Procedural Changes to Building and Construction Law in SA
Speaker: Robert Fenwick Elliott1 – June 2011
This paper deals with three procedural matters in relation to building and construction
disputes in South Australia:
1.
the recent interest in taking cases to the Federal Court instead of the State courts;
2.
a recap on the Worker’s Liens Act; and
3.
an update on the Building & Construction Industry (Security of Payment) Act 2009,
and a preview of the challenges that practitioners will face when the legislation
comes into operation with effect from 9 December 2011.
Use of the Federal Court for Construction Disputes
As you will all probably know, what used to be section 52 of the Trade Practices Act has now
been reincarnated as section 18 of the Australian Consumer Law, which appears as a
schedule to the Competition and Consumer Act, 2010. The Act is something of a misnomer;
it is certainly not limited to competition or consumer issues. Section 18 provides as follows:
18 Misleading or deceptive conduct
(1) A person must not, in trade or commerce, engage in conduct that is misleading or
deceptive or is likely to mislead or deceive.
(2) Nothing in Part 3-1 (which is about unfair practices) limits by implication subsection (1).
This section has been very successfully used in construction cases to found cases in the
nature of misrepresentation claims. The most ground in this area has been covered by a
series of decisions in the case of Abigroup v Sydney Catchment Authority2. In short, the facts
1
Barrister and Solicitor of the Supreme Court of South Australia, Lawyer of the Supreme Court of New South
Wales and Solicitor of the Supreme Court of Judicature of England and Wales, Partner of Fenwick Elliott Grace,
Adelaide, and Consultant to Fenwick Elliott LLP, London
2
[2003] NSW SC 634, adopting the report of the referee at the first instance, [2004] NSW CA 270, overturning
that decision and remitting the matter to the trial judge for rehearing, [2004] NSW CA 459, varying the
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of that case were that Abigroup tendered for a project upon terms which included
wholesale “no representation” clauses, it then encountered rock where it was not expecting
to find it, and sued for misrepresentation on the basis that the principal did in fact possess
an old plan which would have potentially alerted the parties to the presence of the rock. In
the event, the contractor recovered its losses as if there had been a warranty concerning
the rock.
It is worth noting straight away that South Australia has a Misrepresentation Act, 1972
which follows the model of the English legislation from 1967, section 7 of the SA Act
provides as follows:
7—Damages for misrepresentation
(1)
made—
Where a contracting party is induced to enter into a contract by a misrepresentation
(a)
by another party to the contract; or
(b)
by a person acting for, or on behalf of, another party to the contract; or
(c)
by a person who receives any direct or indirect consideration or material advantage as a
result of the formation of the contract,
and any person (whether or not he or she is the person by whom the misrepresentation was made)
would, if the misrepresentation had been made fraudulently, be liable for damages in tort to the
contracting party subjected to the misrepresentation in respect of loss suffered by him or her as a result
of the formation of the contract, that person is, subject to subsection (2), so liable to that contracting
party, in all respects as if the misrepresentation had been made fraudulently and were actionable in tort.
That section is in very similar terms to the UK section, which is frequently used in UK
construction cases3. The legal text books are almost silent on this Act4 and it probably
represents a more powerful vehicle for recovering damages for misrepresentation in
construction cases than the Federal legislation, not least because damages under the South
Australian Act are recoverable on the enhanced fraudulent measure. Be that as it may, it is
normal and sensible for there to be a plea under the Federal legislation as well as under the
South Australian legislation.
previous order under the slip rule, [2005]NSW SC 662, finding for the claimant on liability, but not allowing all
of the claimed loss, [2006]NSW CA 282, allowing an appeal on quantum, [2007]NSW SC 220, revisiting the
quantum and [2007] HCA TRANS 146, in which the High Court of Australia refused special leave to appeal
3
Interestingly, the great majority of those cases settle, and whilst it is very common to see pleas based on the
Misrepresentation Act, leading to settlements, there is precious little decided authority
4
Perhaps because there is an equivalent act in the ACT, but nowhere else in Australia, where the text books
are written
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For this reason alone, it is probably fair to say that, as often as not, a substantial
construction dispute in South Australia does now include at least an element of plea under
the Federal legislation5.
At the same time as this increased use has been made of Federal legislation, there have
been a string of cases which have demonstrated that litigation of construction issues in the
State court system is hardly prompt. By way of example:

the Full Court handed down its eventual decision in Cook v Lumbers in 20076, some 7
years or so after the commencement of litigation. In the event, of course, this decision
was overturned by the High Court the following year7.

