Security of Payment Flashcards
“…stamp out the un-Australian practice of not paying contractors for work they undertake on construction.”
NSW Hansard Second Reading Speech 22 September 1999.
“Cash flow is the lifeblood of the construction industry.”
Dawnays v FG Minter [1971] EWCA per Denning LJ
Work performed - Architect certifies sum - P has no right of set-off.
What does the superintendant certify in a progress payment?
The work undertaken, labour and materials and other costs in accordance with the contract.
“Construction work“ is defined broadly, but does not include drilling for oil and gas, or mining operations.
s 5 BCIPA Act 2002 (Vic)
- “Despite subsection (1), construction work does not include any of the following work—*
- (a) the drilling for, or extraction of, oil or natural gas;*
- (b) the extraction (whether by underground or surface working) of minerals…”*
Security of Payment does not apply to domestic building work with a building owner.
s 7(2)(b) BCIPA Act 2002 (Vic)
‘…a domestic building contract within the meaning of the Domestic Building Contracts Act 1995 between a builder and a building owner …’
On and from each reference date, a builder or supplier is entitled to a progress payment, calculated by reference to that date.
s 9(1) BCIPA Act 2002 (Vic)
Reference dates may be calculated under the contract, or in default, every 20 days after construction work first performed.
s 9(2) BCIPA Act 2002 (Vic)
The amount of the progress payment is as per the contract (ie installment), or as valued under the contract.
s 10(1) BCIPA Act 2002 (Vic)
Deductions may be made for defective work.
s 11(1)(b)(iv) BCIPA Act 2002 (Vic)
What is a first class claimable variation?
s 10A(2) BCIPA Act 2002 (Vic)
Parties have agreed that the work was done, that it constitutes a variation and the amount that it is worth.
When is a second class claimable variation claimable under s 10A(3)-(4)?
Aside from non-claimable variations, what are the five (5) other excluded amounts in s 10B?
- Latent conditions;
- Time related costs;
- Changes in regulatory requirements;
- Damages under contract; and
- Any amount claimed at law other than under the contract.
“Pay when paid” provisions are void.
s 13 BCIPA Act 2002 (Vic)
A contractor entitled to a progress payment may make a payment clam.
s 14(1) BCIPA Act 2002 (Vic)
A person referred to in section 9(1) who is or who claims to be entitled to a progress payment may serve a payment claim…
Under s 15 BCIPA Act 2002 (Vic) how long does a respondent have to submit a payment schedule, and what is the consequence of non compliance?
10 days (or less if required by the contract).
Non-compliance means claim is immediately due and payable.
Under s 16 BCIPA Act 2002 (Vic), what are the claimant’s options if no payment claim is issued?
Suspend works, then claim for debt in court, or adjudicate.
A clause providing the parties “agree on a method to resolve the dispute” is an agreement to agree and unenforcable.
WTE Co-generation and Visy Energy P/L v RCR Energy P/L [2013] VSC per Vickery J
Meeting skipped - sought injunction - clause unenforcable.
“What is required by ss. (3)(d)(ii), in my view is a binding dispute resolution mechanism separate from the Court system.”
AC Hall Airconditioning Pty Ltd v Schiavello (Vic) Pty Ltd [2008] VCC
What is a good rule of thumb for identifying excluded variations?
Contract too expensive, or porportion to big, or there is DR clause.
Liquidated damages can offset the adjudication debt which supports a statutory demand under s 459H(1)(b) Corporations Act 2001.
Scrohn Pty Ltd v Newearth Constructions Pty Ltd [2015] VSC
LD proceedings - new payment claim - Queen Anne causes’ irony’ at final hurdle.
State parliaments cannot remove a court’s power to review for jurisdictional error.
Kirk v Industrial Court of New South Wales [2010] HCA
Industrial Court - convicted of OHS breach - privitive clause immunising judgement.
What was the primary recommendation of the Senate’s Insolvency in the Australian Construction Industry report in December 2015?
The most significant of which is that the Commonwealth should enact national, harmonised SOP legislation.
Mediation not a “method of resolving disputes” for the purposes of the Victorian Security of Payment Act.
SSC Plenty Road v Construction Engineering (Aust) & Anor [2015] VSC
Mediation - “capable of resulting in a binding resolution of the dispute”
A courts must stay proceedings commenced in contradiction to an arbitration agreement unless “null, void, inoperable or incapable of being performed”.
s 8 Commercial Arbitration Act 2011 (Vic)
Why does Australia have no specific law against phoenix activity?
Impossibile to target fraudulent phoenix activity without also impeding genuine business recovery and restructuring.
What recourse does a Respondent have for a false statutory declaration occupanying a payment claim?
Misleading and deceptive conduct, or negligence.
See Chubb Insurance Company of Australia Limited v Robinson [2016] FCAFC at [5].
What is the interplay between the contractual and statutory right to a progress payment?
They co-exist independantly. Contract may inform statute.
