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Mine-d the gap: NSW Court construes the Mining Exemption in the Security of Payment Act for the first time

18 November 2020

#Construction & Infrastructure

Published by:

Divya Chaddha

Mine-d the gap: NSW Court construes the Mining Exemption in the Security of Payment Act for the first time

A NSW Court has for the first time construed the Mining Exception in the Building and Construction Industry Security of Payment Act 1999 (SOP Act) in the decision of Cadia Holdings Pty Ltd v Downer EDI Mining Pty Ltd [2020] NSWSC 1588 released on 11 November 2020 (Cadia).

It has been over 20 years since the original enactment of the SOP Act.  This decision highlights that the application of the SOP Act continues to be tested and validated by the Courts in accordance with the object of the SOP Act.

The Mining Exception

The exemption under section 5(2) of the SOP Act provides that the SOP Act does not apply to a construction contract for the “extraction of minerals, including tunnelling or boring, or constructing underground works, for that purpose”.  Prior to Cadia, the application of this exemption was unclear as this exemption had not been ventilated before NSW Courts, nor is it mentioned in the explanatory notes to the SOP Act.

The facts in Cadia

In this case, Cadia Holdings Pty Ltd (Cadia) had entered into a contract for Downer EDI Mining Pty Ltd (Downer) to carry out “lateral development works” in the Cadia East underground cave mine.  Downer referred a disputed payment claim to adjudication under the SOP Act.  It was determined that a total of $1,017,741.71 was payable to Downer.

Cadia sought to quash the adjudication determination in the Supreme Court of NSW, on a basis amongst others, that the Mining Exemption applied to this type of construction contract as the “ultimate purpose” of Downer’s work was the extraction of minerals.  As a consequence, the payment claim issued by Downer pursuant to the SOP Act ought to be determined as being void. 

Downer advanced a case that it would be necessary for there to be a “close and proximate” connection between the tunnelling, boring and construction of underground works and the “very process of extraction” for the Mining Exemption to apply.  Here, the tunnelling, boring and underground construction work undertaken by Downer the subject of the payment claim did not lead to a situation where mineral extraction could take place immediately. 

The Court held:

In making its decision on the ambit of the Mining Exemption, the Court applied the narrower “proximity” approach to the exemption that had been advanced by Downer.  Having regard to the object of the SOP Act set out in section 3(1), the Court indicated that in circumstances where an exemption is susceptible of two constructions, the narrower construction ought to be preferred to give full operation to the remedial and beneficial nature of the SOP Act. 

Accordingly, whilst the Mining Exception would apply to certain works in connection to the extraction of minerals, this decision highlights that it cannot be assumed that all works would be caught by the exemption and principals could be susceptible to receiving a valid claim under the SOP Act.

This decision also emphasises the Courts continued support of the SOP Act’s object in construing the provisions of the SOP Act.

Authors: Helena Golovanoff and Divya Chaddha

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Published by:

Divya Chaddha

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