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A Year Like No Other: A Review of Building and Construction in 2021
What area(s) of law does this episode consider? | Developments in building and construction and real estate in 2021. |
Why is this topic relevant? | Building and construction was heavily impacted by the COVID-19 pandemic. Throughout 2021, in response to government measures to curb the spread of COVID-19, the construction industry was impacted by standdowns, shutdowns, vaccine mandates and protests. This episode looks at some of the moments and cases that defined the building and construction industry in 2021. |
What legislation is considered in this episode? | Building and Construction Industry Security of Payment Act 1999 (NSW) Design and Building Practitioners Act 2020 (NSW) Fair Work Act 2009 (Cth), Part 5-3 |
What cases are considered in this episode? | Bingo Holdings Pty Ltd v GC Group Company Pty Ltd [2021] NSWCA 184
The Owners – Strata Plan 89005 v Stromer [2021] NSWSC 853
White Constructions Pty Ltd v PBS Holdings Pty Ltd [2019] NSWSC 1166
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What are the main points? |
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What are the practical takeaways? |
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Show notes | Paul’s 2021 Year in Review for Construction Law Cases |
David Turner:
1:00 | Hello and welcome back to Hearsay the Legal Podcast, a professional development podcast for Australian lawyers and anyone else with an interest in the law. I’m your host, David Turner. Hearsay the Legal Podcast is brought to you by Lext Australia. Lext is on a mission to improve the user experience of the law and we’re doing that right now with how you experience CPD. In 2021, as a result of the COVID-19 pandemic, we saw construction temporarily pause in some of Australia’s major cities. In September, in response to the announcement of construction cores in Victoria due to widespread non compliance with COVID-19 site safety requirements, large crowds gathered outside the headquarters of the Construction, Forestry, Maritime, Mining and Energy Union and allegedly broke down the front door. On the other side of temporary stand downs in greater Sydney and Melbourne, construction workers and businesses resumed work in the midst of an ever changing mixture of density limits, face mask requirements, and vaccine mandates. Our guest today, Paul Folino-Gallo, an expert in building and construction law and a barrister at third floor Wentworth Chambers in Sydney joins me in the studio to look back at some of the most important moments in construction law in a year like no other. Paul, thanks so much for joining me today on Hearsay. |
Paul Folino-Gallo: | Well, thank you for having me. It has been absolutely an eventful year in the construction law space. I’m absolutely champing at the bit to take you through some of the more important aspects of not only the legal changes, but also the environment within which the construction lawyers are operating in. Keeping in mind of course, the number of pressures that operators have been labouring under within the construction space and how that has petered out into legal practice in this area. |
DT: 2:00 | Absolutely. I’m so glad you mentioned that. You know, it’s one thing to kind of track the legal developments in a particular discipline, but everyone practising in that area really does have to adjust their style, adjust their advice, adjust the pragmatic outcomes that they’re trying to achieve with their advice to the context, to the climate, and that obviously includes the extraordinary year we’ve had with COVID-19. Now Paul, tell us a little bit about your practice at the bar. Is construction law really your bread and butter? |
PFG:
3:00 | Yes, yeah, without a doubt. I came to the bar about 15 odd years ago. In that time I commenced with aspirations of working at the criminal bar, but as time went on, as the old adage goes, you become a function of the briefs that attend your doorstep. So probably within two years of me coming to the bar, I found that probably about 60 to 65% of my work was in building and construction with the remaining work coming from real property law, so they are indeed really well suited to one another, they fit quite well together – the real property law and the building construction law practises. Of course by necessary incident and I say this without sounding too cynical, but it’s always good to have a nice grounding in insolvency law as an annex to building construction for self evident reasons. |
DT: | Yes, absolutely. Those two do go together. I myself, as an insolvency lawyer for many years, often had to develop or maintain a working knowledge of construction law and I imagine on the other side of that coin you’re much the same. So what kind of issues did we see arise in construction law in 2021? What really defined the year? |
PFG:
4:00 | It was an exciting year for so many reasons, good and bad. For me, I should have mentioned this at the outset, one of the other areas in which I operate is in crypto space and FinTech, and at first blush one might think that it’s just a bolt on client service, it doesn’t really translate very well to building construction and real property but I found this year has been the first year which building construction really sought to harness some of the power of cryptocurrency, either by tokenising entitlements to shares in buildings, for instance |
DT: | Wow. |
PFG: | And there’s been a little bit of lateral thought around how we can use cryptocurrency in construction, principally by developers and builders and, to a lesser degree, that has led to some really interesting advice and nuanced advice as to what is a cryptocurrency. They’re really fundamental things at this point in time, but there seems to be some germination of some pretty interesting ideas as to, you know, how to, in effect, create securities around interest in property using cryptocurrencies or things of that nature. |
DT: | That is fascinating. I would never have thought that those two would go together. So, is that really tokenising the proprietary interest in the land or is that? |
PFG: 5:00
6:00
