Corrs High Vis: Episode 29 – Corrs Construction Law and Projects Update

Andrew McCormack, Partner; , Corrs Chambers Westgarth
Meri Siracusa, Special Counsel, Corrs Chambers Westgarth
Wayne Jocic, Consultant, Corrs Chambers Westgarth

David Hastie: Hello and welcome to Corrs High Vis. My name is David Hastie, Associate in Corrs Chambers Westgarth’s Construction practice group and I’m joined by Partner, Andrew McCormack, Special Counsel, Meri Siracusa and Co-Director of Construction Law Studies at Melbourne University, Wayne Jocic. Today’s podcast looks at three significant decisions covered in Corrs’ August 2018 Construction & Projects legal update.

They are firstly Seymour White Constructions and Oswald Brothers which is a New South Wales security of payment case where the claimant is insolvent.

Secondly, the case of Brighton Australia and Multiplex Constructions which is an important Victorian case considering the enforceability of time limits on the Australian Consumer Law section 18 claims. But I thought we might begin with an English Court of Appeal decision – an interesting one called North Midland Building Limited v Cyden Homes[1] which is a case considering concurrent delay and the prevention principle.

Now Wayne I might throw to you as I understand you have had a close look at this North Midland Building v Cyden Homes case. Concurrent delay, it’s notoriously a difficult topic, the case law is complex – what does it say?

Wayne Jocic: Yes, concurrent delay certainly is a tricky topic, so what I might do is just step back for a second and talk about what concurrent delay is – not in a finicky sort of way but just so the idea is clear. So let’s just imagine you have a head contract and there’s some delay and that delay is caused by something for which the contractor gets some relief but there’s a roughly equal sort of cause for which the contractor doesn’t get relief, so that’s what we have in mind. The basic question is does the contractor get an extension of time and the cases are really quite complex and differ across jurisdictions, so that’s a tricky area. Now the reality is people try to contract around this, they try to say what they want to have happen in the event that there is concurrent delay and that’s in fact exactly what we saw in this case. It’s a fairly unassuming sort of facts. It’s about the construction of a farmhouse and some admittedly fairly substantial outbuildings around it and there they included a clause, and if you just bear with me for a second I’m going to give you the critical part of that clause. What they say is this – any delay caused by a relevant event which is concurrent with another delay for which the contractor is responsible shall not be taken into account and that’s one of the many ways that people can try to deal with concurrent delay. So maybe we could redraft that and refine it a little but essentially it is a fairly clear clause. So the effect of that is that where there is concurrent delay the contractor doesn’t get an extension of time. So what the Court of Appeal said – a strong Court of Appeal – what they said was that this is a fairly clear clause, it should be given its play in an ordinary meaning. We should give effect to that and if you are not going to do that you need to have a pretty good reason not to.

David Hastie: Now Wayne as I understand it this is where the prevention principle effectively kicks in.

Wayne Jocic: That’s right, so the prevention principle of cause could be that sort of very significant reason. So, let’s just imagine a situation like in our head contract that we were talking about – so let’s say you have a delay, that delay is caused by some qualifying clause or delay or maybe it’s bad weather and the contractor gets an extension of time normally for that, but maybe just as it happens there’s something like an act of prevention. Maybe the principle orders a variation and it happens that that causes delay that overlaps with that more or less completely. So you can see in that situation there might be a question about the operation of the prevention principle. The idea is that the principle might be doing something to slow, make it impossible for the contractor to finish on time and so that’s really a prevention principle issue. Now that could be troubling if the prevention principle operates like a rule, a policy rule of law in the way for example that a rule against penalties does. So that’s a policy position that the common law takes and it can’t contract around it – doesn’t matter what words you use you can’t contract around that principle directly and so the Court of Appeal here had to deal with that question directly and they said very clearly the prevention principle is not that type of policy rule like the prohibition on penalties. What it is it seems is an implied term and that would be consistent with some admittedly limited but with the Australian authority. So the idea then is that if the prevention principle operates as an implied term you can oust that by an express term and so the reality is here there was a clear express term and the Court of Appeal gave effect to it, so that is really the take home point of this case that if your contract deals with concurrent delay and says that essentially to the extent of any concurrency the contractor doesn’t get an extension of time then the courts are likely to uphold that, so a clear position in the Court of Appeal in England and Wales and I think it is very likely to be the position in Australia as well, but this is a very useful case because it says a fair bit about these two important topics of concurrency and also the fundamental nature of the prevention principle.

