CONSTRUCTION Alert: Construction work outside Queensland: can it still be subject to the BCIP Act?

Nov 24 2015

Publications

The construction of the multibillion dollar Wiggins Island Coal Export Terminal in Gladstone has been a contentious project.  Within the past twelve months, the proponent, Wiggins Island Coal Export Terminal Pty Ltd (WICET) and a joint venture between Monadelphous Engineering Pty Ltd and Muhibbah Construction Pty Ltd (MMM) – which was engaged by WICET to construct a jetty, ship berth and ship loader at the Terminal – have been adversaries in four different legal skirmishes before the Supreme Court and Court of Appeal. 

Click here to see our previous alert on the 2015 Supreme Court decision in Monadelphous Engineering Pty Ltd & Anor v Wiggins Island Coal Export Terminal Pty Ltd [2015] QSC 160, which clarified the law as it relates to whether temporary work under a contract is “building work”, for the purposes of the Queensland Building and Construction Commission Act 1991 (Qld). 

Last month Justice Philip McMurdo of the Supreme Court handed down another decision between those parties with important ramifications for Queensland contractors. The Court in Wiggins Island Coal Export Terminal Pty Ltd v Monadelphous Engineering Pty Ltd & Ors [2015] QSC 307 considered the important issue of whether a contractor is able to recover payment for work performed outside of Queensland through an adjudication brought under the Building and Construction Industry Payments Act 2004 (Qld) (the Act).  Justice McMurdo held that the contractor was able to recover payment through adjudication, despite the express territorial limitation provided for in the Act.

Background

WICET and MMM entered into two contracts whereby MMM agreed, by the first contract, to construct a jetty and wharf and, by the second contract, to manufacture, deliver, install and commission two pieces of equipment known as a “Shiploader” and a “Tripper” on that wharf (the Contract).  Importantly, the Contract provided for the equipment to be fabricated in Malaysia and delivered to Queensland for installation.  Following non-payment by WICET for works under the Contract, MMM lodged an adjudication application under the Act seeking payment from WICET. 

Section 3(4) of the Act provides that the Act “does not apply to a construction contract to the extent it deals with construction work carried out outside Queensland or related goods and services supplied for construction work carried out outside Queensland.”  The works for which MMM sought payment all pre-dated delivery of the equipment to Queensland, meaning that the entire claim related to work MMM had performed outside Queensland.  On the basis of section 3(4) of the Act, WICET argued that the adjudicator did not have jurisdiction to determine the adjudication.

The adjudicator disagreed, agreeing with MMM that the equipment were components of the wharf and their delivery was therefore the supply of “related goods” which, under section 11(1)(a) of the Act, includes “materials and components to form part of any building [or] structure”.  Ultimately, the adjudicator ordered WICET to pay MMM more than $22 million.  Unsurprisingly, WICET then brought an application to the Supreme Court of Queensland seeking to have the adjudicator’s decision set aside. 

Decision

Justice McMurdo rejected both the adjudicator’s reasoning and WICET’s submissions.  On a separate basis, His Honour affirmed the adjudicator’s decision and dismissed WICET’s application. 

Justice McMurdo agreed with the adjudicator that the Shiploader and Tripper were components intended to form part of the wharf, rather than a distinct structure intended to form part of the land as contended for by WICET.  However, he found that MMM’s obligation to fabricate those components meant that the Contract was for more than simply their supply.  Therefore, the Contract was not for the supply of related goods and services as the adjudicator had found, but rather was for “the prefabrication of components to form part of any building [or] structure… whether carried out on-site or off-site” that was “an integral part” of construction work (within the meaning of any of subsections (a) to (c) of that section).  On that basis, the work met the definition of construction work for the purpose of the Act.

Despite ostensibly being construction work that was carried out outside Queensland, His Honour held that it did not offend section 3(4) of the Act.  Justice McMurdo considered that the important consideration was not where the work was carried out, but rather whether the work was “an integral part of construction work undertaken inside Queensland”.  His Honour explained the decision as follows:

  • the purpose of section 3(4) is to “confine the operation of the Act to circumstances which have a relevant association to Queensland.”  It is inherent in construction work that it is carried out in relation to land.  It is logical therefore, that the requisite “relevant association” is the location of the land.  Essentially, this means that section 3(4) of the Act should be understood as being a territorial limitation on the construction site, not a territorial limitation upon where the work is carried out;

  • this interpretation is consistent with the Act as a whole.  For instance, in order to fall within the scope of the Act, “related goods and services” are required to be supplied in relation to construction work carried out in Queensland.  It is irrelevant whether or not the goods and services themselves are manufactured within Queensland.  His Honour highlighted the absurdity that would result from acceptance of WICET’s argument whereby suppliers of components for construction works in Queensland would enjoy the benefit of the Act, whereas those that had fabricated those same components outside of Queensland beforehand would not; and

  • whilst section 3(4) of the Act does contemplate the partial non-application of the Act, that is explained by the existence of contracts that provide for construction work to be undertaken in sites both inside and outside Queensland.  In this case, although there was construction work undertaken outside Queensland, it was only construction work because “it was an integral part of construction work undertaken inside Queensland”.  For that reason, it met the definition of construction work within the Act and could not also be “construction work carried out outside Queensland” as required by section 3(4) of the Act.

Ultimately, His Honour held that, despite the fabrication of the equipment being performed in Malaysia, by requiring that fabrication the Contract was “providing for part of the construction of a structure in Queensland and was, in the sense of s 3(4), “dealing with” construction work carried out in Queensland”.  On that basis, His Honour held that section 3(4) did not exclude the work which was the subject of the adjudication and dismissed the application.    

Consequences

Claimants and respondents should be aware that construction work performed outside Queensland may still be subject to the provisions of the Act, especially where the work is intended to form part of the land in Queensland (or has some other “close connection” with Queensland).  

In our view, this decision is particularly important given the increasing popularity of prefabricated and modular construction, with contractors across Australia eager to increase building efficiencies and minimise risks of weather or other delays.  This decision should provide welcome relief to those contractors who prefabricate components outside Queensland for installation within Queensland as, had WICET’s application succeeded, there is a strong likelihood that their rights to seek timely payment would have been severely diminished. 

On the basis of this decision, work that is likely to fall within the operation of the Act (with payment therefore recoverable by adjudication) includes the following, irrespective of whether the “work” is carried out interstate or overseas:

  • the manufacture of equipment to be fixed to a building or structure forming part of land in Queensland;
  • prefabrication of building parts to be used in construction of a building or structure forming part of land in Queensland; and
  • the fabrication of modular components to be fixed to a building or structure forming part of land in Queensland.

Written by:

Andrew Kelly | Partner | +61 7 3338 7550 | akelly@tglaw.com.au

Andrew Mackintosh | Senior Associate | +61 7 3338 7551 | amackintosh@tglaw.com.au

Joshua White | Graduate Lawyer | +61 7 3338 7939 | jwhite@tglaw.com.au