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Geoff Wood
Partner
Sydney
Barry Casey
Mark Darian-Smith
Peter Pether
Adam Wallwork
Julie Wright
Andrew Chew
Melbourne
James Forrest
Peter Megens
Perth
Simon Lee
Brisbane
Scott Budd
Canberra
John Topfer
Chris Wheeler
Australia’s toll road industry is facing new challenges, arising partly from a shortage of long term debt and equity funding following the global financial crisis, and partly from a re-evaluation of traffic and other risks in the sector.
The early challenges
The Sydney Harbour Tunnel was the first modern private sector owned toll road project in Australia [1]. Although the concessionaire nominally took the traffic risk, its downside is limited by an “Ensured Revenue Stream Agreement” under which top up payments are made by the State if toll revenues fall below an agreed floor level [2].
In the next toll roads, the M4 and M5 motorways in Sydney, the concessionaire took the traffic risk, but a community reaction against the imposition of tolls led an incoming State government to introduce a “cash back” scheme. Under this scheme, the tolls paid by motorists using those two roads are later reimbursed to them by the State. These two roads are therefore, in effect, using a form of “shadow toll” funding [3].
The first truly successful private sector toll road in Australia came in 1994. The M2 motorway is a 21km motorway that services the commuter belt in the northwest of Sydney, a growing area with inadequate public transport [4]. This project started a new era for Australian infrastructure funding.
The financial arranger, Macquarie Bank, formed an “infrastructure trust” to hold the majority equity in the concessionaire. This became the first Australian stock exchange listed infrastructure investment trust, accessing the retail investor market and providing the first freely transferable infrastructure equity investment in Australia. In the following years, numerous other listed and non-listed infrastructure trusts were formed in Australia, and overseas.
Toll roads since 2003
A series of other toll road projects followed in the eastern states of Australia. Some are regarded as being both a commercial and community success, but others have struggled, for a variety of reasons.
In New South Wales, voter objections to traffic funnelling (restricting or closing nearby free routes) and the overall level of tolls have been the main causes of community concern, particularly for two inner urban bypass tunnel projects, the Cross City Tunnel and Lane Cove Tunnel. The first of these projects went into insolvency, and the second is said to have been re-capitalised by its investors.
In each of those projects, there was no State government financial support for the construction costs, and indeed the State charged the winning bidders a large concession fee.
The third NSW toll road project at that time, the Westlink Motorway, is somewhat different from the two inner urban tunnels. Westlink is a 40km north-south route in the industrial and commuter suburbs of western Sydney. It gives motorists their first freeway standard route in that area, and connects with three existing other toll roads to form the “Sydney Orbital”. Because it has no directly competing free routes, it has not suffered from the issues that affected the two inner urban tunnels. WestLink levies a distance based toll.
In recent Victoria and Queensland toll road projects, there has been no traffic funnelling, and the level of government funding of construction costs has materially increased. This has enabled a lower toll to be set, although thereafter the concessionaire still carries the full traffic risk [5].
The Commonwealth government has also contributed material funding to most of the recent projects, and this may well be a feature of future projects.
The biggest concern in the finance and construction industry in recent times has been the perceived large gap between the forecast traffic numbers for some new toll roads and their actual usage levels, at least during ramp up periods. Toll roads are very long term projects, and it may take time to change motorists’ travel patterns, but certainly the traffic numbers on some toll roads that have opened in the last three years would be very disappointing to their sponsors, even allowing for extended ramp up periods and the effects of the global financial crisis.
New toll roads planned
In Queensland, the Brisbane City Council wants to proceed with “Northern Link”, which is the third leg of its integrated “Trans Apex” city tunnel and bus link network. However, the Council is reported to have been unable to garner enough bidder interest to start the formal bidding process.
New South Wales has for a long time had several major link road PPPs on the drawing board, but they have slipped off the political agenda in recent years, perhaps partly as a result of the political difficulties surrounding the Cross City Tunnel and Lane Cove Tunnel projects.
