compliant supporting statement invalidate a payment claim, a little more on no oral modification clauses and NSW reforms to building certification.

Clayton Utz hosts International Arbitration Lecture

The annual International Arbitration lecture, presented by Clayton Utz and supported by the University of Sydney, brings together key figures in international arbitration and the Australian business community to explore the real issues that could affect their international operations, and how international dispute resolution can contribute to their bottom line.

On 16 October, the 17th annual lecture took place in the Federal Courts in Melbourne, where Robin Oldenstam, Partner in Mannheimer Swartling, spoke on "The Need for Speed – Is International Arbitration Becoming Overly Fixated with Efficiency?".

Efficiency is an important factor in arbitration and likely key to its long-term survival as a favoured form for resolving international commercial disputes. At the same time efficiency needs to be tempered by basic procedural principles, such as party autonomy and due process, as well as by general considerations of fairness. Recent years have seen tendencies to push the efficiency factor to the extent that it may start to infringe upon such principles and considerations. The lecture offers examples of such tendencies and suggests that it may be time to push back.

You can watch the entire annual International Arbitration lecture here.

Testing the nature and scope of jurisdictional error and the implications for the security of payment scheme

Decisions of adjudicators in security of payment cases are challenged frequently. In the Australian Government-commissioned report "Review of Security of Payment Laws: Building Trust and Harmony", J Murray AM observed that the demarcation between jurisdictional and non-jurisdictional errors "has been said to be not always a 'bright line’." Indeed, the report recommends that courts should be able to sever parts of an adjudication decision affected by jurisdictional error so as to allow the balance of the decision to remain enforceable (Recommendation 57).

Two recent judgments in the High Court and Queensland Supreme Court have explored the nature and scope of jurisdictional error:

Hossain v Minister for Immigration and Border Protection [2018] HCA 34; and Cragcorp Pty Ltd v Qld Civil Engineering Pty Ltd [2018] QSC 203.

Hossain

While the High Court's judgment in Hossain concerned a dispute under the Migration Act 1958 (Cth), its consideration of the nature of jurisdictional error and related concepts is relevant to disputes under the security of payment scheme.

Chief Justice Kiefel and Justices Gageler and Keane describe the concept of jurisdictional error in the statutory decision-making process as being "a failure to comply with one or more statutory preconditions or conditions to an extent which results in a decision which has been made in fact lacking characteristics necessary for it to be given force and effect by the statute pursuant to which the decision-maker purported to make it".

Particularly noteworthy are the High Court's comments as to the materiality of an error:

"jurisdictional error is an expression not simply of the existence of an error but of the gravity of that error."

And Justice Edelman:

"although the issue will always be one of construction of the express or implied terms of the statute, an error will not usually be material, in this sense of affecting the exercise of power, unless there is a possibility that it could have changed the result of the exercise of power." [emphasis added]

Parties dissatisfied with adjudication decisions under the security of payment scheme are continuing to explore the reach of jurisdictional error in reaction to the principle, most recently affirmed by the High Court, that courts do not have the power to review adjudication determinations for non-jurisdictional errors of law.

Cragcorp

A more recent example is provided in the Cragcorp decision, in which the disaffected applicant contractor, Cragcorp, sought to have an adjudication decision requiring it to pay moneys to its subcontractor declared void, or of no effect or quashed, on the grounds of jurisdictional error.

The subcontractor, Qld Civil Engineering Pty Ltd (QCE), had lodged a payment claim that included amounts on account of variations. Those variations, however, related to the performance of works due to latent conditions, whereas the subcontract in issue did not contain any provisions dealing with latent conditions. Cragcorp disputed those particular claims and also set off liquidated damages that it alleged were owing. The adjudicator's decision made allowance for the claimed variations and further held that the amount of liquidated damages sought by Cragcorp was negated by the retention amount held by it.

Cragcorp contended that QCE's entitlement to claim under the Building and Construction Industry Payments Act 2004 (Qld) (BCIP Act) was "limited to entitlements arising under" the subcontract. As the subcontract did not contain a latent conditions clause, Cragcorp argued that the adjudicator had failed to apply the terms of the subcontract as required by the BCIP Act such that the adjudication decision did not constitute a valid exercise of the adjudicator's jurisdiction and was thus affected by jurisdictional error.

