Time will tell, or will it? 'Unfair' time bars in Western Australia's new security of payment model

As of 1 August 2022, Western Australia implemented new security of payment provisions under the Building and Construction Industry (Security of Payment) Act 2021 (WA) (Act).  

Arguably, the most significant provision is section 16, which empowers decision-makers to declare a time bar provision in a contract as 'unfair', rendering it unenforceable concerning the particular entitlement.

The rationale behind introducing this new provision was to enhance payment security and protect contractors. However, it has also introduced new complexities and uncertainties.

The ordinary position

Since the delivery of the landmark Western Australian Supreme Court decision in CMA Assets Pty Ltd v John Holland Pty Ltd [No 6] [2015] WASC 217, Australian Courts have consistently held that contractors must strictly comply with any express preconditions in a contract for obtaining extra time or money, including preconditions requiring written notice of an event.  

This means that the contract the parties bargained for is king, even when the outcome is harsh.  

The new 'unfair' time bar provisions

Under section 16 of the Act, preconditions requiring written notice can be declared 'unfair' if compliance with the relevant provision of the contract, in the particular circumstances, is not reasonably possible or would be unreasonably onerous.

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 relevant event or circumstance, having regard to the last day on which notice could have been given;
• when and how 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 contractor; and
• if compliance with the provision is alleged to be unreasonably onerous, whether the matters set out in the notice are final and binding.

It is the contractor's burden to prove that the time bar provision is 'unfair'.  

Most interestingly, and problematically, if a time bar provision is declared 'unfair', the declaration will only affect the particular entitlement under the contract that is subject to the proceedings.  

This means that the declaration will not be binding on the same time bar provision in another contract, or on the same contract concerning another entitlement. 

Foreseeable problems

Given the complexities and uncertainties surrounding the proper interpretation and operation of the unfair time bar provisions of the Act, it's likely there will be a spate of litigation concerning the new provisions.  This litigation will likely test:

• the meanings of 'not reasonably possible' and 'unreasonably onerous';
• the appropriate weight decision-makers should give to particular factors when determining whether a time bar provision is 'unfair'; and
• the type of circumstances that would render a Court's prior findings regarding the same time bar provision in another contract irrelevant.

Normally, after the Court makes findings about the proper interpretation and operation of new legislation, litigation surrounding that legislation tends to decrease.  

However, in this case, because a declaration will only affect the specific entitlement under the contract subject to the proceedings, this will not be so. Parties will continue to litigate this new provision of the Act.

Summary

Although the new time bar provisions in the Act were well-intentioned, their introduction has made the law more complex.  

Prior to these changes, contractors and principals had a clear understanding of time bar provisions.  Now, uncertainty prevails. This uncertainty will disrupt the previously established balance within the construction industry. The pursuit of fairness, paradoxically, will likely result in more litigation.

To limit the likelihood of litigation concerning a time bar provision, contractors and principals should seek advice on drafting. Creative drafting can help reduce the likelihood of future litigation.

For more information, please contact a member of our Construction and Infrastructure Team.

Authors

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

Samuel Speechly | Senior Associate | +61 7 3338 7529 | sspeechly@tglaw.com.au

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