Australia: Do the Security of Payment Acts Apply to Mining Activities?
Critical Path

It is now relatively clear that the “mining exclusion” in each Security of Payment Act in Australia is narrower than most had previously expected. In other words, the Security of Payment Acts are likely to apply to more activities in the mining industries (including oil and gas) than first thought.

Every Security of Payment Act in Australia contains exclusions for mining activities broadly along the same lines (Western Australia and the Northern Territory vary more significantly), namely (to adopt the wording from the Queensland Act):

• “the drilling for, or extraction of, oil or natural gas;” and
• “the extraction, whether by underground or surface working, of minerals, including tunnelling or boring, or constructing underground works, for that purpose.”

Before 2011, most thought that the intention of the carve-out was to remove from the operation of the Security of Payment Acts construction work carried out in the mining industry.

In a landmark decision, the Queensland Supreme Court in 2011¹ became the first Court in Australia to comment on this carve-out, and it did so with a narrow view. In that case an adjudicator’s decision was made in favour of a subcontractor for works involved in the construction of a mine, including the construction of dams and drains, stripping, hauling, excavating and storing topsoil, and clearing and grubbing. Because those works were not actually for the extraction of minerals (in this case coal), the Court held that Security of Payment Act applied. The Court held:

“The exemption given by s 10(3)(b) is not expressed to apply to work done for the purpose of opening or as preparatory to operating a mine. The words used are much more limited than that. They focus purely on the process of extraction.” (emphasis added)

A later Queensland decision endorsed the decision referred to above.²

Interestingly, in Western Australia, a tribunal at the start of this year held that the construction of a desalination plant was for the direct purpose of extracting minerals (salt) and therefore the Western Australian Security of Payment Act did not apply.³

The upshot for participants in the mining industry, including oil and gas, is that Security of Payment claims will apply to works carried out in the mining industry subject to the narrow carve-out discussed above. Although the three cases mentioned have each dealt with the extraction of minerals only, it is likely that a similar narrow view will be adopted in the oil and gas industries. If anything, the wording of that carve-out is even narrower.

If you are seeking payment, consider carefully whether the mining exclusion applies. You do not want a situation of running the adjudication gauntlet, being successful then spending the next year in Court defending a challenge to the decision. You should do your due diligence at the start.

If you receive a payment claim do not assume that the mining exclusion will come to the rescue, because given its narrow focus there is a high likelihood it won’t. Put in your payment schedule and assume that the Security of Payment Act applies. You can include in your payment schedule that the payment claim is not valid because of the mining exclusion. Do not expose yourself to unnecessary risk by not serving a payment schedule and relying solely on what is now recognised as a narrow mining exclusion.

Footnotes

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.