ISSUE #159 - ACLNacln.com.au/files/ACLN_2014_159_sampleissue.pdf · LESSONS FROM ABROAD—THE ROLE OF THE FIDIC DISPUTE ... the dispute resolution mechanisms ... ten years after the

NOVEMBER/DECEMBER 2014

ISSUE #159Australian Construction Law

Newsletter

2 AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #159 NOVEMBER/DECEMBER 2014

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ISSN 1032 0288

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PUBLISHED BYAustralian Construction Law Newsletter is a joint publication between the Swap Exchange Pty. Ltd. and the Society of Construction Law Australia Ltd.PO Box R1140 Royal ExchangeSYDNEY NSW 1225 AUSTRALIA

IMPORTANT NOTICEThe material contained in ACLN is in the nature of general comment only and is not information or advice on any particular matter. No one should act on the basis of anything contained in this Newsletter without taking appropriate professional advice upon the particular circumstances. The publishers, editors and authors do not accept responsibility for the consequences of any action taken or omitted to be taken by any person, whether a subscriber to this Newsletter or not, as a consequence of anything contained in or omitted from this Newsletter.

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CONTENTS #159 ARTICLES

EDITORIAL 4JOHN TWYFORD

EXPERT EVIDENCE 6ADMISSIBILITY OF EXPERT EVIDENCE—HAS THE BASIS RULE SURVIVED SECTION 79 OF THE EVIDENCE ACT?HUGO DE KOCK

TENDERING 16WRITING THAT WINNING TENDERROBERT WATSON AND SHELLEY NAYLOR

INSURANCE 20INSURANCE WHICH EXTENDS COVER TO PARTIES WHO DO NOT TAKE OUT THE INSURANCE POLICYDAVID TEMPLEMAN AND CHARLOTTE STOREY

REGULATION 23WHEREVER YOU GO, I WILL FOLLOW YOU—PROFESSIONAL ENGINEERS ACT 2002 (QLD) APPLIES TO ENGINEERS OUTSIDE QUEENSLANDANDREW MCCORMACK AND KATE ROBERTSON

SECURITY OF PAYMENT 24CLAIM FOR REIMBURSEMENT OF AN ADJUDICATED AMOUNTPHILIP DAVENPORT

SECURITY OF PAYMENT 28A WISE DECISION ON AN ‘UNWISE’ AMENDMENT—NEW SOPA PROVISIONS CONSIDERED FOR THE FIRST TIMEMARK SHELDON

NEGLIGENCE 31BUILDING CERTIFIER LIABILITY AFTER BROOKFIELD—WHERE TO NOW?CHRISTOPHER KERIN AND JAMES QIAN

INTERNATIONAL ARBITRATION 34FEDERAL COURT OF AUSTRALIA—A PRO–ENFORCEMENT JUDICIARYDYLAN MCKIMMIE AND COURTNEY FURNER

DISPUTE RESOLUTION BOARDS 36LESSONS FROM ABROAD—THE ROLE OF THE FIDIC DISPUTE ADJUDICATION BOARD AND ENGINEERSHAHEER TARIN

AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #159 NOVEMBER/DECEMBER 2014 3

EDITOR John Twyford PUBLISHER / ASSISTANT EDITOR Myra Nikolich EDITORIAL PANEL Matthew BellSenior Lecturer & Co–Director of Studies for Construction Law, Faculty of Law, University of Melbourne, Melbourne Philip DavenportSolicitor, SydneyPhilip DawsonPartnerClayton Utz, SydneyLeigh DuthiePartnerBaker & McKenzie, MelbourneGraham EastonArbitrator & MediatorG R Easton Pty Ltd, SydneyArch FletcherPartnerClayton Utz, BrisbaneRobert FloreaniSenior PartnerFloreani Coates, AdelaideJanet GreyArchitect, Arbitrator & Mediator, SydneyPhillip GreenhamPartnerMinter Ellison, MelbourneLaurie JamesChairman of PartnersKott Gunning, PerthDoug Jones AOPartnerClayton Utz, SydneyChristopher KerinLegal Practitioner Director Kerin Benson Lawyers, SydneyScott LaycockPartnerGadens Lawyers, Sydney

CONTRIBUTIONSContributions to the ACLN from readers are encouraged. Please submit articles for consideration to the publishers.

PEER REVIEWWe now offer the facility of peer review. If you would like to register your name with us as a potential referee—willing to peer review other professionals’ work—please send your details and area/s of expertise, marked for the attention of the Editor.

CONTENTS #159 ARTICLES

BUILDING REGULATION 40 THE PITFALLS OF COMMENCING CONSTRUCTION WITHOUT A CONSTRUCTION CERTIFICATE ANTHONY PERKINS

CONTRACTS 42 WHEN THE PRINCIPAL DELAYS THE WORK TOM GRACE

CONTRACTS 44 SURROUNDING CIRCUMSTANCES AND CONTRACT CONSTRUCTION— IS THERE STILL AN AMBIGUITY GATEWAY? ASHLEY CAHIF

SECURITY OF PAYMENT 46 ADJUDICATION DETERMINATION AS A BASIS FOR STATUTORY DEMAND IN WESTERN AUSTRALIA STEPHEN BOYLE AND JACK INGLIS

CONTRACTS 48 BINDING CONTRACTUAL AGREEMENTS—THE RISK OF PROTRACTED NEGOTIATIONS CHRISTOPHER CRANSTOUN

LITIGATION 50 LONG AWAITED GUIDANCE ON THE TIME FOR BRINGING BUILDING ACTIONS IN VICTORIA GEOFF HANSEN AND CARLA AUMANN

CONTRACTS 52 DEALING WITH CONCURRENCY IN CONSTRUCTION DELAY CLAIMS DEAN O'LEARY

BOOK REVIEWS

BOOK REVIEW 58 CONSTRUCTION CONTRACT VARIATIONS BY MICHAEL SERGEANT AND MAX WIELICZKO JOHN TWYFORD

BOOK REVIEW 59 OLD LAW, NEW LAW—A SECOND AUSTRALIAN LEGAL MISCELLANY BY KEITH MASON AC QC JOHN TWYFORD


EDITORIAL

EDITORIALJohn Twyford

Almost all litigation in the construction industry needs to rely on expert evidence. Since the New South Wales Court of Appeal decision in Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705 there has been a common law requirement that the party tendering such evidence identify the facts upon which evidence is based. The question now is whether section 79 of the Uniform Evidence Acts has modified this requirement. Hugo de Kock, in a very interesting article, discusses this question and in doing so reviews the subsequent authorities. Judicial opinion seems equally divided and the author suggests that the rule has survived in a modified form in the section. The article will be of considerable interest to practitioners working in this field.Robert Watson and Shelley Naylor have provided us with a checklist for use by contractors wishing to tender on government projects. The list represents items of common sense and others from the author’s experience in advising government on such matters. The article suggests a degree of salesmanship is desirable. In your editor’s view, the most important advice was to check your tender carefully!David Templeman and Charlotte Storey note that amendments to the Insurance Contracts Act 1984 (Cth) introduced in 2013 have clarified the position of third party beneficiaries under insurance related to the construction industry. Our readers will recall the how Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 put a cat among the insurance pigeons! Section 48 of the original Act sought to give legislative effect to the High Court decision but left a few loose ends. The amendments mean that third party beneficiaries now have the

same rights and obligations as the policyholder. The authors suggest some provisions that might be included in construction contracts that will support the changes. The Professional Engineers Act 2002 (Qld) requires all persons who provide engineering services in Queensland to be registered under the Act or by a person under the direct supervision of a person thus registered. An amendment to the Act coming into force 10 November 2014 now makes it clear the provisions apply to engineers outside Queensland who perform engineering services related to Queensland projects. In a brief note, Andrew McCormack and Kate Robertson describe the position and note that failure to comply could result in the engineer being unable to recover his or her fee for their services.Our old friend, Mr Philip Davenport, examines the situation where a respondent pays a sum adjudicated to be due under the security of payments legislation but in the final accounting between the parties found not to be so due. The question is what is the cause of action available to the wronged party to recover the sum. After examining two conflicting English authorities Mr Davenport concludes that the appropriate cause of action is contract and not, as might be supposed, unjust enrichment.The theme of security of payments is continued by Mark Sheldon who considers the 2014 amendments to the Building and Constructions Security of Payment Act 1999 (NSW). It is fair to say that those amendments do not meet with the approbation of the principal contractors and the article discusses the first (of no doubt many) decisions of the New South Wales Supreme Court discussing the amendments.


Students of the development of the common law are familiar with the two steps forward one step backward approach of the courts. This is no better illustrated than the development of the principle first enunciated in Bryan v Maloney (1995) 182 CLR 609. Christopher Kerin and James Qian give us a very clear picture of the High Court’s latest thoughts in Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 & Anor [2014] HCA 36. The authors carefully consider the position of private certifiers after the decision.Dylan McKimmie and Courtney Furner discuss a decision of the Australian Federal Court. The court refused to set aside a decision in an international arbitration heard in Australia utilising the UNCITRAL rules. The application based on an alleged failure of the arbitral tribunal to observe the rules of natural justice failed, thereby confirming Australia’s pro–enforcement judiciary.Shaheer Tarin’s paper discusses the dispute resolution mechanisms in the Australian Standards 2124–1992 and 4000–1997 construction contracts. The author then compares this to the role of the Dispute Adjudication Board (DAB) in the FIDIC contracts. The author concludes that the FIDIC model is to be preferred as it provides a platform for the expedited resolution of disputes and removes the potential for a conflict of interest in the superintendent.Anthony Perkins points to the potential difficulties for a developer who constructs a building without a construction certificate. The article is based on an actual case and it would seem that the avenues to resolve the problem retrospectively are limited.Tom Grace reviews the latest cases dealing with the ‘prevention principle and concludes that there is room in the future for further

refinement of the law on this subject.Ashley Cahif discusses the High Court decisions of Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45 and Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337, noting that the position remains unclear as to whether or not an ambiguity needs to be present in a contract before the court can look at the surrounding circumstances to interpret it. To mix the metaphor the ‘jury is out’ on the question and we will need to wait for a further High Court pronouncement.Stephen Boyle and Jack Inglis note that in Western Australia an adjudication determination cannot be made the basis of a statutory demand without the leave of the court.Christopher Cranstoun discusses a recent Western Australian case Absolute Analogue Inc v Sundance Resources Ltd (No 3) [2014] WASC 283, where some basic issues of contract formation are raised including offer and acceptance. Matters many of us have not thought about since our student days!Geoff Hansen and Caria Aumann discuss a recent Victorian Court of Appeal decision wherein it was held that section 134 of the Building Act 1993 (Vic) imposes an absolute bar to building claims ten years after the issue of the certificate of final inspection.Dean O’Leary, a lawyer based in Dubai, United Arab Emirates (UAE), compares the law of the UAE on the subject concurrent delays in construction projects with the present common law. Whilst the UAE law is codified there are a number of similarities to the operation of the common law. It is a very readable article (not the least because it includes

a comprehensive summary of the case law) that will be of interest to our readers with a bent toward comparative law.The issue concludes with reviews of two books, each in its own right worthy of attention.Issue #159 is in fact the last issue of 2014. It is therefore a great pleasure for me on behalf of the publication to express my sincere gratitude to those who have assisted in its publication. First and foremost my appreciation goes to our publisher and assistant editor Ms Myra Nikolich. Myra’s extraordinary research skills provide a substantial part of what we publish. Next, I would like to mention those authors who submit work to us. This is always of a high quality and adds to the value of the publication. Here, I also make mention of the authors and law firms who allow us access to their publications. During 2014 we entered a relationship with the Society of Construction Law Australia and this has proved a most harmonious and fruitful relationship. Finally, my thanks to our readers, as without you there would be no ACLN.


EXPERT EVIDENCE

ADMISSIBILITY OF EXPERT EVIDENCE—HAS THE BASIS RULE SURVIVED SECTION 79 OF THE EVIDENCE ACT? Hugo de Kock, Barrister Owen Dixon Chambers West, Melbourne

INTRODUCTION The paper explores the question of whether the common law rule, which requires a party tendering expert evidence to identify the facts upon which the opinion is based and to prove such facts by admissible evidence, remains a requirement of admissibility under section 79 of the Uniform Evidence legislation. This rule is called the ‘basis rule’. In Makita (Australia) Pty Ltd v Sprowles,1 Heydon JA, as his Honour then was, held that under section 79 of the Evidence Act 1995 (NSW), the basis rule remained a rule of admissibility. In effect, Heydon JA held that unless a party is required to prove the facts upon which an expert’s opinion is based, it was not possible for a court to decide whether the opinion was based on the expert’s specialised knowledge. Heydon JA’s interpretation of section 79 in Makita is in conflict with the view of the Australian Law Reform Commission (ALRC), which conducted the inquiry into the law of evidence that resulted in the Uniform Evidence legislation. According to the ALRC the basis rule did not form part of the common law and should not be included as a rule of admissibility under the Uniform Evidence legislation. If a party fails to prove the facts underlying an expert’s opinion, such failure goes to the probative weight of the evidence, not its admissibility. Although Heydon JA’s view received support in those state jurisdictions that adopted the Uniform Evidence legislation,2 the Federal Court followed the opposite position as expressed by the ALRC in holding that the basis rule was not a requirement of admissibility under section 79. The High Court’s decision in Dasreef Pty Ltd v Hawchar3 did not expressly resolve the difference of

opinion between the state courts and the Federal Court; however, the majority did provide some support for Heydon JA’s view in Makita. In a strong dissenting judgment, Heydon J, now sitting as a judge of the High Court, confirmed and expanded on the views he expressed in Makita. This paper will review the some of relevant authorities for and against the view that the basis rule remains a rule of admissibility under section 79, analyse the decisions in Makita and Dasreef and review how judges in subsequent cases have interpreted the decision by the majority in Dasreef.

WHAT IS EXPERT EVIDENCE? Expert evidence is a species of opinion evidence. A common definition of the term ‘opinion’ is ‘an inference drawn or to be drawn from observed and communicable data’.4 Generally speaking, evidence of someone’s opinion, as opposed to facts directly observed, is inadmissible.5 The law therefore draws a distinction between facts and inferences based on facts, although this distinction is not always easy to draw.6 It is the business of witnesses to state facts, whereas it is the function of the judge or jury to draw inferences based on the facts put in evidence.7 Expert evidence is a reasoned inference or set of inferences (the opinion) drawn by someone with specialised knowledge from facts that the expert has either observed or assumed. The opinion must be based, at least substantially, on that person’s specialised knowledge.8 Expert evidence is admissible as an exception to the general rule that evidence of an opinion is inadmissible.9 For example, a qualified medical doctor may, as an expert, express his or her opinion regarding the probable cause of an illness.10


ADMISSIBILITY OF EXPERT EVIDENCE UNDER THE COMMON LAW For centuries now, English courts have allowed the opinion of expert witnesses as admissible evidence. In 1782, in the matter of Folkes v Chadd,11 the opinion of Mr Smeaton, an eminent engineer, was called as evidence regarding whether an embankment was causing the silting of a harbour. His evidence was objected to on the basis that it did not relate to facts but to opinion. Lord Mansfield held that the subject of Mr Smeaton’s evidence was a matter of science and stated: ‘we are of the opinion that his judgment, formed on facts, was very proper evidence’. Under the common law, expert evidence, like any other evidence, must be relevant to be admissible.12 The basis rule, which is considered part of the common law, is a rule of admissibility applicable to expert evidence. According to this rule, the opinion of an expert is admissible only where the premises, that is to say the facts, upon which the opinion is based are expressly stated.13 Not only must such facts be stated; they must be proved by admissible evidence.14 Such evidence can come from either the expert, giving direct evidence about facts he or she observed, or, if the opinion is based on assumed facts, from other admissible evidence.15 An expert opinion based only partly on inadmissible material that can be readily ascertained and discarded is still admissible but may be of reduced weight.16 Another rule that is relevant to the admissibility of expert evidence, which is a common law exception to the hearsay rule, is that an expert is not required to prove the sources of the expert’s specialised knowledge.

Although the materials and sources the expert witness consulted in order to formulate the opinion should be disclosed, the expert is not required to prove the statements in textbooks, academic papers or informal discussions with other experts in the field upon which he or she relied.17

ADMISSIBILITY OF EXPERT EVIDENCE UNDER THE UNIFORM EVIDENCE LEGISLATION As is the case under the common law, expert evidence is admissible under the Uniform Evidence legislation only if it is relevant.18 Relevance is defined as follows: The evidence that is relevant in a proceeding is evidence that, if it were accepted, could rationally affect (directly or indirectly) the assessment of the probability of the existence of a fact in issue in the proceeding.19 Section 76(1) provides that: Evidence of an opinion is not admissible to prove the existence of a fact about the existence of which the opinion was expressed.Section 79(1) provides an exception to the rule that evidence of an opinion is not admissible: If a person has specialised knowledge based on the person’s training, study or experience, the opinion rule does not apply to evidence of an opinion of that person that is wholly or substantially based on that knowledge. Section 80 provides: Evidence of an opinion is not inadmissible only because it is about (a) a fact in issue or an ultimate issue; or (b) a matter of common knowledge. Expert evidence that satisfies the requirements of section 79

may nevertheless be excluded at the trial judge’s discretion under section 135 or section 136 of the Uniform Evidence legislation. Section 135 provides: The court may refuse to admit evidence if its probative value is substantially outweighed by the danger that the evidence might:(a) be unfairly prejudicial to a party; or (b) be misleading or confusing; or (c) cause or result in undue waste of time. Section 136 provides: The court may limit the use to be made of evidence if there is a danger that a particular use of the evidence might:(a) be unfairly prejudicial to a party; or (b) be misleading or confusing. Another section of the Uniform Evidence legislation that is not often referred to, but which may apply to the admission of expert evidence, is section 190(3), which provides: In a civil proceeding, the court may order that any one or more of the provisions in subsection (1) [which includes section 79] do not apply in relation to evidence if:(a) the matter to which the evidence relates is not genuinely in dispute; or 7 (b) the application of those provisions would cause or involve unnecessary expense or delay. It should be noted that the Uniform Evidence legislation does not refer to the basis rule. The rule is neither referred to as a requirement of admissibility nor expressly abolished. As noted in the introduction, the ALRC was of the view that the basis rule did not form part of the common law and expressed an intention to exclude the rule as a


requirement of admissibility in the Uniform Evidence legislation. In its interim Report No 26, the ALRC stated: It has been implied in some cases and asserted in some academic writing that there is a rule of evidence that for expert opinion testimony to be admissible it must have as its basis admitted evidence. The better view is that there is no such rule. Were it to exist, it would not be possible to have opinion evidence which had as a significant component the opinions or the statements of others. This would preclude the tendering of evidence whose value is dependent upon material not before the court and, therefore, difficult for it to assess. While this would have its advantages, it would fail in its inflexibility to take account of the normal means by which experts generally form their opinions—by means of reports of technicians and assistants, consultation with colleagues and reliance upon a host of extrinsic material and information that it would be an endless and unfruitful task with which to burden the courts. It is proposed to refrain from including a basis rule in the legislation, thus allowing opinion evidence whose basis is not proved by admitted evidence prima facie to be brought before the court. Under these circumstances the weight to be accorded to it will be left to be determined by the tribunal of fact.20 The ALRC favoured the view that a failure to prove the facts underlying an expert’s opinion does not render the evidence inadmissible, but may affect its probative weight, and that such evidence will be able to be excluded pursuant to the discretion in section 135. As will be seen below, courts have not been consistent in their interpretation of section 79 in light of the ALRC’s statement.

JUDGMENT BY THE NEW SOUTH WALES COURT OF APPEAL IN MAKITA Ms Sprowles, an employee of Makita, sued her employer for negligence after she fell down stairs at her workplace. She was awarded substantial damages. Sprowles relied on expert evidence that the tread of the stairs was slippery. The trial judge accepted this evidence. The employer successfully appealed on, amongst others, the grounds that the trial judge erred in accepting the expert evidence. It should be noted that because Makita did not object to the admissibility of the expert evidence at trial, the only issue on appeal was the weight of such evidence.21 Makita was decided pursuant to section 79 of the Evidence Act 1995 (NSW). In his separate but concurring judgment, Heydon JA, conducted a careful review of the case law regarding the admissibility of expert evidence. According to Heydon JA, a prime duty of experts in giving opinion evidence is to furnish the trier of fact with criteria enabling evaluation of the validity of the expert’s conclusions. Heydon JA cited as authority the Scottish case of Davie v Lord Provost, Magistrate and Councillors of the City of Edinburgh22. In Davie, Lord President Cooper stated: [T]he bare ipse dixit of a scientist, however eminent, upon the issue in controversy, will normally carry little weight, for it cannot be tested by cross–examination nor independently appraised, and the parties have invoked the decision of a judicial tribunal and not an oracular pronouncement by an expert. One finds the same principle in a dictum by the High Court in Ramsay v Watson:23

That some medical witness should go into the box and say only that in his opinion something is more probable than not does not conclude the case. A qualified medical practitioner may, as an expert, express his opinion as to the nature and cause, or probable cause, of an ailment. But it is for the jury to weigh and determine the probabilities. In doing so they may be assisted by the medical evidence. But they are not simply to transfer their task to the witnesses. They must ask themselves ‘Are we on the whole of the evidence satisfied on a balance of probabilities of the fact?’ At paragraph 85 of the judgment, Heydon JA sets out what he regards as the test of admissibility under section 79: [I]f evidence tendered as expert opinion evidence is to be admissible it must be agreed or demonstrated that there is a field of ‘specialised knowledge’; there must be an identified aspect of that field in which the witness demonstrates that by reason of specialised training, study or experience, the witness has become an expert; the opinion proffered must be ‘wholly or substantially based on the witness’s expert knowledge’; so far as the opinion is based on facts ‘observed’ by the expert, they must be identified and admissibly proved by the expert, and so far as the opinion is based on ‘assumed’ or ‘accepted’ facts, they must be identified and proved in some other way; it must be established that the facts on which the opinion is based form a proper foundation for it; and the opinion of an expert requires demonstration of examination of the scientific or other intellectual basis of the conclusions reached: that is, the expert’s evidence must explain how the field of ‘specialised knowledge’ in which the witness is


expert by reason of ‘training study or experience’, and on which the opinion is ‘wholly or substantially based’, applies to the facts assumed or observed so as to produce the opinion propounded. If all these matters are not made explicit, it is not possible to be sure whether the opinion is based wholly or substantially on the expert’s specialised knowledge. In his judgment, Heydon JA did not refer to the ALRC’s view that the basis rule did not form part of the common law or to its recommendation to refrain from putting a basis rule in the Uniform Evidence legislation. It is clear, however, that in Justice Heydon’s view, a party tendering an expert’s opinion as evidence can comply with the provisions of section 79 only if that party identifies and proves the facts upon which the opinion is based. This must be done to establish a connection between the ultimate opinion (which has as its foundation certain facts, observed or assumed) and the expert’s specialised knowledge. It is on this point that Justice Heydon’s view diverges from that of the ALRC.