David Hastie: Well thank you very much for that Wayne – Andrew I might now throw to you. In the Seymour Whyte v Ostwald Bros[2]decision I understand that the New South Wales Supreme Court has chosen not to follow the Victorian Court of Appeal. Perhaps you could give our listeners a brief summary of the issue in dispute and what exactly this disagreement was about.

Andrew McCormack: Thank you David yes this is certainly an interesting case and an interesting judgment by the New South Wales Supreme Court. The issue at the heart of the decision is whether a company that is in liquidation remains entitled to pursue its rights under the New South Wales security payment legislation. The issue is actually considered recently by the Victorian Court of Appeal in the case of Façade Treatment Engineering v Brookfield Multiplex[3]. What the Victorian Court of Appeal decided was by reference to the Victorian security payment legislation which is very similar to that in New South Wales, the court decided that the legislation required a claimant to be someone who is undertaken to and continued to carry out construction work. That meant that a claimant who is in liquidation failed that definition because they were no longer able to carry out construction work and therefore if they couldn’t be a claimant they couldn’t pursue their remedies under the Act. The first issue in Seymour Whyte v Ostwald that was considered was whether Ostwald had in fact started their adjudication application in time under the legislation. The adjudication application was served in time and the adjudicator made a determination, however before Ostwald Bros could proceed to enforce that adjudication the company which was in administration was then wound up and entered into liquidation, so the question before the New South Wales Supreme Court was whether the claimants then being in liquidation could still nevertheless enforce its rights under the Act to seek an adjudication certificate which it could then enforce to claim payments against Seymour Whyte.

Now in light of the Victorian Court of Appeals decision in Façade Treatments – what that meant was unless the New South Wales Supreme Court held that decision to be plainly wrong they were bound to follow that decision and would have been compelled to find against Ostwald Brosand say “no, sorry you cannot pursue your adjudication enforcement rights under the security payment legislation”. However, happily for Ostwald Bros, the New South Wales Supreme Court Justice Stephenson found that the decision of the Victorian Court of Appeal was in fact plainly wrong. He could find nothing within the provisions of the security payment legislation in New South Wales that would compel the conclusion that to undertake means not only to undertake to carry out construction work but also to continue to perform such activities. He made some observations about the way the Victorian Court of Appeal had failed to take proper account of the definition of claimant under the Victorian legislation, but ultimately Justice Stephenson held that the status of a party to claim depends on whether they legitimately served a payment claim for construction work or not. There was nothing in the text of the New South Wales legislation that indicated that a claimant would somehow lose its status as a claimant by virtue of it being wound up and entering into liquidation. Now that decision is interesting for two reasons. Firstly it seems perhaps a more logical outcome but secondly it raises the prospect of there being a divergence of opinion between New South Wales and Victoria in the context of what is extremely similar in fact almost identical legislation on these points. It will be interesting to see whether the Victorian courts when they come to consider the issue again elect to follow the path of the New South Wales Supreme Court and reverse the decision that was made in Façade Treatment.

David Hastie: Okay Andrew, thanks for that, that’s interesting. So did liquidation have any effect at all on the adjudication claim?