In the final analysis, the Court held that the adjudicator had "not fallen into jurisdictional error", that the adjudicator had "found a legal source for the entitlement to a variation … albeit for a latent condition" and provided "sufficient reasons". Similarly with respect to the liquidated damages dispute, while noting the adjudicator's reasons were "brief", the Court was satisfied that the adjudicator "considered the terms of the contract and the documentary material before her" as required by the BCIP Act.

Noteworthy are the Court's observations that it is "not necessary that there be precision in relation to every factual matter", that "[e]ven in cases where it has been considered that the reasons were inconsistent and illogical, that has not been sufficient to establish jurisdictional error if there was at least some process of reasoning disclosed in the reasons."

Validity of payment claims under ACT SOP regime

A recent case before the ACT Supreme Court demonstrates that the bar for establishing the validity of a payment claim under the ACT Building and Construction Industry (Security of Payment) Act 2009 isn’t all that high.

In Canberra Drilling Rigs Pty Ltd v Haides Pty Ltd [2018] ACTSC 282, Canberra Drilling Rigs (CDR) entered into an oral subcontract with Haides. CDR had been engaged by Core Building Group to perform piling and anchoring works.

Unsurprisingly, the scope of work to be performed under the oral subcontract, and the price to be paid for it, gave rise to dispute. Haides performed some initial works, submitted a payment claim and then, after a year hiatus, undertook some further work at the request of Core (that's right, not CDR). Haides then served another two payment claims which not only included the work requested by Core but also a not insubstantial sum for work performed more than a year before. Also unsurprising is that CDR was evidently piqued by this turn of events. It did not pay the amounts claimed by Haides, which led to an adjudication and determination requiring CDR to pay some $284,057.50 to Haides.

In the proceedings before the ACT Supreme Court, CDR challenged the adjudicator's decision on numerous grounds, including that the work performed at Core's request did not constitute work carried out under a "construction contract" as required by the Act.

On this, the Court noted that "construction contract" is broadly defined in the Act to include an "other arrangement". That language, the Court said, "broadens the scope of application" of the Act to include "circumstances where a third party arranges for a claimant to undertake work on the basis that a different party will be liable to make payment".

The Court then turned to the conditions for a payment claim prescribed in section 15 of the Act, noting the "basic and essential" requirement that there be a "construction contract". It was held that this requirement "does not mean that the Court must determine whether or not the work was actually performed ‘under the Contract’ in every case", because of the breadth section 15(1). Relevantly, the Court observed that the Act refers to:

  • a "person who is or who claims to be entitled to a progress payment"; and
  • ​the giving of a claim to "the person who … is or may be liable to make the payment". [emphasis added]

The Court concluded that such language is "intended to ensure that a person on whom the SOP Act confers an entitlement to a progress payment is able to make a valid payment claim even though it may ultimately be proved that no payment was due under the construction contract".

Coupled with the broad definition of "construction contract" and reservation at section 38 of the Act of a party’s rights to sue, the Court observed that the Act establishes "a statutory regime which recognises that the existence of a contractual dispute does not prevent payment" and dismissed CDR's application accordingly.

Commonwealth entities must prepare now – overhaul of rights to review Commonwealth procurement decisions is here

Suppliers will soon have considerably wider options for seeking redress if they believe a Commonwealth entity conducting a covered procurement has breached the Commonwealth Procurement Rules (CPRs), following the passage yesterday of the Government Procurement (Judicial Review) Bill 2017 (Cth), which will come into effect in the next few months.

That means it's crucial that all Commonwealth entities get their internal procurement policies and procedures ready now for the Bill's wide-ranging changes, which will:

  • create new rules for investigating and handling complaints;
  • allow complainants to seek compensation from the courts for reasonable expenditure incurred by a supplier in preparing tender documentation (but not for loss of opportunity); and
  • allow complainants to seek injunctions,

for breaches of Commonwealth Procurement Rules related to "covered procurements" (that is, a procurement that is subject to the rules in Divisions 1 and 2 of the CPRs).

Read more about how the new laws will work, their effect on procurement activities for Commonwealth entities and action Commonwealth entities can take now here.

A further serving of supporting statements

In Australia Avenue Developments Pty Ltd v Icon Co (NSW) Pty Ltd [2018] NSWSC 1578, Australia Avenue Developments Pty Ltd (AAD) challenged an adjudication application in favour of Icon Co (NSW) Pty Ltd on the basis that the payment claim was invalid because the accompanying supporting statement did not comply with the requirements of the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act).