7:00 | Yes, and the conceptual difficulty, of course, for anyone who’s in the crypto space is, crypto usually is just this animal that’s free ranging and is not really tethered to anything, and in fact the second you tether it to something like real property, there’s a very compelling argument that that becomes a security and therefore with the categorisation of the security, comes a slew of regulations that crypto, in some respects, was conceived to avoid. So, as I say, there’s a lot of interesting work being done in that space. TIP: Blockchain technology, it’s the tech that underlies cryptocurrency, has sometimes been called a solution in search of a problem – but one area in which advocates of blockchain technology have been quick to call out is its potential use as a system of record for real estate transactions. Now, as a lot of you probably know, under the Torrens system of title registration, registration itself of a title transfer document is a source of indefeasible title. You might remember your property law lecturers saying that it’s “a system of title by registration” not “registration of title.” Of course, in an earlier iteration, before the Torrens system, so-called ‘Old System title’ required the continuous and personal possession of usually unregistered title documents – things like deeds and transfers – which could themselves suffer from loss, damage or forgery. Now, a proposed blockchain system of real estate title or other type distributed ledger technology is probably the closest we’ve conceptually come to a so-called perfect, immutable real estate ledger. While there are a lot of kinks to work through before that idea can become a reality, as Paul’s recent experience shows, blockchain’s application is being explored in a whole variety of areas of law already. But then, of course, moving away from the technological issues that have arisen over the past 12 months, obviously a lot of interesting law around COVID measures, what flow and effects that has had to the industry. A lot of questions have arisen not only in building construction, but also in real property and I say that because the real property law that’s come out of late really has honed in on what constitutes, for instance, a frustrating event for the purposes of contract. There’s been some interesting developments dealing with extension of time and the law itself or the case law, that’s followed has imbued how contractors are now negotiating with one another at the outset. So as I said, very, very interesting time to be in a building construction space, and there’s been some interesting cases. A lot of cases are still in their embryonic stages, so we still haven’t seen the full effect of COVID in case law, but there have been, as I said, some interesting decisions and some fairly strong indicators, I think, as to how things are going to be moving forward with respect to expected outcomes of cases that are on the list. |
DT:
8:00 | It really is a fascinating one to watch; the force majeure kind of space in contracting. I think a lot of companies wouldn’t have really revisited their force majeure clauses since maybe September 11. A lot of the precedent clauses are really drafted with events like war and terrorism in mind. I certainly saw plenty of them over the course of 2020, that didn’t contemplate any kind of health or pandemic event. They were really focused on the kind of military political character that defined the force majeure cases in the 20th century. Tell us a bit more about what you’re seeing there. |
PFG:
9:00
10:00
11:00 | The thing to keep in mind is look to the sort of common model and we talk about common law frustration. It is a very high watermark. The principle relief that the contractors will find will be within the express terms of the contracts as distinct from relying upon the common law principles of frustration and so there’s greater focus on the express words used and deployed in force majeure clauses to contemplate not only COVID-19 but those health orders and where governments have actually compelled closures that have resulted in delays and it’s important, David, not to really look at this too myopically either because the reality is that outside of simply the delays in construction by reason of work is being stood down, you know, one of the biggest issues that’s facing the building construction industry in Australia at the moment is supply chain and so you know the delays that are occurring in freighting transportation. I mean, oftentimes, it’s not that we forget, but we don’t really appreciate, we still are an island that is geographically significantly removed from the remainder of the world, and we rely so heavily on our ports, on transportation and logistics, and to the extent that that’s being interrupted on a global scale, that as a result that had significant impacts on the building construction industry, on the cost of actually putting a building up, and some of those were not foreseen. So, on top of nearly the attention to detail that’s required to actually drill down on force majeure clauses, there’s also been a lot of work done in allocation of risk within contracts. So, the question of who’s going to pick up the bill if there is a delay or increase in cost is also another live issue, and it’s one that, with respect, I think the building construction industry in Australia hasn’t really had to deal with in this way before because, you know, historically, given that we’re one of the most expensive housing markets in the world, it was difficult not to make a profit, irrespective of what your overheads were if you were constructing dwellings or residential apartments in Sydney it was money for jam. So we’ve now seen a change in ethos on that front, and so lawyers have sharpened their pencils, rightly so, and are really turning their minds to how do we allocate risk when it comes to tender? How do we engage in a tendering process that mitigates any risks for potential contractors? Which means, you know, negotiations have taken a completely different tenor than what they have historically. A great deal of importance has been placed on committing positions to paper when previously, you know, the old deal on the back of a napkin was sufficient. It’s been a huge change in the quality of contracts that I’m seeing coming out of negotiations in the wake of COVID. |
DT: | And are you seeing that at the kind of owner and developer level or are you also seeing that right down to the kind of subcontracting level? Because of course it’s at that subcontracting level where often arrangements are at their most informal and also where the cost and pain of delay is often most acutely felt when you know the the cost of that delay starts being imposed on the subcontractors on a daily basis. |
PFG: 12:00
13:00 | Absolutely. Thankfully, we’ve now reached a position as a legal marketplace. I think where we have new agents and, I can say expressly those names because they don’t brief me, new law firms like LegalVision, those types of services where they’re able to cap costs and provide sage advice to smaller contractors has seen an increase in sophistication of small contractors who now, in my view, are far more sophisticated than they were, say, 15 years ago when I started and understand the importance of appropriate risk allocation of ensuring that the deal is being properly documented, the things have been executed properly. There is an increased understanding of what can go wrong in the execution in the building, and as I say, I think that, if nothing else, the fact that margins are reigned in by reason of increased expenses, there’s really home contractors, attentions or subcontractors attentions to the importance of making sure things are right, because once upon a time, it might have been ‘well, we’ve got 10 jobs on the go. If we have to let one go, that’s Ok. The remainder of the jobs that we have on will cover the deficit and that’s not necessarily so anymore. |