The Victorian government, as part of its Victorian Transport Plan (2008), recently invited expressions of interest for the Peninsula Link project, involving the construction of a Frankston Bypass to complete the missing link in the Mornington Peninsula Freeway corridor from the EastLink (Mitcham-Frankston) motorway to Mount Martha [6]. It will be delivered as a PPP. The Victorian Government has recently confirmed that the concessionaire will not have any traffic risk, as the concessionaire will receive an availability payment from the State. Traffic will not be tolled, and the private consortium will design, build, operate and maintain the road.
Alternative payment structures
With the lack of appetite in the current financial market for financing user-pay toll roads in Australia, it is timely to look at alternative payment mechanisms which have been used on toll roads in Europe and the United States [7]. These are primarily shadow tolling and availability payments.
The overall risk framework for these alternative payment models is less complex than the user-pay model, as the investors and lenders are less exposed to traffic and toll pricing risks [8]. The risks of competing road capacity and deteriorating regional economic and demographic conditions are also reduced. Upon completion of construction, the primary risk for the concessionaire is its ability to meet the operational and maintenance KPIs, and other operational requirements, so that it can receive the maximum availability payment or shadow tolls.
Recent toll road projects involving availability payments include the FL/I-595 in Florida, USA, Golden Ears Bridge in Vancouver, Canada and recently awarded toll roads in India. In Poland, the revenue stream structure for the Gdansk to Torun section of the A1 Motorway contains a combination of toll revenues, shadow tolling and availability payments.
Shadow toll road programs are widely used in the United Kingdom and a number of European countries (in particular, Portugal and Spain).
Whilst addressing key concerns regarding revenue and traffic projection risks, the overall approach to delivering and managing other risks remains essentially the same as for user-pay toll roads.
An international comparison
An overview of the use of the different toll road models is set out below:
User pay model - Australia, Belgium, Canada, China, Chile, Croatia, Finland, France, Germany, Greece, Hungary, India, Ireland, Italy, Malaysia, Philippines, Poland, Portugal, South Africa, Spain, United Kingdom and United States of America.
Shadow Tolling - Canada, Czech Republic, Finland, Hungary, Norway, Poland, Portugal, Spain, United Kingdom and United States of America.
Availability payments - Canada, Czech Republic, India, Netherlands, Norway, Poland, United Kingdom and United States of America.
Shadow tolling
Shadow tolling is a tolling model where the concessionaire receives payments from the government over the operating period which fund the servicing of debt and equity raised by the concessionaire for the construction work, and also fund the cost of operating the road. The road user does not pay a toll. The government pays the toll road operator a fee which comprises components for:
- usage of the road: this may be a distance based payment, with different rates for trucks and cars.
- availability of the road: if an existing road is transferred to private operation, the fee is usually based on the cost of repairing and maintaining the road, rather than on traffic numbers.
- performance of the operator: in the UK, typical components of the performance fee are a safety fee (rewarding road safety improvements) and a lane closure fee, which is a deduction for lane closures (unless due to defined events that are beyond the operator’s control).
Where traffic numbers are below expectations, the investors are not fully protected from revenue risk, because a part of the shadow toll payment is ultimately dependent on the level of traffic using the motorway. There may also be a cap and a limit on the usage component of the fee. Without this cap, the concessionaire would have full exposure to the traffic numbers.
To address any concerns regarding excessive government support when traffic exceeds expectations, payments may also be “banded” so that the concessionaire’s marginal increase in revenue decreases as traffic volumes increase.
Shadow tolling was initially adopted in the United Kingdom. Most UK shadow toll projects involved upgrades or extensions of existing roads, where there is historical traffic data. This reduces the traffic risks and the concessionaire’s dependency on traffic projections. Shadow tolling is also commonly known as the DBFO (Design, Build, Finance and Operate) model in the United Kingdom [9].
Availability payments
The availability payment model is based on a concessionaire building and operating an infrastructure asset in exchange for a rent-like payment stream from the government. In Australia, this model has been used largely in social infrastructure PPPs, such as hospitals and schools. It has not yet been used for motorways in Australia. However, in March 2009 the Victorian Government invited Expressions of Interest to design, finance, build, operate and maintain the Peninsula Link project as a PPP using an “Availability Model”.
Under the availability payment model, the government makes on-going rent-like payments to the concessionaire, in consideration of the concessionaire making the motorway available for use.