ACCEPTANCE OF HEYDON JA’S VIEW IN OTHER AUSTRALIAN JURISDICTIONS State courts have generally embraced Heydon JA’s approach in Makita;24 however, the Federal Court did not.25 In Sydneywide Distributors v Red Bull Australia,26 the Full Federal Court27 held that the common law rule that the admissibility of expert opinion evidence depends on proper disclosure of the factual basis of the opinion is not reflected in the Evidence Act 1995 (Cth). Branson J stated that Heydon JA’s approach in Makita should be understood as a ‘counsel of perfection’.

She referred to the ALRC recommendation against including the basis rule as a precondition to the admissibility of expert opinion.28 Interestingly, though, Branson J expressed the view that it is the requirement of relevance and not section 79 that makes proof of the facts on which the opinion is based necessary.29 Weinberg and Dowsett JJ, in a joint judgment, held that the various qualities described by Heydon JA in Makita should be assessed in the course of determining the weight to be given to the evidence and not its admissibility.30 In Sydneywide, as in Makita, no objection was taken at trial to the admissibility of the expert evidence. Therefore, strictly speaking, the only question on appeal was what weight, if any, should be given to the evidence. Sydneywide has been followed in a number of Federal Court decisions,31 including French J, as his Honour then was, in Sampi v Western Australia [2005] FCA 777, where he held that the failure to establish the factual basis of an anthropologist’s opinion with admissible evidence was a matter of weight.32 There are, however, some Full Federal Court judgments that appear to qualify the decision in Sydneywide. In BHP Billition Iron Ore v National Competition Council,33 Greenwood J stated with respect to section 79 that: The normal role of an expert is to give an opinion based on clearly identified facts (Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705, almost invariably assumed to be the facts, on the footing that those facts provide a proper foundation for an opinion within the demonstrated discipline or field of specialised knowledge of the expert witness. Although section 79 of the Evidence Act

... whether the common law rule, which requires a party tendering expert evidence to identify the facts upon which the opinion is based and to prove such facts by admissible evidence, remains a requirement of admissibility under section 79 of the Uniform Evidence legislation.


The view expressed by the court in Eric Preston is consistent with Branson J’s statement in Sydneywide that failure to prove the factual basis of an expert’s opinion will render the evidence irrelevant and therefore inadmissible pursuant to section 51 of the Uniform Evidence legislation.

HIGH COURT’S JUDGMENT IN DASREEF The respondent, Mr Hawchar, commenced proceedings against Dasreef in the Dust Diseases Tribunal, claiming damages for personal injury, after he was diagnosed with scleroderma in 2004 and with silicosis in 2006. Mr Hawchar worked for Dasreef as a labourer and then as a stonemason between 1999 and 2005. His central allegation was that whilst working for Dasreef, he had been exposed to unsafe levels of silica dust. At the time Mr Hawchar worked for Dasreef, there was an applicable standard prescribing that the maximum permitted exposure to silica dust was a time–weighted average of 0.2mg/m³ _of air over a 40–hour working week. At trial, Mr Hawchar relied on the evidence of an expert, Dr Basden, a chartered chemist, chartered professional engineer and retired senior lecturer at the University of New South Wales. Dr Basden was retained to give evidence regarding the procedures an employer could take to reduce the risk of injury due to exposure to silica dust. At trial his evidence was objected to. Dr Basden identified two procedures that could have been used, but were not, to reduce Mr Hawchar’s exposure to silica dust: wet cutting, in which a jet of water is applied to the junction between the cutting wheel and the stone being cut, and the provision of an exhaust hood close to the source of the dust.

seems to operate on the footing that the opinion of a person wholly or substantially based on specialised knowledge is not precluded by section 76(1) in the absence of proven foundation facts (Sydneywide Distributors Pty Ltd v Red Bull Australia Pty Ltd (2002) 55 IPR 354 [10]; Neowarra v Western Australia (No 1) (2003) 134 FCR 208), little or no weight will be given to such an opinion (Ramsay v Watson (1961) 108 CLR 642), although the central point may simply be the question of admissibility, not weight (HG v R (1999) 197 CLR 414 at [39]–[44]; Trade Practices Commission v Arnott’s Ltd (No 5) (1990) 21 FCR 324 at 327–330). That question does not arise here. Greenwood J’s remarks are clearly obiter, and if it was his Honour’s intention to depart from the decision in Sydneywide, one might expect him to expressly state such an intention. However, the remarks do support the argument that in the absence of proof of the foundational facts of an expert’s opinion, the better view is that the evidence should not be admitted at all. In Eric Preston Pty Ltd v Euroz Securities Ltd,34 in a joint judgment by Jacobson, Foster and Barker JJ, the following was said: The proposition that an expert’s opinion based upon certain assumptions which are not ultimately proved in evidence is irrelevant is a fundamental principle of the law: Ramsay v Watson (1961) 108 CLR 642; Paric v John Holland (Constructions) Pty Ltd (1985) 62 ALR 85. His Honour’s statement that the opinions were ‘irrelevant’, or were ‘to be accorded no weight’ was no more than a statement of his conclusion that he could not take Mr McKimm’s evidence into account in light of his finding as to the terms of the retainer.

... the expert opinion must satisfy two criteria: first, the witness who gives the evidence must have specialised knowledge based on his or her training, study or experience; second, the opinion must be wholly or substantially based on that knowledge..


He also expressed the view that the breathing masks provided to Mr Hawchar were inadequate. In his report Dr Basden estimated that the dust concentrations generated in Mr Hawchar’s breathing zone when he was operating the cutting wheel were in the order of 1,000 or more times the maximum permitted exposure of the time–weighted average of 0.2mg/m³.During cross–examination, Dr Basden admitted that he could not express a numerical opinion about Mr Hawchar’s exposure to respirable silica and that he could not express an opinion about the time–weighted average of Mr Hawchar’s exposure to silica. He gave no evidence that he had measured directly, or had sought to calculate inferentially, the amount of respirable dust to which Mr Hawchar was exposed. According to Dr Basden, the statement in his report that Mr Hawchar was exposed to dust concentrations at least 1,000 times the permissible limit provided nothing more than a ‘ballpark’ figure based on an estimate. Notwithstanding these concessions by Dr Basden, the trial judge sought to calculate the levels of silica dust to which Mr Hawchar had been exposed using Dr Basden’s estimate, in support of a finding that such levels exceeded the prescribed maximum level of exposure. The central question on appeal was whether the trial judge erred in admitting Dr Baden’s evidence regarding the numerical level of respirable silica dust in Mr Hawchar’s breathing zone whilst he worked for Dasreef.

MAJORITY JUDGMENT In a joint judgment, the majority35 held that Dr Basden’s evidence was not admissible for the purpose of calculating the level of respirable dust to which Mr Hawchar was exposed.

The majority stated that in considering the operation of section 79, it is necessary to first identify why the evidence is relevant. That requires identification of the fact that the party tendering the evidence asserts the opinion assists in proving.36 To be admissible under section 79(1) the expert opinion must satisfy two criteria: first, the witness who gives the evidence must have specialised knowledge based on his or her training, study or experience; second, the opinion must be wholly or substantially based on that knowledge.37 The majority expressed doubt that Dr Basden even sought to express an opinion about the numerical or quantitative level of respirable silica to which Mr Hawchar had been exposed. To render such evidence admissible, it would have been necessary to demonstrate first that Dr Basden had specialised knowledge based on his training, study or experience that enabled him to measure or estimate the amount of respirable silica to which a worker in Mr Hawchar’s circumstances would be exposed, and second that his opinion regarding the level of exposure was wholly or substantially based on that knowledge.38 Dr Basden gave evidence of his training, study and experience; he did not, however, assert that his training, study or experience permitted him to provide anything other than a ‘ballpark’ estimate of the amount of silica dust to which Mr Hawchar was exposed. He gave no evidence that he had measured directly, or sought to calculate inferentially, this amount. In the circumstances, there was no footing on which the trial judge could conclude that a numerical or quantitative opinion expressed by Dr Basden was wholly or substantially based on specialised knowledge.

With respect to the basis rule, the majority stated the following: [T]his analysis does not seek to introduce what has been called ‘the basis rule’: a rule by which opinion evidence is to be excluded unless the factual bases upon which the opinion is proffered are established by other evidence. Whether that rule formed part of the common law of evidence need not be examined. It may be accepted that the Law Reform Commission’s interim report on evidence denied the existence of such a common law rule and expressed the intention to refrain from including a basis rule in the legislation the commission proposed and which was later enacted as the Evidence Act 1995 (Cth) and the Evidence Act 1995 (NSW). What has been called the basis rule is a rule directed to the facts of the particular case about which an expert is asked to proffer an opinion and the facts upon which the expert relies to form the opinion expressed. The point which is now made is a point about connecting the opinion expressed by a witness with the witness’s specialised knowledge based on training, study or experience.39 The majority did refer to Heydon JA’s judgment in Makita in the following passage: It should be unnecessary, but it is none the less important, to emphasise that what was said by Gleeson CJ in HG (and later by Heydon JA in the Court of Appeal in Makita (Australia) Pty Ltd v Sprowles) is to be read with one basic proposition at the forefront of consideration. The admissibility of opinion evidence is to be determined by application of the requirements of the Evidence Act rather than by any attempt to parse and analyse particular statements in decided cases divorced from the context in which those statements were made. Accepting that to be so, it remains


on the expert’s knowledge; and the unacceptable difficulties for the cross–examiner, who should not have to tease out in cross–examination all the circumstances the expert witness had in mind in arriving at his or her opinion. According to Heydon J, the ALRC was wrong to doubt the existence of the basis rule at common law. A decision not to recommend to the legislature to enact a rule, which the commission thought, did not exist at common law, does not demonstrate an intention on the part of the legislature to abolish a rule that does in fact exist at common law.46 In conclusion, Heydon J held as follows:47 [Dr Basden] had some training, study or experience which led him to have some specialised knowledge. He did not, however, explain what elements of his training, study or experience led him to possess specialised knowledge of a kind which enabled him to reach the conclusion that a cloud of silica dust liberated when cutting or grinding stone contained 200mg/m3 of respirable silica, or even as much as 1g/m3. He gave evidence of only one casual observation of an angle grinder in operation. He gave no evidence of ever having measured respirable silica dust. He gave no evidence of having measured dust concentrations, or the respirable fractions of those concentrations, arising from the type of work the respondent was doing. He did not explain how he had reasoned from his specialised knowledge, on the basis of lay descriptions of how the respondent worked and photographic records of how that type of work was done, to his estimate of the dust concentrations inhaled by the respondent. Accordingly the evidence was inadmissible.

useful to record that it is ordinarily the case, as Heydon JA said in Makita, that ‘the expert’s evidence must explain how the field of ‘specialised knowledge’ in which the witness is expert by reason of ‘training, study or experience’, and on which the opinion is ‘wholly or substantially based’, applies to the facts assumed or observed so as to produce the opinion propounded’. The way in which section 79(1) is drafted necessarily makes the description of these requirements very long. But that is not to say that the requirements cannot be met in many, perhaps most, cases very quickly and easily. That a specialist medical practitioner expressing a diagnostic opinion in his or her relevant field of specialisation is applying ‘specialised knowledge’ based on his or her ‘training, study or experience’, being an opinion ‘wholly or substantially based’ on that ‘specialised knowledge’, will require little explicit articulation or amplification once the witness has described his or her qualifications and experience, and has identified the subject matter about which the opinion is proffered. But that was not this case.40 Although the majority held that that Dr Basden’s evidence was inadmissible for the purpose in which the trial judge used it, they nevertheless dismissed the appeal on the basis of other evidence established that Mr Hawchar’s illness was caused by exposure to silica dust whilst employed by Dasreef.41

HEYDON J’S DISSENT In a dissenting judgment that has been described by Dixon J as an ‘erudite and practical analysis’,42 Heydon J concurred with the majority that Dr Basden’s evidence was inadmissible, but was of the view that the matter should be remitted to the Court of Appeal. Heydon J regarded the common law position as relevant to the

construction of section 79.43 According to Heydon J, the basis rule under the common law consisted of three elements: first, the requirement that the expert disclose the facts and assumptions on which the expert’s opinion was founded—the ‘assumption identification’ rule; second, the requirement that the facts and assumptions stated be proved before the expert opinion was admissible—the ‘proof of assumption’ rule; and third, the requirement that there be a statement of reasoning showing how the facts and assumptions related to the opinion, so as to reveal that the opinion was based on the expert’s expertise—the ‘statement of reasoning’ rule. In Heydon J’s view, there was no doubt that each of these rules formed part of the common law.44 Heydon J rejected the respondent’s argument that none of the three elements of the basis rule formed part of section 79. He analysed each element and concluded that they are interrelated and should be implied in the requirements of section 79. According to Heydon J, there is nothing in section 79 that suggests that the basis rule under the common law has been abolished.45 Rather, the ordinary meaning of section 79, taking into account its language, its context in the Act, the function of the Act (which is the efficient and rational regulation of trials from an evidentiary point of view) and the unreasonable results that a contrary construction would produce, should be construed as not abolishing the basis rule. The unreasonable results referred to by Heydon J included the following: a court’s inability to assess whether the opinion corresponds with the facts that the court finds at the end of the trial; the court’s inability to assess whether the opinion is one wholly or substantially based


DANGER OF ADMITTING FLAWED EXPERT EVIDENCE It is suggested that behind Heydon J’s insistence that the different elements of the basis rule should be implied within the construction of section 79, lies a concern about the risk of injustice that may flow from unsatisfactory expert evidence. According to Heydon J, the stricter the admissibility requirements under section 79, the greater the chance that evidence carrying that danger will be excluded.48 The use made by trial judges of expert evidence in both Makita and Dasreef illustrate this danger. Another case that illustrates this principle is R v Ryan.49 In Ryan, the accused, who was Aboriginal, was convicted by a jury on charges of aggravated burglary, attempted rape, rape and indecent assault. The prosecution attempted to establish the presence of the accused at the scene of the crime through the evidence of a single witness, namely a forensic scientist providing an expert opinion based on DNA evidence. He calculated that DNA found at the scene was 1.5 billion times more likely to come from the accused than from another Aboriginal person. During the trial, it became clear that the forensic scientist giving the evidence played no part in the collection or examination of any of the material that purportedly contained the DNA of the accused. The witness indicated that his evidence was based entirely upon examination of computer–generated printouts, the value of which was dependent upon a factual substratum of work and investigations about which no evidence was adduced before the jury. Despite objection by the defence, the trial judge ruled the evidence admissible on the basis that the absence of evidence

regarding the facts on which the opinion is based goes to weight. Citing Makita, the Court of Appeal held that:50 There was simply no evidentiary basis to support the opinion which accordingly should not have been put before the jury. The situation requires no elaborate exposition of the legal principles nor is the extensive citation of authority required with respect to such a basic proposition.

SUBSEQUENT JUDGMENTS REFERRING TO DASREEF The majority in Dasreef decided against expressly resolving the division between the state courts and the Federal Court as to the application of the basis rule in the context of the Uniform Evidence legislation. However, a number of judges in the Federal Court and the Family Court have interpreted the following statement by the majority as creating a requirement that, generally, experts should set out the facts upon which their opinions are based:51 [I]t is ordinarily the case, as Heydon JA said in Makita, that ‘the expert’s evidence must explain how the field of ‘specialised knowledge’ in which the witness is expert by reason of ‘training, study or experience’, and on which the opinion is ‘wholly or substantially based’ applies to the facts assumed or observed so as to produce the opinion propounded’.52 Other Federal Court judges decided to continue to follow Sydneywide.53 In a recent judgment by Reeves J in the Federal Court,54 his Honour held that evidence of an expert witness was inadmissible under section 79 because, amongst other things, the evidence did not explain ‘why he had reached a particular view, or what facts,

The better view may be that the basis rule has not survived as a stand–alone common law exclusionary rule, but that its elements have simply been subsumed into the requirements of section 79.


assumed or observed, the various views he expressed were based on’. Therefore, it would appear that in the Federal Court, judges have interpreted the High Court’s decision in Dasreef as justifying a stricter approach to the admissibility of expert evidence than was the case under Sydneywide. Relying on Dasreef, appellate courts in both Victoria and New South Wales excluded expert evidence unless the facts it was based on were exposed and it was shown how the expert’s specialised knowledge applied to such facts.55 In Dura (Aust) Constructions Pty Ltd v Hue Boutique Living Pty Ltd (No 3),56 Dixon J expressed the view that since the majority did not consider it necessary to discuss the basis rule, nothing precluded him from ‘drawing assistance in resolving admissibility questions’ under section 79 from Heydon J’s dissenting judgment. Dixon J went on to set out four ‘rules’ that should ‘usually’ be considered when deciding whether section 79(1) renders opinion evidence admissible:57 (a) is the opinion relevant (or of sufficient probative value) (the relevance rule); (b) has the witness properly based ‘specialised knowledge’ (the expertise rule); (c) is the opinion to be propounded ‘wholly or substantially based’ on specialised knowledge (the expertise basis rule); (d) is the opinion to be propounded ‘wholly or substantially based’ on facts assumed or observed that have been, or will be, proved, or more specifically (the factual basis rules):

(i) are the ‘facts’ and ‘assumptions’ on which the expert’s opinion is founded disclosed (the assumption identification rule); (ii) is there evidence admitted, or to be admitted before the end of the tendering party’s case, capable of proving matters sufficiently similar to the assumptions made by the expert to render the opinion of value (the proof of assumptions rule); (iii) is there a statement of reasoning showing how the ‘facts’ and ‘assumptions’ relate to the opinion stated to reveal that that opinion is based on the expert’s specialised knowledge (the statement of reasoning rule)? It is submitted that there is little substantial difference between the test for admissibility proposed by Dixon J and the test set out by Heydon JA at paragraph [85] of his judgment in Makita. The test proposed by Dixon J in Dura was referred to with apparent approval by J Forrest J in Matthews v SPI Electricity Pty Ltd (No 9)58 and was followed by Dixon J himself in Hudspeth v Scholastic Cleaning and Consultancy Services Pty Ltd.59 To date, courts in other Australian jurisdictions have not commented on Dixon J’s proposed test for admissibility under section 79.

CONCLUSION Following the majority’s decision in Dasreef, for expert evidence to be admissible under section 79, it is necessary that such evidence explain how the field of specialised knowledge in which the witness is expert applies to the facts assumed or observed by the expert in producing his or her opinion. This is consistent with the principle set out by the High Court in Ramsay v Watson,60 which requires the trier of fact, whether it be a judge or jury, to arrive at its own conclusion regarding the facts in issue and which maintains

that such a task cannot simply be transferred to an expert witness.61 Accordingly, expert evidence must establish a nexus between the facts, the specialised knowledge and the opinion.62 It is difficult to see how this can be achieved without disclosing the facts, whether observed or assumed, underpinning the expert’s opinion. Moreover, if the facts underpinning the expert’s reasoning cannot be proved by admissible evidence, it is difficult to see how such a nexus can be established in a relevant and reasoned way.63 The better view may be that the basis rule has not survived as a stand–alone common law exclusionary rule, but that its elements have simply been subsumed into the requirements of section 79.

REFERENCES1. (2001) 52 NSWLR 7052. See for example Biseja Pty Ltd v NSI Group Pty Ltd [2006] NSWSC 1497 at [13]–[16]; R v WR (No 3) [2010] ACTSC 89 (31 August 2010] at [47] and Rees v Lumen Christi Primary School [2010] VSC 514 (17 November 2010 at [29]3. (2011) 277 ALR 6114. Dasreef (2011) 277 ALR 611 per Heydon J at [53] quoting from Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd (No 5) (1996) 64 FCR 73 at 75 5. Section 76 of the Evidence Act 2008 (Vic)6. Risk v Northern Territory [2006] FCA 404 at [472]–[473]7. JD Heydon, Cross on Evidence (Butterworths, 7th ed, 2004) at 9238. Miiko Kumar, ‘Admissibility of expert evidence: Proving the basis for an expert’s opinion’ Sydney Law Review, Vol 33:427 2011 at 427


9. Section 79 of the Evidence Act 2008 (Vic)10. Ramsay v Watson (1961) 108 CLR 64211. (1782) 3 ER 589 at 590 (KB) 12. JD Heydon, Cross on Evidence (Butterworths, 7th ed, 2004) at 10113. Trade Practices Commission v Arnotts Ltd (No 5) (1990) 21 FCR 324 at 33014. Ramsay v Watson (1961) 108 CLR 64215. JD Heydon, Cross on Evidence (Butterworths, 7th ed, 2004) at 92616. Ibid at 937; Hancock v East Coast Timber Products Pty Ltd [2011] NSWCA 11 at [88]17. Ibid at 1169 to 1170. Macquarie International Heath Clinic Pty Ltd v Sydney Local Health District (No 5) [2014] NSWSC 1105 at [12]–[13]18. Section 56 of the Evidence Act 2008 (Vic)19. Section 51(1) of the Evidence Act 2008 (Vic)20. Australia, The Law Reform Commission, Evidence, Report No 26, vol 1, p 417 [750]21. Makita (2001) 52 NSWLR 705 at [86]22. 1953 SC 34 at 39–4023. (1961) 108 CLR 64224. James v Launceston City Council (2004) 13 Tas R 89 at [10]; Biseja Pty Ltd v NSI Group Pty Ltd [2006] NSWSC 1497 at [13]–[16]; R v WR (No 3) [2010] ACTSC 89 (31 August 2010] at [47]; Rees v Lumen Christi Primary School [2010] VSC 514 (17 November 2010 at [29]; R v Ryan [2002] VSCA 176 at [9]25. Miiko Kumar, ‘AAdmissibility of expert evidence: Proving the basis for an expert’s opinion’ Sydney Law Review, Vol 33:427 2011 at 439 to 44126. [2002] FCAFC 157

27. Branson, Winberg and Dowsett JJ28. At [7]–[10]29. At [14]30. At [87]31. Neowarra v Western Australia (2003) 134 FCR 208 at [19], Sampi v Western Australia [2005] FCA 777 at [802]; Dorajay Pty Ltd v Aristocat Leisure Ptd [2005] FCA 1483 (20 October 2005) at [36]–[43]; Gambro Pty Ltd v Fresenuis Medical Care Australia Pty Ltd (2007) 245 ALR 15 at [31]–[44]32. Miiko Kumar, ‘Admissibility of expert evidence: Proving the basis for an expert’s opinion’ Sydney Law Review, Vol 33:427 2011 at 440–44133. (2007) 162 FCR 234 at [185]34. (2011) 274 ALR 705 at [171]–[172]35. French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ36. At [31]37. At [32]38. At [35]39. At [41]40. At [37] to [38]41. At [49]42. Dura (Aust) Constructions Pty Ltd v Hue Boutique Living Pty Ltd (No 3) [2012] VSC 99 at [97]43. At [63] 44. At [64], [66] and [91]45. At [130]46. At [109]47. At [137]48. Makita (2001) 52 NSWLR 705 at [59]49. [2002] VSCA 17650. At [9]51. See Ample Source International Ltd v Bonython Metals Group Pty Ltd (No 6) [2011] FCA 1484; King v Jetstar Airways Pty Ltd [2011] FCA

1259; Moss v Moss [2012] FAMCA 538; Visy Packaging Holdings Pty Ltd v Commissioner of Taxation [2012] FCA 1195 at [255]52. Dasreef (2011) 277 ALR 611at [37]53. See Mcillroy v Mcillroy [2011] FAMCA 506 per Trench J54. Sherwood v Commonwealth Bank of Australia (No 4) [2013] FCA 1147 at [114]55. SLS v R [2014] VSCA 31 at [212]; White v Logen Pty Ltd as Trustee for Byrn Family Trust (2014) NSWCA 159 at [56]; Warkworth Minning Ltd v Bulga Milbrodale Progress Association Inc (2014) 307 ALR 262 at [111] to [112]; Bradley Cooper v R [2011] NSWSC 258 at [193]56. [2012] VSC 9957. At [97]–[98]58. [2012] VSC 340 at [11]59. [2012] VSC 555 at [9]60. (1961) 108 CLR 642 61. However, see the qualification to this principle in Adam Kosian v R [2013] VSCA 357 at [49]–[50]62. Miiko Kumar, ‘Admissibility of expert evidence: Proving the basis for an expert’s opinion’ Sydney Law Review, Vol 33:427 2011 at 45763. For a contrary view see Stephen Odgers SC, Uniform Evidence Law, Vol 1 (Thomson Lawbook Co, looseleaf) at 1–11254. According to Odgers the proposition that assumed facts upon which an opinion is based must be proved for the opinion to be admissible is not good law.