In short, the SOP Act requires an accompanying supporting statement to speak as at the time at which the payment claim is made. The AAD contended that the supporting statement was flawed because it was dated (and presumably signed) on 25 July but the payment claim itself was not served (and "made") until 30 July. It argued that a payment claim was "not made" until such time as it was actually served. On this line of reasoning, the declaration in the supporting statement (to the effect that all subcontractors have been paid all amounts due and payable in relation to the construction work concerned), was invalid as a result of the five day gap between the date of the supporting statement and the date of service. The Court did not agree with this reasoning.

Unlike the recent NSW decision in Mt Lewis Estate Pty Ltd v Metricon Homes Pty Ltd [2017] NSWSC 1121 which involved an anomaly between the date of the declaration in the supporting statement and the date of the payment claim itself, there was no such anomaly at play in this instance. Justice Parker observed, "Both documents clearly spoke from the same date, and that date was 25 July 2018, the reference date". The Court rejected a construction of the legislation that required the supporting statement to be up to date at the point at which the payment claim is "served". Any delay (even of one day) of the service of documents, once signed, would inevitably invalidate the payment claim. Justice Parker observed, "I see no reason to think that the Parliament would have intended such a draconian consequence".

Justice Parker noted the divergence of judicial views concerning the effect on the payment claim of noncompliance with section 13(7) of the SOP Act. However, given his finding that the accompanying supporting statement complied with the requirements of section 13(9) of the SOP Act, it was not necessary for him to reconsider this issue.

Despite the failure of AAD's first ground of challenge, it was ultimately successful on its second ground which involved allowances made by the adjudicator that were not raised in the payment claim. Justice Parker held that in making determinations in favour of Icon Co regarding "backcharge" items, the adjudicator exceeded jurisdiction invalidating the adjudicator's determination.

A contractual round-up

Cenric Group v TWT Property Group [2018] NSWSC 1570 traverses a smorgasbord of contractual issues: enforceability of oral agreements, the validity of show cause notices and the termination of contracts, the construction of contractual terms and the application of the prevention principle, amongst others.

The detailed and sometimes colourful judgment is limited to the particular factual matrix. However, the position regarding the legal effectiveness of "no oral modification" clauses under Australian law is interesting following the recent UK Supreme Court decision in Rock Advertising Limited v MWB Business Exchange Centres Limited [2018] UKSC 24, in which the UK Supreme Court held that such clauses should be enforced according to their terms. It would seem from the observations of Justice McDougall that Australian courts are not ready to follow the approach taken in the UK, giving full effect to "no oral modification" clauses.

NSW on track to overhaul building certification requirements

Following the release of a public consultation draft in August of this year, the NSW Government introduced the Building and Development Certifiers Bill 2018 into Parliament on 17 October 2018. If enacted, it will repeal the Building Professionals Act 2005 and introduce reforms designed to strengthen and simplify the building and certification system in NSW.

Among other things, the Bill:

  • provides for the registration of persons undertaking certification work by the Secretary of the Department of Finance, Services and Innovation (the Secretary can, for the purpose of assessing an application for registration, request and obtain information from third parties);
  • makes it an offence if a person carries out certification work without appropriate registration or falsely represents that the person is registered (a maximum penalty of $110,000 applies for a body corporate or $33,000 in any other case);
  • permits the conditions of registration to require the registered certifier to carry out certification work in accordance with specified standards or methodologies;
  • permits regulations under the proposed Act to prescribe a code of conduct for registered certifiers (rather than by ministerial order);
  • creates various offences and corresponding penalties, including if a registered certifier is not adequately insured (maximum penalty of $110,000);
  • allows the Secretary to take disciplinary action against registered certifiers; and
  • makes amendments to the Home Building Act 1989 to ensure that consumers are aware of the types of functions that certifiers are required to perform and are aware of their ability to choose their own certifier.

Importantly in the context of escalating concern regarding fire safety, the Bill "introduces the concept of regulated work and prescribes the functions of competent fire safety practitioners as regulated work". This reform is said to support fire safety amendments made to the Environmental Planning and Assessment Regulation 2000. Regulated work is required to be carried out by individuals with appropriate skills, competencies and experience, and will be supported by a material penalties ($110,000 for bodies corporate or $33,000 in any other case).