Whilst section 5(1) of Building and Construction Industry Security of Payment Act 1999 (NSW) (SOPA) goes to some lengths to give guidance as to what would be "construction work", the so-called "Mining Exception" in section 5(2) is bereft of guidance as to the proper scope of the "drilling" and "extraction" activity that section 5(2) seeks to exclude. There is no question that a lot of work readily recognisable as "construction work" occurs in the mining sector; but where along this continuum does "construction work" in mining lose that identity, fall into the Mining Exception and cease to attract the regime under SOPA?
Remarkably, until recently, this question had never been considered for the NSW version of SOPA and only twice in Queensland. Cadia Holdings Pty Ltd v Downer EDI Mining Pty Ltd [2020] NSWSC 1588 is the first decision in NSW to construe the so called ‘Mining Exception’ under section 5(2)(b) of the SOPA.
The mining project in question was the proposed development of a new panel cave at an underground cave mine in the Cadia Valley, being the largest underground mine in Australia containing deposits of gold, silver, copper and molybdenum. The project had two phases: the “development phase” in which the mine was constructed by pushing the tunnels in order to access the ore body, establishing the infrastructure and installing services required for the mining process; and the “production phase” where, once the mine had been constructed, the valuable minerals were to be extracted in bulk from the ground.
Under the Contract, Downer’s scope of work required performing activities in the development phase, most of which was underground work, involving “tunnelling or boring” as well as “constructing underground works” so as to construct an access to the proposed undercut and extraction levels. The works also included, amongst other things, haulage of excavated material to the nominated dumping point, establishing facilities, effecting site clean up, engaging in secondary breaking of oversize material, dewatering of the mine etc. Cadia Holdings disputed that such work was “construction work” upon the basis that the work to be performed under the Contract was for the “purpose” of the “extraction of mineral” such that the Mining Exception under section 5(2)(b) of the SOPA was engaged. The Supreme Court held it was not.
The Court found that:
(a) The Mining Exception was to be narrowly construed. It was not sufficient that the tunnelling, boring or construction of underground work was for the ultimate purpose of extraction of material. The works had to be for ‘the very process of extraction’. The Court found that ‘extraction’ did not include work associated with or preparatory to or incidental to extraction. Unlike the definition of ‘construction works’ in section 5(1) which expressly extended to preparatory work, no such words were used in the Mining Exception in section 5(2)(b). Rather, the exception simply referenced works “for” the purpose of extraction of minerals;
(b) The object and purpose of the Contract was not to cause Downer to undertake work for the purpose of extracting minerals but rather was preparatory work to, and in anticipation of, the ultimate and later extraction of minerals;
(c) Where there is a contract which contains undertakings to carry out construction work and undertakings to carry out work that is not construction work, the contract remains a ‘construction contract’ for the purposes of the SOPA. Thus, if a payment claim is submitted under such a contract, the payment claim can include a claim for work that is not construction work but the adjudicator would have jurisdiction to adjudicate over work that is only construction work. Significantly, such a payment claim would remain valid for the purposes of SOPA. Consequently, even if the tunnelling, boring and underground works undertaken by Downer were for the purpose of the extraction of minerals (which, the Court held, it was not), the Contract nonetheless was a construction contract because some of the work it called for was construction work (such as haulage of excavated material to the nominated dumping point, establishing facilities, site clean-up and so on).
The decision was in line with two earlier Queensland decisions[1] which had held that preliminary site preparation work (clearing, grubbing etc) did not attract the Mining Exception.
Each of Queensland, Victoria, South Australia, Tasmania and the Australian Capital Territory have a mining exception section to the same effect as that in the SOPA. Whilst the corresponding provisions in Western Australia and in the Northern Territory are materially different, Western Australia is proposing to adopt the NSW SOPA model which would introduce the narrow mining exception to that state, where much mining activity occurs.
The Takeaway
The Mining Exception will be given a very narrow operation.
The Mining Exception will be engaged only if the construction work is sufficiently proximate to the very act of extraction. The further away the activity is from the extraction of minerals, the probability that SOPA applies increases. Even where the Mining Exception might be engaged, if the contract contains any undertakings to carry out either “construction work” within one of categories in section 5(1), or “related goods or services” within the meaning of section 6, the contract will be a construction contract for the purposes of the SOPA. The possibility also arises from this decision that drilling or extraction for oil and gas will attract an even narrower Mining Exception because section 5(2)(a) does not have the extra wording contained in section 5(2)(b). Further, for the purposes of SOPA, is another decision necessary to clarify what is caught by the term by “minerals”?
For miners, this requires extreme caution before a decision is made that SOPA does not apply to a construction contract or a payment claim. The prudent course always is to not just ignore a payment claim and to serve a payment schedule, if only to raise a possible Mining Exception defence or other defences should it go to adjudication.
[1] HM Hire Pty Limited v National Plant and Equipment Pty Ltd [2012] QSC 4 per Douglas J and Theiss Pty Ltd v Warren Brothers Earthmoving Pty Ltd [2012] QCA 276 per Philippides J (Holmes and White JJA relevantly agreeing) (upholding the decision of Fryberg J).
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