Hugo de Kock's paper was previously published on the Gordon and Jackson web site—November 2014. Reprinted with permission.


TENDERING

WRITING THAT WINNING TENDERRobert Watson, PartnerShelley Naylor, Senior AssociateSparke Helmore Lawyers, Melbourne

INTRODUCTIONHaving been on both sides of the tendering process for many years, we understand the excitement and sheer slog of writing a tender; the agonising wait to find out the result; the thrill of success and the disappointment (and sometimes incredulity) of failure.In advising governments on the evaluation of tenders, we are also familiar with the range of responses received and how often tenderers make common errors and fall into familiar traps.So with both perspectives in mind, the following are some simple suggestions for maximising your chances of being selected as the winning tenderer.

VALUE FOR MONEY IS THE KEYFor a tender to be successful, the government agency must be satisfied that the procurement achieves a value for money outcome. This is a core rule.Do not be afraid of the value for money rule. It is your friend. Make use of it. Whilst you should not slavishly say that you are the best value for money, you should seek to demonstrate why your solution is value for money. Be bold and clearly state what tangible benefits your offer will deliver to government.

ADDRESS THE EVALUATION CRITERIAThe evaluation criteria (or similarly named criteria) are one of the most important elements of the tender process. These criteria are usually the basis upon which the government agency will determine whether your tender demonstrates value for money. You should address these criteria directly and provide all relevant information to demonstrate, clearly and concisely, how you meet each requirement.

Do not assume that you will be given the opportunity to clarify or supplement your tender. Invest up front in presenting the most compelling argument you can against the evaluation criteria.

READ AND UNDERSTAND CONDITIONS OF TENDERIt may sound obvious, but read, understand and comply with the conditions of tender. We often see tenders that are non–compliant with or one or more elements of the conditions of tender. Whether or not this is inadvertent, it means the government has to work out how to manage the non–compliance and reflects poorly on your competence as the tenderer. In turn, this may diminish the value for money assessment or lead to your tender not being admitted to evaluation.If you have been asked to submit a statement of compliance regarding a draft contract, think carefully about your non–compliances. In particular:• Try to maximise your compliance with all government policy requirements. Agencies often have no choice about the policy that they (and you as a contractor) must comply with. Non–compliance with a policy requirement may be considered to be a significant risk. However, if a particular policy appears to be onerous or expensive to comply with, submit a price for both compliance and non–compliance. This will allow the government agency to make an informed decision regarding whether it requires compliance.• Consider each legal non–compliance carefully. Generally, the fewer the non–compliances, the better the value for money assessment. Also, remember to consider your non–compliances in light of the risk profile. Government contracts have a unique risk profile. For instance, a government


contract may be perceived to have a risk of political interference and public disclosure. However, they also usually have a lower risk of non–payment (generally, insolvency is not a risk). In addition, it is arguable that (as the law currently stands) implied into government contracts is an obligation of good faith on the part of the government agency. Issues such as these should be considered when assessing the overall commercial risk to the contractor.• Carefully consider your response on key risk allocation mechanisms, such as limits on liabilities, indemnities and insurance. Government agencies generally have a standard position on these issues, which they will expect you to generally comply with. However, if you think there is a better, smarter and more cost effective way to allocate risk, propose the alternative in your tender and provide the associated pricing. But also make sure that you price a compliant tender. A common bugbear for government agencies is discovering that tendered pricing does not reflect the requirements set out in the request for tender and that, instead, a tenderer has produced its tendered price based on an assumption that its offering will be accepted entirely by government. The result is tendered pricing that is difficult to properly evaluate and which is likely to change if tendered positions are not accepted by government.

PRICE WITHIN THE PUBLISHED BUDGETIt is worth noting that some agencies publish budget information. This may inform you of the government agency's budget constraints. If the price of a tender is over the published budget, you should consider very carefully how you have priced risk and whether your tender is competitive.

BE ON TIMEThe rule ‘better late than never’ generally does not apply to tenders. It is vital you submit your tender on time. Even if you have missed something, it is better to submit with the omission and try to correct it later (this may be possible during clarification or during negotiations—if successful) than to be late. Put bluntly, if you submit your tender late you risk immediate exclusion. If you submit on time with errors, you have a chance of correcting the errors.

DEMONSTRATE THAT YOU WILL BE EASY TO MANAGEWhen you submit a tender, the government agency may have little other information about your organisation other than your tender, so it is vital that the tender gives an accurate impression of your organisation.One mistake often made is when an organisation (particularly a non–Australian based organisation) uses tender writers who are based overseas or inexperienced in preparing tenders for the Australian Government. Those tenders are often drafted in a way that demonstrates a lack of understanding of the Australian market and Australian Government contracting.If a tender response indicates that it will take time and money to bring your organisation up to speed with Australian Government requirements and processes, then this may be a factor in the government agency's evaluation of the value for money presented by your tender. Organisations should familiarise themselves with government requirements and consider using an Australian–based organisation familiar with tendering to government to write or at least review the tender to minimise the risk of giving the wrong impression.

... the excitement and sheer slog of writing a tender; the agonising wait to find out the result; the thrill of success and the disappointment (and sometimes incredulity) of failure.


Do this at your peril. Remember, the government agency can only assess you against what it has asked for (regardless of whether or not that correctly represents what it wants). If you genuinely believe that the tender contains an error or does not set out what should be requested, then:• submit a clarification question seeking guidance (on the assumption the conditions of tender allow for this—and noting that your question and answer may be provided to other tenderers), or• submit a compliant tender and also separately set out what you think should have been asked for.

BE INNOVATIVE WHERE YOU CANAlways ensure that your tender meets the government's stated requirements. However if you have an innovative solution, offer this as well. Even if the government agency chooses not to accept your innovation, it may demonstrate that you are thinking about the government agency and its needs.

FOLLOW THE STRUCTURE OF THE CONDITIONS OF TENDERUnless you have been given guidance about the structure of your tender, use the same terms and identical headings to the conditions of tender. This will make the evaluator's task of navigating your tender that much easier.

TENDER SHOULD BE CONTENT RICH, PLAINLY WRITTEN AND FREE OF FLUFFWe understand the enthusiasm that surrounds the writing of tenders and the desire to express in writing your genuine wish to do the job. But take care to ensure that the tender does not appear to be gushing and without substance.

SHOW THAT YOU KNOW THE GOVERNMENT AGENCYEach government agency has its own unique operating environment and objectives. It is important for your tender to be constructed based on the particular government agency you are dealing with, how it operates and what its issues are. A tender that demonstrates familiarity with that particular government agency, or the willingness to invest in building familiarity, is likely to be viewed as a ‘safer bet’ than a new comer.

THINK ABOUT YOUR EVALUATORSYour evaluator is likely to have written at least part of the tender documents. So think about them when you write your tender. Whilst you will only be assessed on a value for money basis, do not be tempted to show how ‘clever’ you are by pointing out any perceived errors in the tender documents, particularly non–substantive ones. You want to give the impression of being an organisation that will work collaboratively with government and one that is on their side. Again, these are issues that may go to a value for money assessment. If you think that there are errors or inconsistencies in the request for tender, there will usually be a tender clarification process where this may be raised (but do so in a sensitive manner).

TENDER FOR WHAT HAS BEEN ASKED FORIt is very easy (particularly for former providers) to fall into the trap of thinking that you know better than the government agency about what it wants and then submitting a tender for what you believe the government agency wants (and not what it has asked for).

... infuse into your tender that you are on the side of the government agency ... show that you understand their constraints and concerns, show that you will get on with the job and work with the government agency and, ultimately, that you will deliver a value for money solution with very low risk of failure or dispute.


Some of our general rules are:• Avoid overused terms when you are describing what you can do such as ‘synergies’, ‘proactive’ and ‘leverage’ unless you actually mean it.• If you claim that you have experience or expertise in a certain area, justify your claim with examples or references from satisfied customers on similar projects.• Use plain English and correct grammar. Avoid using jargon unless you are confident that it is appropriate.

CHECK YOUR TENDER CAREFULLYAsk for your tender to be proof read and checked for overall cohesion and typographical and grammatical errors.One of the most common traps is the use of standard or corporate text (which jars stylistically) or text from other tenders (and yes, we have seen bids that have text that refer to the wrong Department and product).

YOUR BID IS YOUR BIDDo not think that you can submit a compliant tender and then seek to step back from it in negotiations. If you tendered it, that is the baseline—be prepared to stick to it, though you may be asked to improve upon it.

PROBITYProbity is not just an issue for your evaluators. Government takes probity very seriously. Do not attempt to do anything that could be construed as placing a government agency or its personnel in a position of conflict. Do not think, ‘they can always say no’. Any possible, perceived or actual breach of probity may result in your tender being excluded immediately. Even if not excluded, a breach of probity will reflect poorly on your organisation.

You should also be aware that, depending on the nature and severity of the probity breach, it may become public knowledge due to the government agency's disclosure obligations or questions in Parliament.

PRE–PLAN TO THE EXTENT YOU CANYou will often find that government agencies set out in advance the tenders that will be released and have on their website their standard contracts and policy documents. So before a request for tender, or other market testing document (RFT) is released, do your homework, read and understand the template documents and gather as much information as you can about the proposed RFT.If you have any questions, contact the government agency. Whilst you may not be able to obtain any information that is not otherwise publicly available, there may be fewer restrictions on a government agency discussing an RFT or template document before release of the RFT than after release.

TRY TO MATCH THE SKILLS OF YOUR DRAFTERS TO THAT OF THE EVALUATORSIf the RFT is for a low value and low risk task, then it may be suitable for your tender to be prepared by an appropriate commercial manager and it is likely that your tender will be evaluated by someone of similar experience. However, if the RFT is high value, complex or high risk, the government agency may engage internal or external lawyers to draft the RFT and evaluate your tender. In this case, it may be a mistake not to engage a lawyer or someone with legal experience to review your tender prior to submission. Again, a government lawyer may quickly identify any issue in your tender that would otherwise reflect

poorly on your competence as an organisation and may impact on the value for money assessment.

A FINAL WORD...OR TWOIf there is one final tip, it is to infuse into your tender that you are on the side of the government agency. Be their friend, show that you understand their constraints and concerns, show that you will get on with the job and work with the government agency and, ultimately, that you will deliver a value for money solution with very low risk of failure or dispute.And keep trying. Writing successful tenders is a skill that needs to be developed. If you fail and a debrief is offered—take up the offer and take the feedback seriously. Then try again.

Robert Watson and Shelley Naylor’s article was previously published on the Sparke Helmore Lawyers web site—December 2014. Reprinted with permission.


INSURANCE

INSURANCE WHICH EXTENDS COVER TO PARTIES WHO DO NOT TAKE OUT THE INSURANCE POLICYDavid Templeman, PartnerCharlotte Storey, Senior Associate Herbert Smith Freehills, Sydney

INTRODUCTIONSince the introduction of section 48 of the Insurance Contracts Act 1984 (Cth) (ICA), a person whose interests are noted on an insurance policy (i.e. the person is noted on the insurance policy as a person to whom the benefit of the insurance policy extends, or in other words ‘a third party beneficiary’) has been able to lodge a claim on the insurer even though they are not a party to, and therefore do not have privity of contract to enforce, the contract of insurance (i.e. the policy).Despite section 48 of the ICA, the rights and obligations of third party beneficiaries and the defences available to insurers for claims brought by third party beneficiaries have been somewhat controversial. For example, does the exclusion for ‘dishonesty by the insured’ mean that dishonest conduct by a primary policyholder will also preclude an innocent third party beneficiary from having its claim paid, or is the third party beneficiary’s claim to be judged only by its own conduct and therefore references to ‘the insured’ in exclusions are to be interpreted as ‘the insured lodging the claim’?As a result of recent changes to the ICA (introduced by the Insurance Contracts Amendment Act 2013 (Cth) (ICAA), third party beneficiaries now have rights and obligations which are similar to an insured policyholder in general insurance contracts.In the context of the Australian construction industry and infrastructure projects, some of these changes will have a significant impact on project owners or financiers to the extent that they are, or will become, noted as third party beneficiaries under insurances effected by contractors or borrowers.

CONTEXT OF CHANGESIt is usual in infrastructure contracts for principals to require contractors (or financiers to require borrowers) to name or note their interests under different types of insurance policies. These policies typically include: • public liability insurance;• professional indemnity insurance;• contractor’s property insurance;• transit (marine or aviation) insurance; and • contract works insurance policies.In such contracts, the insurance obligations are often drafted independently of the allocation of risks and usually require the contractor or borrower to ‘note the interests’ of the principal or financier on such insurance policies. This effectively entitles the principal or financier to lodge a claim under the policy despite not being a party to the contract of insurance as a ‘third party beneficiary’ of the policy.On 28 June 2013, the ICAA was passed which introduces some key changes to the ICA that include changes relating specifically to third party beneficiaries.As of 28 June 2014, all of the changes are now in effect.

CHANGES THAT RELATE TO THIRD PARTY BENEFICIARIESThe concept of a third party beneficiary is dealt with in section 48 of the ICA.A third party beneficiary has a right to recover from an insurer, in accordance with the contract, the amount of any loss suffered by the third party beneficiary even though they are not a party to the insurance contract. In other words, a third party beneficiary has a right to make a claim on the policy as if it were an insured party.


The insurer has the same defences to a claim by a third party beneficiary as it does to a claim by the insured party (section 48(3) ICA).However, there has been uncertainty for many years over whether that meant the insurer was entitled to rely upon:(a) the same grounds of defence that could be raised against the insured (e.g. non–disclosure, breach of conditions, dishonesty) so long as the elements of the defence could be proven against the third party beneficiary; or(b) the same conduct by the insured as grounds to defend a claim by the third party beneficiary (e.g. non–disclosure, breach of conditions or dishonesty by the insured) even if the third party was not itself guilty of that conduct.The ICAA has introduced three key changes to third party beneficiaries to clarify the rights and obligations of both third party beneficiaries and insurers in these circumstances.As a result of these key changes, claims by third party beneficiaries will now be treated consistently with the way the insured’s claim would be treated, with the third party beneficiary having no greater rights than the insured party (i.e. alternative (b) above). An outline of these three key changes is set out below.

SUBROGATION The priority rules relating to the application of monies recovered by an insurer under a right of subrogation now apply to a third party beneficiary in the same way as they apply to an insured—section 67 ICA. So, where an insurer has a right of subrogation in respect of a loss, it may now (subject to the contract) step into the shoes of the third party beneficiary and pursue recovery in the name of the third party beneficiary in the same way that

it would for the insured. Where it does, the third party beneficiary will be subject to the same priority rules as the insured for subrogation recoveries. These changes apply to contracts originally entered into after 28 December 2013 or originally entered into before 28 June 2013 and renewed after 28 December 2013. This represents a significant change to the ICA.

DUTY OF UTMOST GOOD FAITH Insurers now owe a third party beneficiary (in addition to an insured) a duty of utmost good faith—section 13 ICA (and a breach of this duty is a breach of the ICA for which ASIC may now bring an action under the Corporations Act 2001 (Cth)—section 55A ICA). In addition, from 28 June 2014, a third party beneficiary will also owe an insurer a duty of utmost good faith on and from when an insurance contract is entered into—section 13(4) ICA. As this duty arises only when the insurance contract is entered into, a third party beneficiary will not be subject to a pre–contractual duty of disclosure, in contrast to a policy insured.

DEFENCES FOR INSURERS The changes which take effect from 28 June 2014 make it clear that an insurer will have the same defences to an action by a third party beneficiary as it would have in an action by an insured, including in respect of defences relating to the conduct of the insured (whether the conduct occurred before or after the insurance contract was entered into)—section 48(3) ICA. What this means is that, subject to the contract, a third party beneficiary’s claim may be adversely affected by the conduct of an insured, including conduct that arose before the contract was entered into (e.g. a breach of the insured’s disclosure obligations). This is a significant clarification of the law.

As a result of recent changes to the ICA ... third party beneficiaries now have rights and obligations which are similar to an insured policyholder in general insurance contracts.


(4) a principal or financier should also ensure that it has a right to obtain or inspect a copy of the relevant policy of insurance, as a noted party cannot benefit from section 74 of the ICA which requires the insurer to provide a written statement of the terms of the insurance contract on request.

WHERE A PRINCIPAL OR FINANCIER IS NOTED OTHER THAN AS A THIRD PARTY BENEFICIARYWhere a principal or financier wishes to be noted other than as a third party beneficiary under an insurance policy arranged by the contractor or borrower, we recommend that the relevant insurance clause expressly requires that the insurance policy include a waiver of subrogation in the same terms as suggested in item 3 in the previous section.

WHAT THIS MEANS FOR YOUIn light of these changes, we recommend that principals and financiers: consider best practice approach to drafting insurances clauses in infrastructure, construction and operational contracts ... and continue to obtain insurance advice prior to entering into contracts which deal with the allocation of insurance responsibilities under the contract.

David Templeman and Charlotte Storey’s article was previously published in Herbert Smith Freehills' Australian Construction Dispute Resolution Newsletter—September 2014. Reprinted with permission

BEST PRACTICE APPROACH TO DRAFTING INSURANCE CLAUSESWHERE A PRINCIPAL OR FINANCIER IS NAMED OR NOTEDIt is unnecessary to debate whether it is better for a principal or financier to be named as an additional insured or noted under another party’s insurance policy—both options have the same result because the principal or financier will in each case be a third party beneficiary under the policy.Where a principal or financier wishes to be covered under the insurance policy arranged by the contractor or borrower, we recommend that the relevant insurance clause expressly require that the insurance policy:(1) include a cross liability clause noting that each insured party and third party beneficiary will be considered a separate entity and that the insurance will apply as if a separate policy has been issued to each insured party and each third party beneficiary;(2) include a non–imputation clause that provides that the knowledge, errors, acts or omissions by any party whose interests are insured under the policy will not adversely affect the cover provided under the policy to another party including third party beneficiaries; and(3) include a waiver of subrogation in favour of the principal or financer under which the insurer agrees to waive all rights of subrogation or action that it may have or acquire against, at a minimum, the principal or financier (although this waiver of subrogation is likely to extend to any other persons comprising the insured).

... principals and financiers: consider best practice approach to drafting insurances clauses in infrastructure, construction and operational contracts ... and continue to obtain insurance advice prior to entering into contracts which deal with the allocation of insurance responsibilities under the contract


REGULATION

WHEREVER YOU GO, I WILL FOLLOW YOU—PROFESSIONAL ENGINEERS ACT 2002 (QLD) APPLIES TO ENGINEERS OUTSIDE QUEENSLANDAndrew McCormack, PartnerKate Robertson, AssociateCorrs Chambers Westgarth, Brisbane

The Queensland Government has passed amending legislation which clarifies the application of the Professional Engineers Act 2002 (Qld) (Act) to engineers performing engineering services outside Queensland.The amending legislation,1 which was passed on 15 October 2014, confirms that the Act will apply to engineers outside Queensland who provide engineering services in relation to Queensland–based projects.The Act commenced by proclamation on 10 November 2014.

THE REQUIREMENT TO BE REGISTEREDUnder the Act,2 a person who is not a registered professional engineer must not carry out professional engineering services, unless that person carries out the professional engineering services under the direct supervision of a registered professional engineer.

The Act does not currently have extraterritorial application. As such, it is unclear whether the requirements of the Act extend to engineers performing professional engineering services outside Queensland in relation to projects carried out (or to be carried out) in Queensland.

THE AMENDED POSITIONThe amendment Act will clarify this position by inserting a new section3 which provides that the Act applies both within and outside Queensland.According to the Explanatory Notes, this amendment is specifically intended to clarify that engineers who provide professional engineering services outside Queensland for the purposes of Queensland–based projects must be registered under the Act (or be appropriately supervised).

CONSEQUENCES FOR ENGINEERSUnder the Act, an individual engineer performing professional engineering services bears the risk of ensuring he or she is appropriately registered or supervised.

CONSEQUENCES FOR CONTRACTORSAll engineers within Australia will now need to ensure they are registered in accordance with the Act, or are supervised by an appropriately registered person, before providing professional engineering services in relation to Queensland–based projects.A failure to do so may result in an engineer being unable to recover payment for the performance of those services.4

Further, if a contract for a project in Queensland contains (as most do) a clause requiring the contractor to ‘comply with all applicable laws’, that contractor will need to

ensure that all engineering work performed pursuant to the contract is performed by an engineer registered (or supervised) in accordance with the requirements of the Act.Note the relevant provisions of the amendment Act commenced by proclamation on 10 November 2014.