There are a number of cases currently before the State courts which have been on foot
for many years.
With these considerations in mind, Justice Bruce Lander of the Federal Court was invited to,
and did, deliver a paper on 22 February 2011 dealing with the circumstances in which the
Federal Court was willing and able to deal with construction cases.
He indicated that the key statutory provision is section 39B(1A)(c) of the Judiciary Act, 1903,
which gives the Federal Court jurisdiction in any “matter” arising under any laws made by
the Parliament [other than criminal matters]. Justice Lander noted that “matter” has a very
wide meaning and includes all claims, including non-Federal issues, arising out of the same
sub-strata of facts. In other words, if at least part of the claim is a Federal issue, then the
Federal Court has a discretion, which it will exercise, to also deal with the non-Federal
aspects of the case.
Justice Lander was plainly giving a green light to bringing proceedings in the Federal Court
where at least part of the claim can be framed in terms of the Federal legislation; he said:
“The scope of the Federal Court’s jurisdiction is undoubtedly wide. The effect of
the Court’s accrued jurisdiction is that it may hear and determine contractual
claims brought in conjunction with claims under a Federal statute such as the
Trade Practices Act. For this reason, practitioners should not be slow to approach
the Federal Court when seeking contractual relief, notwithstanding the
jurisdictional limitations I have outlined.”
5
What used to be the Trade Practices Act, and is now the Australian Consumer Law
6
[2007] SASC 20
7
[2008] HCA 27
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It is not uncommon for construction claims to include at least some
misrepresentation element but there is at least one and possibly two extensions
that may be of particular importance:

First, even if conduct does not fall into the category of a misrepresentation, it
might nevertheless fall within the scope of unconscionable conduct within the
meaning of section 22 of the Australian Consumer Law, which provides as
follows:
“A corporation must not, in trade or commerce, in connection with:
(a) the supply or possible supply of goods and services to a person (other than a
listed public company); or
(b) the acquisition or possible acquisition of goods and services from a person
(other than a listed public company)
engage in conduct that is, in all the circumstances, unconscionable.”
What is unconscionable is not clear, but it seems fairly broad. In ASIC v National
Exchange Pty Ltd (2005) 148 FCR 132, the Full Federal Court held, construing the
previous Trade Practices Act provision that:
“’Unconscionable conduct’ on its ordinary and natural interpretation means doing
what should not be done in good conscience.”
This includes, for example, threatening to call on a demand guarantee in circumstances
where the guaranteed amount is not in fact due. Other examples might include, for
example, threatening to terminate a contract in circumstances where it is not fair to do
so. Similarly, in all sorts of cases where a party unreasonably relies upon notice
provisions, it might be possible also to maintain a case in unconscionable conduct.

A separate and discrete issue arises in relation to certification. The law in South
Australia is unclear as to whether or not an action will lie against a certifier for
negligence in failing to certify under a construction contract. It is, I would
suggest at least arguable that a failure of a certifier, even bona fide, to certify
what is in fact due under a contract, might be regarded as misleading. After all,
an inaccurate audit is capable of founding an action for misleading conduct, and
a fortiori a certificate under a construction contract might well be regarded as
misleading if it fails accurately to perform its intended purpose, namely to state
the sum that is in fact due at that time under that contract.
Justice Lander was careful to point out that the success of an action in the
Federal Court is not dependent upon the success of the Federal element of the
claim, and it may well be that we will see a significant rise in the number of
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claims brought with a Federal law element sufficient to justify the issue of
proceedings in the Federal Court.
There is no jurisdictional limit on what claims might be brought in the Federal
Court, but obviously the Federal Court is not intended and does not see itself as
an alternative to a low level court, and Judge Lander indicated as a rule of
thumb that the sort of case that the Federal Court might be disposed to deal
with would be a case where at least $100,000 is at stage. Query whether the
Federal Magistrates Court represents an alternative for smaller cases?
A Recap on the Worker’s Liens Act: The Recent Cases
The Worker’s Liens Act has been providing a steady stream of litigation since 1893; there are
currently about 125 lien registrations a year.
A very brief recap on what the Act is all about:

The Act is almost never used for its primary purpose of providing security for workers.
Instead, it is used by contractors and subcontractors to obtain a lien, which is in the
nature of a caveat over the owner’s title.

To ultimately succeed, a contractor has to show that there is an unpaid contract price
payable to him.

