Mining sector is caught by security of payment legislation for construction works other than extraction of materials

Participants in the mining sector are caught by the statutory security for payment regimes for construction work other than direct physical extraction of minerals for example, road works and drainage installation at the site.

Applying the Security of Payment legislation to the mining sector

Security of payment (SOP) legislation exists in similar terms in New South Wales, Victoria, Queensland, South Australia and ACT. Specific provisions referred to in this article relate to the Queensland Act, Building and Construction Industry Payments Act 2004 (Act).

The SOP legislation entitles persons who carry out construction work or supply related goods and services to claim regular progress payments, and to have disputes relating to those progress payments referred to adjudication for quick resolution. The regime does not apply unless there is a relevant ‘construction contract’ between parties. ‘Construction contract’ is defined as a contract or an arrangement under which one party undertakes to carry out construction work, or to supply related goods and services, to another party. Consequently, a key threshold question for whether the SOP regime applies is whether the relevant works amount to ‘construction work’ or ‘related goods and services’ as defined by the legislation.

‘Related goods and services’ is defined to include “plant (whether supplied by sale, hire or otherwise) for use in connection with the carrying out of construction work” (section 11(1)(a)(ii)).

In defining ‘construction work’, section 10 sets out, in broad terms, activities which will amount to ‘construction work’ (in subsection 10(1)) and also lists activities which are specifically excluded from the Act’s conception of ‘construction work’ (subsection 10(3)). These excluded activities include the following:

  1. The drilling for, or extraction of, oil or natural gas (subsection 10(3)(a)); and
  2. The extraction, whether by underground or surface working, of minerals, including tunnelling or boring, or constructing underground works, for that purpose (subsection 10(3(b)).

(together known as the Mining Exclusions)

Recent cases

The Queensland Court of Appeal in the cases HM Hire Pty Ltd v National Plant and Equipment Pty Ltd & anor [2013] QCA 6 (HM Hire) and Thiess Pty Ltd v Warren Brothers Earthmoving Pty Ltd & anor [2012] QCA 276 (Warren Brothers) have provided guidance in relation to what activities in the mining industry will be considered ‘construction work’ and therefore attract the operation of the SOP regime.

In HM Hire, HM Hire Pty Ltd (HM) entered into a subcontract with Thiess Burton (Subcontract) to carry out certain earthmoving works (broadly including clear and grub works, topsoil stripping and placement, construction of access roads and channels for drains) at the Burton Coal Mine. To perform part of its subcontract work, HM hired from National Plant and Equipment Pty Ltd (NPE) four dump trucks and one loader (Rental Agreement).

NPE submitted a payment claim under the Act. The claim went to adjudication and it was determined that HM must pay NPE a progress payment of $516,586.95.

HM applied to court seeking a declaration that the adjudication determination was made without jurisdiction, on the basis that the Rental Agreement was not a ‘construction contract’ under the SOP legislation. The primary judge upheld the adjudication determination and HM appealed to the Court of Appeal.

In support of its appeal, HM contended that the Rental Agreement was not a ‘construction contract’ because it did not involve ‘related goods and services’ within section 11(1)(a)(ii), on the basis that the supply of plant (ie dump trucks and loaders) was not for use in connection with the carrying out of construction work within section 10 of the Act. HM argued there was no carrying out of ‘construction work’ because:

  1. 1. HM’s work under the Subcontract fell within the mining exclusion to the definition of construction work (section 10(3) of the Act).
  2. HM’s work under the Subcontract did not fall within the definition of construction work as defined in section 10(1) of the Act.

Was the work carried out by HM excluded from being ‘construction work’ by virtue of the Mining Exclusions?

The court’s answer to this question was ‘no’. The court relied directly on its previous decision in Warren Brothers to determine that the earthworks performed by HM did not fall within the Mining Exclusions. The Queensland Court of Appeal in Warren Brothers determined that the Mining Exclusions should be interpreted narrowly, and restricted to only activities which are integral to or necessary for the extraction of minerals. It was clearly apparent to the court that the earthworks performed by HM under the Subcontract did not fall within this narrow scope.

Was the work carried out by HM not ‘construction work’ because it fails to meet the definition in subsection 10(1)?

As part of the works it performed under the Subcontract, HM constructed an access road on the site, (which included a camber on the surface and drainage) and carried out the excavation of a channel through the earth to construct drains. The court confirmed that both these works were ‘construction works’ under the Act, as they comprehended “works forming … part of land including … roadworks, …[and] installations for land drainage” within section 10(1)(b) of the Act.

Accordingly, since some of HM’s works constituted ‘construction works’, the court concluded that the Rental Agreement was a ‘construction contract’ under the Act as it involved the supply of plant for use in connection with construction work, and the adjudicator’s determination was upheld.

The Warren Brothers case involved a similar scenario, featuring subcontracts between Thiess Pty Ltd and Warren Brothers Earthmoving Pty Ltd for certain earthworks and the construction of dams and drains at the Burton Coal Mine. There was disagreement between judges of the Queensland Court of Appeal in relation to whether some of the earthworks were ‘construction work’, with a majority holding that clearing and grubbing, stripping and hauling top-soil and clearing overburden did not fall within the definition of ‘construction works’. However, the court unanimously held that constructing dams and drains was ‘construction work’, and consequently that the relevant subcontracts were ‘construction contracts’ for the purposes of the SOP legislation.

Implications for the mining sector

We now know the following in relation to mining activities and ‘construction work’ under the SOP legislation:

1. Activities which are likely to be ‘construction work’:

  • Constructing access roads, dams, drains (including excavating channels for drains) at mining sites.

2. Activities which will not be considered ‘construction work’:

  • Activities directly involving the physical extraction of minerals (by the Mining Exclusions).

3. Activities which are less likely to be considered ‘construction work’ (though still open to argument):

  • clearing and grubbing land, stripping and hauling top-soil to a stockpile, clearing overburden by trimming and scaling batters and walls, clearing excavated material, cleaning the interface between the overburden and coal seam.

It is important to note, as was confirmed in the above cases, that a contract can be considered a ‘construction contract’ even if only some of the works under the contract are ‘construction work’ or ‘related goods and services’.

We now have two recent Queensland Court of Appeal judgments that the mining exceptions will be given a narrow interpretation. Similar provisions exist in New South Wales, Victoria, Queensland, South Australia and ACT.

Mining principals should be alert to the fact that the Act’s regime may apply to their agreements with contractors, suppliers and consultants of construction works or goods and services, such as plant and equipment, in relation to mining operations. Importantly mining principals may become liable to pay payment claims made under the SOP Legislation if they do not respond to such claims within the mandatory time and manner required.

On the other hand, contractors, suppliers and consultants of construction works or goods and services for mining operations are entitled to make progress claims under the SOP Legislation and have payment disputes quickly resolved at adjudication.