Though not overly demanding, a payment claim must be sufficiently detailed to allow a Respondent to:
- understand the basis of the claim; and
- respond meaningfully.
Protectavale Pty Ltd v K2K Pty Ltd [2008] FCA
Usual contractual basis - total work less cash received - insufficient detail.
Invaid parts of a payment claim may be severed.
(cf NSW, Qld - noted to be ‘not an attractive result’)
Gantley v Phoenix International Group [2010] VSC
Liquidated damages cannot be offset from a payment claim.
Seabay Properties v Galvin Construction [2011] VSC
Certiorari is available to quash an adjudication in Victoria.
Grocon Constructors v Planit Cocciardi JV [2009] VSC
s 85 Constitution Act 1975 (Vic) - no expresss mention.
What are the two competing themes in interpretation of the security of payment legislation?
Strict technical observance - normal cashflow altered.
vs.
Practical operation - must be accessable.
Who said “[t]he result of this fractured and disparate industry, and of our Federal system, is a multitude of regulations governing builders … They are a builder’s minefield; but often a lawyer’s delight…“?
Kirby M, “Building, Disputes and the Law” Building Dispute Practitioners’ Society Newsletter, September 1983
Which states retain subcontractor lein based legislation?
Queensland, NSW and South Australia.
Why are excluded amounts a fetter on the use of the Victorian Act?
A party does not want to just be paid its progress payment; it wants to resolve the entire dispute.
What is the key distinctions of the “West Coast” scheme?
Enforces contractual rights, and two way claims.
In Victoria, statistically, what percentage of a claimed adjudication amount is awarded?
Approximately 50%.
A ‘bona fide’ pre-mature payment claim is valid, as s 14(1) allows contractor’s who ‘claim to be entitled’ to lodge.
(cf NSW)
Metacorp v Andeco Construction Group [2010] VSC
Reference date - 25 October 2009 - emailed on 24 October.
Under BCIPA Act 2002 (Vic) service may be personal or at the “ordinary place of business”.
s 50 BCIPA Act 2002 (Vic)
When may a superintendant may recieve a payment claim and issue a payment certificate?
Agent under contract.
Parties cannot contract out of BCIPA Act 2002 (Vic).
s 48 BCIPA Act 2002
What are the maximum payment terms the NSW SOPA Act provides?
Head contract 15 days - subcontract 30 days.
If new reasons are included in an adjudication response, the Claimant must be given two days to respond.
s 21(2B) BCIPA Act 2002 (Vic)
What are the three layers of defence when acting as Respondent in Security of Payment adjudications?
They are:
- Act threshold (reference dates etc)
- Contract threshold (time bar etc)
- Valuation of items
Why is there a reluctance to use SOPA in Victoria?
Too aggressive - “relationship killer” - can’t claim excluded amounts.
An adjudicator is without jurisdiction to determine excluded amounts.
s 23(2A) BCIP Act 2002 (Vic)
‘the adjudicator must not take into account … any part of the claimed amount that is an excluded amount’
What are three reasons contractors may avoid security of payment claims?
- Adjudicator bias means Principals do not trust process. Lodging claim seen as relationship killer.
- Fragmentation across states means contractors are unfamiliar with process.
- Speculative and complicated system - no guarantee of getting anything back.
Anecdotally, why are false statutory declarations rife?
Lack of enforcement.
A security of payment Claimant does not enjoy priority over other creditors in the event of a Respondent’s insolvency.
Belmadar Constructions v Environmental Solutions Intl [2005] VSC
“…once the processes for an orderly management and winding up of the … a company … are set in train that the statutory rights of and limitations … be respected and given effect to.”
What are the two ways an ANA is susptible to bias?
ANA will appoint adjudictaor that pays ANA the most commission - ANA will not appoint adjudicator that Claimant does not want.
Which section of the BCIP Act (Vic) gives the claimant a right to suspend?
s 29 BCIP Act 2002 (Vic)
Three business days notice - not liable for damages.
A Claimant has three months from a reference date to submit a payment claim.
s 14(4)(b) BCIP Act 2002 (Vic)
“A payment claim in respect of a progress payment…may be served only within…the period of 3 months after the reference date…”
Which are the only states that allow new reasons to be included in an adjudiction response?
Victoria and Queensland (complex claims only).
Which states have abolished Authorised Nominating Authorities (ANAs)?
Queensland only.
Generally, payment under east coast security of payment is due on the date identified in the contract. Which states cap this with max payment terms?
Queensland (generally 15) and New South Wales (15 and 25).
What is the Principal’s most significant obligation in security of payment?
Submit a payment schedule within 10 days.
“There’s nothing we can do to help you.”
Aside from Victorian, when the does the default reference date arise in other east coast states?
Last day of named month.
Complex claims allow a respondent 15 business days for a payment schedule. What is the jurisdictional cap?
$750,000.
How does security of payment flip the normal bargaining power?
Gives contractors access to some money pending outcome of dispute.
As Principal, when consideringt the scope of security of payment, what is it helpful to remember?