DT: | No, and I suppose there’s a bit of attention there isn’t there, because on the one hand it sounds like contracts in the building construction space are becoming more formal, that there’s a more acute awareness of risk, and those kind of really frustrating events that could threaten the profitability of the whole project. And at the same time, there’s probably a need for flexibility, because if a week from signing, there’s a health order that requires them to stop working or stop work for six months. They need to be prepared for that. So how are construction businesses making that balance work? How are they balancing formality and certainty with the flexibility to respond to pandemic related health orders? |
PFG: 14:00 | It really comes down to ensuring that the deal is properly documented. I don’t want to bang on about this but it’s not something that can be dealt with in this way. The way that risk allocation is drafted into contracts, again, it’s become more nuanced. So, when we talk about for instance, extension of time clauses, when are they engaged? Who picks up the build for extension of times? In circumstances where there has been an order to pause work, in those circumstances who’s going to fund that delay, if anyone? The risk allocation profile is something that has been drafted into many extension of time clauses in a very particular, nuanced way to deal with the pandemic and what we’ve seen over the last year or two. |
DT: | It’s not even really a tradeoff. You’ve actually got to presentiate that kind of issue and say ‘well, let’s be really clear about how we are going to allocate risk if that happens.’ |
PFG: 15:00 | Absolutely, it’s the old adage of, you know, once I’ve been burnt, I remember that the next time I enter into a contract that I expressly deal with this issue so it doesn’t happen again. To be clear, it’s not only to avoid liability, but also, it’s to avoid litigation that can spend months and really bleed a company from resources coming to an answer in the face of ambiguity. These clauses are now being drafted willingly by parties on both sides who are happy to meet somewhere in the middle and make concessions where they have to simply to avoid having to go to court and duke it out for 14 days in the Supreme Court to figure out who picks up the bill. You know, it’s it’s, it’s it’s, it’s that. Well, I’m seeing a level of cooperation in the negotiation phase of contracting that perhaps wasn’t there, you know, two years ago and we’re all getting hard nosed at points in time where profits were great and things were more buoyant. |
DT:
16:00 | Now, with the construction pauses in Sydney and Melbourne and even outside of those pauses when worksites have had to operate with a reduced headcount because of social distancing or other health requirements, workers in the construction space have really been impacted by the changes to the industry as well. I mentioned the top of the episode, the CFMEU protests, outside of its headquarters in Melbourne in September. Can you describe some of the legal issues that you saw arise for workers in the construction industry? |
PFG:
17:00
18:00
19:00 | Absolutely. Again, a lot of these cases are yet to permeate through the courts. I mean, obviously we saw a series of challenges to health orders in the Supreme Court. But, and I think, and I say this with the greatest respect, that the outcomes were not necessarily all that surprising. The orders were held to be valid. They were also held not to in any way for us out of our Constitution. Insofar as the personal employees rights, when we talk about standing down employees, there is no real common law right to stand down employees. There’s only an express statutory right under the Fair Work Act, and I think it’s Part 3-5 of the Fair Work Act that says that an employer can stand down an employee where that employee can’t be usefully employed and it sets out a series of circumstances where that is permissible. When Part 3-5 was drafted, obviously, this well and truly predated the pandemic and so I expect that there’s going to be, if there has not yet been, further, discourses to how Part 3-5 is to be deployed in the face of the pandemic. I think intuitively and, again, I don’t hold myself out to be an employment law expert, the circumstances that have set out, although there’s no express reference to health orders or the pandemic that it’ll be found that Part 3-5 does contemplate events such as COVID-19 and the stand down orders that were being made by the government. So, I think that that’s again an interesting area that we will see some interesting case law surrounding, and as I say, I’m confident that the courts will find that to the extent that employees can’t be usefully employed as a result of the government directives that employers will be entitled to stand those people down, those employees down. And in circumstances where, for instance, I think the interesting part of all of this will be in circumstances where a job is then lost because keep in mind, a lot of construction jobs are transient, these jobs aren’t necessarily ones that stand years upon years. Going to be a life question as to when an employer will be entitled to consider an employee redundant, as distinct from simply stood down for the purposes of the health order. TIP: Now, a lot of you might have first-hand experience of this but the Fair Work Act 2009 (Cth) is our nebulous, sometimes contentious, always rapidly changing source of truth for a large part of Australia’s employment law system and Section 524(1)(c), found in Part 5-3 of the Fair Work Act, permits a national system employer – that’s a term which is itself maybe a topic for another day, but in summary it describes a significant proportion of employers in Australia – to stand down their employees during periods where they can’t usefully be employed because of a stoppage of work which the employer can’t be held responsible for – things like an international pandemic or the government-mandated lockdowns that follow one. |
DT: | If that project is only so long, there’s probably an argument that that stand down starts to look an awful lot like, constructively, a redundancy, if they’re not in a position to be reemployed anytime before the stand down ends. |
PFG:
20:00 | The government, as part of their advice package to employers, was really labouring the point that, you know, standing down employees should be a step of last resort. And I mean look, the reality is, again, when taken in conjunction with JobKeeper, there were certainly financial incentives not to stand down workers, and certainly not to make them redundant. So, I said earlier, we’ll see how some of the caselaw unfolds when it does, but having said that, again, a lot of the outcome of the effects of COVID throughout the case law is still yet to be seen because the Courts themselves have also been interrupted by reason of COVID. |
DT: | I was just going to say with that caveat that many of these issues around the effect of the pandemic in the construction industry, we will have to wait and see how those cases ultimately are determined, but even with the interruption of the pandemic, the Supreme Court of New South Wales has valiantly pushed on with its with its own business and there have been plenty of reported cases in the construction and technology list there. Tell us about some of the important cases of 2021 in the construction space. |
PFG:
21:00 | Absolutely. So, when we look at pre-COVID, we can start to see some of the cases that are trickling or did trickle through. Some of them have been significant and indeed one of the big issues, pre-COVID, was combustible cladding. It’s one of those issues that still has not been completely dealt with and there still is some resistance from some quarters in litigation between manufacturers, construction companies and, in particular, strata plans in terms of who’s going to foot the bill for removal of combustible cladding and then the reinstatement of certain aspects of buildings. |
DT: | I think there’s still two class actions in relation to manufacturers liability in the Federal Court on foot, and we had a couple of decisions on the liability of architects, developers, head contractors for combustible cladding. Tell us a little bit about that. |
PFG:
22:00 | And there are a number of others that are coming through, some of which I know I can’t get into too much detail about, but they are significantly sized projects that, throughout renovations and partial renovations, combustible cladding was used, and there are currently fights involving three or four parties being architects, designers, builders and insurers that underwrite them all as to who’s going to pick up the bill for the remediation works that are required. |
DT: | On the builders, architects, designers side of the fence, you have all of these statutory requirements in the building code of Australia but then you also have statutory warranties under things like the Australian Consumer Law, particularly for manufacturers around what purposes those goods are going to be fit for. |
PFG:
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25:00 | Absolutely, and look one of the things that has really been born out in a lot of the cases, and I’ll get to some of the other aspects in a moment, is the requirement for detailed preparation of cases and combustible cladding cases are no exception. I think for a while what had happened was we had a couple of well publicised combustible cladding manufacturers who were identified as being producers of cladding that had been used in previous projects that fell afoul of Australian standards and so, as part of the shorthand, there’s been several cases that I’ve seen where an expert simply has taken for granted the fact ‘well, this is a cladding. This is the manufacturer of that cladding. Ergo, the cladding is combustible cladding that falls afoul of the standards and BCA and accordingly it needs to be ripped out.’ And it’s not that simple, simply put. So, a lot of steps in logic were jumped and simply ‘oh, this brand of cladding is being used, therefore it’s simply a walkthrough to a damages claim,’ and so the courts have really, again, concentrated everyone’s minds to ensuring that the basics and fundamentals of each case are fully thought through and properly presented and that sentiment seemed to ripple through a number of cases. Certainly in cases involving apportionable claim. There’s a case of Bingo Holdings v GC Group Company Pty Ltd where, again, importance was placed by the Court of Appeal on ensuring that when someone portions a claim in their pleadings, not only do you identify the party, but you identify how and why the claim should be apportioned? Seems intuitive, David, but oftentimes as practitioners, we’re churning out pleadings and just take for granted sometimes that, well, you know the evidence will bear this out. There’s also the first opportunity for the Supreme Court to deal with the Design and Building Practitioners Act 2020 – Cohen v Double Bay Bowling Club No. 2, a 2021 decision by his honour Justice Stevenson. Again, this was a case in which the Home Building Act implied statutory warranties as pleaded, and then as an alternative cause of action, the pleader said ‘well, in the alternative, by reasons of the facts and circumstances set out, A to C being the breaches of the statutory warranties, the defendant is liable under the Design and Building Practitioners Act’ and His Honour Justice Stevenson presciently pointed out that the act creates a duty of care, but it’s not enough to simply plead it. You need to establish how that duty of care has been breached and that is a different exercise to simply pointing to a breach of statutory warranty because the statutory warranty aspect of a Home Building Actis a results based. I don’t care how you’ve breached the duty, the result is this doesn’t comply with the statutory warranties. So, it’s a different exercise to saying ‘well, no, no, you had a duty to build this structure in a particular way, and you failed by reason of not getting an appropriately qualified geotech or undertaking steps that constituted the breach of duty of care.’ |
DT: | It’s more about the path to the result rather than just the result itself. |
PFG: 26:00
27:00 | Precisely, precisely and not only have plaintiffs copped a bit of a battering by the Supreme Court on the way that they’re pleading cases. So too have the defendants. I think it was the case of The Owners Strata Plan v Stromer, which is S-T-R-O-M-E-R. In that case the plaintiff was, strictly speaking, out of time for pleading the breaches of statutory warranties. The defendant didn’t include a limitation defence in their pleadings, and the Court said that in those circumstances the limitation defence won’t be considered if it has not been expressly pleaded, which aligns, obviously with what we understand the UCPR to do in these cases but notwithstanding that this was part of what we understand the UCPR to provide for, it is a timely reminder of the importance not only to specifically plead statements of claims and cause of action properly, but also to be mindful in terms of taking care in ensuring that things like the limitation defences and the effluxion of time defences that they’re appropriately pleaded as well. TIP: Now, each year Paul publishes a review of building and construction cases decided in New South Wales and, for 2021, Paul’s building and construction review includes summaries digesting the facts and holdings over over 40 decisions. Now, many of the cases that Paul’s referred to in this episode are summarised and contained in that review. So, we’ll leave a link to Paul’s review in the episode summary for those curious to find out a bit more about these cases and this area of law. |