There are two components of the fee, neither of which is based on traffic volumes [10]:
- availability of the toll road: all lanes should be open for traffic except for permitted closures. This component enables the concessionaire to amortise its term debt funding.
- service fee: a fee calculated to meet initial periodic operating fees. This component will be CPI adjusted, with periodic benchmarking or resets of specified parts of the fee. This component may be abated if operational KPIs are not met.
This structure gives the concessionaire the comfort of revenue certainty, subject to operational KPIs being met. Also, the ratings agencies view more favourably the concessionaire’s ability to service its debt, compared to the more traditional user-pay model.
The availability payment model is also attractive for government, as it gives greater certainty over the payments due to the concessionaire, allowing the government to better manage its annual budget appropriation and debt commitments.
Ensured revenue stream payments
The Sydney Harbour Tunnel concessionaire is entitled to receive a monthly payment calculated, in simple terms, to top up its revenue to the level it would have been if traffic had been a stated percentage of the level projected by the project financial model. There are adjustments in the calculation for changes in the cost of bulk electricity, toll collection costs, and other items. The broad objective is to put a floor under the concessionaire’s revenue at a level well below what was projected at the time of financial close. The payments ratchet down in later years, even if traffic volumes fall below the “ensured” level, by means of a reduction in the “notional toll” which is an element of the calculation [11].
The formula contains no “upside sharing” for the State. That concept, which is now standard in all Australian toll roads, requires the concessionaire to pay traffic volume based rents to the State after the concessionaire’s investors have received their base case equity return (in the case of the 1990 toll roads) or whenever actual traffic numbers for a period exceed the projected numbers for that period (which is the current basis of calculating upside sharing). Any ensured revenue stream arrangement today would certainly be coupled with an upside sharing arrangement such as this.
Long term solution for a short term problem?
The States are understandably wary of granting a concession for 30 or more years, on financial terms that respond to the current finance market conditions, if those conditions are only going to prevail for the initial years of the project. The States have no desire to solve a relatively short term issue by underpinning a long term financial package that might later seem to be too generous.
Similarly, private sector investors and lenders are wary of taking traffic risk, particularly in the ramp up years. This suggests that State financial support may be needed for the early years of a new project.
The challenge is, of course, to determine the period for which it will be available. Will the end date be defined by traffic levels, the investor’s rate of return, or will the assistance just be for a fixed period of (say) five years or by some other commercial criterion?
If the State support is to be for a limited period, the risk of having to refinance the project at a fixed date would need to be considered, particularly with foreign banks currently reducing their exposure to the Australian infrastructure market. Since the concept is untested in the current market conditions, we do not know yet whether any investors or lenders would be attracted to it, or whether privately financed toll roads are simply “too hard” in the current market.
Infrastructure Partnerships Australia Paper
Infrastructure Partnerships Australia (IPA) is Australia’s peak infrastructure industry body. Its recent paper, “Financing Infrastructure in the Global Financial Crisis”, is the most comprehensive current Australian research that has been done in this area [12].
IPA’s report finds that the combination of unprecedented contraction of global financial markets and debt market incapacity requires targeted, short-term Commonwealth government’s intervention for the infrastructure market. IPA proposes five options which would see the Commonwealth temporarily lend, guarantee or provide capital contributions to key projects. These options are:
- Commonwealth government to act as a co-lender, meeting the gap created by current debt market incapacities
- Commonwealth government to provide a debt guarantee to allow the private sector to raise sufficient debt to meet the financing gap
- Commonwealth government to provide direct Commonwealth government grants
- Commonwealth government to mitigate refinancing risks (arising from the unavailability of long term debt), and
- the expansion of Infrastructure Australia’s remit.
IPA has not recommended permanent changes to the Australian PPP financing market, and considers that any solutions would need to ensure that the PPP model reverts to a “pure” model once economic conditions improve. The emphasis on Commonwealth government’s assistance is due to state governments having little or no ability to raise capital on reasonable terms [13]. IPA’s research show that, in the current market, a PPP project requiring in excess of about Aus$800 million now needs an upfront subsidy payment or alternative support from the Commonwealth government to proceed.
