Out-Law Analysis | 02 Jul 2021 | 11:28 am | 4 min. read
The prohibition is part of a suite of legislative interventions in the building and construction industry that will be brought about by the recently passed Building and Construction Industry (Security of Payment) Act 2021 (WA) (140-page / 701KB PDF (BCISPA).
The other changes that will be brought into effect by the BCISPA, which received Royal Assent on 25 June 2021, include a wholesale change to the existing security of payment and rapid adjudication regime, a mandatory notification regime in relation to calling on performance security and statutory trusts for retention monies on some government projects.
The changes to the adjudication regime will replace the well-tested and understood Construction Contracts Act 2004 (WA) (CCA) for all but legacy contracts.
The legislation has been passed by the Western Australian parliament in response to a recent high profile insolvency and, ostensibly, to bring the adjudication regime into harmony with the equivalent legislation in the eastern states.
The intention behind the legislation is well meaning and seems designed to remedy a perceived imbalance of power in the construction industry. However, there will inevitably be uncertainty around the application of the new rules which will have an impact on the industry. We can also expect to see an increase in litigation to clarify the operation of the Act, especially in relation to the time bar and security provisions, given the lack of jurisprudence from other Australian states and territories on those legislative interventions.
The introduction of this legislative prohibition aligns with recommendations made in the 2018 Murray Review of national security of payment legislation; and the 2020 Fiocco Review of the regime in Western Australia. It allows a decision maker such as a judge, arbitrator, expert determiner or adjudicator to declare that a time bar provision in a construction contract is “unfair”, if compliance with the provision is not reasonably possible or would be unreasonably onerous.
The prohibition extends to time bars that apply to payment for construction work undertaken; payment for related goods and services supplied; and extensions of time.
It is for the claimant seeking to argue that the time bar is unfair to prove its case.
The intention behind the legislation is well meaning, however, there will inevitably be uncertainty around the application of the new rules which will have an impact on the industry.
In determining whether a time bar provision is unfair, the decision maker must have regard to:
Interestingly, section 16 of the Act also provides that, if a time bar provision is declared “unfair” by the decision maker, it will only be of effect in respect of the particular entitlement that is the subject of the proceedings in which it was declared void. That is to say that the provision will continue to apply in respect of other challenges arising under the same contract. This further adds to the lack of certainty the industry can expect to face in relation to this intervention.
Given the novelty of the prohibition in the context of Australia’s security of payment laws, we can expect to see an increase in litigation while the courts clarify its application. Issues on which the industry may require further guidance include:
In the meantime, as there is no longer a sense of certainty surrounding the enforceability of time bars, the commercial benefit brought about by these clauses will likely evaporate.
We may also see behavioural changes in the assessment of claims which, prior to the new Act, would have been previously seen as contractually barred, and a need for time bar provisions in standard form contracts to be reviewed.
The prohibition may also create issues during construction: it is easy to imagine a return to the old ‘claimsmanship’ trick of stockpiling claims to run at the competition of a project. This would be a bizarre effect of an Act which is designed to improve cash flow through the industry.
Until the law on section 16 develops, providing more certainty on the operation of the new regime, it may be possible to draft time bar provisions in a similar way to liquidated damages clauses, so as to avoid time bars being deemed unenforceable – for example, by incorporating terms by which a contractor agrees that the notice based provisions are not unfair, which should also effectively bring the clause to the attention of the contractor.
Co-written by Alina Andres of Pinsent Masons
19 Mar 2021
28 May 2021