REFERENCES1. Professional Engineers and Other Legislation Amendment Act 2014 (Qld) (Amendment Act)2. Section 1153. Section 6A4. Clause 141(2) of the Act provides that, in circumstances where an engineer is not registered or supervised in accordance with the Act, an engineer will not be entitled to any monetary or other consideration for the performance or carrying out of professional engineering services, despite any agreement between that engineer and a client to the contrary.

Andrew McCormack and Kate Robertson’s article was previously published on the Corrs Chambers Westgarth web site—November 2014. Reprinted with permission.


SECURITY OF PAYMENT

CLAIM FOR REIMBURSEMENT OF AN ADJUDICATED AMOUNTPhilip Davenport, SolicitorSydney

The object of this paper is to identify the cause of action that a respondent has to recoup an adjudicated amount that the respondent has paid the claimant pursuant to the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act) and similar acts in other jurisdictions. The conclusion is that the respondent’s cause of action is for damages for breach of the construction contract. The respondent does not have a cause of action in restitution based upon unjust enrichment.Two conflicting decisions of the Court of Appeal in England are considered. This paper does not consider possible claims in tort [for example, for fraud] or under statute [for example, under the Competition and Consumer Act 2010 (Cth) for misleading and deceptive conduct].If a claimant claims $100,000 in an adjudication application and the adjudicator determines that the claimant is only entitled to $40,000 the claimant can sue the respondent for $100,000 giving credit for the payment of the adjudicated amount. The cause of action would be a claim under the construction contract and the cause of action would arise on the date that, under the contract, the amount of $100,000 should have been paid. The onus would be on the claimant to prove that under the contract the claimant was entitled to $100,000.If in an adjudication a respondent claims an entitlement to set off against the payment claim $100,000, for example, for damages for defective work or liquidated damages for delay, and the adjudicator determines that the respondent is only entitled to set off $40,000, the respondent can sue the claimant for $100,000 giving credit for $40,000 the benefit of which the respondent has received in the adjudication.

The cause of action would be a claim under the contract for damages for breach of contract. The cause of action would arise when the breach of contract occurred. The onus would be on the respondent to prove that the work was defective or that the claimant was liable for liquidated damages for delay. The respondent would have to prove the quantum of damages incurred by the respondent.In these instances the cause of action arose under the construction contract and independently of the date of the adjudicator’s determination and the date upon which the respondent paid the adjudicated amount to the claimant. The adjudicator’s determination and the payment of the adjudicated amount do not create the cause of action. It existed before the making of the adjudication determination. Section 32(3) of the SOP Act provides:In any proceedings before a court or tribunal in relation to any matter arising under a construction contract, the court or tribunal:(a) must allow for any amount paid to a party to the contract under or for the purposes of this Part in any award it makes in those proceedings, and(b) may make such orders as it considers appropriate for the restitution of any amount so paid, and such orders as it considers appropriate, having regard to its decision in those proceedings.The two instances described above are straight forward. It would not be necessary or appropriate for a party to attack the adjudicator’s determination or reasoning. The adjudicator’s reasons would be irrelevant. The plaintiff’s cause of action would be the same where the respondent had not provided a payment schedule and the claimant obtained summary judgment under section15 of the SOP Act.


Now consider the instance where the adjudicator determines that the claimant is entitled to a progress payment of $100,000, the respondent pays the adjudicated amount and seeks to recoup part in other proceedings. Assume that the respondent’s contention is that the adjudicator incorrectly valued the work and that the true value of the work was only $40,000. The respondent’s contention is that the respondent has overpaid the claimant by $60,000. Consider also the instance where the claimant’s progress claim includes an amount of $60,000 for variations and in the adjudication the respondent argued that the claim for variations was time barred and should not be allowed by the adjudicator. Assume that the adjudicator rejected that argument and included the claimed amount in the adjudicated amount. Assume that the respondent has paid the adjudicated amount and seeks to recoup $60,000. In the last two instances, what cause of action is open to the respondent and when does it arise?If the respondent wants to attack the adjudicator’s determination, the respondent must do so by way of an application to the Supreme Court for a declaration that the determination is invalid. In proceedings under the construction contract (such as allowed by section 32(3) of the SOP Act), it is not open to the respondent to claim that because the adjudicator made an error the claimant must pay the respondent $60,000 plus costs. The alleged error of the adjudicator is not a breach of contract. The payment of the adjudicated amount is simply a progress payment under the contract.When under a construction contract the respondent must pay an amount certified by a

superintendent, the respondent may have a claim against the superintendent if the superintendent has been negligent in calculating the amount (Sutcliffe v Thackrah [1974] AC 727). However, under section 30 of the SOP Act an adjudicator is protected from liability.Does the respondent have a claim for $60,000 in restitution against the claimant based upon unjust enrichment? This seems most unlikely. The claimant had a legal entitlement to the adjudicated amount. It was progress payment to which, by virtue of section 8(1) of the SOP Act, the claimant was entitled. Under section 9 of the SOP Act the adjudicated amount is a progress payment to which the claimant is entitled in respect of the construction contract. An enrichment is not unjust if it arises under a contract or otherwise according to law.Prior to payment of the adjudicated amount, the respondent has no entitlement to claim $60,000 from the claimant. There is not yet a cause of action. After payment does the respondent have an entitlement under the contract to claim $60,000 from the claimant? If so, when does the cause of action arise? In Aspect Contracts (Asbestos) Ltd v Higgins Constructions Plc [2013] EWCA Civ 1541 the Court of Appeal [in England] on 29 November 2013 decided that the ‘overpayment’ could be recovered and the cause of action accrued on the date of the overpayment.The court made it clear at [19] of the judgment that the court received no argument to the effect that the respondent could recover the overpayment by relying upon the law of unjust enrichment. It is not clear what the actual cause of action was. It is apparent that it was a claim under the contract.

Delivering the judgment of the court, Longmore LJ decided at [20] that it was an implied term of the parties’ contract that an unsuccessful party to adjudication would be entitled to seek a final determination in litigation and, if successful, recover payment made. It is submitted that that case has no application to an action to recover an adjudicated amount paid under the SOP Act.At [17] of the judgment Longmore LJ said:The accrual of that cause of action is the date of overpayment since the losing party is (on this hypothesis) ‘entitled’ to have the overpayment returned to him. A progress payment made pursuant to an adjudication determination under the SOP Act is not an ‘overpayment’. It is a payment that is required to be made on account of the final entitlements of the parties. If on a final accounting the sum of payments made on account exceed a party’s final entitlement then the excess could be described as an overpayment. However, it can only be described as an overpayment when the final entitlement can be ascertained. It is upon the date that the final entitlement can be ascertained that an overpayment might arise. The respondent has no entitlement to recoup payments made on account or any portion until the final entitlement can be ascertained. In contracts which provide for interim certificates by a superintendent (for example, clause 42.1 of AS2124–1992) there can be provision for adjustment of payments on account. Any entitlement which a respondent may have (pursuant to such a certificate) to reimbursement of moneys paid on account would arise from the certificate not from an overpayment.


On 7 February 2014, a differently constituted Court of Appeal in Walker Construction (UK) Ltd v Quayside Homes Ltd [2014] EWCA Civ 93 took a quite different approach to that of the Court of Appeal in Aspect. The decision of the Court of Appeal in Aspect Contracts was not cited in Walker. In Walker, the respondent to the adjudication was Quayside, a developer. The claimant, Walker, commenced the adjudication. The adjudicator awarded Walker £23,440. In final proceedings between the parties there were a number of claims and counterclaims. For present purposes it is only Quayside’s counterclaim for repayment of £8,941 that is relevant. This had been paid by Quayside to Walker pursuant to the adjudicator’s award. This represented costs incurred by Walker in repairing drains allegedly damaged by Quayside’s piling work.The judge at first instance asked what was Quayside’s cause of action. He decided that there was an implied term in any construction contract that the contractor would repay any money paid under the adjudicator’s award in respect of liability to pay that was not substantiated in subsequent legal proceedings (Walker at [39]). He decided that a claim for restitution could not exist as a matter of law (Walker at [40]).At trial Walker did not seek to recover anything in respect to repairing the drains or to prove that Quayside’s piling work caused the damage. Walker had already been paid for that work pursuant to the adjudication. Quayside did not call any evidence to show that Walker’s original drainage works had been defective. The important point here is that in these final proceedings the onus was on Quayside to prove that Walker

had no contractual entitlement to the cost of repairs. The onus was not on Walker to prove that it was entitled to the adjudicated amount of £8,941 for repairing the drains. The court found that, accordingly, the adjudicator’s award of £8,941 was bound to stand (Walker at [44]). Quayside was unable to recoup £8,941.Delivering the decision of the Court of Appeal, at [51] Lady Justice Gloster said:In litigation following an award, the unsuccessful party in the adjudication, who has paid under the award, is claiming repayment of sums, which it contends it has wrongly paid. Necessarily, the defendant, the successful party in the adjudication, who has been paid, has no need whatsoever to bring court proceedings to claim payment, or even to seek a declaration that it was entitled to have been paid.At [63] Lady Justice Gloster said:I agree that, for limitation purposes, no new cause of action arises either as a result of an implied contractual term, or on the basis of a restitutionary claim, and that, when an unsuccessful party to the adjudication subsequently brings court proceedings, it is doing so on the basis of its original rights under the construction contract to claim payment under the contract, damages for breach of contract or a negative declaration that it is not in breach.It seems that a respondent seeking reimbursement of an adjudicated amount would be taking a grave risk if the respondent merely pleaded a claim in restitution based upon unjust enrichment. Section 32(3) of the SOP Act refers to restitution of any amount paid but that is qualified by ‘in proceedings … in relation to a matter arising under a construction contract’.

Section 32(3) cannot be said to create a right to restitution otherwise that in the context of the construction contract. It cannot be said to create a cause of action in restitution based upon unjust enrichment. In a celebrated article, 'The reliance interest in contract damages, (1936) 46 Yale Law Journal 52, L Fuller and W Perdue identified damages for breach of contract by reference to restitution interest, reliance interest and expectation interest. The article is discussed at pages 43–44 of Construction Claims, Davenport and Durham 3rd ed, 2013, The Federation Press. It is the restitution interest that is the damage which forms the basis of the respondent’s entitlement to claim reimbursement of $60,000 paid pursuant to the adjudication.A right to reimbursement of $60,000 does not necessarily arise when the adjudicated amount is paid. The payment itself does not give the respondent a contractual entitlement to $60,000. It is not an ‘overpayment’ as construed by the court in Aspect. The payment of $60,000 is no different to any other payment on account. Whenever under a contract A pays B an amount on account of A’s final liability under the contract, there must be an express or an implied term in the contract that there will at some time be a final accounting. When there is a final accounting A may be liable to pay B more than the amount paid on account or A may be entitled to repayment of so much of the payment on account as exceeds the amount finally due.In a construction contract, there must be a date when the final account between the parties is capable of being calculated. Sometimes the contract makes an express provision for this. That is the date when a cause of action accrues.


The date upon which a court or arbitrator decides the final entitlements of the parties may be much later but that later date is not the date upon which the cause of action accrues.If it is correct that, as submitted, a claim by the respondent to reimbursement of an adjudicated amount or portion must be based upon an entitlement under the construction contract, the respondent must be careful to have regard to any contract provisions that may impact upon the claim. A respondent must be cautious of any contractual provision that prescribes the date for a final accounting or prescribes a time bar for a claim under the contract. For example, in AS2124–1992 clause 42.7 requires the contractor to lodge a final payment claim within 28 days after expiration of the defects liability period. Clause 42.8 of AS2124–1992 provides that the superintendent must issue to the contractor and the principal a final payment certificate called a ‘final certificate’. In that certificate the superintendent must certify the amount which in the superintendent’s opinion is finally due from the principal to the contractor or the contractor to the principal under or arising out of the contract or any alleged breach of contract. Clause 42.8 provides that unless within a prescribed time, either party serves a notice of dispute, the final certificate shall be evidence in any proceedings that any necessary effect has been given to all the terms of the contract which require additions or deductions to be made to the contract sum.In the absence of contract provisions expressly dealing with a final accounting and times for making claims, it seems that a

condition must be implied that at some time there will be a final account between the parties and that then one party may be liable to pay the other more than the sum paid on account or be liable to reimburse so much of the payments on account as exceed the sum due on the final accounting. Generally speaking the date for a final accounting would be the date upon which all work under the contract is complete or the date for final payment.It seems that the cause of action [for payment of the extra or reimbursement] must arise at the time when the plaintiff is entitled to demand payment. That is the date upon which a final accounting should have been be made. It may be that if the progress payment claimed in an adjudication is the final progress payment under the contract, the date of payment of the adjudicated amount is the date upon which a final accounting can be made. A cause of action for recovery of the ‘overpayment’ would only arise on the date of payment of the ‘overpayment’ if at that date a final accounting could be made.To summarise, to recover reimbursement of an adjudicated amount or portion a respondent must make a claim under the contract and the cause of action arises on the date when the breach of contract occurs. That date may be the date when a final accounting between the parties should be made. A respondent is not entitled to claim reimbursement on the ground that the adjudicator should have made a different determination. An error on the part of an adjudicator is not a breach of contract. In proceedings to recover reimbursement, the onus is on the respondent to prove that the claimant breached the contract and the date upon which the breach occurred.

When the alleged breach is the claimant’s failure to pay the respondent an amount due on a final accounting, the respondent has the onus of proving the claimant’s final entitlement under the construction contract and that the sum of payments made by the respondent on account exceed the claimant’s final entitlement. The respondent cannot recover in an action based upon the doctrine of unjust enrichment.


A WISE DECISION ON AN ‘UNWISE’ AMENDMENT—NEW SOPA PROVISIONS CONSIDERED FOR THE FIRST TIMEMark Sheldon, LawyerArnold Bloch Leibler, Sydney

INTRODUCTIONIn April this year, parliament made some significant amendments to the Building and Constructions Security of Payment Act 1999 (NSW) (Act). Those amendments included removing the requirement (in most cases) to state that a payment claim is made under the Act and imposing penalties on head contractors who serve payment claims on principals without the required supporting statement. In the first decision on the new amendments, McDougall J in Kitchen Xchange v Formacon Building Services [2014] NSWSC 1602 ruled that a failure by a head contractor to serve a payment claim on a principal accompanied by the required supporting statement may not only render the head contractor liable for the prescribed penalty, but will also invalidate service of the payment claim. This decision should alleviate the fears of some principals who lamented that removing the requirement to state that a claim is made under the Act would lead to ordinary claims for payment being designated statutory payment claims with all the consequences that follow.

AN OVERVIEW OF THE AMENDMENTS TO THE SOP ACTOn 21 April 2014, the Building and Construction Industry Security of Payment Amendment Act 2013 (NSW) commenced. It is the ‘first phase of the reforms’ announced by the New South Wales Government in response to recommendations made by Bruce Collins QC, as part of the Independent Inquiry into Construction Industry Insolvency.1 The amendments do not apply retrospectively, but apply to a construction contract made on or after 21 April 2014.2

It is therefore unsurprising that the operation of the new provisions have not been considered by a court until now.The primary effect of the amendments are threefold:(a) a head contractor must not serve a payment claim on a principal unless the claim is accompanied by a supporting statement in the form prescribed by the regulations declaring that all subcontractors have been paid all amounts that have become due and payable in relation to the construction work concerned;3

(b) a payment claim no longer needs to contain a statement that it is made under the Act, unless the relevant construction contract is connected with an exempt residential construction contract;4 and(c) new mandatory payment time–frames are imposed on construction contracts, despite the terms of the contract itself.5

The decision to remove the requirement that a payment claim must contain a statement that it is made under the Act has drawn criticism from some in the construction industry. Following the abolition of this requirement, the threshold requirements for a claim to be a payment claim is now quite low. The claim merely needs to identify the construction work (or related goods and services) to which it relates and indicate the amount of the progress payment that the claimant claims to be due.6 This could conceivably incorporate any document, including letters, demands and informal emails. Further, absent a statement that the claim is made under the Act, a principal may not be put on notice that they have been served with a payment claim. It is perhaps for this reason that McDougal J described the amendment in his judgment as ‘unwise’.7

SECURITY OF PAYMENT


KITCHEN XCHANGE V FORMACON BUILDING SERVICES Kitchen Xchange v Formacon Building Services8 is the first decision to consider the operation of the new amendments. The case concerned a construction contract entered into after the commencement of the amendments for the fit out by Formacon of Kitchen Xchange’s shop at Rouse Hill.On 4 June 2014, Formacon served a payment claim on Kitchen Xchange. Evidently Formacon was unfamiliar with the amendments to the Act because, despite not being required to do so, the payment claim stated that it was made under the Act, but did not contain the required supporting statement. That claim was withdrawn by consent and on 12 June 2014, a second payment claim was served, again containing the otiose statement that the claim was made under the Act, but without the required supporting statement.On 13 June 2014, the solicitors for Kitchen Xchange wrote to Formacon. Although the letter was not described as a payment schedule for the purposes of the Act, McDougall J was satisfied that the letter met the formal requirements of section 14 of the Act and was therefore a payment schedule.9

On 23 June 2014, Formacon purported to serve a third payment claim in respect of the same reference date. Kitchen Xchange did not provide a payment schedule in response.Formacon referred the matter to adjudication and the adjudicator made a determination which was substantially in favour of Formacon. Kitchen Xchange sought to have the adjudicator’s decision quashed. Kitchen Xchange‘s first two grounds of challenge relied on sections 13(5)

and 17(2) of the Act. Unexpectedly McDougall J found that the third payment claim was invalid and the adjudicator had no jurisdiction to determine it because the third payment claim violated the prohibition on serving more than one payment claim for the same reference date. On that basis his Honour set aside the determination.

AN ABSENCE OF A SUPPORTING STATEMENT MEANS SERVICE IS INVALID Kitchen Xchange’s third ground of challenge centred on the new amendment to section 13(7) of the Act. As stated above, the amendment provides that a payment claim served by a head contractor on a principal for work carried out under a construction contract entered into on or after 21 April 2014, ‘must not’ be served unless accompanied by a supporting statement. The prescribed form of the supporting statement is set out in cl 4A of the Building and Construction Industry Security of Payment Regulation 2008. The penalty for serving a payment claim not accompanied by a supporting statement is a maximum of 200 penalty units ($22,000). Formacon submitted that the prohibition on serving a payment claim without a supporting statement was not jurisdictional. Formacon pointed out that the same prohibitory language ‘must not’ was also contained in section 13(8) of the Act. Section 13(8) relates to the prohibition on a head contractor serving a supporting statement which, to the knowledge of the head contractor, is false or misleading. Formacon submitted that the question of the knowledge of a head contractor for the purposes of section 13(8) could not be

jurisdictional and it must follow that section 13(7) similarly is not jurisdictional.McDougall J rejected that argument. His Honour agreed that section 13(8) was not jurisdictional, but thought that section 13(7) was. McDougall J said that a failure by a head contractor to serve a payment claim on a principal accompanied by a supporting statement, did not render the payment claim itself invalid, but rather invalidated or rendered ineffective service of the payment claim.10 The effect of this was that the adjudicator had no jurisdiction to determine the payment claim.11

As a side comment, McDougall J noted that the meaning of ‘accompanied’ in section 13(7) was not entirely clear.12 Did the term ‘accompanied’ require the supporting statement to be attached to the claim, be within the same document, or perhaps within the same folder? It is likely that this question will be the subject of argument in a later case.

QUESTIONS ARISING FROM THE DECISIONUnderlying McDougall J’s decision was the proposition that if his Honour were to hold that a breach of section 13(7) did not invalidate the service of a payment claim it would set at nought the prohibition.13 In so finding, his Honour referred to his decision in Woollam & Son at [49].14 It cannot be overlooked that Woollam & Son was a decision on section 13(5) of the Act, which provides that:A claimant cannot serve more than one payment claim in respect of each reference date under the construction contract.Unlike section 13(7), section 13(5) does not prescribe a penalty for serving more than one payment claim in respect of the same reference date.


Therefore, one may question why in light of the prescribed penalty, the additional step of finding service is invalid is required to avoid the prohibition being set at nought. This is particularly so given the usual liberal approach taken to this piece of remedial legislation.15

The other question that arises is how does one reconcile the different approach taken to section 13(7) and 13(8). As pointed out by Formacon, both sections 13(7) and 13(8) commence with the words ‘[a] head contractor must not’, yet McDougall J decided that the fact that subsection (7) continues by stating the exception to the prohibition, whereas subsection (8) defines in what circumstances the prohibition operates was a significant indicator that the former was jurisdictional and the later was not.16 It is likely that when the time arises for section 13(8) to be squarely considered, further argument about the significance of the distinction will be entertained.

CONSEQUENCES OF THE DECISIONPrincipals will likely be relieved by the decision. It confirms that for service of a payment claim by a head contractor on a principal to be valid, the payment claim must be accompanied by a supporting statement. The decision will reduce the likelihood of a principal being taken by surprise by an abstract document later found to be a payment claim. However, the supporting statement requirement applies only between principal and head contractor. It does not extend to others down the contracting chain. Therefore, the possibility remains of a head contractor being taken by surprise by a subcontractor, or a subcontractor by a subsubcontractor etc. Interestingly, the effect of McDougall J’s decision is that Formacon served the payment claim in breach of section 13(7) of the Act. Will the regulator seek to

fine Formacon? One would think that if the provisions are to work as intended the regulator will.Finally, the decision leaves open the meaning of ‘accompanied’ in section 13(7). No doubt that will be a matter to be argued in a later case, and until then before adjudicators.

REFERENCES 1. Building and Construction Industry Security of Payment Amendment Bill 2013 (Second Reading Speech), Hansard, Legislative Assembly of New South Wales, 24 October 20132. See Schedule 2, Part of Building and Construction Industry Security of Payment Amendment Act 2013 (NSW)3. See sections 13(7) and 13(9) of the Act4. Section 13(2)(c) was amended such that this requirement is omitted5. See section 11 of the Act6. See sections 13(a) and (b) of the Act7. [2014] NSWSC 1602 at [3]8. [2014] NSWSC 16029. Ibid at [6]10. Ibid at [46]11. Ibid at [50]–[51]12. Ibid at [34]13. Ibid at [47]14. Trustees of Roman Catholic Church for Diocese of Lismore v TF Woollam & Son [2012] NSWSC 155915. Edelbrand Pty Ltd v H M Australia Holdings Pty Ltd [2012] NSWCA 31 at [30]16. [2014] NSWSC 1602 at [42]–[45]

Principals will likely be relieved by the decision. It confirms that for service of a payment claim by a head contractor on a principal to be valid, the payment claim must be accompanied by a supporting statement.