The co-lending model may involve gap funding or bridging finance where bidders are permitted to submit partially underwritten bids at bid close and the government funds the shortfall that is not available in the market. Although the government would have the right (and intention) to exit this funding, IPA see this option as useful for large social and economic infrastructure projects such as toll roads.
The guarantee/underwriting model involves the government underwriting financing risk and providing a government-backed credit guarantee to lift bond ratings. The scheme would provide the banks with a buffer, and would be a contingent liability for the Commonwealth government that does not require upfront funding.
The capital contributions option involves the government contributing part of the capital cost to a project at financial close or providing a capital contribution that is progressively drawn alongside private debt and equity to reduce service payments. This option has the greatest balance sheet impact for the government, effectively locking in a “whole of life” solution to the funding problems.
The challenge with any proposal for relatively short term (3-5 year) government support is: who takes the refinancing risk? Banks will not commit at the outset to support the project after the government support ends, and equity investors may have a similar view. We don’t know what the trigger will be for a government exit from the project; it might be based on financial performance, or be simply time based.
Whatever trigger is chosen, conversion of a project from partly government supported to a full market risk will be a potentially difficult exercise, and the initial project lenders may well want to be fully refinanced at that time.
IPA’s conclusion is that financing of major infrastructure projects in the short term will require a thorough engagement by the Commonwealth government.
Australian Infrastructure Bonds
On 7 April the Commonwealth government announced that a major (Aus$43 billion) telco cable network project, which had been tendered to the private sector bidders, would instead be built by a government controlled entity, funded by a new debt instrument described as “Australian Infrastructure Bonds”. No details of this funding, or the tax treatment of the bonds, are available yet, but one may predict that small investors, pension plans and self-funded retirees will be targeted as buyers.
Time will tell whether this is the first sign of the future method of Commonwealth government’s financial backing, at least for those project that are mention on the “nation building” priority list currently being developed by Infrastructure Australia [14].
IPA’s report supported the Commonwealth government re-introducing some form of infrastructure bonds for advancing critical infrastructure projects. We expect more detail in the coming months.
Conclusion
Regardless of what policy decisions the Commonwealth government makes, we expect that funding models for toll roads to increasingly include shadow tolling and/or availability payments due to the current difficulties caused by the global financial crisis and the private sector’s reluctance to take traffic risk.
Endnotes
[1] There have been government owned tollroads in Australia for many years, most notably the Sydney Harbour Bridge. However, their toll rates are generally lower than the newer private sector tollroads.
[2] A copy of this agreement can be found annexed to the Sydney Harbour Tunnel (Private Joint Venture) Act, 1987 (NSW).
[3] M4 and M5 are arguably a hybrid “shadow/actual” toll model, because not all motorists choose to register for the “cash back” program.
[4] This project was also the first Australian stock exchange listed “stapled security”, a device that is now commonly used in the Australian infrastructure industry to enable different types of security to be traded as a “bundled” product.
[5] The three most recent Australian projects have all been IPOs. They are EastLink in Melbourne (www.connecteast.com.au), Clem Jones Tunnel, Brisbane (www.rivercitymotorway.com.au), and AirportLink, Brisbane (www.brisconnections.com.au). They all used partly paid securities, an approach that is now out of favour following well publicised recent issues in the third mentioned project.
[6] http://www.transport.vic.gov.au/vtp/projects/peninsulalink.html
[7] Shadow tolling was considered as an option for the delivery of the North-South Bypass Tunnel project in Brisbane - Nigel Purse, “Tollroads - the way ahead” Project Finance June 2000 (pp v-vii).
[8] See Chew A, Storr DA, “An overview of risk allocation in recent PPP infrastructure projects in Australia”, ICLR 2005, for a discussion of risk allocation in PPP Projects in Australia.
[9] See the UK Highways Agency website for details of the UK experience, www.highways.gov.uk/roads
[10] Although some operational KPIs may refer to traffic numbers; for example, there may be an incentive to optimise off peak traffic or minimise congestion.
[11] The full formula is on the public record - see endnote 2.