DT: | Paul, we’ve talked about the way the pandemic and the government interventions that have followed it have affected the building construction industry, but have any of your clients, or have any of the cases you’ve been working on been affected by the pandemic or have dealt with those government interventions? |
PFG: 28:00
29:00
30:00 | Yes, absolutely. And David I’ll start at the outset by saying that a lot of them are yet to be determined curially, but what I’ve found and it’s been with some utility that there’s been some really interesting cases. I think I alluded to this earlier in our chat that in the real property space, there’s been some really interesting decisions that I have taken as a bellwether for how the courts are likely going to be approaching anything that’s related to COVID-19, and delays in particular. And one of the big bearbugs of mine, particularly in extension of time cases, is first the difficulty of grappling with expert evidence in this area. Oftentimes, they’ll be ships in the night asking our experts when it comes to extension of time. Indeed, there was a case decided by His Honour Justice Hammerschlag only very recently, it might have been in the last year or two where His Honour actually had the assistance of an expert sitting beside him on the bench to receive expert evidence in this area. TIP: Now, in White Constructions Pty Ltd v PBS Holdings Pty Ltd [2019] NSWSC 1166 –Justice Hammerschlag had an expert sitting on the bench with him to assist him to make a call about the approaches taken by the party’s two competing expert engineering reports. Now, how was he able to do that? It’s not something you see very often and, personally, I’ve never seen it in practice but it’s possible. Rule 31.54 of the Uniform Civil Procedures Rules 2005 (NSW) permits the Court to be assisted by any person qualified to advise on a matter arising in the proceeding. It also allows the Court to act on that assistance in coming to a conclusion and there are similar provisions in other states. Justice Hammerschlag was assisted by Ian McIntyre, a fellow of the Institute of Engineers Australia, with many years of programming and delay analysis experience. Now, Justice Hammerschlag accepted that engineer’s advice and, in doing so, he noted in his judgment that rule 31.54 of the UCPR was a pretty useful rule, which was maybe not used as often as it should be by judges and advocates. Litigators, maybe rule 31.54 is one to mentally file away for future use. Now, if that’s not indication of how difficult this area is to navigate, that one of the sharpest, if not, the sharpest mind in this space sitting on the bench, is struggling to grapple with various aspects of that evidence, what chance does your average joe barrister have in dealing with it? |
DT: | I’ve never heard of that before. |
PFG:
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34:00 | It was the first time that I’ve seen it used, and in fact His Honour, actually had referred me to the judgments. He was sharing a building construction series in which I attended as a co-presenter and he made express reference to this case and I’ve read it. It’s very interesting to see how His Honour deployed the use of an expert to cut through this really dense expert evidence material. In the wake of that conversation it really impressed on me the fact that evidence in this space is becoming more and more difficult to grapple with and there’s going to be more of the same by reason of COVID and COVID related delays. And I think that the one piece of advice that I’m really hammering home to my clients in particular, and I think that I’m happy to say that in this forum, because I know that it’s shared experience by all, is pragmatism has to win out here. There is very little utility in taking technical points to advance your client’s case and there are qualifications to what I’m saying, but generally speaking there is very little utility in doing that if there’s a pragmatic way forward that sees all parties eat some of the loss, and in arriving at that the case that really underscored that and is likely going to be the approach taken by the courts, is the case of Darzi Group v Nolde Pty Ltd. It was a decision of His Honour Justice Robb from this previous year, so it’s 2021, and it was a case involving a commercial lease in which the parties were at odds as to whether or not one of the parties was entitled to relief and His Honour Justice Robb said in that case two things that were really important, in my view. The first is in circumstances, for instance, where it’s self-evident that a party meets the criteria for being entitled to COVID rent relief, for you not to accept that for you to call on certified documents or put someone to absolute proof is contrary to the spirit of the legislation, it’s contrary to the requirement to really act in good faith when dealing with a tenant and, in those circumstances, if it is found that a landlord that’s not been has not acted in good faith for the purposes of the COVID-19 rent relief regulations, that may very well disentitle the landlord from ultimately re-entering the premises for breach of lease and that that prohibition would on His Honour’s reading of the legislation would outlast the currency of the COVID relief regulations. So in short, if you don’t play ball, you will be shut out from being able to re-enter in perpetuity. There’s a significant case and one that for any real property lawyers or people who are operating in that space is worthy of a read. But the subtext of the judgement as well is the idea that, look, as commercial agents, sure you’re in litigation but we’re all in this together, to borrow a phrase, and that a wholesale disregard for pragmatism and an exercise in trying to find two points to disentitle someone from being able to get relief that common sense would suggest they’re entitled to, will not be met with great enthusiasm by the Court and I say that, obviously, without any disrespect to any of the parties who are acting in that particular case. Of course, the benefit of hindsight is when a judgement’s handed down that sometimes the scales are removed from the eyes and we all see where His Honour is coming from him and why His Honour may have taken the position that His Honour ultimately took, but it was a timely reminder in my mind, at least, of the need for pragmatism in these circumstances. |