BUILDING CERTIFIER LIABILITY AFTER BROOKFIELD—WHERE TO NOW?Christopher Kerin, Legal Practitioner DirectorJames Qian, LawyerKerin Benson Lawyers, Sydney

BACKGROUNDOn 8 October 2014, the High Court handed down its decision in Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 & Anor [2014] HCA 36 which curtails the rights of apartment owners to sue builders in negligence.The case involved a long–running dispute between the builder, Brookfield Multiplex, and the Owners Corporation with respect to building defects in the common property of a commercial building, The Mantra Chatswood Hotel, run as a serviced apartment business.The High Court adopted a case–by–case approach prescribed by previous judgments including Bryan v Maloney (1995) 182 CLR 609 (Bryan v Maloney) and Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515 (Woolcock), holding that the builder did not owe the owners corporation a duty of care in these circumstances.

REASONINGThere were two questions that the court answered in coming to its ruling: firstly, whether the builder owed a duty of care to the developer and, secondly, whether the builder owed a duty of care to the owners corporation independently of any duty of care owed to the developer.1 A duty of care must be established in order for an action in negligence to be successful.For the first question, the court held that the developer sufficiently protected itself and was not vulnerable to the builder’s conduct. The court pointed out that the contract between the builder and the developer contained numerous stringent clauses holding the builder accountable for building defects. It stated that to supplement the contractual provisions with a duty of care towards the developer would inappropriately alter the allocation

of economic risk effected by the parties’ contract.2 Therefore, there was no duty of care.In relation to the second question, the court held that the builder did not owe a duty of care to the owners corporation independently of its obligations to the developer. The court held that, as the owners corporation did not exist at the time the defective work was carried out, there could not have been any reliance by the owners corporation upon the builder.3 Furthermore, the court held that the owners corporation did not suffer any loss because it acquired the common property without any financial outlay on its part.4

Consistent with its case–by–case approach, the court distinguished this case from Bryan v Maloney where a subsequent owner successfully argued that a builder of a residential house was liable for economic loss arising from building defects. The court held that the contractual protections provided to the original owner and subsequent purchaser in Bryan v Maloney were far less than those in the current case.5

However, the court also made it clear that it was inappropriate to use the mere nature of the purchase (i.e. whether it was a commercial or residential property) as the decisive factor in determining whether a duty of care exists.6 Rather, the salient features of the relationship between the owners corporation and the builder, including whether the builder owed the developer a relevant duty of care, must be considered.7 Nevertheless, the court did draw analogies between this case and Woolcock.8

The court added that it was irrelevant that the owners corporation had no option but to be brought into existence as the legal owner of common property and that legal protection of subsequent purchasers was

NEGLIGENCE


‘best done by legislative extension of those statutory forms of protection’.9

IMPLICATIONSThis case does not have immediate or obvious implications in relation to issues such as duties of care for private certifiers (PCAs) (in contrast to builders) because it does not address them directly. However, in view of the greater difficulty to now sue builders in negligence, the question is: are PCAs more or less exposed to legal liability?

NEGLIGENCEThe court has made it clear, by essentially affirming Woolcock, that the approach for determining whether a duty of care exists hinges on determining whether the aggrieved party (e.g. an owners corporation) was vulnerable to the actions of the alleged wrongdoer (e.g. a private certifier).Given that PCAs generally contract with developers, any duty of care that a PCA may owe to the developer will be shaped by the terms of the contract between the PCA and the developer. In particular, a court will gauge vulnerability by looking at the strength of any contractual protections. In practice, most contracts between PCAs and developers will contain general provisions in relation to defects or inadequate certification. It is clear from the Brookfield case that a court would be reluctant to impose a duty of care on a PCA where there are strong contractual protections afforded to the developer.Furthermore, the same issues which were raised in the High Court decision in relation to any independent duty owed by the builder to an owners corporation or body corporate will equally apply to PCAs. That is, the owners corporation did not exist when the PCA contracted with the developer

and did not suffer loss because it acquired common property without consideration.However, a favourable factor from the perspective of an apartment owner or an owners corporation is that a court may take into account the fact that, unlike builders, certifiers are not governed by various state or territorial statutory warranties such as those contained in the Home Building Act 1989 (NSW), the Building Act 2004 (ACT), and the Domestic Building Contracts Act 1995 (VIC).In any event, if PCAs were to be sued, it is open to them to invoke the principle of proportionate liability to mitigate any potential adverse verdict against them. Proportionate liability is a legal principle that where two or more people are concurrently responsible (usually referred to as ‘concurrent wrongdoers’) for certain types of economic loss, their liability is limited to the extent that they are responsible for it. In cases involving defects caused by poor workmanship, the builder will be a prime candidate as a concurrent wrongdoer. Architects and engineers, whose opinions influence a PCA’s decisions, can also serve as potential concurrent wrongdoers.Therefore, the liability of a PCA in negligence can only be determined on a case–by–case basis.

STATUTORY DUTIESNevertheless, PCAs may still be held liable for defects, in particular fire and life safety defects and inadequate compliance by the builder with design drawings by virtue of breaches of statutory duties under building and/or planning legislation. Whilst the notion that a breach of statutory duty may itself give rise to a civil cause of action (such as negligence) is settled law,10 the case law surrounding this issue in

relation to its specific application to PCAs is not settled.There appears to be one recorded instance in New South Wales where a certifier was held liable for breaches of statutory duty under the Environmental Planning and Assessment Act 1979 (NSW).11 While the Brookfield decision does not touch on the issue of statutory duties at all and this New South Wales case involved a council rather than a private certifier, assessing whether there is a breach of statutory duty involves a ‘multifaceted enquiry’ and a consideration of the salient features of the relationship.12

In the ACT, a public utility body unsuccessfully argued that the certifier breached a purported statutory duty under the Building Act 1972 (ACT) (as it then was).13 This case demonstrates that interpretation of the statutory provisions is an important factor in determining whether there is a statutory duty in the first place let alone whether that statutory duty has been breached. Furthermore, this particular case examined the duty owed by a certifier to a public body rather than an apartment owner, owners corporation or body corporate.However, the situation appears to be more owner friendly in Victoria. In the case of Moorabool Shire Council and Anor v Taitapanui [2006] VSCA 30, the Victorian Court of Appeal made a finding that the certifier had statutory duties under Building Act 1993 (VIC) which extended to subsequent owners.14 Nevertheless, given that building legislation differs between states, this case should not be taken to apply to all PCAs in a blanket manner. As with negligence cases, each claim for breach of statutory duties must be determined on its merits.


AUSTRALIAN CONSUMER LAWMisleading and deceptive conduct is a commonly used civil remedy governed by section 18 of Schedule 2 of the Competition and Consumer Act 2010 (Cth). PCAs are most vulnerable to misleading and deceptive conduct claims from the developer who retained them.Nevertheless, a typical claim that an owners corporation might make against a PCA is where the owners corporation alleges that, by issuing an occupation certificate which states that the building conforms with the BCA (and building defects arising from non–compliance with the BCA later manifest themselves), the PCA engaged in misleading and deceptive conduct.In the Owners–SP 69567 v Landson Alliance Australia [2014] NSWSC 1592 (SP 69567), the certifier sought to strike out an argument by the owners corporation that by issuing the occupation certificate the certifier engaged in misleading and deceptive conduct. The owners corporation argued that it was a passive victim of misleading conduct which did not cause the owners corporation to act, or refrain from acting, but nonetheless caused damage because the builder relied on the false certification by the certifier to not require the rectification of allegedly defective work. This argument sought to rely on a series of ‘indirect reliance’ cases and avoided the difficulty an owners corporation has in arguing that it was misled when it did not exist when the certifier engaged in the alleged misleading and deceptive conduct.The second objection raised by the certifier addressed the remarks of some judges in Brookfield regarding the owners corporation

not incurring loss when acquiring the common property without charge. McDougall, J in SP 69567 distinguished the remarks of the High Court judges in this regard by observing that the analysis in relation to loss was undertaken for the purpose of analysing vulnerability and it did not follow that this analysis was applicable to all cases where a claim is made for economic loss. Whilst the strike out application of the certifier in SP 69567 failed, it remains to be seen whether such an argument by an owners corporation would be successful on a final hearing. Having said that, individual lot owners are more likely to be able to rely upon misleading and deceptive conduct.Finally, guarantees relating to the supply of services for the benefit of consumers under section 61 of Schedule 2 (a separate and distinct regime from misleading and deceptive conduct) are unlikely to apply. That is, there is a practical difficulty in an owners corporation arguing that it was supplied with certification services when it did not exist at the time those services were provided.

CONCLUSIONThe law is still far from settled in relation to the liability of PCAs. An incremental case–by–case approach nuanced by jurisdiction appears to be the approach taken by the courts unless and until the High Court makes a definitive ruling in relation to PCAs as it has for builders in Brookfield.

REFERENCES1. Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 & Anor [2014] HCA 36 at [8], [141] and [146]2. [2014] HCA 36 at [132]3. [2014] HCA 36 at [150]

4. [2014] HCA 36 at [150]5. [2014] HCA 36 at [136]6. [2014] HCA 36 at [135]7. [2014] HCA 36 at [30]8. [2014] HCA 36 at [35]9. [2014] HCA 36 at [186]10. Sutherland Shire Council v Heyman (1985) 157 CLR 424 at 45911. The Owners Corporation of Strata Plan 62254 v Rockdale City Council [2008] NSWSC 39212. [2008] NSWSC 392 at [67]13. ACTEW Corporation Limited v Mihaljevic and Ors [2011] ACTSC 2314. Moorabool Shire Council & Anor v Taitapanui & Ors [2006] VSCA 30 at [154]


INTERNATIONAL ARBITRATION

FEDERAL COURT OF AUSTRALIA—A PRO–ENFORCEMENT JUDICIARYDylan McKimmie, PartnerCourtney Furner, AssociateNorton Rose Fulbright, Perth

In Emerald Grain Australia Pty Ltd v Agrocorp International Pte Ltd [2014] FCA 414, the Federal Court of Australia dismissed an application to set aside an arbitration award rendered in Australia under the UNCITRAL Model Law on International Commercial Arbitration on the basis that it was in conflict with the public policy of Australia. The decision inspires confidence in Australia as a pro–arbitration jurisdiction.At times, there has been a perception that some Australian courts have earned a reputation of being too interventionist on matters of arbitration. However, a recent run of cases has helped quash this perception, notably that of Emerald Grain Australia Pty Ltd v Agrocorp International Pte Ltd, which took place in the Federal Court this year.The case concerned an attempt to set aside an arbitration award published in Australia. The application was on the basis that a breach of natural justice occurred during the course of the arbitration, rendering the award contrary to Australian public policy and therefore liable to being set aside under article 34(2 (b)(ii) of the UNCITRAL Model Law on International Commercial Arbitration.

HOW THE DISPUTE AROSEAustralian company Emerald Grain had entered into a contract with Singapore–based Agrocorp where it agreed to sell Agrocorp canola which was to be shipped in bulk to Bangladesh. The contract included an arbitration agreement requiring any disputes to be resolved under the Grain Trade Australia Dispute Resolution Rules.A dispute arose over Emerald Grain’s failure to load the full shipment of canola, and the damage incurred by Agrocorp due to delays relating to import permits, which was said to be a consequence of Emerald Grain’s failure to load the full shipment.Agrocorp commenced an arbitration in Australia against Emerald Grain pursuant to the arbitration agreement and the International Arbitration Act 1974 (Cth). Emerald Grain crossclaimed.The arbitral tribunal rendered an award under the International Arbitration Act which found substantially in favour of Agrocorp.

EMERALD GRAIN’S CHALLENGEEmerald Grain applied to the Federal Court of Australia to set aside the award under article 34(2)(b)(ii) of the Model Law, which provides that an arbitration award may be set aside if it is in conflict with the public policy of Australia.The Model Law has force in Australia under provisions of the International Arbitration Act. Australian courts are to regard an arbitration award governed by the Model Law and the International Arbitration Act as binding and are not to set aside such an award other than as provided for under the International Arbitration Act.Section 19 of the International Arbitration Act declares that an award is in conflict with, or is contrary to, the public policy of

Australia within the meaning of article 34(2)(b)(ii) of the Model Law if the making of the award was induced or affected by fraud or corruption; or if a breach of the rules of natural justice occurred in connection with the making of the award.In its application, Emerald Grain contended that the award was made in breach of the rules of natural justice for two reasons:• There was no evidence of probative value for the tribunal to have made certain findings (the ‘no evidence’ claim).• The tribunal’s findings were based on its own opinions and ideas without giving Emerald Grain adequate notice to respond to those views (the ‘no hearing’ claim).Emerald Grain subsequently sought to rely on the words ‘among other things’ in its written submissions to introduce new grounds for challenge which went beyond those relied upon in its originating process.

COURT’S RESPONSEThe court rejected the ‘no evidence’ claim on the basis that many of Emerald Grain’s complaints were that the tribunal’s finding of facts were wrong, rather than based on a lack of evidence. Noting that a breach of natural justice arises only if there is no relevant and probative evidence capable of supporting a particular finding of fact, the court considered there was sufficient evidence on which the tribunal could have reached its findings, even if such findings were flawed in logic or were simply incorrect.The court also rejected the ‘no hearing’ claim. It noted that both parties clearly articulated their positions by way of submissions and supporting materials, and, therefore, each party had been given an adequate opportunity to present and defend its case.


On this basis, there was nothing unforeseeable, as Emerald Grain contended, about the tribunal preferring Agrocorp’s arguments. Similarly, Emerald Grain failed to establish how it might have persuaded the tribunal to reach a different decision if the tribunal had given Emerald Grain more notice to present its complaints.In doing so, the court ignored those grounds in Emerald Grain’s written submissions which raised matters not sufficiently linked to a fair reading of the grounds set out in its originating process. It held that, had Emerald Grain been permitted to raise those matters, the three–month time limitation under the Model Law to apply to set aside awards would be frustrated, and further, the policy of upholding arbitral awards would be compromised.Accordingly, the court dismissed Emerald Grain’s application to set aside the award on all grounds.

NATURAL JUSTICE, PUBLIC POLICY AND ARBITRATION AWARDSThe decision clarifies the role of Australian courts when called upon to set aside arbitration awards on the grounds of public policy. It shows that:• The court must be vigilant not to treat a challenge to an arbitration award made on the grounds of conflict with rules of natural justice as if it were a challenge to findings of facts by a first instance tribunal, from which an appeal may lie.• The court must determine whether the tribunal, in the process of finding the facts (whether correctly or incorrectly), breached the rules of natural justice. In doing so, the court must not examine the facts of the case afresh or fully revisit the questions that were before the tribunal. Instead, it must consider whether the facts found were open to the tribunal on the evidence before it.

The case also provides direction on when arbitration awards may breach the rules of natural justice. It shows that:• A breach depends on the content of the rule in the context in which the question arises.• The applicant bears the onus of establishing breach, and that the breach materially bore on the adverse decision.• Parties to international arbitrations governed by the Model Law and the International Arbitration Act are entitled to expect that the relevant provisions will be construed and applied with some uniformity in the New York Convention countries.• Decisions from New York Convention countries make clear that arbitration awards should be read generously so that only breaches of the rules that have actually caused prejudice are remedied. Similarly, courts should be reluctant to find an award to be in conflict with, or contrary to, public policy unless the complaint offends fundamental notions of justice and fairness.

IMPLICATIONS OF THE DECISIONThe case highlights Australia’s pro–arbitration stance and reinforces the finality of arbitration awards. It demonstrates the Federal Court’s willingness to consider relevant decisions of courts in other Convention countries to ensure consistent interpretation of the Model Law.The case also highlights the difficulties in arguing, at least in Australia, that an award should be set aside on public policy grounds on the basis that a breach of natural justice occurred in the making of that award.The decision also points to the importance of setting out the grounds for a claim in the originating process, as such

grounds will form the parameters of the case if it is subsequently litigated.Overall, the court’s decision in this case confirms that Australian courts will be reluctant to set aside an arbitration award on public policy grounds unless the court finds that fundamental norms of justice and fairness have been breached in the making of the award.

Dylan McKimmie and Courtney Furner’s article was previously published on the Norton Rose Fulbright web site—October 2014. Reprinted with permission.


LESSONS FROM ABROAD—THE ROLE OF THE FIDIC DISPUTE ADJUDICATION BOARD AND ENGINEERShaheer Tarin, LawyerWA Legal Pty Ltd, Perth

DISPUTE RESOLUTION BOARDS

IN BRIEFThrough an analysis of the role of the superintendent and dispute resolution provisions in the Australian Standards, this paper will argue that a better approach to the superintendent and expedited dispute resolution is found in the International Federation of Consulting Engineers (FIDIC) contracts.

INTRODUCTIONThis paper will discuss the superintendent’s conflicting function within the framework of the Australian Standards 2124–1992 and 4000–1997 construction contracts. In addition to this, it will also examine the current dispute resolution mechanisms in the Australian Standards and compare this to the role of the Dispute Adjudication Board (DAB) in the FIDIC contracts. It will then proceed to discuss the International Federation of Consulting Engineers (FIDIC) model and propose it as a possible alternative. The paper will conclude that the FIDIC model provides an approach which can be utilised in the Australian context, as it provides a platform for the expedited resolution of disputes and provides more clarity by reducing the controversy surrounding the superintendent and the conflict in its role.

SUPERINTENDENTIn the Australian construction landscape, the role of the superintendent in a construction project has often been viewed as fundamentally conflicting and controversial. One standard form defines the superintendent as the party appointed in writing by the principal,1 inferring the superintendent acts on the principal’s behalf. Operating as the administrator of the project, the superintendent executes a dual role.

In the first role, the superintendent is the agent of the principal and acts on instructions from the principal.2 The second role requires the superintendent to make determinations through its assessment and certification obligations arising under the construction contract in a manner which is ‘honest, fair and reasonable’3 to both parties. With regards to the dual role controversy, it has been stated: ‘There is potential for discord between the roles required of a superintendent on the one hand as an independent assessor/certifier under the contract, and on the other under their engagement by the principal as a professional adviser generally in relation to the building contract, and as such to act as the agent of the principal during the administration of the contract’.4 Due to the superintendent being instructed by the principal, yet being required to act reasonably to the contractor, the superintendent is seen as being in conflict. In addition to the superintendent being seen to be in conflict, their role has increasingly been viewed as defunct due to: ‘the rise of project managers as a ‘new’ profession, distinct from engineering; the fragmentation of the engineer’s design role into a number of ‘packages’, procured separately; selection of engineers based on competitive fee bidding; reduced engineer’s fees as a consequence of competitive bidding, leading to reduced scope of work in the assessment of alternative concepts, less checking and reduced professional skills’.5

SUPERINTENDENT IN THE AUSTRALIAN STANDARDSThe Australian Standards make it an obligation upon the principal to engage a superintendent:


• The AS 2124–1992 requires: ‘the superintendent (a) acts honestly and fairly; (b) acts within the time prescribed under the contract or where no time is prescribed, within a reasonable time; and (c) arrives at a reasonable measure or value of work, quantities or time’.6

• The AS 4000–1997 requires the superintendent to act ‘reasonably and in good faith’.7

Throughout the AS 2124 and AS 4000 the superintendent is required to make determinations as it assesses and certifies a variety of matters. There is no single overarching clause dedicated to assessments and certifications as the obligations appear throughout the contracts. In the day to day workings of a construction project, the superintendent acts as a certifier and assessor in a variety of ways, including by:• assessing progress claims; • issuing relevant certificates (e.g. practical completion); • assessing variations;• inspecting workmanship;• assessing claims for extensions of time for practical completion; and • assessing claims for latent conditions and inclement weather. As foreshadowed earlier, the conflict lies in the fact that the superintendent is required to be honest, fair and reasonable in its certification and assessment obligations, yet, the superintendent is in a contractual relationship with the principal, remunerated by the principal and required to act on the principal’s instructions.8 This contradiction is not only displayed in the standard contracts utilised in Australian construction projects, but due to osmosis during the contract amendment process, also appears in bespoke construction contracts drafted by legal advisors.

PERINI V COMMONWEALTHIn view of the Australian Standards requirement that the superintendent act in an honest, fair and reasonable manner, it is difficult to identify in current day industry practice, how the superintendent can practically operate in the required manner. In addition to the Australian Standards requirement, the common law requirement of fairness has also been affirmed earlier on by the courts. A leading case being Perini Corporation v Commonwealth of Australia.9 The case captured the superintendent’s conundrum as a person: ‘who by reason of his employment and who by reason of his other duties in supervising the execution of the contract is a person who has both bias and partiality’.10 It has also been opined that the principal may impose their will on the superintendent by guiding them to the interests of the principal.11

Perini involved a superintendent, a salaried employee of the principal, who did not grant an extension of time to the contractor. It was argued by the contractor that the superintendent was obliged to act, when certifying, in a neutral manner. Further, it was also required that the principal (being the Commonwealth government) ensure that its agent was in fact acting neutrally. Amongst other things, the court found that the superintendent was obliged to act neutrally without intervention by the principal and the principal was required to ensure that this was the case.12 On the superintendent’s relationship with the contractor and the principal, the court found that whilst the superintendent was in the principal’s employ, he nonetheless had duties which ‘oblige him to act fairly, justly and with skill to both parties to the contract’.13

DISPUTE RESOLUTION MECHANISMS IN THE AUSTRALIAN STANDARDSThe Australian Standards aforementioned both have mechanisms for the resolution of disputes. The AS 2124–1992 provides that if a dispute ‘in connection with the contract’14 arises between the principal and the contractor, including a dispute which involves ‘a direction given by the superintendent’15 then the aggrieved party is required to serve on to the other, a notice of dispute communicating particulars of the dispute.Prior to either party being able to pursue litigation or arbitration, it is required that they attempt to resolve the dispute either through executive negotiation (alternative 1) or through a decision made by the superintendent (alternative 2).16 If the parties are not satisfied with the outcome of the executive negotiation or the superintendent’s decision, they may then commence arbitration (arbitrator appointed by subclause 47.3) or litigation. The AS 4000–1997 has a slightly different dispute resolution procedure. In the first instance, subclause 42.1 requires the other party to be notified of the dispute. Subclause 42.2 requires the parties to meet within 14 days in attempt to resolve the dispute, or agree to a dispute resolution pathway. Following this, the parties may proceed to arbitration.

DISPUTE ADJUDICATION BOARD IN FIDIC FORMSIt is evident above, that the Australian Standards dispute resolution mechanisms provides a platform for protracted litigation by failing to involve an independent party at first instance.17 In comparison, the FIDIC approach allows for a more expedited resolution of disputes.