Andrew McCormack: The short answer is yes it did. Whilst the New South Wales Supreme Court disagreed with the Victorian Court of Appeal on the definition of who is a claimant and when they might stop being a claimant the court agreed with the findings of the Victorian Court of Appeal on the application of section 553C of the Corporations Act. Now that section contains a mechanism which states that where a company is in liquidation account must be taken of what is due from one party to another party in respect of what are known as mutual dealings. Now any cross claims and defences that Seymour White may have had are mutual dealings that are protected under section 553C. Taking all that into account Justice Stephenson found that section 553C applied automatically on the winding up of Ostwald and therefore ordered that any judgment that was obtained by Ostwald arising from the filing of the adjudication certificate would be stayed until a full account of the parties’ liabilities to each other was undertaken under the mandatory setup procedure under 553C of the Corporations Act. So whilst it’s good news at least in New South Wales and potentially in jurisdictions that are similar to New South Wales such as Queensland and as I said before we’ll see what Victoria makes of this recent decision, for liquidators to pursue and seek to enforce adjudication determinations they have in their favour the ultimate outcome of those adjudication determinations will be stayed in terms of how it impacts on the transfer of money between parties until the final determination of the two contracting parties’ rights against each other. So in one sense it was a win for those who are companies in liquidation but in practical terms no money would immediately flow as it would with a normal adjudication decision until the final outcome of determining the rights of the parties against each other. So rights of setoff and counterclaims could still result in that adjudication award not producing any money being paid to the company in liquidation.

David Hastie: Thanks for that Andrew, that is incredibly detailed. Meri I might throw to you now. The case that you’re going to talk about is Brighton Australia v Multiplex Constructions[4]. This is an interesting decision in the Victorian Supreme Court which effectively overruled a court appointed special referee to find that liability pursuant to section 18 of the Australian Consumer Law cannot be excluded by express words of a contract. Now as I understand it a party to a contract cannot then be effectively time barred from bringing a section 18 claim so long as it’s within the six year limitation period. Meri could you perhaps give our listeners a brief summary of the key findings of this decision and secondly perhaps maybe identify some practical implications that you see arising from this decision.

Meri Siracusa: Thanks David. This case involved a subcontract that contained a clause which purported to impose a time bar on claims under section 18 of the Australian Consumer Law. That time bar required a notice to be provided within seven days of a particular claim arising or a party becoming aware of such a claim. There was a special referee appointed in this case. The special referee actually upheld the time bar, so he disallowed the claims that had been made by the subcontractor in that case. The subcontractor who was Brighton Australia, they then sought to convince the Supreme Court to not adopt the special referee’s findings. In doing so the court actually considered the public policy implications of the provisions of the Australian Consumer Law, in particular the reasons behind the relief that a party might seek pursuant to section 236 subsection 2 of the Australian Consumer Law, and the court ultimately held that it would be absurd to enforce a contractual time bar where a claim was required to be brought within a very short period of time, for example within an hour of that claim materialising. Secondly the court held that an extreme provision such as the one in this particular case would preclude a claim from being brought in most circumstances except for the court says “by the most punctilious of claimants”. Thirdly the court also held that restricting the remedy available by imposing the time bar would amount to an unacceptable interference with public policy. So ultimately the court overturned the special referee’s finding.

David Hastie: That’s really interesting because I think us as backend lawyers in particular always try to find ways around time bars, so it’s nice to have that little bit of guidance from the court with regards to the application of the Australian Consumer Law. That kind of leads me into the second point that I flagged a bit earlier. What do you see as being the practical implications arising from this decision?

Meri Siracusa: Well David, I think the reality here is that contract drafters need to be a bit more careful and exercise a bit more caution when they’re trying to draft time bar clauses to put into contracts, particularly with respect to claims under section 18 of the Australian Consumer Law. I think particular attention needs to be paid to carve out those claims from time bars because even if they are purported to be included in a time bar like that the courts won’t actually enforce the time bar for such claims. Secondly I think and most importantly, both claimant and recipients of claims under contracts need to understand how the court has made the finding in this particular case because when receiving claims for deceptive or misleading conduct those claims now need to be assessed materially based on when the claim actually arises regardless of when a notice was issued or a claim was actually made. The timing of the claim is only relevant insofar as was it made within the applicable six year limitation period or not. If it was then the fact that a notice of delay of a claim might not have been made within a particular contractually specified period of time may not be relevant. However if a claim is made outside of the six year period then the time bar would be in force.

David Hastie: Andrew, Meri, Wayne thank you very much for joining me today. My name is David Hastie and thanks very much for listening.

This podcast is for reference purposes only. It does not constitute legal advice and should not be relied upon as such. You should always obtain legal advice about your specific circumstances.