[12] See www.infrastructure.org.auContent/FinancingInfrastructure.aspx
[13] The Commonwealth government announced a three year guarantee of borrowings by the banks and certain other finance sector entities, which had the effect of making State government back debt less attractive to bond investors than finance sector debt raisings. This has recently been rectified, by the extension of the Commonwealth government’s guarantee to cover the State government borrowings. This opens up the possibility, perhaps of a State government bond raising to fund new infrastructure work, but that is not something that any of the States are as yet publicly canvassing.
[14] Australia experimented with tax advantaged privately issued infrastructure bonds in the 1990s, with limited success. If the new bonds are to be tax advantaged, it is likely that the legislation would seek to limit the opportunities for financial “engineering” based on tax status of the bonds.
Authors
David Storr, Partner
Andrew Chew, Special Counsel
Currently, the High Court decision in R & R Fazzolari v Parramatta City Council [2009] HCA 12 (“Fazzolari decision”) has significant implications for councils and developers seeking to carry out urban renewal and community infrastructure projects by way of a public private partnership (“PPP”). Such projects often involve a mix of private and public land.
The Fazzolari decision gives a narrow interpretation to the provisions of the Local Government Act 1993 (NSW) (“LGA”), which enable a Council to compulsorily acquire land and then re-sell it. In effect, the decision prevents a council from acquiring private land and then transferring it to a developer. As a result, to enable a PPP project to proceed, the commercial arrangements between parties will need to be carefully structured to ensure that a council can lawfully acquire that land and include it in the project.
The restrictions imposed by this decision may be overcome if the Lands Acquisition (Just Terms Compensation) Amendment Bill 2009 (NSW), which has recently been introduced into Parliament, is passed (although the Coalition and Greens have indicated that they will oppose it).
Background
In 2006, Parramatta City Council entered into a PPP agreement with Grocon (Civic Place) Pty Ltd and Grocon Constructions Pty Ltd for the development of 32,000 ha of land, bounded by Darcy, Smith, Church and Macquarie Streets, in central Parramatta. The development was to be known as Civic Place and was an urban renewal project to implement the Civic Place Master Plan, which had been adopted by Council in 2003.
The Council sought to acquire land in Darcy and Church Streets, which was owned respectively by R & R Fazzolari Pty Ltd (“Fazzolari”) and Mac’s Pty Ltd (“Mac’s”). These owners challenged the acquisition on the basis that it was beyond the Council’s power because it was for the purpose of re-sale, which was prevented under the LGA.
The matter was first heard in the Land and Environment Court, where Biscoe J held that the proposed acquisitions were unlawful because they were for the purpose of re-sale. On appeal, the Court of Appeal set aside Biscoe J’s decision, holding that the land was not acquired for the purpose of re-sale because under the Development Agreement the initiating and abiding purpose of acquisition was for a public purpose – being the development of Civic Place.
High Court Decision
In overturning the NSW Court of Appeal decision, the High Court looked at the purpose for which the particular parcel of land was acquired and found on the facts of the case that the council had no power to acquire land for the purpose of re-sale, even though the land formed part of a development which could legitimately be described as a development for a public purpose. The High Court found that it was not necessary to answer the question as to whether or not the sole or dominant purpose of acquisition was re-sale (although the minority judgment of French J held that it would need to be a substantial purpose). Whether or not there was a general public purpose was also not relevant. On the facts, pursuant to the development agreement, which existed at the time the notices of acquisition were issued, once the land was acquired, the Council was obliged to declare itself trustee of the land in return for Grocon's provision of money and works. As such the purpose of acquisition was for re-sale and beyond power.
The Council sought to argue that the purpose was lawful by relying upon s188 (2) of the LGA. This section enables a council to acquire land for re-sale without the consent of the owner if such land adjoins or lies in the vicinity of other land which the council acquires at the same time under Part 1 of Ch 8 of the LGA for a purpose other than the purpose of re-sale. However, the High Court held that s188 (2) did not apply because the “other land” which the Council was acquiring was public road, already vested in it and therefore being acquired under another piece of legislation, the Land Acquisition (Just Terms Compensation Act) (NSW) (“Land Acquisition Act”) and not under Part 1 of Ch 8 of the LGA.
The High Court restored the injunctive relief granted in the Land and Environment Court.
