In our latest Corrs High Vis podcast, Brianna Ryan, Andrew McCormack and Wayne Jocic discuss two recent court decisions, one with guidance for the Queensland security of payment legislation and a Victorian case dealing with the prevention principle.
Corrs High Vis is a series of podcasts, offering insight and analysis into the Australian construction industry. Presented by Corrs Chambers Westgarth, it considers the issues that really matter to professionals in this ever-evolving industry.
Brianna Ryan - Hello and welcome to Corrs High Vis. My name is Brianna Ryan and I'm a lawyer in our Brisbane Projects Practice group. Today I'm joined by Andrew McCormack, a partner in our Brisbane Projects team; and Corrs consultant and Melbourne University Co-Director of Construction Law Studies, Wayne Jocic.
This episode is part two on our special edition of the Corrs Projects update following on from our previous episode which featured partner Trevor Thomas.
So, Andrew, the Corrs Projects Update features a recent Queensland Court of Appeal case which has given some helpful guidance about the operation of Queensland Security of Payment legislation. Could you tell us a bit about the case and why it's so important?
Andrew McCormack – Thanks Brianna. Well, the case is Galaxy Developments & Civil Contractors. It involved a civil works contract where the scope of work to be performed by the contractor involved the removal and relocation of a bus stop shelter. This was referred to in the judgment as the Bus Stop Works.
Now the contract value was about $1.4 million and the bus stop works were only worth around $37,000. A dispute arose regarding a payment claim that went to adjudication under Queensland Security Payment legislation. The Building Industry Fairness Act affectionately known as the BIF Act. Now the adjudicator determined that the contractor was entitled to most of its payment around $1.3 million but the adjudication decision was actually delivered five days later. That's five days after the period specified for the decision to be given by the legislation.
Now at first instance, the Supreme Court of Queensland held that the adjudicator's determination was void. This was because it was issued after the statutory timeframe for the adjudicator to issue his decision. It was also void, according to the Supreme Court, on the basis that the contractor was not appropriately licensed to perform the bus stop works and as a consequence, the contract was void and, therefore, the adjudication determination was also void.
Brianna Ryan – So what are the grounds of appeal that the Court was asked to consider in this case?
Andrew McCormack– Well, there were two key grounds of appeal. Firstly, whether the determination being issued after the time prescribed by the legislation meant it was void; and secondly, where the contractor held the proper licence or not.
Turning to the first ground of appeal, the Court of Appeal agreed that the adjudicator only had as much time as was provided by the legislation. The court rejected the argument that the legislature intended the BIF Act to operate in a similar way to the legislation in New South Wales and Victoria, which provide that a late determination is still valid. The BIF Act did not allow the claimants to withdraw an adjudication application if the determination was late, which is an entitlement which exists under the Victorian regime. So the Court of Appeal decided there is a hard time limit here, if you issue the adjudication determination late that adjudication decision is void.
Brianna Ryan – What about the second ground of appeal? Did the contractor have the appropriate licence, and if it didn't how did that affect the contractor's rights under the Security of Payment legislation?
Andrew McCormack– Well, given the Court of Appeal's finding on the first ground the court held it was not necessary to determine whether the adjudication determination was void due to section 42 of the QBCC Act. What that section says is that a contract will be unenforceable or will be void if it is for the performance of building work, and the contractor does not hold the relevant licence. However, the court did look at the issue and held that the bus stop works were in fact within the scope of the QBCC licence that the contractor held and, as a consequence, the work was licensed and, therefore, the contract was not void.
Brianna Ryan – Well it's certainly an interesting outcome. Given what the Court of Appeal has said in this case what do you think are the key takeaways for people who are confronted with these same issues?
Andrew McCormack– Well, Brianna, I think there's probably three key takeaways. The first and most obvious one is that an adjudication decision issued out of time in Queensland will be void. Furthermore, and important for adjudicators, if the adjudication determination is issued late and it's issued out of time and is void for that reason, the adjudicator, as was the case here, will not be entitled to payment of their fee under the legislation, and I think the third point that's worth bearing in mind coming out of this case is around the scope of the contractor's QBCC licence for performing building work in Queensland.
