The New South Wales Supreme Court recently delivered a landmark decision in the case of Cadia Holdings Pty Ltd v Downer EDI Mining Pty Ltd [2020] NSWSC 1588, in the first case in New South Wales to consider the 'mining exception' under section 5(2)(b) of the Building and Construction Industry Security of Payment Act 1999 (NSW) (Act).
Background
Cadia Holdings Pty Ltd (Cadia) entered into a contract with Downer EDI Mining Pty Ltd (Downer) for the provision of lateral development works relating to a new 'panel cave', roughly 1,500 metres below the surface, at the Cadia East mine near Orange. Downer's works involved creating tunnels in order to access the ore body where further tunnelling and ultimately extraction will commence in 2022, as well as establishing infrastructure and installing key services for the eventual extraction of the minerals.
Downer successfully pursued payment for works performed by adjudication under the Act. Cadia sought to have the adjudicator's determination set aside, arguing that the adjudicator had made jurisdictional errors on two bases:
- the work under the contract was not 'construction work' within the meaning of the Act as it fell within the mining exception in section 5(2)(b) of the Act; and
- there was no relevant reference date for the payment claim in accordance with the Act.
Decision
Construction contract
A 'construction contract' under the Act, is a contract under which one party undertakes to carry out 'construction work' for another. Construction work is defined in section 5(1) and the exceptions to construction work are set out in section 5(2).
Stevenson J held that the effect of what is referred to as the mining exception in section 5(2)(b) was to exclude the following from the definition of 'construction work':
- extraction (whether by underground or surface working) of minerals;
- tunnelling or boring for the purpose of extraction (whether by underground or surface working) of minerals; and
- constructing underground works for the purpose of extraction (whether by underground or surface working) of minerals.
The questions his Honour sought to answer were:.
- was the tunnelling or boring or constructing of underground works called for by the contract, for the 'purpose of' the extraction of minerals; and
- did the contract also call on Downer to undertake work beyond tunnelling or boring or constructing underground works which was construction work under section 5(1) (or the supply of related goods and services under section 6(1))?
1. Were the works 'for the purpose' of extraction?
Cadia argued that it was sufficient if the tunnelling, boring or construction of underground work is for the 'ultimate purpose' of extraction of minerals. Conversely, Downer argued that a 'close and proximate' connection between the tunnelling, boring and construction of underground works, and the extraction of minerals was required, and that it is necessary that these activities be for the 'very process of extraction'.
His Honour preferred Downer's construction for a number of reasons, including:
- the 'mining exception' should be construed narrowly as the Act is remedial and beneficial to subcontractors;
- the extension of the usual meaning of 'extraction' by including tunnelling, boring or constructing underground works for that purpose, suggests the need for there to be a close proximity between the works and their purpose;
- a number of cases in Queensland held that 'extraction' does not include work 'associated with' or 'preparatory to' extraction. As such, it is hard to see why tunnelling, boring or constructing underground works which is in anticipation of the ultimate extraction on minerals, should be deemed 'for the purpose of' extraction; and
- the Act specifies where a less proximate connection is required, for example, s 5(1)(e) includes as construction work, work that is 'preparatory' to such work. This suggests a legislative intention that the purpose of extracting minerals must be for the actual purpose of extracting minerals.
His Honour ultimately concluded that the work under the contract comprising tunnelling, boring and constructing underground works, by reference to what a reasonable person in the position of the parties would conclude as to the object of the work under the contract, was not 'for the purpose of' the extraction of minerals. Rather it was work preparatory to, and in anticipation of the ultimate and later extraction of minerals.
2. Any works not caught by the mining exception?
His Honour found that even if the 'mining exception' had been engaged in respect of tunnelling, boring and construction of underground works under the contract, the contract was still a construction contract. This is because it contained undertakings to complete 'construction work' which was not tunnelling, boring or construction of underground works.
His Honour accepted Downer's submission that a number of undertakings in the contract which were 'construction work' under s 5(1) would not be within the 'mining exception' even assuming a wide interpretation of the 'mining exception' was accepted, such as:
- haulage of excavated material to the nominated dumping point;
- establishing and disestablishing facilities; and
- site clean-up.
Reference date
Cadia argued that Downer's payment claim did not have a valid reference date in accordance with the contract and the Act as it was served on 8 May 2020, rather than 15 May 2020.
- His Honour agreed that the combined effect of ss 8(1), 13(1) and 13(5) of the Act was that:
a payment claim cannot be served unless there is a reference date; and
- a claimant cannot serve more than one payment claim in respect of each reference date.
However, his Honour accepted that at the time Downer served its 8 May 2020 payment claim, there was an available reference date being 15 April 2020. This reference date had not been used or extinguished, therefore, Downer was entitled to claim again for unpaid amounts the subject of a previous payment claim.
Lessons
- The mining exception continues to be construed narrowly and has in this case only been applied to work that has a close and proximate connection to the very process of the extraction of minerals.
- If a contract contains a single undertaking to do 'construction work' under s 5 of the Act it is a 'construction contract' to which the Act will apply, notwithstanding that any other undertaking to do work under the contract may be excluded.
- A contract scope of work would have to be very carefully drafted for all work to fall within the mining exception so as to exclude the operation of the Act.
- This case will likely also apply to Queensland, Victoria, ACT, Tasmania and South Australia given that the definition of construction work and the mining exclusion in their respective security of payment legislation is identical or substantially the same as the NSW Act considered by this case.
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