The Queensland Supreme Court delivered its decision in Monadelphous Engineering Pty Ltd & Muhibbah Construction Pty Ltd trading as Monadelphous Muhibbah Marine v Wiggins Island Coal Export Terminal Pty Ltd  QSC 160. The decision appears to have moved away from the previously accepted position that temporary works under a contract is ‘building work’, for the purposes of the Queensland Building and Construction Commission Act 1991 (Qld).
In December 2011, the plaintiff, Monadelphous Engineering Pty Ltd & Muhibbah Construction Pty Ltd trading as Monadelphous Muhibbah Marine (MMM) entered into a contract with the defendant, Wiggins Island Coal Export Terminal Pty Ltd (WICET), for the construction of an approach jetty and ship birth (or wharf) as a part of WICET’s coal export terminal. The total value of the contract was approximately $327 million.
As security for its performance, MMM provided four bank guarantees under the contract in the total amount of $32,929,687.72. In response to a delay for which MMM was allegedly responsible, WICET called upon each of the bank guarantees and received payment from the guarantors in full. Whilst MMM agreed that WICET was entitled to do so under the contract, it contended that the terms of the contract which allowed it to do so were qualified by the Queensland Building and Construction Commission Act 1991 (Qld) (the Act) in two ways:
(a) firstly, section 67K of the Act limits retention amounts and securities for a contractor’s performance to 5% of the contract price. The security provided by MMM represented about 10% of the contract price; and
(b) secondly, section 67J of the Act provides that written notice must be given to the contracted party advising of the proposed use of a security or retention amount. WICET provided no such notice.
WICET disputed the application of sections 67J and 67K of the Act on the basis of the contention that the contract was never a “building contract” within the meaning provided under the Act. Justice P McMurdo noted that the outcome of the case depended on whether that contention was correct.
Section 67AAA of the Act defines the term “building contract” as:
(1) a contract or other arrangement for carrying out building work in Queensland but does not include – (a) a domestic building contract; or
(b) a contract exclusively for construction work that is not building work.
“Building work” is defined in Schedule 2 of the Act as meaning:
(a) the erection or construction of a building;
(b) the renovation, alteration, extension, improvement or repair of a building; or
(c) the provision of lighting, heating, ventilation, air-condition, water supply, sewerage or drainage in connection with a building; or
but does not include work of a kind excluded by regulation from the ambit of this definition.
The case in question turned on the interpretation of the meaning of “of a kind”.
Schedule 1AA of the Queensland Building and Construction Commission Regulation 2003 (Qld) (Regulation) sets out the exclusions. Those which were relied on by WICET included work for a water reticulation system, sewerage system or stormwater drain, work on harbours, wharfs and other maritime structures, electrical work and earthmoving and excavating.
MMM accepted that the construction of a jetty and a ship berth at the end of that jetty would be within the exclusion provided by Schedule 1AA. However, it contended that it is common ground that a “building contract” be one in which only some of the work required is “building work”. In this respect, MMM relied on the construction under the contract of other work which was not of a kind excluded by Schedule 1AA, particularly, for example, site establishment and disestablishment including provision of construction offices, facilities and temporary fencing.
Two important propositions flow from the decision of Justice P McMurdo, both of which underpin the Court’s decision that the contract was not for “building work” and was not a “building contract” for the purposes of the Act where it involved temporary work. It appears to us that the propositions might be described as the narrow ground and the broad ground.
The narrow ground
The narrow ground relates to the Court’s willingness to interpret the exclusions set out in Schedule 1AA of the Regulation loosely, such that work “of a kind” of the excluded work is not “building work”.
Justice P McMurdo relied heavily on the decision of Justice Fraser in a related case in the Queensland Court of Appeal between the same parties. In that case, which considered largely similar issues, Justice Fraser determined that “the statutory criterion is not whether the relevant work is directly or indirectly necessary for the production of a structure described in an item” but rather “it is whether the work is of a kind stated in the item” as described in Schedule 1AA.
Justice P McMurdo, accepting that he was bound by Justice Fraser’s reasoning, emphasised the “temporary” nature of the works upon which MMM’s case relied. He concluded that a “building contract” is a contract for the construction of a fixed structure. He applied the same reasoning to each of the items of work upon which MMM relied as constituting building work and found that they all failed to meet this standard.
The broad ground
In addition to reliance on the decision of the Court of Appeal in relation to the excluded work, Justice McMurdo raised a separate ground for determining that the contract was not for “building work” and was not a “building contract”.
Justice McMurdo noted that a consideration of the excluded work in the Regulation was not even warranted because of the temporary nature of the work relied upon by MMM to demonstrate that it had performed building work.
The fixed structures to be constructed under the contract were the jetty and the wharf. As such, Justice McMurdo rejected the notion that the “temporary” nature of a building which was only built for the purpose of facilitating the construction of the jetty and the wharf (site offices and the like) could be considered a “building” for the purposes of the Act. For example, Justice McMurdo noted that it would be incorrect to describe a contract, which required the construction of a temporary site office, as a contract “for” carrying out the construction of that office.
On a combination of the narrow and broad grounds, the Court concluded that the contract was not a building contract under the Act and therefore sections 67J and 67A were not applicable. MMM’s claim was dismissed and WICET’s recourse to draw down on the bank guarantees was allowed.
The decision reinforces the Court of Appeal’s interpretation of the operation of the exclusions in Schedule 1AA. It seems that traditional building work, so long as it closely relates to building work which is excluded under the Act and also meets the critical requirement that it is temporary, will be considered “of a kind” of that excluded work and therefore will not fall within the definition of “building work”.
Moreover, the Court’s willingness to accept that a building which is constructed for a temporary purpose under the contract is precluded from being defined as “building work” appears to be at odds with the purpose of the Act and the licensing regime generally in Queensland, the purpose of which is to regulate the building industry in such a way which guarantees that contractors comply with relevant licencing and financial requirements. By disallowing a temporary structure from being classified as “building work”, it seems that those requirements would not be enforced on contractors engaged to construct such a structure.
Tom McKillop | Senior Associate | +61 7 3338 7530 | email@example.com