If the contractor is not licensed to perform all of the work under the contract then the contract will be void, and the Security of Payment Act mechanisms will not be available to the contractor and any adjudicator who issues a determination. In that situation the adjudication will be determined to be void and the adjudicator will, again, not be entitled to their fee. So a few important things for people to think about when operating in Queensland.
Brianna Ryan – Wayne, I understand you'll be discussing a recent decision of the Victorian Court of Appeal – Bensons Property Group v Key Infrastructure Australia. Am I right that this is a case about the prevention principle?
Wayne Jocic – Yes, Brianna that's right. It is a case about the prevention principle, which is an idea that many of us will be dealing with quite often but not everybody, so it might be worth just taking a second to remind people.
So in an abstract sense the prevention principle runs like this: you cannot insist that somebody perform the contractual obligation if you yourself have prevented them from performing it. So to give you a quick example, if I'm the principal, you're the contractor, we have a date for completion and liquidated damages attached to that. I can't lock you out of a site and then say "hey, you're in breach of contract because you haven't finished on time" and then charge for liquidated damages. That's the basic idea of the prevention principle and of course there are lots of cases on point.
Brianna Ryan – So with that in mind, what do you think this case specifically adds to the many other cases that we already have on the prevention principle?
Wayne Jocic – There is a lot in the Bensons case. I wanted to write two points but I'm going to make one quick observation first. This is not a classic construction case, it's a case which really is about the planning process and the facts are a little bit intricate. So I'm actually going to steer away from the facts and just point out two observations about the legal content of this case.
So the first one is that the case deals with the source of the prevention principle. Now that's interesting because there are many possible sources, many possible origins for the prevention principle. I mean, it could be that it arises from the duty to cooperate, maybe from good faith, maybe it's a principle of construction that you can't profit from your own wrongdoing. As the Court of Appeal suggests, maybe it's connected to a waiver or estoppel – there are plenty of possibilities.
Now the conclusion that the Court of Appeal reaches clearly in this case is that the prevention principle arises from the duty to cooperate, and there is a lot of interesting discussion about the relationship between them. The one unfortunate thing I think is that that discussion really precedes, at least without reference in the footnotes to, the many other construction law cases that have dealt with this. It doesn't deal with some recent authority, it doesn't deal, for example, with the Probuild v DDI case, a NSW Court of Appeal case, it doesn't deal with some older Full Court of Authority in SMK Cabinets v Hili and it would've been enriched I think had it done that.
Now that's interesting, but the second thing I want to say is probably more significant. So the significant part of this case is that the Court of Appeal seems to suggest – well in fact I might just say suggests strongly – that you need a breach of contract for the prevention principle to be enlivened, and in fact this is how they say it. They say it is an error to consider the prevention principle divorced from the terms of the contract, and it is a breach of a contractual term that gives rise to the potential application of the principle. Now this is really interesting. I accept that would normally be the case and the example I gave you before where I locked you out of the site, Brianna. There I'm going to be in breach of some express or implied obligation under the contract but I'm not sure that's always how things work.
Now if you think, for example, about a situation where you have a principal who has a power to vary the scope of works– and this would be unusual – but if you also say that contract does not include a power to extend time. So there, I think, if we looked at this as construction noise and said the principal adds to the work, doesn't extend time, that's exactly where the prevention principle would apply but it's not clear to me at all that varying the scope of the works is a breach.
It can't really be the subject of an implied term, because there is an express power for the principal to vary the works. So this is a troubling aspect so I'm not sure how the requirement of a breach actually fits in with some earlier authority like SMK Cabinets v Hili Modern Electricin the case of the Full Court of the Supreme Court of Victoria, and I'm not sure how it works in practice. So, in short, there is a lot in this case. It does help us out by telling us that the origins of the prevention principle lie in which [25.47] but the second aspect, the requirement of a breach of contract before the prevention principle kicks in, that's really interesting and that certainly is going to be the subject, I think, of a lot of commentary and doubtless it's something that will be explored in future cases.
Brianna Ryan – Well gentlemen, thank you both for your time today and thank you to our listeners for tuning in.
The link to the special edition of the Corrs Projects update that we've discussed in this episode can be found on the Corrs website accompanying this podcast. If you'd like to catch up on part 1 where we discussed Public Private Partnerships with partner Trevor Thomas, that episode is also available on the Corrs website. We look forward to you joining us for the next episode of the Corrs High Vis Podcast.
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