Large Projects & Construction 5 Minute Fix 88: NSW Net Zero, Warranties, Combustible Coating Litigation, Default Interest Rate



Get your 5 Minute Fix of major projects and construction news. In this issue: the NSW government’s framework to boost the transition to net zero emissions; the consequence of warranties that violate Australian consumer law; the latest of the combustible linings litigation, and the New South Wales Supreme Court is reviewing the penalties in the context of default interest rates.

One step closer to NSW’s Net Zero buildings

On October 28, 2021, NSW Energy and Environment Minister Matt Kean announcement that as part of the NSW Government’s Net Zero Buildings initiative, the government would invest $ 4.8 million to accelerate the transformation of the state’s built environment towards net zero emissions.

The initiative will be implemented nationally as part of the National Australian Built Environment Rating System (NABERS) Program, which is the program used to measure the energy efficiency, carbon emissions, water consumption and waste generation of a building. The performance of the building is then compared to that of similar buildings and evaluated.

In partnership with NABERS, the government of New South Wales is developing a framework to measure, compare and certify embedded carbon – the emissions created during the manufacture of building materials like aluminum, concrete and steel. Embedded carbon is expected to become the main source of emissions in the building sector in the years to come.

According to Minister Kean, the program “will increase transparency around the sustainability of buildings for investors, building owners and tenants and help create consumer-driven demand for low-carbon building materials.”

Deployment of the framework will initially begin with commercial buildings, including offices, hotels, shopping malls and warehouses, with a view to expanding it to residential buildings in the future.

The Net Zero Buildings initiative also includes financial incentives for owners of existing buildings to receive their first NABERS energy rating in order to embed a culture of annual energy performance measurement and improvement. Meanwhile, new buildings will benefit from NABERS fee exemptions for buildings pledging to meet energy performance targets beyond those required by the building code.

The initiative builds on the ongoing work in this area by government and industry groups such as the Property Council of Australia and the Green Building Council Australia, who in 2019 jointly published the Every building countss, which includes practical recommendations on achieving a net zero buildings plan.

Be Careful What You Justify: ACCC Action Highlights Consequences of Violating Australia’s Consumer Law

While not a construction business per se, Australian Competition and Consumer Commission v AA Machinery Pty Ltd [2021] FCA 1293 reminds those in the construction industry who provide warranties that there can be serious consequences if such warranties are found to be deceptive or deceptive in violation of the Australian Consumer Law (ACL).

AA Machinery, a supplier of agricultural machinery, made statements when advertising the tractors, including that they were “a high quality product, which would be fully supported with nationwide after-sales service, nationwide warranty. five years and access to spare parts ”. In reality, the warranty was limited to spare parts only, there was no national service network, and spare parts were not readily available. The Federal Court noted that AA Machinery had admitted that these statements were not true and amounted to deceptive and deceptive conduct under sections 18 and 29 (1) (j) of the LCA.

Murphy J made a series of orders against AA Machinery including the payment of a significant monetary penalty which was deemed appropriate due to the seriousness of the offending conduct, loss or damage suffered and the effect dissuasive of the sanction. As part of the resolution of the proceedings, AA Machinery and its sole administrator also made a commitment under Article 87B of the Competition and Consumer Law 2010 (Cth) to the effect that, among others :

  • the manager would be prohibited from getting involved in any business importing or selling tractors (other than AA Machinery) without the written consent of ACCC;
  • ACL training for all company employees would be implemented; and
  • the company would create an electronic system for handling customer complaints and report any complaints received to ACCC.

Combustible coating: New South Wales Supreme Court upholds ruling that ‘Biowood’ posed an excessive risk of fire spreading in Sydney residential building

A recent New South Wales Supreme Court ruling focuses on the risks posed by combustible cladding products other than polyethylene core aluminum composite panels. Taylor Construction Group Pty Ltd v Strata Plan 9288 t / as The Owners Strata Plan 92888 [2021] NSWSC 1315, involved the coating product Biowood. The New South Wales Supreme Court provided information on whether the combustible material ‘Biowood’ could be used as an ‘attachment’ on a multi-storey residential development in Sydney in accordance with the Code. Australian Building Code (BCA) 2014 then in effect.