The decision highlights the legal presumption that the legislature does not intend to interfere with property rights unless a contrary intention is demonstrated in the legislation and that the Courts are likely to give a narrow interpretation to such provisions. In entering into agreements which require a third party’s land, care needs to be taken to ensure that the acquisition process can lawfully be carried out.
In order to overcome the consequences of the High Court’s interpretation of s188(2) of the LGA, the NSW government has introduced the Lands Acquisition (Just Terms Compensation) Amendment Bill 2009 (NSW) into Parliament. This bill clarifies that when acquiring land by compulsory process, the acquiring body is acting pursuant to the provisions of its enabling legislation which empower it to compulsorily acquire land and not the Land Acquisition Act. A council is therefore constrained by the provisions of the LGA. In effect, if a council is acquiring 2 parcels of land and one of those parcels is public land, such as a road, which is not to be re-sold, then the acquisition of the “other land” will be an acquisition of land under Part 1 of Chapter 8 of the LGA and the exemption to re-sale will apply. If passed, the bill will have a retrospective effect.
In Thiess Pty Ltd & Anor v Zurich Specialties London Ltd & Anor [2009] NSWCA 47, handed down on 3 March 2009, the New South Wales Court of Appeal reconfirmed that an insurance policy must be interpreted to give effect to its underlying commercial purposes.
Background
The issue before the New South Wales Court of Appeal in this case was whether the terms of the Construction Risks Insurance Policy (“Policy”) held by Thiess Pty Ltd and John Holland Pty Ltd (Insured) with a number of insurers, one of which was Zurich Specialties London Ltd (“Insurers”), contained within its terms a “construction contract” within the meaning of Building and Construction Industry Security of Payment Act 1999 (NSW) (“Act”).
The Policy indemnified the Insured in respect of the investigation, planning, development, design, construction and commissioning of the Lane Cove Tunnel Project. After the collapse of a portion of the tunnel in November 2005, the Insured carried out certain works on the tunnel for which they sought progress payments from the Insurers pursuant to the Act. Under the Act a person who undertakes construction work pursuant to a “construction contract” is entitled to recover progress payments in certain circumstances. Underpinning the Insured’s claim was that there was a construction contract within the meaning of the Act between the Insured and the Insurers, which was contained within the Policy.
The Insured relied on a clause in the Policy that noted the parties’ obligations in the event of loss or damage to the Insured Property and the obligation on the Insured to take all reasonable precautions to safeguard the Insured Property and to prevent loss and damage. Another clause of the Policy stated that due observance and fulfilment of the terms, conditions and limitations of the Policy as far as they relate to anything to be done or complied with by the Insured was a condition precedent to any liability of the Insurers to make a payment under the Policy. The Insured claimed that the Policy required them to do certain things, namely to take all reasonable precautions to safeguard the Insured Property, and that this obligation required them to take steps that would “obviously include construction work” and that such construction work had been carried out after the partial collapse of the tunnel.
The construction of the insurance contract
The Court of Appeal unanimously rejected the Insured’s submission that the Policy contained a “construction contract”. The Court held that the proper approach to the construction of an insurance policy was identified in McCann v Switzerland Insurance Australia Ltd [2000] HCA 65 and affirmed by the High Court in CGU Insurance v Porthouse [2008] HCA 30:
“A policy of insurance, even one required by statute, is a commercial contract and should be given a businesslike interpretation. Interpreting a commercial document requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure.”
The parties agreed that the commercial purpose of the Policy was to provide an indemnity against certain loss and damage. The commercial purpose was not to enable the Insurers to procure the performance of construction work. The test posited by MacFarlan JA (with whom the other Judges agreed) to establish whether or not the Policy contained a construction contract was whether the Insurers could sue the Insured for damages if the Insured failed to take reasonable precautions to safeguard the Insured Property as required by the Policy. The Court held that this was not the case. Such an interpretation would not conform with the commercial purpose of the Policy and it is not dictated by any language used by the parties. The commercial purpose of the relevant clause of the Policy was to protect the Insurers by limiting their obligations to indemnify the Insured. The requirement of reasonable precautions to safeguard the Insured Property was a condition precedent to the Insurers’ obligations to indemnify the Insured and not a promise or undertaking by the Insured to the Insurers to take those steps.