DT: | Absolutely. Now, this is an issue that’s really predated the pandemic. It’s a perennial one in construction, and that’s the issue of defects liability and the remediation of defects. That’s an issue that can have serious flow on effects not only for owners, but occupiers, developers, subcontractors as well as the insurers that are underwriting all of those projects. What developments did you see around defects liability in 2021? |
PFG: 35:00
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38:00 | The big case is Liberty Special Markets v Icon Pty Ltd. For the uninitiated, Icon Co Pty Ltd Limited, when we see that we know we’re dealing with Opal Tower and Opal Tower, obviously, is a 37-storey residential commercial mixed use development was built in Sydney Olympic Park. Some four months after it was completed, so it was during the defects liability period, suddenly some residents heard some large cracks and, ultimately, all the residents were subsequently evacuated, and there’s currently some significant and substantially sized props keeping the structure from falling. Cracking in that building is incredibly severe and the premises themselves have been rendered, in effect, unusable. There’s been a lot of litigation surrounding who is liable. On what basis are they liable? This particular case dealt with Icon’s entitlement to indemnity under separate insurance policies that were issued to it by Liberty Specialty Markets and QBE. And this case really turned on what is a product for the purpose of the policy and, simply put, whether or not the Opal Tower constituted a product for the purpose of the policy and the Court really laboured in that case, the need for an approach to contractual interpretation that is inclusive of the entirety of the document and the implications to us as legal practitioners is that you know, interpreting a policy of insurance or any contract for that matter, is challenging at the best of times, but, again, it’s imperative that we look to the entirety of the language to construe the document and to understand how it should be construed according to its natural and ordinary meaning. Here the words are unambiguous, they can’t be ignored simply to reach a result that is apparently more commercially convenient. Simply put, you can’t do violence to the words of the express contract by reason of commercial convenience, or to contrive an outcome that’s contrary to the objects of the policy. The court has to consider the circumstances which the document, that is the contractor’s insurance, addresses and the objects that it intended to secure, and that can be obviously inferred by surrounding circumstances. Also, the literal meaning of words in a definition provision can’t be permitted to prevail where it would produce a result that’s not consistent with the object and purpose of the policy and so in this case, again, pragmatism was the winner and the Court took a pragmatic view of how the document should be constructed. Ultimately, in its decision the Court found that the entirety of the building was a product for the purpose of the policy and and accordingly that it was superficial to try and dissect in any other meaningful way other aspects or elements in the building as being products and that ultimately the corollary of that is the Court allowed the appeal, finding that the product the insurance product was the entirety of the building. |
DT: | As you said, pragmatism wins the day. That’s the natural conclusion that you’d draw. I think one of the last paragraphs of the judgement said that what Icon was involved in was the construction of a building, not the construction of, you know, individual parts that make up the fabric of the building. This is a case that’s concerned with the construction of a particular policy issued by a particular insurer, it’s not a question of statutory interpretation, but it would be interesting to see whether this approach is applied in some of the manufacturers liability cases that we discussed earlier around combustible cladding which raise similar issues, raise issues about whether a consumer good has been supplied to a consumer there, where you’re talking about an entire building supplied to a strata scheme or a body corporate. |
PFG: | Without a doubt, those types of arguments are definitely going to be traversed in the determination of those product liability cases, without a doubt. |
DT: 39:00 | Absolutely. I think we both mentioned at the top of the episode that there’s this natural confluence of construction law and insolvency law, and one of the areas where they often come together is security of payments. I imagine that’s been a particularly busy area for lawyers of your stripe, Paul, given that so many construction businesses have been facing reduced cash flow as a consequence of the pandemic. How have you seen that play out in the security of payments area? |
PFG:
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44:00 | Adjudication determinations have just been booming. Obviously, in circumstances where everyone feels as though they’re on each and everyone feels as though they are sitting on tenuous grounds. The idea of ‘let’s preserve and maintain relationships with our contractors, head contractors. So we’ll just sit on this payment claim,’ is all out the window. There has been a significant number of security for payment claims that I’ve been involved in and anyone who is swimming in this soup tends to give the same anecdotal evidence, that there is a great deal of work in this area at the moment. I will say that the work is by and large first instance work and what I mean by that is it’s payment claim, payment schedule, it’s adjudication applications. We are seeing fewer and fewer challenges being made in Supreme Court seeking prerogative relief or relief in the nature of social certiorari and that really is by incident of first the High Court’s rulings in Southern Han, but also the the Supreme Court continually has been handing down judgments that reiterate the position, the latest of which is Acciona Infrastructure Australia Pty Limited v Chess Engineering, in which the court held, yet again, that an an error by an adjudicator isn’t necessarily enough to get over the hurdle of a jurisdictional error but it depends on how serious that error is before the Court is willing to intervene. The countervailing point to that on first instance we see residents of the Court interfering with first instance, if I can call it that, adjudication. So, I don’t say reticence. Realistically, it’s the court has said that it does not have jurisdiction to interfere. The Court has also maintained in several cases where arbitrations have occurred, again adhering to the Arbitration Act, there’s only specific ways in which the Court can intervene. They’ve steadfastly adhered to the legislature in terms of where they can and cannot intervene and security for payments claims are no different. But to come back to your original question, David, it is a burgeoning area. There’s a lot of work around this area, and