As the dust slowly settles post the August 2022 introduction of WA’s new SOP Act, I’ve taken a bit of a dive into one of the most significant changes introduced by that Act – the ability of decision-makers to override notice based time bar provisions.
What does section 16 say
The three main subsections of s.16 that will have to be considered by a decision maker are ss.2, 6 and 7.
Subsection 2 provides:
A notice‑based time bar provision of a construction contract may be declared under this section to be unfair in the case of a particular entitlement under the contract if compliance with the provision in that case –
- is not reasonably possible; or
- would be unreasonably onerous.
Subsection 2 must be read with ss.6, which provides:
In determining whether a notice‑based time bar provision is unfair, the adjudicator, reviewer adjudicator, court, arbitrator or expert must take the following into account –
- when the party required to give notice would reasonably have become aware of the relevant event or circumstance, having regard to the last day in which the notice could have been given;
- when and how the notice was required to be given;
- the relative bargaining power of each party in entering into the construction contract;
- 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 contract; or
- if compliance with the provision is alleged to be unreasonably onerous – whether the matters set out in the notice are final and binding;
- any matter prescribed by the regulations for the purposes of this paragraph.
Critically, subsection 6 in turn must be read with subsection 7 which provides:
In determining whether a notice‑based time bar provision is unfair, the adjudicator, reviewer adjudicator, Court, arbitrator or expert must not take into account the provisions of any related contract or things that happened under any related contract.
The effect of these 3 provisions when read together (especially ss.7) is that the relevant contract or subcontract time-bar is read on an island without regarding to any other related contracts. This means, for example, a head contractor cannot rely on the fact that it is subject to the notice-based time bar under the head contract (of a similar or even more draconian nature) in order to support its own time bar provisions.
It has a broader application than you might think
But it is not just head-contractors who might get caught by s.16(7). The language of s.16(7) is very broad in that it refers to any related contract or things that happen under any related contract. On its face, for example, this could include financing contracts, agreements for lease and contracts for the sale of units in a development. The focus of s.16 is on the terms of the relevant contract and the relationship between the parties to it.
There may also be a question as to whether the list of matters that must be considered in s.16(6) is exhaustive or not.
The language of the subsection suggests that they are exhaustive, particularly when read with s.16(7). There are number of reasons why it might be assumed that it will be read as an exhaustive list – one of which is the fact that it specifically allows the application of the adjudication process which mandates a “quick and dirty” dispute resolution mechanism – one that is designed not to get bogged down in legal niceties about statutory construction that might otherwise allow other matters to be considered.
Perhaps of most interest is how parties address s.16(6)(c), which pertains to the relative bargaining power of the two parties to the contract. For example, can the question simply be resolved based on the competing balance sheets of the two parties or will other factors (drawn from equity for example) be considered.
Analogies to equity probably not helpful
It may be, for, that while there is a significant imbalance between the parties to the construction contract, because the notice‑based time bar provision is generously drafted, a decision‑maker will not rule it unfair and will apply it on its terms. Conversely, due to the fact that the two parties to a construction contract are unevenly matched or the subcontractor is unsophisticated, a decision‑maker might determine a notice‑based time bar is unfair because compliance with it is overly difficult if not impossible – in reliance on s.16(6)(a), (b) and (f).
Furthermore, even if the principal of a contract insisted on the contractor or subcontractor obtaining legal advice on the effect of the time bars (in a similar way that banks do) in the hope of nullifying a significance in bargaining power between the parties, the operation of the s.16(a), (b) and (c) is probably such that this process is of no use because section (6) includes at subsection (d) an irrebuttable presumption that the parties have read and understood the terms of the construction contract. Therefore, requiring a party to get legal advice on the effect of the clause (or the contract generally) in the face of the irrebuttable assumption would be superfluous.
Another factor that may influence how s.16(6)(c) is approached is again the fact that the provision is designed to be used in adjudications and expert determinations which are less likely to be conducted by lawyers. Therefore, in these forums, a more straight-forward argument (such as one based on the size of the two parties) is more likely to succeed than a more nuanced analysis of the concept of bargaining power such as that might be gleaned from equitable principles.
It’s a matter of balance
It is also unlikely, to the point of improbability, that a party seeking to be relieved of the consequences of a notice-based time bar will have to satisfy each of the criteria set out in ss.16(6).
There are two reasons for this:
First, this is an ameliorative provision and as such must be read broadly;
Secondly, the drafter could have made it clear that each criterion have to be satisfied but did not do so.
So, while it is true that the decision-maker must turn his or her mind to each of the criteria, he or she must then decide the question as a matter of balance.
Watch this space
In the end, there may not be such much that can be included into the terms and conditions of building contracts that can, in and of themselves, improve the chances of the noticed-based time bar provisions surviving a challenge under section 16 of the SOP Act other than making them fair and relatively easy to comply with (anathema to many drafters).
However, the nature of the building and construction industry is such that it is probable that we will see innovative drafting designed to undermine the operation of s.16. Monitoring how decision‑makers at all levels deal with those attempts will be worth watching – particularly because one of the other major reforms was to reduce the immunity that energy and resources projects used to have under the old Construction Contract Act.
If you need any advice regarding the application of s.16, or the SOPA Act generally, we welcome you to contact Solomon Brothers. Our team of legal professionals have vast experience in all matters of Construction Law and other legal services, and are ready to assist with any legal enquiries you may have.
Disclaimer: This post has been prepared as a general summary only. It is not, and is not intended to be, legal advice with respect to any particular matter. This post should not be relied on with respect to any particular matter. If you have questions about any aspect of this decision you ought to seek legal advice. The author and Solomon Brothers disclaim liability to any person who relies on this post.
WA Construction Law Toolbox
The building and construction industry in Australia operates within a complex regime of written and unwritten laws. Moreover, written laws can vary between states significantly.
We have created a toolbox comprising a brief overview of the written and unwritten laws in which the building and construction industry operates in Western Australia.Go to WA Construction Law Toolbox