Authors
Philip Ward, Partner
Julie Walsh, Solicitor
The Home Building Act 1989 (NSW) (HBA) has recently been amended following assent to the Home Building Amendment (Insurance) Act 2009 (NSW) (the Amending Act) on 19 May 2009.
The various changes to the HBA deal with clarifying issues in respect of insurer liability and available cover for loss suffered by an insured homeowner under the home warranty insurance scheme. For further details on the Amending Act, please see:
Home Building Amendment (Insurance) Act 2009 (NSW)
Since the beginning of the home warranty insurance scheme on 1 May 1997, insurers were not allowed to reduce or deny their liability if a claim was notified to them within 6 months of the insured becoming aware of the cause of the claim. As a result of the Supreme Court decision in Strata Plan 57504 v Building Insurers’ Guarantee Corporation [2008] NSWSC 1022 (“Strata Plan 57504”), it was possible that an insurer could be found liable for losses arising well beyond the insurance period and in fact, at any time during the life of the building.
It had previously been assumed that cover under an insurance contract was only available to homeowners who became aware of the insured loss and notified the insurer during either:
- the period of insurance specified in the insurance contract, or
- a minimum period prescribed by s103B of the HBA.
Some of the effects of the Supreme Court decision on the home warranty insurance industry include:
- home warranty insurance providers were left without a clear limit on their liability for claims and facing potentially large-scale losses
- rising concern regarding the indemnities provided by the Crown to homeowners who were insured by insolvent HIH and FAI insurance group, and
- approved insurers warning that they may withdraw from the home warranty insurance market, which in turn could lead to increased insurance premiums.
The Amending Act seeks to alleviate these concerns by:
- confirming which losses are insured
- clarifying that a home warranty insurance contract does not provide open-ended coverage, and
- clearly setting out the period of cover under insurance contracts as during the period of insurance specified or, if a loss becomes apparent during the last 6 months of the period of insurance, 6 months from becoming aware of the loss.
Click here to read the full version of this article.
Authors
Barry Casey, Partner
Andrew Chew, Special Counsel
In all States and Territories, employers have duties (both statutory and at common law) to take reasonable care to avoid exposing their employees to reasonably foreseeable risks of injury. Although the duties of an employer to its employees are relatively well known, each of the States and Territories imposes additional duties on certain categories of persons. One such category is that of designers, manufacturers and suppliers[1]. The rationale behind these duties is that preventing risk of injury upstream at the design/manufacture/supply level is a better option than requiring extra training or supervision once the relevant plant/equipment has reached its destination.
Individuals and corporations should be mindful that this category of persons is not narrow. For example, the phrase ‘designers’ may also include consulting engineers, architects, surveyors and fit-out contractors. In addition, some jurisdictions also require that those responsible for designing structures or buildings to be used as workplaces ensure that the structure/building is safe and free from risks to health and safety[2]. Directors and managers of corporations may also be held liable where their respective corporations have been charged with an offence under the relevant legislation (for example, see section 26 of the Occupational Health and Safety Act 2000 (NSW)). Penalties for failing to comply with these legislative requirements can include large fines and imprisonment.
In the case of suppliers of plant and equipment, the general requirement is that the plant/equipment must be safe and without risks to health when properly used at the time the plant/equipment is supplied. This also includes the provision (or making available the provision) of adequate information about the supplied plant/equipment.
A recent case in Victoria (Victorian WorkCover Authority v Prolift Fleet Management Pty Limited [2009] VSC 96) held that a supplier of a forklift for hire had breached both its common law duty to take reasonable care and its statutory duty under the Occupational Health and Safety (Plant) Regulations 1995 (Vic). As a result of those breaches, the supplier was held liable to indemnify the Victorian WorkCover Authority for compensation paid by it to the injured worker.
Endnotes
[1] See sections 18-20 Occupational Health and Safety Act 1991 (Cwlth); section 11 Occupational Health and Safety Act 2000 (NSW); sections 32-34 Workplace Health and Safety Act 1995 (Qld); sections 23A-24 Occupational Health, Safety and Welfare Act 1986 (SA); sections 27-31 Occupational Health and Safety Act 2004 (Vic); section 23 Occupational Safety and Health Act 1984 (WA); sections 42-45 Occupational Health and Safety Act 1989 (ACT); sections 56-57 Workplace Health and Safety Act 2007 (NT) and clauses 9-12 Workplace Health and Safety Regulations 2008 (NT); section 14 Workplace Health and Safety Act 1995 (Tas).
