Time bar uncertainty in Western Australia payment security reform

Out-Law Analysis | 02 Jul 2021 | 11:28 am | 4 min. read

It will take time to see how a prohibition on ‘unfair’ time bars in Western Australia’s new security of payment legislation – the first of its kind in Australia – works in practice.

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.

Prohibiting unfair time bars

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.

David Ulbrick

David Ulbrick

Partner

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:

  • when the party required to give notice would reasonably have become aware of the thing that they are required to give notice about;
  • when and how notice was required to be given;
  • the relative bargaining power of each party;
  • the irrebuttable presumption that the parties have read and understood the terms of the construction contract;
  • the rebuttable presumption that the party required to give notice possesses the commercial and technical competence of a reasonably competent contractor;
  • whether, if compliance with the provision is alleged to be unreasonably onerous, the matters set out in the notice are final and binding; and
  • the provisions of any related contract or the things that happened under any related contract.

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. 

Issues with the prohibition

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:

  • the enforceability of contractual time bars;
  • what is deemed to be “not reasonably possible” and “unreasonably onerous”;
  • how much weight the decision maker can give to each factor prior to declaring a time bar provision as “unfair” – for example, how much weight would one assign to the irrebuttable presumption that the parties have read and understood the terms of the construction contract, which seems fairly important and usually a means of encouraging people to read their rights and obligations prior to signing the construction contract;
  • whether the decision of a court will be binding on non-judicial decision makers, as decision making factors will differ from contract to contract;
  • whether further declarations should be made under section 16 for other claims or proceedings.

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