Electronic communication has become the new normal, particularly since the arrival of COVID-19. The legal profession has been slow to accept the new normal, but recent months have accelerated that progress.
When large electronic documents are to be exchanged, emails cannot be used due to limitations on the size of attachments. In these cases, parties often send, by email, a hyperlink to documents, using services such as Dropbox or the Microsoft equivalent, OneDrive.
In this Update, we examine a recent South Australian Supreme Court case dealing with the effectiveness of this type of communication in the context of the stringencies relevant to the Building and Construction Industry Security of Payment Act 2009 (SA) (“Act”).
Wärtsilä Australia Pty Ltd (“Wärtsilä”) was engaged by AGL to construct a power station at
Torrens Island. Wärtsilä engaged Primero under a subcontract, to carry out civil, mechanical and electrical works and to supply tanks as part of the power station. On 2 March 2020, Primero served a payment claim under the Act, in the amount of $85,751,118.
On 10 March 2020, Wärtsilä served Primero with a payment schedule under the Act but said that the payment schedule was provided without prejudice to Wärtsilä’s contention that the Primero payment claim was invalid as there was no reference date available.
Wärtsilä’s payment schedule assessed the payment claim at $6.4m but said that, as it had already paid Primero $18m, there was nothing due to be paid.
The Act provides that a party to a construction contract is entitled to a progress claim on and from each reference date under the contract. The Courts have held a reference date is an essential element of a payment claim. If the contract specifies a specific event must occur before the next reference date arises, then no payment claim can be made until the event has occurred.
In the Contract between Wärtsilä and Primero, the next reference date was to occur when, and only when, Primero had brought the Contract works to a milestone, called SW Completion.
Wärtsilä said that Primero had not reached the SW Completion milestone when it served the payment claim. Therefore, the payment claim had been served without a reference date and was not a valid payment claim.
Delivering the QA documents
SW Completion was defined in the Contract. One of the limbs of the definition required Primero to provide to Wärtsilä the quality assurance documentation which was to be “available for inspection by [Wärtsilä] at [Torrens Island]”. The QA documentation extended to about 100,000 pages.
Primero said that it had provided the QA documentation when it sent an email to Wärtsilä including a hyperlink to a OneDrive server maintained by Microsoft. There was no dispute that the email including the hyperlink had been sent to Wärtsilä on 28 February 2020. On that basis, if the receipt of the email and hyperlink was adequate for delivery of the QA documentation, the payment claim was valid.
Primero did not accept the assertion of Wärtsilä in its payment schedule and referred the dispute to adjudication. The Adjudicator considered the submissions of both parties and determined that Wärtsilä should pay to Primero $15.3m.
Wärtsilä applied to the Supreme Court seeking judicial review of the adjudicator’s determination.
Justice Stanley heard the review and considered the matter. The terms of the Contract allowed for the delivery of notices by email but expressly prohibited other forms of electronic communication by stating:
“A Notice must not be given by electronic means of communication, other than email as permitted by clause 40.”
In support of its application for review, Wärtsilä made two alternative submissions.
Firstly, it said that the terms of the Contract expressly precluded reliance on the Electronic Communications Act 2000 (SA). That act precludes service by electronic means, other than by consent. No consent had been given for emailed hyperlinks and the terms of the Contract made the lack of consent express.
Secondly, Wärtsilä said that the hyperlink emailed to it by Primero was ineffective when initial attempts were made to download. The QA documents were unable to be downloaded via the hyperlink on 28 February 2020 and on each occasion when a Wärtsilä employee had made the attempt, their computer had crashed. It was only by 2 March 2020 that Wärtsilä had succeeded in first downloading some of the documents.
In response, Primero cast doubt on Wärtsilä difficulties by asserting that when Primero’s staff had attempted to access the hyperlink, they had been successful in downloading the QA documents. Primero said that its expert evidence showed that the hyperlink was a suitable vehicle for provision of the QA documentation.
Primero pointed out that the parties had been using the DCM365 cloud-based document management system for the project, but due to difficulties with that system had begun to use the OneDrive system. Primero said it was open for Primero to determine that “provision” pursuant to the subcontract meant provision by electronic means. Primero submitted that such a construction is consistent with commercial reality.
Justice Stanley did not agree and found that emailing the OneDrive hyperlink on 28 February 2020 was not “provision” to Wärtsilä. Further, some of the documents were not available for inspection at Torrens Island on 28 February 2020 because they were not capable of being fully accessed, read and downloaded by Wärtsilä at that date. Justice Stanley referred to a Queensland Supreme Court case where the Court found that emailing a Dropbox link was not service under the Queensland Security of Payment Act. His Honour said the terms of the Contract here were, if anything, likely to impose a stronger obligation in this case.
Justice Stanley did not accept Primero’s proposition that the fault lay at the Wärtsilä end in some deficiency with its computer, but appears to suggest that, had that been established, there might be a basis for an alternative finding. However, the evidence showed that there had been earlier difficulties with the use of the OneDrive hyperlink process and the conduct of the parties indicated that it was agreed the final QA documentation would be provided by way of a USB on 28 February 2020.
The adjudicator’s determination was quashed due to the absence of a reference date for the payment claim.
Electronic communication is becoming more accepted as the means of formal and legal document exchange. However, unless the parties have previously agreed, delivery by email of a hyperlink is not delivery of the document referred to by the hyperlink. That document is invariably located on a remote server.
Parties should review their protocols for document exchange and should attempt to agree in advance a sensible mechanism for the exchange of contract notices and documents.
Where parties wish to provide large documents by emailing a hyperlink it would be prudent to arrange for a deeming provision, such that the recipient of the email is obliged to respond within a short period if they are unable to download the hyperlinked document. If they fail to respond, the sender could then rely on the deeming provision to establish delivery.