Upcoming Amendments to the Building and Construction Industry Security of Payment Act 1999 (NSW) – to come into operation on 21 October 2019

On 28 November 2018 the New South Wales Parliament passed an Act (SOP Amendment Act)[1] amending the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act). The SOP Amendment Act is due to commence effect (and thereby amend the SOP Act) on and from 21 October 2019. The amendments to the SOP Act will operate in respect of all construction contracts entered into after 21 October 2019.

The SOP Amendment Act was the product of two inquiries, being the Collins Report (at the New South Wales level)[2] and the Murray Report (at the Commonwealth level).[3]

The key amendments made by the SOP Amendment Act to the SOP Act are as follows:

1. Reference dates:

The existing concept of a ‘reference date’, or the trigger on and from which a person who had undertaken to carry out construction work or supplied construction related goods and services is entitled to a progress payment, is abolished.[4] Instead, pursuant to section 13(1A) to (1C) of the (to be amended) SOP Act :

    1. Default position – last day of the month: A payment claim may be served on and from the last day of the month in which the construction work is carried out and on and from the last day of each subsequent month. (The practical impact is that the last day of the month is a default ‘reference date’.)
    2. Construction contract may specify the date for making a claim: However, if the construction contract provides for an earlier date for serving a payment claim in any month, this date takes precedence over the default position (being on and from the last day of each month).
    3. Right to make a claim is contract terminated: For construction contracts that are terminated, a payment claim may be served on and from termination. This amendment cures the previous problem that arose if the construction contract was terminated before the ‘reference date’ (ie date for making a payment claim), thereby preventing a payment claim under the SOP Act from being served. This loophole encouraged contractors or parties ‘up the chain’ to terminate construction contracts before the final reference date arose – this loophole was recognised by the High Court in Southern Han Breakfast Point Pty Ltd (in Liquidation) v Lewence Construction Pty Ltd [2016] HCA 52
2. Residential contracts no longer exempt:

Previously, construction contracts for residential building work (as that term is defined in the Home Building Act 1989 (NSW)) were exempt from the SOP Act. The SOP Amendment Act removes this exemption, thereby allowing contractors to claim under the SOP Act against ‘mums and dads’ and other principals who procure residential building work. This amendment is consistent with the Murray Report but the SOP Amendment Act does not adopt other protections recommended in the Murray Report – namely mandatory simple form warnings to owners about the operation of the SOP Act (eg timeframes for responding, consequences of not doing so)[5]

3. Time period for payment of progress payments:

The time period for paying progress payments to a subcontractor under a construction contract has been reduced from 30 business days after the payment claim is made to 20 business days.[6]

4. All claims to be endorsed as being made under the SOP Act:

The amendments to the SOP Act will require that, if a party wishes to invoke the provisions of the SOP Act, that all SOP Act payment claims must be endorsed under (or expressly made pursuant to) the SOP Act.[7] This reduces the possibility of confusion about whether a payment claim made by a party (which is not endorsed under the Act and is silent on the question) is or is not made pursuant to the Act. (This amendment has the effect of unwinding the 2013 amendments to the SOP Act that previously permitted security of payment claims to be made without endorsement.)

5. Penalties:

The maximum penalties for a range of offences under the SOP Act have been significantly increased. In many instances the fines for a breach of provisions of the SOP Act have increased to between $5,500 to $11,000 for corporations and $1,100 to $2,200 for individuals. In addition, certain offences are now offences of ‘executive liability’ such that directors and officers of a company may be personally liable for fines and/or imprisonment.[8]

6. Withdrawal of adjudication applications:

If a claimant is dissatisfied with the respondent’s payment schedule (and/or the scheduled amount) they may lodge an adjudication application under the SOP Act. In certain circumstances the fact of an adjudication application may prompt a respondent to settle with the claimant prior to the adjudicator handing down their decision. There was some uncertainty about whether, in such circumstances, an applicant could withdraw their adjudication application. New section 17A of the SOP Amendment Act allows for the withdrawal of an adjudication application by serving a written notice of withdrawal:

    1. before an adjudicator is appointed to determine the application; or
    2. if an adjudicator has been appointed – before the application is determined.
7. Time period for an adjudicator to make a decision:

The amendments to section 21 provided the adjudicator with a longer period of time in which to determine the adjudication application. This recognises the reality that, particularly for large and/or complex claims, the adjudicator requires additional time to arrive at his or her decision and hand down an adjudication decision.

