In late 2021, the Supreme Court of Victoria handed down a decision which found that a contract which links electricity output (which, by its nature, is variable) to consideration payable to a claimant does not automatically contravene section 7 (2)(c) of the Building and Construction Industry Security of Payment Act 2002 (Vic) (the Act).
In the same decision, the Honourable Judge Stynes also shed light on whether reference dates, which are tied to the achievement of milestones, will accrue when those milestones are delayed.
In this case note, we look specifically at that aspect of her Honour’s decision in Lal Lal Wind Farms Nom Co Pty Ltd v Vestas – Australian Wind Technology Pty Ltd  VSC 807.
For the Court’s decision in respect of section 7(2)(c) of the Act, read our recent Construction and Infrastructure case note: Electricity generation (output) can be used to value construction work carried out.
The relevant construction contract
Lal Lal Wind Farms Asset Co Pty Ltd, as trustee for the Lal Lal Wind Farms Asset Trust (Asset Co) had originally engaged Vestas – Australian Wind Technologies Pty Ltd (Vestas) and Zenviron Pty Ltd to engineer, procure and construct a wind generation facility consisting of 60 wind turbine generators at the Lal Lal Wind Farm sites at Elaine and Yendon in Victoria (Facility) and certain related works and services (EPC Contract).
Separately, Asset Co and Vestas entered into a contract for the operation and maintenance of the Facility (O&M Agreement).
Asset Co was subsequently replaced by Lal Lal Wind Farms Nom Co Pty Ltd as agent for the Lal Lal Wind Farms Partnership (Principal) under the EPC Contract and the O&M Agreement.
The O&M Agreement is the relevant construction contract the subject of the adjudication and the Decision.
Reference dates under the O&M Agreement
Clause 11.1(c) of the O&M Agreement, Vestas’ entitlement to submit to the Principal a payment claim, which was the precondition to the Principal’s liability to pay money owing, was contingent on practical completion ‘Practical Completion – Elaine’ or ‘Practical Completion – Yendon’ being reached under the EPC Contract.
The EPC Contract was an entirely separate contract with different contracting parties, and the process of certifying practical completion for the wind farms was entirely governed by that separate contract.
The Court’s decision
The Court held that clause 11.1(c) of the O&M Agreement was of no effect pursuant to section 13 of the Act because it was a provision which made the liability to pay money owed contingent or dependent on the operation of another contract. This was the reason the Court upheld the adjudicator’s determination that reference dates arose under section 9(2)(b) of the Act.
However, in comments made in passing, the Court also shed light on whether reference dates, which are tied to the achievement of milestones, will accrue when those milestones are delayed.
On this point, Vestas submitted that:
- clause 11.1(c) of the O&M Agreement has the effect of inordinately delaying or effectively preventing a reference date from arising and was therefore void pursuant to section 48 of the Act; and
- it was conceivable that a reference date may never arise if no practical completion date is realised under the terms of the EPC Contract.
In contrast, the Principal submitted that:
- by their very nature, milestones have the potential to be delayed for an extended period. Therefore, the mere nomination of a milestone date would purpose to exclude, modify or restrict the Act’s operation such that it is automatically void by reason of section 48 of the Act; and
- parliament could not have intended to attach significance to the parties’ contractually agreed milestone dates under section 9(2)(a) of the Act only to render them redundant via section 48 of the Act.
Drawing upon the decision of the Supreme Court of New South Wales in Castle Constructions Pty Ltd v Ghossayn Group Pty Ltd  NSWSC 1317, the Court observed that section 48 of the Act may operate to invalidate any provision of a contract which goes beyond fixing a reference and which inordinately delays or effectively prevents a reference date from arising.
However, the Court went on to say that (assuming for this purpose that clause 11.1(c) of the O&M Agreement was not rendered of no effect by section 13 of the Act):
“The attachment of a reference date to a milestone does not of itself have the effect of inordinately delaying the occurrence of a reference date. As submitted by the Principal, by their very nature, milestones have the potential to be delayed for an extended period. It makes no sense for the nomination of a milestone date (which the SOP Act expressly provides for under the definition for ‘progress payment’ in s 4) to be rendered redundant via s 48. I am not satisfied that the provision inordinately delays a reference date so as to enable me to conclude that s 48 operates to void that provision. A consequence of concluding otherwise would invite a challenge every time a milestone is missed or delayed”.
(our emphasis added)
Take home points
A provision of a contract which ties the accrual of a reference date to the achievement of a milestone event will not automatically be of no effect, pursuant to clause 48 of the Act, simply because the milestone event was delayed.
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This Construction and Infrastructure case note was authored by Dominic Brown, Senior Associate.
Note: This update is a guide only and is not intended to constitute legal advice.