In November 2019, NSW Civil and Administrative Court (NCAT) found that the Biowood cladding used as an exterior wall attachment did not comply with the BCA and, therefore, violated several implied warranties under Section 18B of the Home Building Act 1989 (NSW). As a result, NCAT ordered both the builder of the common property works and the NCAT developer to rectify the breach of legal warranties by removing Biowood accessories and replacing them with materials that comply with codes, standards and legal warranties. The NCAT Appeal Board upheld this decision.

The builder and the developer have requested leave to appeal the decision of the Appeal Board in this proceeding to the Supreme Court. They argued that the NCAT Appeal Board had, among other things, erred in its wording and application of the test under the BCA to determine whether the use of Biowood as an “accessory” constituted “undue risk. »From the spread of fire through the facade of the buildings.

Although his judgment is very detailed on the technical issues and the evidence and conclusions below, Henry J did not need to give definitive guidance on how this assessment should be carried out. His Honor, however, maintained the NCAT’s approach to determining whether the risk associated with the use of the product was “unjustified (or unwarranted or excessive)”, involving an “evaluative” assessment taking into account a number of factors, including:

  • “The context and circumstances in which the combustible material is used”;
  • “The possibility of a fire spreading”; and
  • “the seriousness of this risk”.

Significantly, Henry J also found that in order to determine if there is undue risk, no evidence is required to confirm that the fire will spread through the facade. Instead, the evidence should simply state that “the use of [the combustible material] creates a risk of fire propagation through the facade and the risk is unwarranted or excessive “.

Ultimately, Henry J dismissed the grounds for appeal, meaning the NCAT’s findings were upheld – significantly, that the use of Biowood on the building was not BCA compliant and, as a result, violated several implied warranties under Section 18B of the Home Building Act of 1989 (NSW).

The default interest clause survives a challenge based on the penalties doctrine

In B&G Properties Pty Limited v Fayad [2021] NSWSC 1382, the NSW Supreme Court considered whether a default interest clause violated the penalty rule. Although the case is based on its own facts, it should therefore not be seen as setting a precedent as to the exact rate of interest, but it does provide useful guidance on the applicable principles.

In this case, the lender (B&G Properties Pty Limited) sought to recover payment under the guarantee given by the guarantor (Mr. Fayad). However, the guarantor rejected a request for payment of default interest (at the rate of 30 percent per annum) on the grounds that it was a penalty.

The Court invoked the traditional test in Dunlop Pneumatic Tire Co Ltd v New Garage & Motor Co [1915] AC 79 if the stipulated sum was extravagant and unreasonable. The Court also confirmed that the assessment of the extravagant and unreasonable character of a late interest rate takes place at the time of the conclusion of the contract: Paciocco v Australia & New Zealand Banking Group Limited (2016) 258 CLR 525.

Ultimately, the court concluded that the 30 percent per annum default interest rate did not amount to a penalty under the parties’ agreement because:

  • although the late payment interest rate was 30 percent per annum, the interest rate under the agreement was 25 percent;
  • a 5 per cent increase in default could not be characterized as a penalty. Because the increase was not “out of all proportion to the loss that [the lender] could suffer if [the borrower] by default” ;
  • the interest rate was negotiated by “experienced real estate developers” and reflected the “risks and rewards associated with the project” and the convenience of a short-term loan on “informal terms”.

The Court also rejected the Guarantor’s argument that compound interest amounted to a penalty: “There is nothing criminal about the nature of compound interest. and therefore is not in a position to invest this interest in other for-profit investments “.

Not just on rail: the Victorian Suburban Rail Loop Act clarifies and strengthens the powers of the project authority in road matters

The Suburban Rail Loop Act 2021 (Vic) (Act) clarifies and strengthens the powers of project authorities to manage roads and traffic under the Large Transportation Project Facilitation (Vic) Act, 2009 (MTPFA). To read more, click here.

High Court Denies Special Leave to Appeal Preventive Decision

The High Court recently dismissed an application for special leave to appeal the judgment of the Victoria Court of Appeal in Bensons Property Group Pty Ltd v Key Infrastructure Australia Pty Ltd. [2021] VSCA 69, which concerned the application of the principle of prevention


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