obviously and annexed to that is, in circumstances where adjudication determinations are not paid within time, I’m seeing a lot more of those registered as judgments and then statutory demand follows very quickly thereafter. Very recently I was involved in a case in which there was, in effect, a judgement arising from an adjudication determination that underpinned a statutory demand and I was acting for the builder in that case who sought to have the statutory demand set aside and we prevailed. It’s important to in mind when issuing a statutory demand pursuant to a judgement that’s being procured by operation of Security of Payments Act that you don’t over play that hand, and what I mean by that is still being mindful before issuing a statutory demand. Be alive to whether or not there are, for instance, chargebacks, whether or not there is a competing counterclaim or there is any other legitimate reason why a defendant or recipient of the statutory demand may have some grounds to resist an order being made against it. That was a classic case where a Security of Payments Act claim was made. The builder didn’t respond in time. The contractor had a favourable adjudication that then turned into a judgement. It then filed it as a judgement. Served with a statutory demand and all the time the builder had defects claims relating to the works that were in the offing. To add further insult to injury, David, it was also a case in which the subcontractor was aware that there was a deficits claim in the offering and that that resulted in adverse costs orders being made and indemnity costs orders being made. So, it really is important to ensure that caution is taken before taking that next step of issuing a statutory demand but having said that, I’m saying the more prevalent and it’s understandable, David, in circumstances where you’re a subcontractor, who has a number of workers who potentially are finding it difficult to get paid and timely fashion, one’s very sympathetic to the idea of ‘look, by any means necessary I’m going to fire off a document to try and get paid properly.’ But yeah, I had the cautionary tale. It’s just be slow to do so unless you really want firm grounds and that you’re confident there’s no other competing cross claim that’s available to the builder or the recipient of the statutory claim. |
DT: | Absolutely. I mean, you can understand the approach because, of course, the security payment system really is set up to ensure that you know timely payments are made to subcontractors, but I think we often forget statutory demands are not a mere debt recovery tool. They are a tool designed to be used where there is no genuine dispute, where there is no offsetting claim, where there’s a real risk of insolvency of the debtor and clearly that case that you’re involved in bears that out. |
PFG:
45:00 | Yes, absolutely. Again, without labouring the point, it’s a very difficult climate for smaller subcontractors to be in at the moment. With prices of goods going up and labour costs also increasing and one thing that we haven’t really touched on, but is also important is the labour shortage that has also arisen. And that spans both skilled labour and unskilled. It’s across the board in the building construction space. So that means. I’m having to pay more for my labour, I’m having to pay more for my goods and then I’ve also got liquidity problems because the guy above me or the company above me is holding our repayments. One can’t help but sympathise with a lot of subcontractors who find themselves in those positions at the moment. |
DT: | With those thinner margins, it’s no surprise there’s a few more disputes about who’s getting paid and when. |
PFG: | Yes, the only saving grace is that, at the moment, money is cheap, so there are plenty of lines of credit out there being used by small to medium enterprises. The concern that I have is, in the medium term, if small and medium enterprises do hang onto that debt, what’s going to happen in, say, three years time when interest rates start to inflate and the cost of that money now increases. Yes, I think there’ll be a little bit more insolvency to come, unfortunately. |
DT: | Yeah, absolutely. I think on the one hand, you have those Commonwealth backed fixed interest loans that are a little bit inoculated against the risk of rising interest rates but you also just have a general greater willingness to lend on more liberal credit criteria. |
PFG: 46:00 | Absolutely. Absolutely. |
DR: | And that’s absolutely where those potential future insolvencies could come from; from secured creditor appointments in a few years time. Just as a practical point around security payments work, you mentioned a lot of that, quote unquote “first instance work” includes the payment schedules. Given how quickly that payment schedule has to be served, do you find that clients are engaging counsel to assist with preparing that? |
PFG:
47:00 | Yes, look, absolutely, particularly the junior bar. No doubt we’ll get into this later on in our conversation, but the one thing that the pandemic has led to at the bar is there are fewer and fewer instances, particularly for junior junior barristers to get on their feet and actually advocate. With the advent of online courts, motions are all, but you know, a distant memory. I have readers who have read with me, who have now been put to their mettle to look for different areas to get work and I have been spruiking the benefits of actually approaching solicitors who, you know, are just overrun with these sorts of matters because if you act in this space and you’ve got three or four contractors, all you need is for a few of these to be fired off at the same time. And if you’ve got a modest workforce, and particularly over the festive season, which without me being too cynical, is when a lot of these claims materialise, you suddenly find yourself just overwhelmed with work and so it has been a rich vein of work for, particularly, the junior bar and those who understand the principles that underpin the Security for Payments Act. What do I need to establish? What do I need to respond to and how do I go about doing that in a cost effective way? |
DT:
48:00 | You know, even before the pandemic, some people talked about the death of oral advocacy, that there was increasingly a focus on written submissions, that there was increasingly a focus on evidence by affidavit, not a great deal of examination-in-chief but that so-called death of oral advocacy certainly has been accelerated, I think, in both the technology and construction list and the commercial list we’re doing motions on the papers now in all but the most exceptional circumstances. TIP: If you’re interested in learning more about the digitisation of Australia’s courts and the impact that that’s having on junior advocates, Hearsay episode 13 with barrister Talitha Fishburn looks at the impact of technology on old school courtroom advocacy, both before and during the COVID-19 pandemic. Give that one a listen after this. |