This is done through the utilisation of the DAB, being a party totally independent from the contractor and the employer or principal. A common clause between the FIDIC forms is clause 20, which governs the settlement of disputes, with subclause 20.4 requiring the referral of disputes to the DAB. Since the DAB is an independent party, with ‘full power to open up, review and revise any certificate, determination, instruction, opinion or valuation',18 the parties in dispute will early on be in receipt of a decision which comments on the merits of their case as FIDIC allows the ‘DAB to give opinions and recommendations',19 which in turn may have a significant impact on either party as to whether they would proceed to arbitration pursuant to subclause 20.6 or have their dispute resolved on receipt of the DAB’s decision.

THE FIDIC ENGINEER—AN ALTERNATIVE?The International Federation of Consulting Engineers (FIDIC) suite of contracts provides an alternative, particularly since significant changes were implemented in the 1999 FIDIC contracts.20 The scope of this paper is limited to a focus on changes to the role of the FIDIC engineer,21 traditionally being the superintendent equivalent. Of the role of the FIDIC engineer, it has been stated: The engineer has an extremely important role in the administration of the contract and the way in which he carries out his duties will have a major impact on the work of the contractor and the success of the project.22

Whereas the previous version23 of the Red Book (construction contract) required the engineer to act ‘impartially within the terms of the contract’,24 be an agent of the employer (being the principal equivalent) and an independent

assessor of claims, the 1999 FIDIC Red Book makes it clear that the engineer is an agent, and in the employ of the employer: Except as otherwise stated in these Conditions: (a) whenever carrying out duties or exercising authority, specified in or implied by the contract, the engineer shall be deemed to act for the employer.25 Further, the previous requirement that the engineer act ‘impartially within the terms of the contract’ has transformed into the obligation that the ‘engineer is to make a fair determination in accordance with the contract, taking due regard of all relevant circumstances’26 whenever determining a matter in contention between the parties. Instances where the engineer is obliged to make a ‘fair determination’ include but are not limited to the assessment of: latent conditions,27 the contractor’s claim to an extension of time,28 the value of variations29 and amounts due in payments.30

Subclause 20.2 institutes the Dispute Adjudication Board (DAB) which in essence gives the board an adjudication role in the initial resolution of disputes (sometimes referred to as a quasi–arbitral role), and by virtue of the reassignment of this role, the engineer no longer acts in such capacity.31 In this respect, it has been commented: ... the quasi–arbitral role which has been assigned to him [the engineer] under the fourth edition of the Red Book is no longer applicable under the 1999 Red Book.32 Pursuant to subclause 20.4, decisions made by the DAB are binding on both parties, unless a party notifies the DAB of their dissatisfaction within 28 days of the decision.The 1999 FIDIC Yellow Book (plant design and build) has gone through a similar evolution

when compared to its previous version.33 The previous version of the Yellow Book34 required the engineer to execute their obligations impartially, whereas the new version (identical to the new Red Book) clarifies that the engineer acts for the employer but should, nonetheless, be fair in any determinations.35

FIDIC BENEFITSThere are two significant benefits in the revised FIDIC contracts. The first relates to the express statement that the engineer is deemed to be acting for the employer, thus lifting previous notions of impartiality implied to the role and aligning it with judicial thought. This benefits the contractor by providing it with more clarity in taking action against the employer directly for breach and holding it liable on the basis of the engineer not being fair.The change is also aligned to judicial discourse: Three propositions emerge from the authorities concerning the position of the decision–maker: (i) The precise role and duties of the decision–maker will be determined by the terms of the contract under which he is required to act. (ii) Generally the decision–maker is not, and cannot be regarded as, independent of the employer. (iii) When performing his decision–making function, the decision–maker is required to act in a manner which has variously been described as independent, impartial, fair and honest. These concepts are overlapping but not synonymous. They connote that the decision–maker must use his professional skills and his best endeavours to reach the right decision, as opposed to a decision which favours the interests of the employer.36

And:


The fact that the construction manager acts in conjunction with other professionals when performing his decision–making function does not water down his legal duty. When performing that function, it is the construction manager’s duty to act in a manner which is independent, impartial, fair and honest. In other words, he must use his professional skills and his best endeavours to reach the right decision, as opposed to a decision which favours the interests of the employer.37

The second significant benefit relates to having removed the engineer’s quasi–arbitral role and reassigning the role to the instituted Dispute Adjudication Board. The benefit of this is that an independent party will adjudicate disputes in the first instance. In regards to the latter benefit, it has been commented: ... its dispute resolution procedure, and the reference of disputes to a Dispute Adjudication Board leads the Australian standard form contracts.38

REFERENCES 1. Clause 2, General conditions of contract (AS2124–1992).2. It has previously been opined in Peninsula Balmain Pty Ltd v Abigroup Contractors Pty Ltd [2002] NSWCA 211 at 50, that this agency is not an agency in the pure legal sense of the term.3. The meaning of this phrase was judicially considered in Kane Constructions Pty Ltd v Sopov [2005] VSC 237. At [617] of the decision, Warren CJ opined that the phrase meant a party is ‘is not dishonest, is just and impartial and conducts himself or herself in a reasonable manner'. 4. Ian Bailey and Matthew Bell, Construction Law in Australia, 3rd ed, Lawbook Co, 2011, p225.

5. Donald Charrett, ‘The engineer is dead, Long live the engineer!’, (2010) 134 Australian Construction Law Newsletter 20 at 24.6. Clause 23, General conditions of contract (AS2124–1992).7. Clause 20, General conditions of contract (AS4000–1997).8. Ian Bailey and Matthew Bell, Construction Law in Australia, 3rd ed, 2011, p225.9. Perini Corporation v Commonwealth of Australia [1969] 2 NSWR 530.10. Ibid at 536.11. Kane Constructions Pty Ltd v Sopov [2005] VSC 237 at 624.12. Ibid 9 at 542.13. Ibid at 537.14. Subclause 47.1, General conditions of contract (AS2124–1992).15. Ibid.16. Ibid subclause 47.2.17. For instance, the AS 2124–1992 provides executive negotiations or a decision by the superintendent as two initial avenues for dispute resolution. Neither the executives, nor the superintendent, are a completely neutral party.18. Dr Gotz–Sebastian Hok, FIDIC Dispute Adjudication, (12 February 2014), Kanzlei Dr Hok Stieglmeier & Kollegen Berlin, http://www.dr–hoek.de/EN/beitrag.asp?t=Dispute–Adjudication–FIDIC.19. Ibid.20. Philip Jenkinson, ‘An overview of the FIDIC forms of contract and contracts committee’, presentation slides delivered at the FIDIC 2011 Conference, Davos (Switzerland), 4 October 2011, pp9–20.21. Fundamental changes appearing in the 1999 FIDIC contracts involves the role of the engineer and the Dispute

Adjudication Board. These changes can be seen in the 1999 FIDIC Construction Contract (Red Book) and the Plant and Design–Build Contract (Yellow Book). 22. Brian W Totterdill, FIDIC users’ guide: A practical guide to the 1999 Red and Yellow Books, Thomas Telford Publishing, 2006, p112.23. FIDIC Conditions of Contract for Construction, 4th ed, 1987.24. Ibid subclause 2.6.25. Subclause 3.1, FIDIC Conditions of Contract for Construction (1999).26. Ibid subclause 3.5.27. Ibid subclause 4.12.28. Ibid subclause 8.4.29. Ibid subclause 13.3.30. Ibid subclause 14.6.31. Clause 67 from the 1987 4th ed has been removed.32. Nael G Bunni, The FIDIC Forms of Contract, Blackwell Publishing, 3rd ed, 2008, p522.33. Ibid at p551.34. FIDIC Conditions of Contract for Electrical and Mechanical Works, 3rd ed, 1987.35. Subclauses 3.1 and 3.5, FIDIC Conditions of Contract for Plant and Design–Build (1999).36. Scheldebouw BV v St. James Homes (Grosvenor Dock) Ltd [2006] EWHC 89 (TCC), quoted in Axel–Volkmar Jaeger and Gotz–Sebastian Hok, FIDIC—A Guide for Practitioners, Springer, 2010, p225.37. Ibid.38. Toby Shnookal and Donald Charrett, ‘Standard form contracting; The role for FIDIC contracts domestically and internationally’, paper presented at Society of Construction Law Conference, Perth, 19 June 2010, p12.


BUILDING REGULATION

THE PITFALLS OF COMMENCING CONSTRUCTION WITHOUT A CONSTRUCTION CERTIFICATE Anthony Perkins, PartnerCBP Lawyers, Sydney

IN BRIEF There are serious consequences for development carried out without a construction certificate. Difficulty in obtaining insurance, the possibility of sale contracts being rescinded and inferior marketability are among problems that developers can face if they do not obtain a construction certificate prior to commencing construction.

GRANTING OF DEVELOPMENT CONSENT IN NEW SOUTH WALES DOES NOT AUTHORISE COMMENCEMENT OF CONSTRUCTIONThe Council of the City of Sydney’s recent application to the New South Wales Land and Environment Court seeking to injunct the Meriton Group from continuing construction of its South Dowling Street development project in Sydney—on account of no construction certificate having been obtained—is a timely reminder of the pitfalls of failing to procure the necessary planning approvals prior to commencing construction.It is also a timely reminder that the granting of development consent in New South Wales does not, as a general proposition, legally authorise the commencement of construction. In fact, it does not authorise anything other than the right to proceed to apply for a construction certificate. Once that certificate is issued, physical works may legally proceed.

SYDNEY CITY COUNCIL SEEKS TO INJUNCT DEVELOPER FROM CARRYING OUT FURTHER WORKIn the case of Council of the City of Sydney v Karimbla Properties (No 24) Pty Ltd [2014] NSWLEC 77, the council sought to injunct the developer, a subsidiary of the

Meriton Group, from carrying out further work on the development.The council contended that there had been a significant breach of the Environmental Planning and Assessment Act (EPA Act) by Meriton in failing to obtain a construction certificate prior to commencing the works. The extent of the unlawful works included, amongst other things, two buildings constructed to a height of nine storeys and a third building to a height of three storeys.

DEVELOPER ARGUES THAT ORDERING WORK TO STOP WOULD NOT BE REASONABLEMeriton admitted non–compliance and tendered voluminous evidence on how the oversight occurred, but ultimately submitted that it was not reasonable in the circumstances to stop work on the $119 million residential development project. The arguments presented by Meriton included a submission on the dire consequences for the numerous contractors engaged on the project should a stop work order—of indefinite duration—be ordered by the court. As Justice Craig observed [at 18]:While the respondents do not rely upon hardship for themselves if work is stopped, it is apparent from the evidence, as it presently stands, that there is a real prospect of significant financial impact upon a large component of the present workforce. That is a fact relevant to the exercise of discretion when considering the balance of convenience.Equally significant was the submission that even though no construction certificate was issued, the building was built in accordance with the development application (DA) approved by the consent authority and was otherwise built in accordance with the Building Code of Australia.


The court ultimately dismissed the council's interlocutory application for injunctive relief, effectively permitting Meriton to proceed with the works, for the time being at least.

NO STATUTORY FRAMEWORK TO OBTAIN CONSTRUCTION CERTIFICATE RETROSPECTIVELYThe real difficulty associated with commencing development works without a construction certificate—including demolition and excavation works (both characterised as 'development' under New South Wales law)—is the absence of any statutory framework available to obtain a construction certificate retrospectively for works already carried out.The situation stands in contrast to an application seeking to 'modify' a development consent (after a construction certificate has been issued) under section 96 of the EPA Act to take into account work already carried out; in those circumstances the Act permits retrospective approval.The problem is compounded by the difficulty of obtaining an occupation certificate under section 109H of the EPA Act—which can only be issued where a construction certificate has been previously issued. Occupation of a development without an occupation certificate constitutes an offence under the EPA Act.

APPLYING TO A CONSENT AUTHORITY TO OBTAIN A BUILDING CERTIFICATEVarious steps can be taken to 'regularise' unlawful works via an application to a consent authority to obtain a building certificate under section 149A of the EPA Act. The usual test here is whether the unlawful works would have or

could have been approved under the relevant planning controls had due process been followed. If the answer to the hypothetical proposition is yes, then a building certificate will typically be issued.However, the notion of regularising unlawful work under section 149A of the Act is an entirely different concept to that of approval. In summary, the granting of a building certificate prevents a consent authority—typically a local council—from issuing an order requiring the building or unlawful works to be repaired, demolished, altered or rebuilt, as the case may be, for a period of seven years.The issuing of a building certificate does not:• entitle the landowner to apply for an occupation certificate;• preclude the consent authority from prosecuting the person or persons who carried out the unlawful works; or• provide certainty as to what steps, if any, the consent authority may take at the expiration of seven years

FAILURE TO OBTAIN CONSTRUCTION CERTIFICATE CREATES PROBLEMS WHICH COULD HAVE BEEN AVOIDEDOn a practical level, consent authorities rarely seek orders requiring the demolition of buildings constructed without a construction certificate after the lapsing of a building certificate, particularly where the building or unlawful works were approved under a DA in the first instance.But irrespectively, there are serious implications for development carried out without a construction certificate, relating to such matters as the difficulty in obtaining insurance for unapproved buildings, the prospect of sale

contacts being rescinded on account of vendors being unable to deliver a product immune from future legal challenge and the general inferior marketability of buildings that exist in part or whole without an occupation certificate.There have been a number of calls for reform in this area of the law, premised on the view that buildings otherwise constructed in accordance with the prevailing planning controls should be capable of unqualified retrospective approval in limited circumstances. Of course, such reforms do not countenance the weakening of penalties for those who wilfully transgress the process, but that is a different issue.No doubt there is more to come for Meriton in navigating its way around the problems associated with major development being carried out without a construction certificate.

Anthony Perkins’ article was previously published on the CBP Lawyers web site—October 2014. Reprinted with permission.


CONTRACTS

WHEN THE PRINCIPAL DELAYS THE WORKTom Grace, PartnerFenwick Elliott Grace, Adelaide

INTRODUCTIONIn this [article] we look at whether a contractor is entitled to an extension of time (EOT) to complete their building work when the principal causes a delay. The issue also frequently arises when a head contractor delays a subcontractor in completing their work.

PREVENTION PRINCIPLEA well established legal maxim says that no person can take advantage of their own wrong. This was restated in 2012 in the Spiers case1 as: A party cannot insist on the performance of a contractual obligation by the other party if it is the cause of the other party’s non–performance.The maxim has become known as ‘the prevention principle’.PEAK V MCKINNEY (1970) 69 LGR 1One case that dealt with the issue is the Peak case.2 Peak contracted to build three multi–storey apartments for Liverpool. Liverpool nominated McKinney as subcontractor to design and construct the foundations. By chance, a serious fault was found in the foundations. Peak asked for directions as to how to rectify the fault. Liverpool’s expert delayed for over three months in providing instructions.

When the works were completed, Liverpool claimed liquidated damages against Peak who then claimed against McKinney. Most of the delay was caused by Liverpool. Under the contract, there was no mechanism entitling Peak to an EOT for a delay by Liverpool in providing instructions.The court said that if Liverpool wanted to recover liquidated damages for Peak’s failure to complete on time in spite of the fact that some of the delay was due to Liverpool’s own fault or breach of contract, then the EOT clause should have provided for an EOT on account of such a fault or breach on the part of Liverpool.As the EOT clause did not entitle Peak or McKinney to any EOT for Liverpool’s breach of contract no liquidated damages could be applied. The date for completion was rendered meaningless and McKinney’s obligation became to finish the works within a reasonable period of time. Such a finding about a completion date is often described as ‘setting time at large’.GAYMARK V WALTER CONSTRUCTION GROUP (1999) 16 BCL 449In Gaymark,3 the Northern Territory Supreme Court applied the prevention principle. In that case, Walter Construction would have been entitled to EOTs for Gaymark’s breach of contract had it applied for them within time.However, Walter had failed to lodge applications for EOTs within the time required by the contract. The contract terms stated that a failure to ask for an EOT within the time frame agreed meant Walter lost any entitlement to an EOT and Gaymark was thus entitled to deduct liquidated damages, even though it was Gaymark who had delayed the works.The court said that Walter’s failure to ask for an EOT in the time window allowed in the contract

resulted in it being ‘prevented’ from obtaining any EOT. The Gaymark case has been criticised as the contractor in that case had put itself in the position of having no entitlement to an EOT by failing to exercise its right to ask for an EOT within the allotted time frame. However, the decision remains good law in the Northern Territory.TURNER V AUSTOTEL (1994) 13 BCL 378In Turner v Austotel4 the New South Wales Supreme Court held that a failure by the contractor to make an application for an EOT within the time allowed does not mean that the contractor can later argue the ‘prevention principle’. The court said that where the contractor had an option to obtain the EOT but failed to do so, it was not ‘prevented’ from obtaining the EOT. This is clearly at odds with the Gaymark decision of the Northern Territory Supreme Court. Subsequent decisions in other courts support the views expressed in Turner v Austotel.TURNER V CO–ORDINATED INDUSTRIES (1994) 11 BCL 202In Turner v Co–ordinated Industries5 the court considered a similar argument in relation to another standard form contract, the NPWC3. In that contract, the contractor was entitled to an EOT if the principal breached the contract and accordingly the court said that the prevention principle did not apply.The court listed three considerations to make before the prevention principle will apply:(1) If the contract includes any provision that entitles the contractor to an EOT when the principal breaches the contract, then time cannot be set at large by the principal’s breach of contract.(2) In the absence of such a clause, the principal’s actions must cause ‘actual’ delay for the prevention principle to apply.


(3) Further, one must determine what the overall effect of the action of the principal was. A small actual delay by the principal does not allow other delays by the contractor to be eradicated from consideration on the basis of the prevention principle.Subsequent cases other than Gaymark have adopted the line of reasoning set out in the Turner cases.PENINSULA BALMAIN V ABIGROUP (2002) 18 BCL 322Under the AS 2124 standard form contract, the superintendent retains discretion to award a contractor an EOT even if the contractor has failed to ask for it within the time period allowed. In the Peninsula Balmain case,6 the court found that the superintendent was in those circumstances required to give an EOT to the contractor even though the contractor was out of time to make the EOT request. Therefore, under AS 2124, the prevention principle is unlikely to apply to rescue a contractor who fails to request EOTs within the time period allowed for two reasons:(1) The superintendent is required to award any EOT that is due; and(2) The contractor would have been entitled to an EOT for the principal’s breach if requested within the time bar period.As a consequence of the Peninsula Balmain case, principals have amended AS 2124 for subsequent projects. The effect of the common amendment is that the superintendent is not obliged to exercise any discretion to award unclaimed EOTs in favour of the contractor. This effectively removes the first of the two reasons stated above for non–application of the prevention principle.

HERVEY BAY V CIVIL MINING AND CONSTRUCTIONS (2010) 26 BCL 130In the Hervey Bay case,7 the court considered such an amended form of the AS 2124 contract and found that the superintendent was not obliged to award an EOT to a contractor who had not requested the EOT within time, even though on the merits the contractor was probably entitled to the EOT had it claimed within time.This raises an interesting question in the light of recent commercial contracts that include very short time frames for requesting an EOT. If a principal using the amended form of AS 2124 described in Hervey Bay breaches the contract and prevents the contractor from completing on time, will the courts look unfavourably at clauses requiring a contractor to make application for an EOT within say two days of the delaying event?

SHORT TIME PERIODS FOR REQUESTING EOTSMany commercial construction contracts require the contractor to provide considerable information with its EOT request. If the timeframe to provide the information is short, it may be impractical for the contractor to comply, particularly if it is required to provide a full critical path analysis supporting the EOT request. Would a court reviewing such a clause consider that the prevention principle might be available to the contractor on the basis that the EOT time bar provision allowed insufficient time and was in effect a prevention of the right to apply for an EOT?Finally, as discussed in [a previous article] onerous time bar clauses may be void as a penalty following the recent High Court decision in the ANZ Bank Fees case.

CONCLUSIONContracts should allow for an EOT to the contractor in the event of a breach by the principal. Otherwise time will be set at large if the principal prevents the contractor from completing work on time.It remains to be seen what courts will say about the very short time frames allowed for requesting an EOT that are now commonly used in construction contracts. There is a risk that these provisions will enliven the prevention principle (setting time at large), or be found void.

REFERENCES1. Spiers Earthworks Pty Ltd v Landtec Projects Corporation Pty Ltd (No 2) [2012] WASCA 532. Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd (1970) 69 LGR 13. Gaymark Investments Pty Ltd v Walter Construction Group Ltd (1999) 16 BCL 4494. Turner Corp Pty Ltd (recv & mgr apptd) v Austotel Pty Ltd (1994) 13 BCL 3785. Turner Corp Ltd (in liq) v Co–ordinated Industries Pty Ltd (1994) 11 BCL 2026. Peninsula Balmain Pty Ltd v Abigroup Contractors Pty Ltd (2002) 18 BCL 3227. Hervey Bay (JV) Pty Ltd v Civil Mining and Constructions Pty Ltd (2010) 26 BCL 130

Tom Grace’s article was previously published on the Fenwick Elliott Grace web site—September 2014. Reprinted with permission.


CONTRACTS

INTRODUCTIONSomewhat surprisingly, even today there is uncertainty around the application of some of the fundamental principles of contractual construction. One area that is the subject of recent judicial consideration is the admissibility of evidence of surrounding circumstances to assist in the construction of a contract.

BACKGROUNDUntil 2011, appellate courts held that evidence of surrounding circumstances was always admissible to assist in the construction of a contract, whether or not the contractual language was ambiguous or susceptible of more than one meaning. This view changed in the High Court special leave application in Western Export Services Inc v Jireh International Pty Ltd (Western Export Services), where three members of the High Court stated that this view was inconsistent with the ‘true rule’ as stated by Mason J in Codelfa:The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning.While this statement encompassing the law on the area was controversial and the binding status of a special leave application was questioned, most, if not all courts took the view that the guidance in Western Export Services should be followed until further direction from the High Court. Accordingly, it was hoped that certainty would be restored in this area.However, the recent High Court decision in Electricity Generation Corporation t/as Verve Energy v

SURROUNDING CIRCUMSTANCES AND CONTRACT CONSTRUCTION—IS THERE STILL AN AMBIGUITY GATEWAY?Ashley Cahif, Special CounselSparke Helmore Lawyers, Canberra

... there is uncertainty around the application of some of the fundamental principles of contractual construction. One area that is the subject of recent judicial consideration is the admissibility of evidence of surrounding circumstances to assist in the construction of a contract.


Woodside Energy Ltd (Woodside) has created further uncertainty.In Woodside, the majority of the High Court took into account surrounding circumstances known to both parties in the construction of the gas supply agreement without any express consideration of whether the language of the agreement was ambiguous. Unfortunately, Western Export Services was not directly addressed by the High Court in coming to its decision. This has led to the view that Woodside has restored the pre–Western Export Services position adopted by the appellate courts; that is, there is no longer a need for ambiguity before evidence of surrounding circumstances could be used to assist in the construction of a contract. However, the countervailing view is that the High Court would not impliedly overrule the authority of Western Export Services.With the lack of guidance from the High Court's decision and little appellate court direction, contract lawyers and courts are struggling to deal with the uncertainty.