[2] See section 30B Workplace Health and Safety Act 1995 (Qld); section 23A Occupational Health, Safety and Welfare Act 1986 (SA); section 28 Occupational Health and Safety Act 2004 (Vic); section 23(3a) Occupational Safety and Health Act 1984 (WA); section 56 Workplace Health and Safety Act 2007 (NT); section 14 Workplace Health and Safety Act 1995 (Tas).
Author
Andrew Chew, Special Counsel
Occupational Health and Safety
Providing safe work methods without enforcement is not enough
The NSW Industrial Court has stated that risk assessments should not be a one-off process; they should be ongoing and rigorously enforced and should involve employees on site who perform the task. Read more.
Victorian WorkCover Authority v Prolift Fleet Management Pty Limited [2009] VSC 96
A supplier of a forklift for hire has been held by the Supreme Court of Victoria to have breached both its common law duty to take reasonable care and its statutory duty under the Occupational Health and Safety (Plant) Regulations 1995 (Vic). Read more.
Security of Payment Legislation
Thiess Pty Ltd v Lane Cove Tunnel Nominee Company Pty Ltd [2009] NSWCA 53
The time for responding to a payment claim under the NSW Building and Construction Industry Security of Payment Act 1999 will not necessarily be the same time as the time for responding to a progress claim set out in the payment clauses of a construction contract. Read more.
Execution of deeds and recycling of signature pages
A deed will not be properly executed if the signature pages of an incomplete draft are subsequently transferred and attached to an amended final version of that deed. Read more.
Hickory Development Pty Ltd v Schiavello (Vic) Pty Ltd [2009] VSC 156
The Supreme Court of Victoria has chosen to adopt the approach currently applied in New South Wales by broadly interpreting the Victorian Building and Construction Industry Security of Payment Act 2002 and not requiring strict compliance with every provision. Read more.
Kriketos v Livschitz [2009] NSWCA 96
The New South Wales Court of Appeal considered whether the conduct of parties during negotiation, silence and/or the parties’ conduct subsequent can be used to support a contention that a legally binding contract is formed absent conventional offer and acceptance. Read more.
Perform (NSW) Pty Ltd v Mev-Aus Pty Ltd t/a Novatec Construction Systems [2009] NSWSC 416
The New South Wales Supreme Court confirmed that a second payment claim under the NSW Building and Construction Industry Security of Payment Act 1999 for items that have been previously adjudicated is not permitted. Read more.
Act
Survey (Funding and Promotion of Surveying Qualifications) Amendment Act 2009 No. 12 (SA).
Architectural Practice Act 2009 No. 16 (SA)
Assented to on 16 April 2009 but not yet proclaimed
Home Building Amendment (Insurance) Act 2009 No. 24 (NSW)
Commenced 19 May 2009
Bill
Occupational Licensing Legislation Amendment (Regulatory Reform) Bill 2009 (NSW)
In Legislative Assembly, Awaiting "Agreed in Principle" Debate
Building Amendment Regulation (No. 1) 2009 No. 45 (QLD)
Commenced 1 May 2009
Building Amendment Regulations (No. 2) 2009 (WA)
Commenced 20 May 2009
Justice and Other Legislation Amendment Act 2009 No. 12 (NT)
Ss 1 & 2 assented to on 26 May 2009; remainder not yet proclaimed.
Commences 1 July 2009
Amendment to the Building Work Contractors Regulations 1996 No. 73 (SA)
New Statutory Rule - Building Work Contractors (Fees) Variation Regulations 2009 No. 161 (SA)
Commenced 1 July 2009
Amendment to the Housing Improvement (Section 60 Statements) Regulations 2001 No. 191 (SA)
New Statutory Rule - Housing Improvement (Section 60 statements) (Fees) Variation Regulations 2009 No. 137 (SA)
Commenced 1 July 2009