8. Errors in an adjudicator’s decision:

In Multiplex Constructions Pty Ltd v Luikens & Anor [2003] NSWSC 1140, the Supreme Court of New South Wales per Palmer J held that jurisdictional error[9] in an adjudicator’s decision invalidates the whole of an adjudicator’s determination (and not just that part of the decision infected with error). New section 32A of the SOP Amendment Act provides that the court, if it finds that an adjudicator’s decision does contain jurisdictional error, has a discretion to only set aside that part of the determination impacted by the error (and does not have to set aside the whole adjudication decision).

9. Companies in liquidation cannot serve a payment claim under the SOP Act:

The New South Wales Court of Appeal decided in the case of Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liquidation) [2019] NSWCA 11 (Seymour Whyte) that the SOP Act is capable of being used by a builder or subcontractor that has gone into liquidation.[10] New section 32B of the SOP Amendment Act overrules the decision in Seymour Whyte and provides that:

      1. a company in liquidation cannot serve a payment claim or take action to enforce a payment claim or adjudication decision; and
      2. if a company in liquidation has made an adjudication application which has not been determined on the day before the company has entered liquidation, the application is deemed to have been withdrawn.[11]
      3. The above amendments do not appear to prevent a company in administration (as contrasted with liquidation) from making payment claims, seeking adjudication decisions and enforcing them. However, a respondent may wish to challenge any claimant who is in administration from doing so.
10. Enforcement and compliance:

The SOP Amendment Act includes investigation, compliance and enforcement powers for certain government officers and new offences. The SOP Amendment Act also provides that a code of practice may be issued in relation to adjudication authorities. This indicates that the government may more closely supervise adjudicators to ensure, among other things, that they carry out their functions under the SOP Act lawfully.

Footnotes

[1] The Building and Construction Industry Security of Payment Amendment Act 2018 (NSW) No 78 – the SOP Amendment Act.

[2] Final Report ‘Inquiry into Construction Industry Insolvency in NSW’, November 2012 by Bruce Collins QC.

[3] ‘Review of Security of Payment Laws – Building Trust and Harmony’, December 2017 by J Murray AM.

[4]This is consistent with one of the recommendations of the Murray Report – see section 11.1 on page 131: ‘to avoid confusion within the industry the use of the expression “reference date” should be abandoned.’

[5]See section 10.3 of the Murray Report on page 126.

[6]See section 11(1B)(a) of the SOP Act

[7]See section 13(2)(c) of the SOP Amendment Act. The form of wording typically used to ‘endorse’ a payment claim as made under the SOP Act is: ‘This is a payment claim made under the Building and Construction Industry Security of Payment Act 1999 (NSW).’

[8]These offences include section 13(7) and 13(8). Section 13(7) prohibits a payment claim by a head contractor on a principal that is not accompanied by a supporting statement in support of that payment claim. Section 13(8) prohibits that supporting statement from containing any false or misleading information.

[9]Jurisdictional error is an administrative law concept that embraces a large number of errors committed by a judge or, in this instance, an adjudicator such as exceeding authority, failing to adhere to the conditions for exercising power, committing an error of law etc.

[10]In this decision the New South Wales Court of Appeal disagreed with the Victorian Supreme Court, Court of Appeal in Façade Treatment Engineering Pty Ltd (in liq) v Brookfield Multiplex Constructions Ltd [2016] VSCA 247, which found that companies in liquidation could not engage the provisions of the Victorian SOP Act to claim payment.

[11]And this deemed withdrawal fits well with section 17A and the new provision in relation to the ability to withdraw payment claims.

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Disclaimer
This article is general commentary on a topical issue and does not constitute legal advice. If you are concerned about any topics covered in this article, we recommend that you seek legal advice.

The Author

Richard Hutchings

PARTNER, MELBOURNE