CURRENT APPROACHESAt Court of Appeal level, several decisions have grappled with this uncertainty.For example, the Western Australian Court of Appeal, in Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd, held that the true rule permits regard to be had to some surrounding circumstances for construction purposes without having to satisfy the gateway requirement.This reasoning was applied in the recent Western Australian Court of Appeal case of Technomin Australia Pty Ltd v Xstrata Nickel Australasia Operations Pty Ltd [No 3] by McLure P (Newnes JA agreeing).

Interestingly, the third member of the Court of Appeal, Murphy JA, did not follow Hancock Prospecting and made reference to the New South Wales Court of Appeal case of Mainteck Services Pty Ltd v Stein Heurtey SA where it was stated:... that Woodside endorses and requires a contextual approach to the construction of commercial contracts.Murphy JA, then went on to state:... a contextual approach to construction does not always import the reception of evidence of surrounding circumstances,before stating that it was unnecessary to decide the matter as the case involved construing an ambiguous clause of the deed.Where are we now?Unfortunately, until the High Court expressly states its position on the matter, it will continue to be unclear whether evidence of surrounding circumstances will always be admissible to assist in the construction of a contract, whether or not the contractual language was ambiguous or susceptible of more than one meaning. However, until the High Court decides the matter, there appears to be growing appellate court authority (at least in Western Australia and New South Wales) that evidence of surrounding circumstances is required to determine the ‘context’ of the contract.

Ashley Cahif’s article was previously published on the Sparke Helmore Lawyers web site—December 2014. Reprinted with permission.

... there appears to be growing appellate court authority ... that evidence of surrounding circumstances is required to determine the ‘context’ of the contract.


ADJUDICATION DETERMINATION AS A BASIS FOR STATUTORY DEMAND IN WESTERN AUSTRALIAStephen Boyle, PartnerJack Inglis, LawyerClayton Utz, Perth

KEY POINTA statutory demand based on an adjudication determination under the Construction Contracts Act 2004 (WA) without a court's leave, is at risk of being set–aside by the court.

INTRODUCTION On the basis of the recent decision in Kellogg Brown & Root v Doric [2014] WASC 206, there would appear to be a basis for a court to set aside a statutory demand under section 459 of the Corporations Act 2001 (Cth) founded on an adjudication determination under the Construction Contracts Act 2004 (WA), where a court has not first granted leave to enforce the determination under section 43(2) of the Construction Contracts Act.In resisting an application for enforcement under section 43(2) of the Construction Contracts Act on the ground of jurisdictional error, the test is whether there is an arguable case that the determination is invalid.

ADJUDICATION AND THE STATUTORY DEMANDKellogg Brown and Root (KBR), and Doric were parties to a contract under which KBR was required to provide engineering services to Doric on the Jimblebar Iron Ore Project in Western Australia.Doric, which was the principal under the contract, made claims against its contractor KBR, and two adjudication applications under the Construction Contracts Act in respect of those claims. It was successful in both adjudications.KBR failed to pay the amounts of the determinations and commenced judicial review proceedings in the West Australian Supreme Court to quash the determinations.

After judicial review proceedings began, Doric issued a statutory demand to recover the amounts of the determinations from KBR, but did so without having first obtained leave from the court under section 43(2) of the Construction Contracts Act to enforce those determination as judgments.Kellogg sought to set aside the statutory demand on the basis that:• Doric had failed to obtain leave of the court to enforce the determinations pursuant to section 43(2) of the Construction Contracts Act;• there was a ‘genuine dispute’ as to the debt for the purposes of section 459H(1)(a) of the Corporations Act: and• the determinations were invalid due to jurisdictional error.The Acting Master held that the statutory demand should be set aside. The decision may be limited in its application to security of payment legislation in Western Australia, where leave to register and enforce a determination must be sought from the court. This is distinguishable from other security of payment legislation in Australia, where an adjudication determination becomes a debt due which may be filed in a court as a judgment.

LEAVE UNDER SECTION 43(2)Acting Master Gething concluded that Justice Pullin's comments in Diploma Constructions v KPA Architects [2014] WASCA 91 meant that a determination under the Act can only be enforced by way of the issue of statutory demand if the party issuing the statutory demand had first obtained the leave of the court to enforce the determination pursuant to section 43(2).In reaching that position, Acting Master Gething analysed the Construction Contracts Act and

SECURITY OF PAYMENT


concluded that section 43(2), in requiring a court to give leave to enforce an adjudication determination, thereby submits that determination to the oversight of the court: Thiess Pty Ltd v MCC Mining (Western Australia) Pty Ltd [2011] WASC 80.Furthermore, without leave pursuant to section 43(2) of the Construction Contracts Act, the ability to enforce the determination (under the Act or at all) is not enlivened, and therefore issuing a statutory demand would circumvent that regime. This may be grounds for the court to:• find that there is ‘some other reason’ under section 459J(1)(b) of the Corporations Act not to enforce a statutory demand; and• make an order restraining a party from using the statutory demand procedure on the basis of an abuse of process.Acting Master Gething went on to consider that if he was incorrect in his interpretation of section 43(2), there would be grounds to set aside the statutory demand under section 459H(1)(a) of the Corporations Act on the basis that there was a ‘genuine dispute’ based on jurisdictional error in the determination. In this regard, he found that there were two levels of dispute that could give rise to a ‘genuine dispute’:• the ‘primary dispute’ which went to arguments of competing claims of set–off; and• the ‘secondary dispute’ which went to whether or not the determination creating the debt the subject of the statutory demand was invalid due to jurisdictional error.In relation to the primary dispute, he found that the determination gave rise to a statutory debt that remained due and payable, notwithstanding the existence of set–off claims.

Therefore, there was no ‘genuine dispute’ for the purposes of section 459H(1)(a).In relation to the secondary dispute, he found that where the creditor had failed to obtain leave pursuant to section 43(2) of the Construction Contracts Act, provided that the party on whom the statutory demand had been served could demonstrate a bona fide arguable case for judicial review, there would be sufficient grounds to set aside a statutory demand on the basis of a ‘genuine dispute’ for the purposes of section 459H(1)(a) of the Corporations Act.On that basis, Acting Master Gething held that Doric's actions were an abuse of process under the head of the secondary dispute because it was effectively using the statutory demand procedure to compel payment of the disputed debt where leave to enforce had not been granted and where there was a bona fide arguable case for judicial review.He also went on to find that bona fide arguable judicial review proceedings would constitute ‘some other reason’ to set aside a statutory demand for the purposes of section 459J(1)(b) of the Corporations Act.

AN ARGUABLE CASE THAT THE DETERMINATION IS INVALIDOn a separate point, Acting Master Gething (referring to various recent authorities) also considered the implications of raising arguable grounds for judicial review in opposition to an application for leave to enforce an adjudication application under section 43(2) of the Construction Contracts Act. Acting Master Gething appeared to proceed on the basis that, while an arguable case for judicial review would be a reason for refusing the grant of leave to enforce, it would not by itself result

in the determination being invalid and that a separate application for judicial review would be required for that outcome.Similarly, in RNR Contracting Pty Ltd v Highway Constructions Pty Ltd [2013] WASC 423 which involved an application for leave to enforce a determination, the court, despite finding that there was an arguable jurisdictional error, still proceeded to enforce the determination. One of the factors taken into account by the court in that decision was that the defendant had not issued an application for judicial review.Both of these cases demonstrate a reluctance to find a determination which is arguably afflicted with jurisdictional error, to be invalid. That is inconsistent with Justice Murphy's observation that a determination tainted by jurisdictional error was a nullity: Perrinepod Pty Ltd v Georgiou Building Pty Ltd [2011] WASCA 217; (2011) 43 WAR 319. It is also a shift from Justice Murphy's comments in Perrinepod wherein he held that jurisdictional error could be raised either in opposition to an application for leave to enforce a determination under section 43(2) of the Construction Contracts Act, or by a separate application for judicial review by way of certiorari.Accordingly, a cautious party seeking to oppose the enforcement of a determination should initiate separate judicial review proceedings in addition to resisting an application for leave to enforce under section 43(2).

Stephen Boyle and Jack Inglis’ article was previously published in Clayton Utz’s Insights—October 2014. Reprinted with permission.


The recent decision of Absolute Analogue Inc v Sundance Resources Ltd (No 3) [2014] WASC 283 serves as a reminder of the legal requirements that need to be satisfied to form a binding agreement and the problems that can arise where negotiations are protracted.The dispute involved a services agreement between Sundance and a geologist who was appointed to manage Sundance’s project in Cameroon. The geologist alleged that there was an oral services agreement made in stages over a six month period in 2006 involving fees of $20,000 a month and the issue of 30 million options to buy shares in Sundance. There was no debate that the geologist had been engaged to provide services and was entitled to be paid fees. It was common ground that there had been detailed and protracted discussions about the options. The issue facing the court was whether the geologist’s remuneration under the agreement included the options.In considering the question, Le Miere J noted protracted or imprecise negotiations will often give rise to doubt whether a final agreement has been made. The court must ascertain from the dealings between the parties whether they intended to make a concluded agreement or not. Le Miere J stated:• A party will be held to have made a contractual offer if it was reasonable for the alleged offeree to believe he could conclude a contract simply by indicating acceptance to the offeror’s terms. • A response to an offer will amount to a binding acceptance, notwithstanding that the offeree did not intend it to be an acceptance, if the offeror reasonably regarded it as acceptance.

BINDING CONTRACTUAL AGREEMENTS—THE RISK OF PROTRACTED NEGOTIATIONSChristopher Cranstoun, Graduate LawyerMolinoCahill Lawyers, Melbourne

... serves as a reminder of the legal requirements that need to be satisfied to form a binding agreement and the problems that can arise where negotiations are protracted.

CONTRACTS


Le Miere J followed the test outlined by Gleeson CJ in Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1998) 18 NSWLR 540. In that case, Gleeson CJ commented that the question for determination by the Court of Appeal was whether by their exchange of communications the parties had intended to make a concluded bargain, as distinct from holding a common intention that they would enter into contractual relations. Gleeson CJ observed that in the ordinary case ... as a matter of fact and common sense, other things being equal, the more numerous and significant the areas in respect of which the parties have failed to reach agreement, the slower a court will be to conclude that they had the required contractual intention.Whether or not such intention exists is to be determined objectively and by reference to what a reasonable person would have thought in the circumstances. In considering the objective intention, Le Miere J considered the series of communications between the parties in the context of their dealings over an extended period of time, including discussions at meetings, the wording of draft agreements and the wording of ASX announcements. Given the lapse in time between the events and the conversations, Le Miere J placed primary emphasis on the documents, rather than the oral evidence of the witnesses.Le Miere J held that in determining a party’s objective intention the court may look to such factors as the customary method of concluding a contract of the sort alleged or whether an informal exchange that is alleged to lead to a contract would accord with the expectations of the parties

in a contract of the kind that is in dispute. In this particular case, the subject matter was options to acquire shares and Le Miere J found that:... it is inherently unlikely that a publicly listed company would commit to the issue of options by an informal exchange not evidenced in writing. Nevertheless the court will find a contract to have been made if the evidence establishes that the parties irrevocably committed themselves by their words or conduct.Where the intention is equivocal, conduct or later correspondence can be used as evidence to show whether or not a contract was concluded. However, Le Miere J held that:... where it is asserted that it can be inferred that a contract has arisen from conduct, it is not sufficient that the conduct is consistent with the alleged contract. There needs to be a positive indication that the conduct is evidence of the contract alleged: Industrial Rollformers Pty Ltd v Ingersoll–Rand Australia Ltd [2001] NSWCA 111 [142]; Kriketos v Livschitz [2009] NSWCA 96 [117]–[120]; McColl JA, Macfarlane JA concurring.Ultimately, Le Miere J found no concluded binding agreement was made at any time that Sundance would issue 30 million options as part of the remuneration for working on the project. There were discussions and negotiations about the options over a protracted period but they never resulted in a concluded binding agreement.

Christopher Cranstoun’s article was previously published on the MolinoCahill Lawyers web site—September 2014. Reprinted with permission.

... in determining a party’s objective intention the court may look to such factors as the customary method of concluding a contract of the sort alleged or whether an informal exchange that is alleged to lead to a contract would accord with the expectations of the parties in a contract of the kind that is in dispute.


LITIGATION

LONG AWAITED GUIDANCE ON THE TIME FOR BRINGING BUILDING ACTIONS IN VICTORIAGeoff Hansen, PartnerCarla Aumann, Senior Associate Herbert Smith Freehills, Melbourne

IN BRIEFA recent Victorian Court of Appeal decision has addressed the long–running debate as to whether section 134 of the Building Act 1993 (Vic) (Building Act) operates to ‘replace’ the usual six–year limitation period with a 10 year period, or provides a ‘long stop’ or ‘cap’ on the time in which a claim might be brought.The Court of Appeal overturned the trial judge’s decision, finding that section 134 replaces the usual six–year limitation of actions period for all ‘building actions’.In practice, this means that claims brought in contract can be made outside the six–year limitation period, as long as the action is brought within 10 years of the issue of an occupancy permit or certificate of final inspection.The court also considered that the 10 year liability period under section 134 applies equally to claims brought in contract and in negligence, meaning the section also operates as an ‘end date’ which will bar actions in negligence after 10 years (regardless of whether or when the damage has become apparent).

OPERATION OF SECTION 134 OF THE VICTORIAN BUILDING ACT 1993BACKGROUNDIn Brirek Industries Pty Ltd v McKenzie Group Consulting Pty Ltd [2014] VSCA 165, the developer of a two–storey office block (Brirek) brought an action against a quantity surveyor (McKenzie). Brirek alleged that McKenzie had issued certain building permits in breach of its contractual and statutory obligations and that Brirek had later suffered loss as a result.1

The building permits in question were issued:

• more than six years before the relevant claims were made in the litigation; and • within 10 years of the issue of the occupancy permit.Although the Limitation of Actions Act 1958 (Vic) generally puts in place a six year limitation period for claims brought in contract or tort—which in this case would act as a bar to Brirek’s claims in contract—section 134 of the Building Act provides that:… despite anything to the contrary in the Limitation of Actions Act 1958 or in any other Act or law, a building action cannot be brought more than 10 years after the date of issue of the occupancy permit… or date of issue ... of the certificate of final inspection.The operation of section 134 of the Building Act was therefore squarely in the spotlight.

BRIREK’S ARGUMENT—‘REPLACEMENT’Brirek argued that section 134 of the Building Act creates a separate limitation period which, in respect of ‘building actions’, whether brought in contract or in negligence, displaced or replaced the limitation regime under the Limitation of Actions Act.2

As a result, Brirek claimed its action could be brought at any time within 10 years after the occupancy permit was issued, even if a period greater than six years had expired since its cause of action accrued.This interpretation is commonly referred to as the ‘replacement’ approach; in other words, that section 134 operates to replace the six year limitation period that the Limitation of Actions Act would otherwise impose with a 10 year period.


MCKENZIE’S ARGUMENT—‘LONG STOP’McKenzie contended for the ‘long stop’ approach, submitting that the general six year limitation period continues to operate and section 134 simply introduces an overall limit or ‘cap’ on the time by which an action must be brought.McKenzie argued that section 134 applies only to ‘claims in negligence to address situations where a plaintiff does not become aware that it has suffered damage, by reason of negligence, until considerably later than the time when the breach was committed’.3 On this view, claims in contract are not impacted by section 134 as the cause of action accrues at the date of the breach and the limitation period will therefore expire before the 10 year ‘long stop’ date is of any effect.

DECISION AT FIRST INSTANCEThe case was originally heard in the County Court of Victoria. The trial judge accepted McKenzie’s ‘long stop’ interpretation,4 giving section 134 only restricted operation. The trial judge found that the provision ‘only applies to claims in negligence with respect to defective work and does not extend the six–year contractual limitation period’.5

In other words, the trial judge found that the 10 year limitation period would not breathe life into a limitation period which had otherwise expired, but would operate to shorten the limitation period where the relevant loss occurred less than six years prior to expiry of that 10 year period. For example, if a defect only became apparent seven years after the occupancy permit was issued: (a) any claim in contract would have expired, and (b) a claim in negligence would need to be brought within three years, so that it was within the 10 year ‘cap’.Brirek appealed.

COURT OF APPEALIn a joint judgment, the Victorian Court of Appeal overturned the trial judge’s decision, finding that the ‘long stop’ interpretation ‘places an artificial constraint on the plain meaning of the words of section 134’.6 The Court of Appeal observed that the Building Act does not contain any express differentiation between claims brought in contract or negligence, and that such a distinction should therefore not be read in.The Court of Appeal instead supported the approach taken in a number of earlier VCAT decisions,7 that section 134 replaces the limitation period in the Limitation of Actions Act.In contrast to the first instance decision, the Court of Appeal found that a consistent approach must be taken to claims brought under contract or in tort, and that section 134 identifies the period in which ‘building actions’ may be brought generally.

PRACTICAL IMPLICATIONSThe Court of Appeal’s decision is significant and, subject to any appeal to the High Court, brings a level of certainty to this area of law. Participants in the building and construction industry in Victoria can proceed on the basis that the ‘replacement’ approach has prevailed.The Court of Appeal’s decision approves the view that, in enacting section 134, Parliament struck a balance: ‘it had extended the time for bringing claims in contract; but it had placed a bar on all claims in tort, notwithstanding that they may not have become manifest until after the expiry of 10 years’.8

As a result of this decision:(1) building owners should be aware that any action, whether in contract or in tort, can and must be brought within 10 years of the date of issue of the occupancy permit.

All such actions will be statute–barred after this date; and(2) those carrying out (or insuring those who carry out) building works should be aware that liability for loss caused by defective building works extends for a period of 10 years following issue of the occupancy permit. The six–year limitation period in the Limitation of Actions Act will not operate to shorten that period.

REFERENCES 1. Brirek brought claims in both contract and tort, however the contractual claims are of primary relevance here as Brirek failed to establish its claim in negligence.2. Brirek Industries Pty Ltd v McKenzie Group Consulting Pty Ltd [2014] VSCA 165 (Brirek appeal) at [85]3. Brirek appeal at [86]4. Brirek Industries Pty Ltd v McKenzie Group Consulting Vic Pty Ltd [2011] VCC 294 (Brirek first instance decision)5. Brirek first instance decision at [88]6. Brirek appeal at [112]7. For example, the decisions in Thurston v Campbell, Hardiman v Gory, Jacobi v Motalli and Martinov v Extension Builders Australia Pty Ltd, cited in the Brirek appeal at [134]8. Brirek appeal at [96]

Geoff Hansen and Carla Aumann’s article was previously published in Herbert Smith Freehills' Australian Construction Dispute Resolution Newsletter—September 2014. Reprinted with permission.


CONTRACTS

DEALING WITH CONCURRENCY IN CONSTRUCTION DELAY CLAIMSDean O'Leary, PartnerAl Tamimi and Company, Dubai

INTRODUCTIONA significant proportion of construction claims in the UAE involve issues relating to the delayed completion of a project.One of the most problematic issues relating to construction delay claims is that of concurrency. Indeed, concurrency causes problems for many of those involved with construction claims, not only contract administrators (e.g. architects and engineers), but also for claims consultants, experts, lawyers and, apparently, even some members of the judiciary.1 This article seeks to discuss the issue of concurrency in both an international and regional setting.2

The problems stem partly from the fact that there appears to be no agreed definition of what is meant by concurrency or how it should be interpreted and applied. Other problems arise when trying to determine whether concurrency applies to simultaneous or sequential3 events and whether it is the event or its effect which is important. The above problems are not helped by the lack of a single, definitive authority which deals with all of the above, and these problems are further compounded by a difference of approach in different legal jurisdictions.4

WHAT IS CONCURRENCY?In the 2010 Scottish case of City Inn v Shepherd (referred to below) the judge highlighted the problem of trying to define the meaning of ‘concurrency’.5 Indeed, it is probably easier to define what is meant by ‘concurrent delay’. A definition of the latter, which is often used by English lawyers, is:A period of project overrun which is caused by two or more effective causes of delay which are of equal causative potency.6

In other words, a concurrent delay occurs when competing delay events (occurring either simultaneously or sequentially) overlap in their consequences.7 Therefore, it is the ‘effect’ of the event which is all important and this is inextricably linked to the issue of causation.

RELEVANT CASE LAWWhilst it is acknowledged that the reference below to common law authorities which deal with the subject of concurrency and other time related issues are not binding in the UAE (for example the prevention principle8), it is suggested that the principles laid down by these authorities may offer some guidance on how the international construction community may deal with the issue of delays in general and, in particular, concurrency. Similarly, reference has also been made to the SCL Delay Protocol,9 which, whilst not a legal document (or statement of law) as such, may be considered to be informative (and, possibly, influential) as representing the general (or good) practice of dealing with delay claims in the construction industry. Readers will also be aware that many construction arbitrators in the UAE have common law backgrounds, so parties (and their respective lawyers) appearing before them may wish to bear in mind how these arbitrators may themselves understand and deal with the issue of concurrency.10

TROLLOPE & COLLS V NORTH WEST [1973] 9 BLR 60 If an employer causes a delay then it cannot insist upon strict adherence to the time for completion.PERCY BILTON V GLC [1982] 20 BLR 1 (HL) Unless a contract provides otherwise, an employer cannot rely upon a liquidated damages clause if it has prevented the contractor


from completing; instead, it would have to claim general damages from whenever the contractor should have completed, after allowing a reasonable time for completion. However, and most importantly, in order to be entitled to an extension of time a contractor must still demonstrate a causal link between the relevant event and the delay to completion.SMK CABINETS V HILTI [1984] VR 391This Australian case appears to have gone against the application of both the ‘but for’ and dominant cause tests. The case held that it does not matter if the contractor would not have been able to complete in time anyway, if the employer caused delay then it prevented the contractor from completing.H FAIRWEATHER V BOROUGH OF WANDSWORTH [1987] 39 BLR 106 In this case the judge expressly disapproved the use of the dominant cause test when dealing with concurrent delays for claims for an extension of time. This view was subsequently agreed upon by an eminent construction lawyer.11

BALFOUR BEATTY V CHESTERMOUNT [1993] 62 BLR 1 This case dealt with relevant events occurring after the original completion date and when the contractor was in culpable delay. It was held that the contractor was entitled to an extension of time attributable to a (post–completion) variation/instruction, but that the period of the extension should only be ‘dotted–on’ to the original or extended completion date (colloquially known as the ‘dot–on’ or ‘net’ approach). However, and crucially, the relevant event must still be shown to cause a critical delay. It is not enough that a relevant event occurred; a causal link between cause and effect must still be established.