A subcontractor must show not only money due to him, but also money due “up the
line” by the owner to the intermediate contractor. The cases are divided as to whether
the head contract sum must be presently payable or payable in the future.

The subcontractor is also entitled to a charge which attaches to the debt due by the
owner to the head contractor.

Under the Act, there is an artificial “due date” which is either expiry of 7 day demand
under section 10(2)(a), or one of the insolvency events listed at section 10(2)(e).

There are strict time limits; the lien has to be registered within 28 days of that artificial
due date (section 10(1)) and then proceedings have to be brought within 14 days from
the registration of the lien (section 15).
The legislation is a remarkably unsuccessful weapon in terms of final result. Estimates vary
from about 2% to about 5% for the totals claimed ultimately found to be enforceable but
the Act remains a powerful weapon in terms of the commercial leverage that it can provide
in an appropriate case.
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To illustrate the recent treatment of the Act by the courts, I have taken 7 relatively recent
cases8, and hooked out some points of importance.
Pegasus Gold v Metso Minerals [2003] NTCA 03
This is the oldest of the cases that I have taken, but I do so because it seems to me its full
significance has yet to be worked through.
It is often assumed that the Worker’s Liens Act applies to all construction contracts, but in
fact the Act only applies to contracts for “work”, and “work” is defined to mean “every
description of manual work or personal service”.
This case concerned mining equipment, including crushers, secondary carbon recovery and
trash screens and pumps. The equipment was bolted to framework which was itself bolted
down to concrete standings. On the facts, the Supreme Court of the Northern Territory
Court of Appeal found that this equipment had not become part of the land, and thus was
not lienable. Of wider importance, however, is what Mildren J said at paragraph 30:
“I do not see how a large mechanised mining operation can possibly fall within
the definition of ‘work’”.
If a mining operation is excluded because it is not manual work, the same might be said for
other work, such as road building or large scale concrete works which are essentially
mechanised operations.
Sarah Constructions v Phillips (2007) SABSC 137
The point I want to focus on from this lengthy judgment is a short point towards the end of
the judgment: even where a contractor is entitled to interest pursuant to contractual
provision, the contractor is not entitled to a lien for that interest.
Eichler Earthmovers v Speke Hall (2009) Worker’s Liens Casebook page
404
This is a Master’s decision from the District Court, but illustrates the application of the
binding decision in Ambir v Paspalis [2003] NTSC 22: a demand made for a sum other than
the properly due “contract price” is ineffective, such that enforcement proceedings based
on that demand are susceptible of being struck out. Thus, if a demand contains a claim for
interest, the plaintiff’s claim may be summarily dismissed.
8
The Worker’s Liens Casebook: Robert Fenwick Elliott page 49
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Cubelic v Civil Works [2008] SADC 41
The effect of section 6 of the Building Work Contractor’s Act is that if a contractor does not
have the requisite licence, then he is not entitled to recover under the contract. He is,
however, nevertheless entitled to a quantum meruit.
This case decided that in those circumstances the contractor is not entitled to a lien.
It seems reasonably clear that what the judge had in mind in this case was a quantum
meruit arising in restitution. A more difficult question arises as to whether a contractor may
maintain a claim for a lien where he has elected to treat a repudiatory breach by the owner
as bringing the contract to an end, and then exercised his further election to recover on a
quantum meruit basis. It is arguable that, in those circumstances, the quantum meruit is
not a restitutionary quantum meruit but a contractual quantum meruit, in which case it
would fall within the statutory definition of a contract price.
Badge v Rule Chambers [2007] SASC 417
Two points arise from this Full Court decision. First, the case provides an illustration that it
is possible to contract out of the Act. It is a matter of some surprise that more contracts
drafted by owners do not contain agreements not to lodge liens, and even more a surprise
that subcontracts drafted by head contractors do not contain similar provisions.
Secondly, the claim for a lien failed because the contractor needed a certificate but did not
have one. This may not be the end of the story, because it seems that a contractor may be
able to circumvent the decision if he is able to make a case for breakdown in contractual
machinery, so as to remove the contractual requirement for certification. Cases such as
John Barker v London Portman Hotel suggests that that test may more easily satisfied than is
generally supposed.
ADX v Adelaide Fibrous Plasterboard [2009] SADC 7