PFG: | Absolutely. |
DT: | For lawyers, whether they’re barristers, whether they’re advocates or solicitors who are doing construction, who are maybe just starting out in a building and construction practise or aspire to build a building and construction practise of their own, what would you say the key to building a successful practise in this space is? |
PFG: 49:00
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51:00 | There are several things that one can do to brush up and skill up in this area. I think the first port of call is to pick up a decent building construction handbook and just familiarise yourself with the general concepts that you’ll have to engage with on a day to day basis. That’s the length and breadth of my advice when it comes to hard skills. That, and probably pick up a copy of my papers that I do once a year that set out, in effect, or summarise the relevant cases in building construction law over the year. Yeah, look, quick plug but more to the point, I think that building construction law is one of those areas where someone is really well served by having a strong set of soft skills. To talk about the building construction industry as monolithic is folly. You’re dealing with architects, you’re dealing with builders, you’re dealing with subcontractors, you’re dealing with business owners. Being able to communicate effectively with that diverse range of people who speak their own languages who expect you to understand their day-to-day reality on the tools, that’s where the nuance is and the best operators in this area, the best counsel I’ve seen on their feet in this area all have that same quality of being able to sit down, look at an architect in the eye and say ‘I can speak your language’ or look a builder in the eye and say ‘I understand what you need to do to dig a trench to house the drainage pipe that you’re trying to install and I understand the difficulties that can beset you when you try and engage in that work.’ You know, we as lawyers are fairly well insulated, we’re not at the coalface of building construction per se, but being able to at least appreciate the work that they do, how that’s executed and paying them the courtesy of getting to understand their business is the non-negotiable. Once you understand and get a flavour for the type of problems that you’re called on to deal with in building construction, the biggest draw card that you can have in building a practise is understanding your clients, and I think that’s true of all areas of the law but in particular building construction lawyers, I thin, they are called on in a way that not very many other disciplines are to really understand the nuts and bolts of their clients and what drives them to make the decisions that they do on a day to day basis and, to that end, another really useful thing for young and aspiring lawyers to be involved in is there are a number of construction law groups as well as industry groups that have, you know, mixer nights, they have networking nights where you can go and introduce yourself to young developers, young builders. So there are fantastic networks out there – professional networks – that I can’t recommend highly enough to young and aspiring building construction lawyers. |
DT: 52:00 | Great advice, Paul, and so important to have that industry knowledge, not just in building construction law but in any area of the law where you really are embedded in an industry, so important for getting instructions from your own client, from understanding the evidence to conducting a cross examination, every interaction with someone from that industry, you really do need to be able to speak the language. |
PFG: | Without sounding too philosophical, as lawyers we deal in trust and sometimes the best way of invoking trust is to be able to. relate to our clients and also make concessions where those concessions are necessary. I’ll never understand what it’s like to dig a ditch. I can count the number of times on one hand that I’ve had to pick up a spade or shovel, but that’s not the point. The point is to just understand the situation they find themselves in. Once you’re able to do that, even the most difficult clients I’ve had have been able to put down their guard and say ‘right, we’re now talking as equals. What’s the problem? Here’s the problem. Let’s come to some sort of resolution that sees your interest protected.’ |
DT: | Absolutely. Paul, thanks so much for joining me today on Hearsay, and we’ll make sure to include a link to your 2021 Case Roundup in the show notes for this episode. |
PFG: | Thanks so much for your time, David, it’s been a pleasure talking to you. |
DT: 53:00
54:00 | Thanks very much. As always, you’ve been listening to Hearsay the Legal Podcast. I’d like to thank my guest today, Paul Folino-Gallo from Third Floor Wentworth Chambers for coming on the show. Now let’s see, in this episode we covered construction law, but also a little bit of employment law and a little bit of expert evidence. So, if you want to know more about the former employment law, our episode with Nicola Martin on how the gig economy is changing employment law is a great one to listen to, that’s episode 8. Or if you’re more interested in the latter, that’s expert evidence, you can take your pick between episode 10 with John Henry-Eversgerd, evaluations expert, or with Matthew Hudson, forensic accounting expert. As you know, if you’re an Australian legal practitioner, you can claim one Continuing Professional Development point for listening to this episode. Of course, whether an activity entitles you to claim a CPD unit is self assessed, so you have to make the call but we suggest this episode entitles you to claim a substantive law point. More information on claiming and tracking your points on Hearsay can be found on our website. There are less than three weeks left to go to get your CPD points. Now you, you’re all set, you’ve got a Hearsay subscription, but think of all your lawyer friends or your team members still being subjected to boring PowerPoint slides over lunch, or chained to their desk, watching an old recorded seminar on the firm’s shared Drive. Give them the code ‘referee2022’ to enter at the Hearsay checkout and they’ll get 25% off a new subscription. That’s ‘referee2022’. Hearsay the Legal Podcast is brought to you by Lext Australia, a legal innovation company that’s out to change how you experience the law and legal services, and that includes CPD. Now, just before we finish up, I want to ask you a favour. If you like Hearsay the Legal Podcast, please leave us a Google review or a rating on Spotify. It helps other listeners find us and that keeps us in business. Thanks for listening and we’ll see you on the next episode of Hearsay.
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