It is suggested that the judge in this case caused some confusion when he commented that in some circumstances it may not be ‘fair’ to grant a contractor an extension of time if the relevant event was ‘caused’ by the contractor’s own delay’.12

HENRY BOOT V MALMAISON [1999] 70 CONLR 32It was agreed between the parties in this case that if there are two concurrent causes of delay, one of which is a relevant event, then the contractor is entitled to an extension of time for the delay caused by the relevant event, provided it can be shown to have caused a critical delay. Notwithstanding the Royal Bromptom case (see below), an eminent construction lawyer takes the view that Malmaison represents how English law should deal with concurrency and that the dominant cause test is not applicable to extension of time claims.13, 14

Arguably, when considering whether to grant an extension of time an engineer should (unless the contract provides otherwise) consider other events, and not just the relevant events relied upon by the contractor, to see if the contractor’s progress has been affected.15

ROYAL BROMPTOM V HAMMOND [2001] 76 CONLR 148 In order to obtain an extension of time a contractor must show that the relevant event caused a delay to completion, it is not enough that it is a relevant event. In the author’s experience, this crucial requirement is often overlooked by contractors and it comes down to a detailed analysis of factual events and a consideration of the critical path to determine when the event occurred and if completion was actually affected, and if so, by how much.

In this case the judge sought to distinguish between simultaneous and sequential concurrency. The judge said that the case of Malmaison was concerned only with simultaneous concurrency. However, a reading of the judgment in Malmaison discerns that the judge appeared to make no such distinction. The judge in City Inn (referred to below), along with an eminent construction lawyer,16 took the view that the judge in Royal Bromptom case was wrong to distinguish between simultaneous and sequential concurrency.MULTIPLEX V HONEYWELL [2007] BLR 195 An employer cannot hold a contractor to a completion date if the employer has caused the contractor to miss that date, i.e. time becomes at large.17, 18

CITY INN V SHEPHERD [2008] 8 BLR 269 (CSOH); [2010] BLR 473 (CSIH) In this Scottish case the judge went against Royal Bromptom and instead chose not to distinguish between simultaneous and sequential concurrent delays, but also went further by adopting the ‘apportionment approach’. The judge’s interpretation of the Malmaison case and disagreement with the Royal Bromptom case (i.e. there should be no difference between simultaneous and sequential delays) has since been supported by an eminent construction lawyer.19

DE BEERS UK V ATOS [2010] EWHC 3276This case followed the Malmaison approach, i.e. where there is concurrent delay then a contractor should get time but not its costs.ADYARD V SD MARINE [2011] BLR 384 This shipbuilding case appears to have used the dominant cause test to deal with delays, i.e. it was decided that variations


were instructed by the employer when the contractor was already in culpable delay and so these variations had no effect on the already delayed completion date. The authorities referred to above suggest that the judge in this case was wrong to have applied the dominant cause test approach and failed to have proper regard to the prevention principle. JERRAM V FENICE [2011] BLR 644 In this case the judge not only followed the judge in Adyard but appeared to go even further and suggest that when a relevant event occurs and the contractor is already in culpable delay, then the prevention principle will not apply. The judge in this case also appeared to apply the dominant cause test. At least one legal commentator has suggested that the judgment in Jerram was wrong.20

WALTER LILLY V MACKAY [2012] BLR 503 In his judgment the judge confirmed that there was a difference of approach in England and Scotland when dealing with concurrency. The judge confirmed that the ‘apportionment approach’ was not applicable in England. The English approach may be stated thus: if there are two events causing concurrent delay, one of which is caused by the employer, then the contractor is entitled to an extension of time and there is no reason (or legal basis in England) to apportion delay.21

SCL DELAY AND DISRUPTION PROTOCOLThe SCL Delay Protocol appears to mirror the English law (Malmaison) position where it talks about concurrency because at Core Principle No 9 it provides that if there is both a contractor and employer caused delay then the contractor’s entitlement to an extension of time should not be reduced.

The SCL Delay Protocol explains the basis of its position in this respect at sections 1.4.5 and 1.4.7.

UAE LAWS DEALING WITH LATE COMPLETION AND DELAY DAMAGESWhilst the above may demonstrate what concurrent delay is and how it is applied in the English courts at least, how is it dealt with under UAE law?It will be appreciated by those familiar with construction law in the UAE that principles and concepts which are fairly well developed in other legal jurisdictions may not be so easily found within the laws of the UAE.22 Experience suggests that it is not uncommon for some foreign lawyers who are new to the region try and shoehorn their own legal principles into the provisions of UAE law in an attempt to deal with some of the legal issues they encounter here in the UAE.Concepts such as ‘concurrent delay’, ‘extension of time’, ‘prevention principle’ and ‘time at large’ are not expressly provided for within UAE law.23 However, the fact that they do not exist as such should not cause too much concern because there are provisions to be found which may provide for a similar result.It is trite, according to English law anyway, that a time delay does not necessarily give rise to financial recompense. What this means is that whilst a contractor may be entitled to an extension of time under a contract, this does not necessarily mean it will receive compensation for that delay, i.e. it must prove a causal link between the delay and its loss. To distinguish between time and money, experts and lawyers often refer to excusable and compensable delays. However, it is suggested that when considering these issues under UAE law, one should look at both the bigger picture and the end

result to see how concurrent delay can be dealt with under UAE law.Whilst UAE law does not allow for a contract to be extended without agreement,24 Articles 247, 249, 414 and 472 of the UAE Civil Code may, in some (possibly exceptional) cases, be relied upon to give a contractor a release from strict performance in terms of time. Where a completion date cannot be extended (either pursuant to the contract or law), a contractor is, by default (under FIDIC), liable for liquidated damages. However, Article 878 of the UAE Civil Code may assist a contractor because it provides that a contractor will only be liable for any loss or damage insofar as the loss does not arise from an event which the contractor could not prevent (e.g. an employer caused delay).25

Similarly, Article 290 of the UAE Civil Code provides that a judge (or tribunal) may take into account the level of involvement of the other party (i.e. the employer) when assessing compensation.26 One possible interpretation of Article 291 of the UAE Civil Code is that it may allow a judge (or arbitrator) to ‘apportion’ liability for concurrent delay. Of course, conversely, an employer can rely upon these same provisions insofar as a contractor may be claiming an extension of time or prolongation costs during a period of concurrent delay.One of the provisions of UAE law which is most often cited in construction disputes is the duty of ‘good faith’, which can be found at Article 246(1) of the UAE Civil Code. This provision is often relied upon by contractors when making allegations of unlawful acts (or inaction) by engineers or employers. In addition to this provision of good faith, Article 106 of the UAE Civil Code prohibits the unlawful exercise of a right.


Hence, if an employer causes delay and the engineer subsequently fails to grant an extension of time for the same (or the contract does not allow an extension of time to be granted) then an employer’s subsequent attempt to levy liquidated damages for the contractor’s late completion could possibly fall foul of the Articles 106 and 246(1). Alternatively, a contractor may argue that in circumstances where the employer caused delay the employer would be unjustly enriched if it were to recover liquidated damages for this period. Again, these are all provisions which could also be relied upon by the employer if the contractor’s concurrent delay can be proven.Notwithstanding the above, if a contractor believes that it has not been properly granted an extension of time (or if the contract does not allow for an extension) it may, amongst other things, seek to challenge an employer’s deduction of liquidated damages by way of Article 390(2) of the UAE Civil Code. The decision whether to adjust the amount of liquidated damages will be at the discretion of the judge (or tribunal). At first glance, Article 390(2) may seem like a contractor’s trump card insofar as it may make life difficult for an employer because the employer would then have to prove its actual loss. However, contractors would do well to remember that the UAE courts have consistently held that it is the contractor who has the burden of proving that the pre–agreed liquidated damages do not represent the employer’s actual loss.27 Of course, an employer may also apply to lift the capping of liability if it believes (and can prove) its actual losses are far greater than the pre–agreed liquidated damages.

When exercising its discretion under Article 390(2) a court (or tribunal) will likely consider the UAE’s hierarchy of laws and the underlying theme of freedom to contract and pacta sunt servanda (‘agreements must be kept’).28, 29 It is widely recognized that clear words cannot be easily departed from.30 Therefore, it may not be as easy as first thought for a party to simply turn round when later in dispute and cry ‘foul’ because it no longer likes the consequence of what it had previously agreed as acceptable as liquidated damages.

DEALING WITH CONCURRENCY IN THE UAEIn light of the above, what principles can be drawn when faced with arguments of concurrent delay in a construction dispute in the UAE?As with any construction claim, careful consideration should first be had to the terms of the contract.Pursuant to sub–clause 43.1 of FIDIC 4th ed.,31 one of the contractor’s primary obligations is to complete on time32 and this obligation is reinforced by Articles 243, 246(1), 874 and 877 of the UAE Civil Code.33 Particular regard should be had to how the parties have agreed to apportion risk for delay under the terms of the contract, e.g. sub–clause 44.1 of FIDIC 4th ed.34 Because of the serious financial consequences arising from the late completion of a construction project, a contractor will often seek to excuse its delayed completion by laying some (if not all) of the fault at the door of the employer (or engineer). Conversely, an employer will likely argue that there was concurrent delay on the part of the contractor. Specifically, in terms of concurrency:

• A contractor will likely argue that if the employer has caused a critical delay then the contractor is entitled to an extension of time, even if the contractor was in culpable (i.e. concurrent) delay itself.35, 36

• An employer will likely argue that by reason of the contractor’s culpable delay the contractor would have been late anyway; hence, there is no entitlement to an extension of time.37 To determine whether there has been a concurrent delay when faced with a contractor’s claim for an extension of time it is suggested that one approach would be for the engineer to first carry out a comprehensive review of the facts against the relevant and most recently updated programme (i.e. the programme which shows the latest critical path prior to the events occurring) to determine whether an employer and/or contractor risk event actually caused a critical delay to the overall completion date.38

As part of such a review it would be imperative for the engineer to have regard to the apportionment of risk for delay events under the contract. A perusal of most standard form contracts used in the UAE discerns that if a relevant event occurs and causes (or, is likely to cause) delay to completion then a contractor should be awarded an extension of time. In the context of concurrent delay, this raises the question: can an extension of time clause be interpreted in such a way that the intention of the parties was that if an employer risk event caused (or is likely to cause) a critical delay when a contractor was in concurrent delay then the contractor is not entitled to an extension of time? A possible answer to this question is that, based on an interpretation of the FIDIC forms of contract at


least, it appears that if there is concurrency then, provided the contract allows for the award of an extension of time, the contractor should still get an extension of time and the financial consequences would flow as laid down in the UAE laws referred to above.

SUMMARYLeaving aside possible time bar and condition precedent issues, when faced with a claim from a contractor for an extension of time based upon an employer risk event an engineer should firstly determine whether the alleged event occurred in the manner described by the contractor and, secondly, determine whether the event actually caused a critical delay or not.39 If it did, then the next stage is to consider by how much. Ordinarily, if there was no concurrent delay the engineer would then likely grant an appropriate extension of time. However, if upon reviewing the facts the engineer determines that a concurrent delay did occur the engineer will (as best he can) need to review the as–built information for the period when the concurrent delay event occurred and determine whether this concurrent delay event also affected the completion date and will, no doubt, make a decision as to the extension of time entitlement based on one of the approaches referred to above.Whilst the award of an extension of time will negate a contractor’s liability for liquidated damages, if the contractor was in concurrent delay then UAE law will likely protect an employer from a contractor’s claims for prolongation costs. Note: The views expressed in this article are the author’s own and should in no way be taken as those of the firm.

REFERENCES1. Winter J, ‘How should delay be analysed—Dominant cause and its relevance to concurrent delay’, SCL Paper 153, January 2009, p20.2. This article does not seek to deal with other construction delay related topics such as the ownership of float or pacing delays.3. Sequential in this context means events which do not start and finish at the same time but which involve a degree of overlap; whereas, simultaneous events are those which start and finish together and give rise to the term ‘true concurrency’.4. Some of the more notable cases on the issue of concurrency are referred to below. However, this article is not intended to be an exhaustive review of the case law on the subject.5. ‘One of the problems in using such expressions as ‘concurrent delay’ or ‘concurrent delaying events’ is that they may refer to a number of different situations’. Per Lord Osborne City Inn v Shepherd [2010] BLR 473.6. John Marrin QC, Concurrent delay, SCL Paper, February 2002.7. It should be said at the outset that upon a forensic investigation of the facts there is often found to be no ‘true concurrency’.8. The meaning of the ‘prevention principle’ was succinctly stated by Jackson J (as he then was) in Multiplex v Honeywell [2007] BLR 195; namely ‘the essence of the prevention principle is that the promisee cannot insist upon the performance of an obligation which he has prevented the promisor from performing …’9. The Society of Construction Law Delay and Disruption Protocol, SCL, October 2002.

... concurrency causes problems for many of those involved with construction claims, not only contract administrators (e.g. architects and engineers), but also for claims consultants, experts, lawyers and, apparently, even some members of the judiciary.


10. Some of these authorities may prove useful in the DIFC Courts.11. Winter J, ‘How should delay be analysed—Dominant cause and its relevance to concurrent delay’, SCL Paper 153, January 2009, p14.12. With this confusion in mind, it should be noted that sub–clause 44.1 of FIDIC 4th ed. refers to the extension of time to which a contractor is fairly entitled.13. Winter J, ‘How should delay be analysed—Dominant cause and its relevance to concurrent delay’, SCL Paper 153, January 2009, p20. It is suggested that the cases of SMK Cabinets and Fairweather support the view that the dominant cause approach should not be used in extension of time claims (i.e. it is only applicable to damages claims arising therefrom).14. This also appears to be the view of another eminent construction lawyer: Corbett E, FIDIC 4th A Practical Legal Guide, Sweet & Maxwell, 1991, pp. 254–257; and of a leading delay analyst: Pickavance K, Delay and Disruption in Construction Contracts, LLP, 3rd ed, 2005, p624.15. FIDIC 4th ed. sub–clause 44.1 refers to what a contractor is ‘fairly’ entitled to and sub–clause 2.6 refers to the engineer taking in ‘all the circumstances’. Sub–clause 3.5 of FIDIC 1999 Red Book refers to the engineer ‘taking due regard of all relevant circumstances’.16. Winter J, et al, ‘One step forward, two steps back’, Civil Engineering Surveyor, November 2011, p36.17. Time at large is a common law concept which is not found within UAE law.18. Of course, the concept of ‘time at large’ does not exist per se in the UAE.

19. Winter J, ‘How should delay be analysed—Dominant cause and its relevance to concurrent delay’, SCL Paper 153, January 2009, p16.20. Winter J, et al, ‘One step forward, two steps back’, Civil Engineering Surveyor, November 2011, p38.21. Walter Lilly & Co. Ltd v GPC MacKay and DMW Developments Ltd [2012] EWHC 1773 (TCC) per Mr Justice Akenhead at [370]. It may be said that the English courts apply the test of causation mores strictly than in Scotland in this context.22. Many of the UAE’s larger construction projects have adopted either the FIDIC 1987 or 1999 forms of contract, both of which post–date the UAE’s Civil Code of 1985. This dilemma is compounded by reason of the fact that the FIDIC 1987 form can be traced back to the English ICE standard form which was drafted with common law principles in mind. 23. By ‘UAE law’ regard here is had to Federal Law No 5 of 1985 (the Civil Code), unless stated otherwise.24. Article 877 of the Civil Code provides that a contractor must complete in accordance with the conditions of contract, which, some would argue, means it must complete by the agreed time for completion.25. Article 386 of the UAE Civil Code may have a similar effect.26. Articles 287 and 291 of the UAE Civil Code may have a similar effect.27. There are ways whereby a contractor can possibly overcome this evidential burden.28. Article 257—UAE Civil Code, i.e. the contract (and terms thereof) is what the parties freely consented to.

29. See also, Articles 389 and 390(1) of the UAE Civil Code which expressly refer to the compensation fixed by the contract.30. Article 265(1)—UAE Civil Code.31. Sub–clause 8.2 FIDIC 1999 Red Book.32. This includes any extended time for completion.33. As intimated above, some might argue that Article 877 does not extend to obligations such as progress and completion.34. Sub–clauses 8.4 and 8.5 FIDIC 1999 Red Book.35. This is the Malmaison approach of the English courts.36. Contractors will often argue that its own delay was not a concurrent delay but merely a pacing delay.37. This is dominant cause approach and the Royal Brompton approach if there was no true concurrency.38. If the records are not available and/or the programmes have not been properly updated then a critical path analysis may not be possible. Moreover, a critical path analysis may sometimes be seen as too theoretical. This issue arose in one of the cases referred to above.39. Under the FIDIC forms of contract issues relating to timely notice (i.e. conditions precedent and time bars) and the level of detailed particulars provided would also be considered at this stage, but the legal status of the same is outside the scope of this article.

Dean O'Leary’s article was previously published in Al Tamimi and Company’s Law Update—April 2014. Reprinted with permission.


BOOK REVIEW

CONSTRUCTION CONTRACT VARIATIONSBy Michael Sergeant and Max WieliczkoPublished by Informa Law from Routledge, 2014 RRP $535.00 (hard copy), 386ppDr John Twyford, EditorACLN, Sydney

The authors point out that there are no specialist books on construction contract variations. There are of course a number of books on construction contracts and all must touch on the subject of variations. The classic texts Hudson and Keating do so but not always in the required detail. Many disputes revolve around valuation of variations but as the authors point out the subject is far more complex. The need to vary arises from several aspects of the transaction. Those aspects include: first, work is required outside the scope provided in the original contract documents, that is, the drawings and specification. How this is identified depends to some extent on the nature of the transaction. This will include work indispensably necessary and implied from the documents. A lump sum project will be looked at differently to a turnkey project. Perhaps a note of caution is needed here as in Australia your reviewer recollects that the expression ‘scope’ has an extended meaning? Second, the need to vary the work may arise from the materialisation of a risk undertaken by the contractor.

And, the need to vary the work could arise from some specific requirement of the employer (in Australia principal).The employer’s right to order a variation is usually drawn in very wide terms but must be exercised in accordance with the express terms of the contract. Examples of the variation clauses in the JCT, ICC and FIDIC standard contracts are compared. There are, however, implied (and sometimes express) limits on the power to order a variation. The work ordered might be work in the nature of that contemplated by the contract with the consequence that the payment for such work is regulated by the contractual machinery. Alternatively, the work may be so ‘peculiar’ or ‘unexpected’ in nature that it is not contemplated by the contract at all. In such a case the contractor is justified in refusing to carry out the work or be paid on a quantum meruit basis.The discussion of ‘scope’ is encyclopaedic running to 70 pages and starting with some basic rules of legal interpretation and how these rules apply. This discussion included a detailed summary of the English decisions dealing with scope of works. The materialisation of risks undertaken by the contractor may require the issue of an instruction to vary but not result in additional payment to the contractor. The most obvious example in the rectification of defective work may require design variations. Where the contractor warrants that a design is buildable that turns out not to be so is another example. This can arise in respect of the ability of the site to support the works. The book continues with detailed discussions of the duty to vary, variation instructions, changes in the absence of variation instructions and the valuation process.

The book is a valuable contribution to our knowledge on this somewhat arcane subject. A strong feature of the book is the way it has been divided into chapters detailing aspects of the subject. A good example being Chapter 8 ‘Variation Instructions’—here, as with the book generally, the law is easily found and clearly expressed. It includes detailed discussion of the decisions dealing with the subject and the relevant provisions in the international contracts available to parties to construction transactions. The discussion of the case law is excellent and the list of cases cited bespeaks careful research on the part of the authors. The citations include a number of Australian authorities, including a reference to this publication! The index is detailed and identifies references to other jurisdictions, including Australia, Canada, Hong Kong and New Zealand. To conclude, your reviewer notes that it is a book that will be indispensable to practitioners in construction law and should have a place in the appropriate University and Polytechnic libraries.


BOOK REVIEW

OLD LAW, NEW LAW—A SECOND AUSTRALIAN LEGAL MISCELLANYBy Keith Mason AC QCPublished by The Federation Press (Aust) 2014RRP $59.95 (hard copy), 208ppDr John Twyford, EditorACLN, Sydney

With the publication of his excellent book Lawyers Then and Now (reviewed in ACLN issue #149) Keith Mason filled an obvious gap in Australian legal literature. There have been in the past collections of amusing legal anecdotes recounting instances of courtroom humour. These have concentrated on the entertainment value of such courtroom exchanges without much regard for the underlying legal context. There was a crying need for an Australian equivalent of Sir Robert Megarry’s Miscellany-at-Law, a work of considerable scholarship and a whimsical outlook. Lawyers Then and Now filled that role perfectly with Old Law, New Law continuing this object and, as the author says, ‘us[ing] the prism of legal doctrines and practices to look at the quirky, ever-fallible folk of the law'. It is perhaps no coincidence that both authors were appellate judges.The work is divided into five parts, with each part further divided into chapters. By way of sample, Part 1 is headed ‘Men and Women’ with a chapter titled ‘A Little Chapter about Sex’. Here Huxley JA’s famous aphorism (concerning property claims between separating de facto couples) is quoted: ‘courts should not become alchemists transmuting the ashes of dead passion into gold’. In Part 3, the chapter titled ‘Cut, Thrust and Contempt’ contains a section on ‘A smattering of contempts’ where the true provenance of the reply ‘not wiser, your Honour but better informed’ is given. The expression was first used in an exchange between Griffith CJ and Walter Coldham. It would seem that the remark came to the attention of FE Smith KC who later made famous use of it. In reviewing Lawyers Then and Now, your reviewer was puzzled over the absence of stories about

Clive Evatt QC. I assumed that, having regard to the detailed research apparent in the writing of the book, the stories proved to be apocryphal! I was wrong and the story about a one-legged lady’s marriage prospects is included in the later work.In addition to the whimsical there are serious discussions in the work giving an insight how the law encroaches on most aspects of our lives. Chapter 12 is an excellent exposition of how the doctrine of precedent works and some of the quirks of the High Court. Chapter 14 includes an illuminating account of the attempts by the Federal Government to prevent the international communist Egon Kisch from landing in Australia. The attempted application of the dictation test reads like a comic opera bringing into sharp relief our xenophobia and bumbling bureaucracy. And in the end it turned out that Mr Kisch had something important to say. To conclude, the work is highly recommended as it is packed with fascinating anecdotes supported by meticulous research. I can corroborate what I have said by a ‘proof of the pudding statement’. My Christmas gifts to my nephew and brother are copies of the book!

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