There are conflicting decisions as to whether or not a lien confers secured creditor status. In this
case, the District Court preferred the earlier Full Court decision in Re RGP Constructions (1982) over
the later single judge decision in Re Trademark Homes (1996): a lien does not confer secured
creditor status.
Simmons v Burge (2010) Worker’s Liens Casebook page 773
This is a Magistrates Court decision, and so not a binding authority, but nevertheless of
interest in a couple of respects.
First, the court applied the decision in Palyaris v Kauri Timber [1979] 24 SASR 41; if there is
an insolvency event, the 28 day clock starts ticking for the purpose of registration,
regardless of the timing of a section 10(2)(a) demand. The effect of this is that, if a claimant
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does not know about the insolvency event, his right to a lien may be lost without the
claimant knowing of it.
The second point concerns the sanction for improperly claimed liens. There is a provision
under section 34 for a $20 sanction – that amount never having been increased since 1893 –
and in practice an indemnity costs order might provide a more powerful disincentive for
bringing unmeritorious lien claims. In this case, the court was satisfied that it did have
power to make an indemnity costs order, but on the particular facts decided the
appropriate order was 90% of the Supreme Court scale for the summary judgment
application.
An interesting side point concerns the untested possibility of bringing proceedings for
malicious prosecution where a lien is claimed without reasonable and probable cause.
Following the decision in Owen v South Australia [1996) 66 SASR, it is now permissible to
look at the Hansard record, which shows that the Attorney-General successfully rejected
attempts to debate to increase that amount on the basis that “other penalties were
provided”9.
If a claim for malicious prosecution were to be sustained, damages might well include any
losses suffered by the lienee by reason of being unable to deal with his property pending
removal of the lien.
An Update on the Building and Construction Industry (Security
of Payment) Act 2009
This legislation was passed in December 2009 on the basis that a commencement date
would be proclaimed. So far, no commencement has been proclaimed, but there is a long
stop provision at section 7(5) of the Acts Interpretation Act 1915 whereby, in the absence of
proclamation, the Act comes into operation automatically on its second anniversary.
Accordingly, unless the legislation is repealed in the meantime, it will come into effect in
December, and the Government has now set a programme with a view of the legislation
coming into operation by 9 December 2011. A minister has been committed, namely the
Hon Gail Gago MLC, Minister for Consumer Affairs.
A discussion paper will be circulated in June 2011 for the consultation period of 3 or 4
weeks, and the regulations are anticipated by August 2011. In August 2011 and September
2011 there will be applications for nominating authorities etc with OCBA putting in place an
educational programme in October 2011 and November 2011.
9
Worker’s Liens Casebook page 864
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The President of the Law Society made a submission the other day seeking to prevent the
introduction here of the East Coast practice, whereby commercial operators fulfil the role of
adjudicating nominating authorities, charging a kick-back of 40% to the adjudicators that it
appoints. It remains to be seen whether the Government will want to ensure that the
adjudicating nominating authorities are the professional bodies. If the East Coast regime
were to be implemented here, a question arises as to whether the commercial adjudicating
nominating authorities would run foul of the prohibition of secret commissions under Part 6
of the Criminal Law Consolidation Act 1935.
We do not know what the take up rate will be, but on the assumption that the take up rate
will be similar to the East Coast, there might be something of the order of 400 adjudications
a year in South Australia, or about 3 times the number of Worker’s Liens Act cases.
Practitioners in the field might find that something in the order of ½ of their workload will,
within 2 or 3 years, be concerned with adjudications and the Act.
The main challenge that practitioners will face is one of the very short time scales. The
legislation contains a number of drop dead dates, and the import of the legislation is that
missing these dates is fatal.
The Interaction Between the Worker’s Liens Act and the
Building and Construction Industry (Security of Payment) Act
In the Northern Territory, the legislature carefully considered the inter-relationship between
adjudication and worker’s liens, and concluded that the two could not sensibly co-exist.
Accordingly, the Northern Territory repealed the Worker’s Liens Act there when introducing
its Construction Act (on the West Australian model).
There are potentially a number of uncomfortable and problematic inter-relations between
the two pieces of legislation. The following tentative suggestions are made:

The dates when money is deemed due under the SoP legislation will impact on when
sums are to be treated as “presently payable”, but will have no other direct 10 bearing on
when money is deemed due under section 10(2) of the Worker’s Liens Act;

The commencement of adjudication will not satisfy section 15 of 7(3) of the Worker’s
Liens Act;

An adjudication certificate will not qualify as a certificate of judgment under section 24
of the Worker’s Liens Act as proving that an adjudicator’s decision as to what is due is
truly due;
10
There was no application for a stay in Daniels v Sabemo, although von Doussa J did consider at paragraph 17
what the position would have been had there been such an application; see page 286 below
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
Neither will an obligation to satisfy an adjudicator’s decision be treated as contract price
payable under the Worker’s Liens Act.
The first of these points is likely to be the most important. The way is that BaCISoPA works
that a claimant – a contractor or, more commonly, a subcontractor or supplier – is entitled
to serve a payment claim on his employer (known in the legislation as the respondent) and if
the respondent does not serve a “payment schedule” within 15 working days, then the sum
that has been claimed becomes due. Section 14(4) provides
“If –
(a) a claimant serves a payment claim on a respondent; and
(b) the respondent does not provide a payment schedule to the claimant –
(i) within the time required by the relevant construction contract; or
(ii) within 15 business days after the payment claim is served,
whichever time expires earlier,
the respondent becomes liable to pay the claimed amount to the claimant n the
due date for the progress payment to which the payment claim relates.”
Experience of similar legislation suggests than in very many cases, the respondent will fail to
serve a payment schedule within the required 15 days, either because he does not know
about this legislation, or because the administrative burden of providing these payment
schedules proves overwhelming11. Accordingly, there are likely to be many cases where a
respondent becomes liable to pay under BaCISoPA.
So, if the respondent is liable to pay under BaCISoPA, is the sum in question not
automatically payable for the purposes of the Worker’s Liens Act? Probably so. There may
be a question as to whether such a sum is deemed due, so to speak, under BaCISoPA is
“contract price”, which is
“the money payable to any contractor or subcontractor for any work, or materials
furnished or to be furnished in connection with work, under any contract, and
whether such price has been fixed by express agreement or not12.”
Is a sum payable under section 14(4) of BaCISoPA payable, under the contract, or pursuant
to statute, or some combination of these? It seems that the intention and effect of
11
Head contractors may well find that they need to serve hundreds or even thousands of payment schedules
per month if they are to avoid section 14(4) liability to each of their subcontractors and suppliers.
12
Section 2. Emphasis added
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BaCISoPA is to modify contractual rights, not to supplant them, and thus a sum payable
under section 14(4) of BaCISoPA may well, it is suggested, be “payable” for the purpose of
the Worker’s Liens Act.
The consequence of this may well be profound, at any rate on a black letter reading of the
legislation, in light of section 15 of BaCISoPA, which prohibits the raising of any defences to
an action to recover a section 14(4) debt:
15 – Consequences of not paying claimant where no payment schedule
(1) This section applies if the respondent –
(a) becomes liable to pay the claimed amount to the claimant under section
14(4) as a consequence of having failed to provide a payment schedule to
the claimant within the time allowed by that section; and
(b) fails to pay the whole or a part of the claimed amount on or before the
due date for the progress payment to which the payment claim relates.
(2) In those circumstances, the claimant –
(a) may –
(i)
recover the unpaid portion of the claimed amount from the
respondent, as a debt due to the claimant, in a court of
competent jurisdiction; or
(ii)
make an adjudication application under section 17(1)(b) in
relation to the payment claim; and
...
(4) If the claimant commences proceedings under subsection (2)(a)(i) to recover
the unpaid portion of the claimed amount from the respondent as a debt –
(a) a judgment in favour of the claimant is not to be given unless the court is
satisfied of the existence of the circumstances referred to in subsection
(1); and
(b) the respondent is not, in those proceedings, entitled –
(i)
to bring a cross-claim against the claimant; or
(ii)
to raise a defence in relation to matters arising under the
construction contract.
The intention and effect of this section is to enable the claimant to obtain summary
judgement. There would appear to be no obvious reason why a claimant contractor may
not take the following course:
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
Make a payment claim under BaCISoPA (taking care to ensure that it is not also a section
10(2) demand13)

If and when the owner fails to serve a payment schedule within 15 working days, and
the time for payment under the contract has arrived, make a section 10(2) demand;

Register a lien;

Issue enforcement proceedings for the sum claimed;

Seek summary judgment for the sum claimed and an order for sale of the property by
way of enforcement.
The bizarre conclusion appears to be that a claimant may thus obtain an order for sale on a
summary application notwithstanding that the sum claimed may never have been due
under the contract14. It is hard to believe that the courts will feel comfortable with such a
result, which appears to result from the legislature not having thought through the impact
of the default provisions in BaCISoPA.
Robert Fenwick Elliott
June 2011
13
Easily done by serving without any personal delivery or registered letter
14
Or, to be more precise, would not have been due but for BaCISoPA
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