Scope extends to related goods and services.
What does a sudden inclusion of the security of payment “magic words” indicate?
Contractor is no longer happy with contract administration.
What does a sudden exclusion of the security of payment “magic words” mean, particularly at the end of project?
Contractor may want the benefit of settling some claim contractually (i.e. LDs), then reagitate rejected items under security of payment.
In Victoria, it is untested whether a Principal can call on security to recoup liquidated damages lost in an adjudication.
What is the risk?
Claimant resubmits claim - security drawn down again - insufficient security for defects.
If you are uncertain whether a Claimant has lodged a SOPA claim, can you ask them?
Yes.
Misleading answer- actionable under CCA - refusal to answer not.
Is a sudden change in pattern in lodging a security of payment claim, without notification, misleading and deceptive conduct?
Only weakly arguable.
Does a security of payment claim need to be made in “good faith”?
Not in Queensland, New South Wales or Victoria.
Why is it good practice (even in Victoria) to include all possible reasons in payment certificate?
Making argument at early stage enhances credibility.
If no payment schedule is received, why may a claimant wish to nevertheless pursue adjudication?
Court is expensive and time consuming.
Statement of claim, filing fee, 28 days for defence, then application for default judgement (no defence) or summary judgement (defence).
How is an adjudication determination enforced?
As a judgement debt.
sheriff, warrant etc (no need for statement of claim etc) - $ determines whether Magistrates, County or Supreme
In reality, how much is awarded in unopposed security of payment adjudications?
90%.
If you win an adjudication, what is it good practice from a GST perspective to do?
Prepare a tax invoice for the adjudicated amount.
Why doesn’t an adjudication amount support a statutory demand?
Defendant can claim both:
- Genuine dispute as to underlying debt; and
- Offsetting claim under contract (i.e. LDs).
In Queensland, a contractor cannot claim under both security of payment and Subcontractors Charge Act 1974. In the event of a clash, which takes priority?
Subcontractors Charge Act 1974
In which state is it possible to lodge a subcontractor charge on Principal as a means of enforcing an adjudication amount?
New South Wales.
On what “nuclear” basis could a large, voluminous payment claim be challenged?
Abuse of process
Adjudication certificate - becomes court judgement – need to control processes.
In security of payment, can liquidated damages be set off in other states (excl. Vic)?
Only if contractual methodology allows.
Anshun estoppel can apply to a claim that ought have been bought in a prior adjudication application.
Wiggins Island Coal Export Terminal v Monadelphous [2016] QSC
Jetty road delay - claimed but not adjudicated - attempted to adjudicate next time.
Payment delays cause slippages to material delivery which in turn impacts what?
Labour productivity in the construction industry.
What are the grounds on which “certiorari” may be issued by a superior court?
They are:
- Jurisdictional error;
- Error of law on the face of the record.
Parliament may not limit the power to review for jurisdictional error: Kirk
Jurisdictional error is much narrower for inferior courts compared to inferior tribunals, as a regular part of a courts function is to interpret the law.
- Craig v South Australia* (1995) HCA
- Dietrich v The Queen* adjournemnt - prosecutor sought certiori.
In Victoria, once a adjudication certificate is registered as a judgement, s 28R(5) prevents judicial review for error on face of the record, which would otherwise be available.
Jurisdictional error not excludable (Kirk).
Amasya Enterprises v Asta Developments (Aust) [2015] VSC
Privative clause - validly enacted - applies to setting aside judgement.
In Queensland, unlicenced builders cannot utilise the security of payment act (cf NSW).
Cant Contracting v Casella [2006] QCA
s 42 QBSAA - no monetary or other consideration - policy.
What year did Singapore introduce the Building and Construction Industry Security of Payment Act?
2004.
In a time where the Act was relatively unused, the developer was found liable for almost $14 million after failing to respond in time to a claim served on 20 December 2002.
Walter Construction Group v CPL (Slurry Hills) (2003)
Explain the progression of judicial review in New South Wales.
Explain the availablity of judicial review in Victoria.
Which privative clause prevents challenging an adjudiction after it has been registered as a judgement?
s 28R(5)(iii) BCIP Act 2002
“is not, in those proceedings, entitled … to challenge an adjudication determination [unless non claimable variation].”
(If applicable) the rules of natural justice involve primarily, the rule against bias and the right to be heard.
Kioa v West [1985] HCA
Deportation - scheme to bypass migration laws - failure to put allegation.
Adjudicators must afford natural justice, there being no legislative intention to exclude that fundamental right.
Musico and Ors v Davenport and Ors [2003] NSWSC
Adjudicator - must settle dispute before them - cannot undertake independent inqiry without seeking submissions.
In what circumstance in adjudications is the hearing rule of natural justice often argued?
s 22(5)(a) BCIPA.
Failure to request further submissions.
A decision may be subject to judicial review if “so unreasonable that no reasonable decision maker could have reached it”.
Wednesbury Corporation [1948] EWCA
Cinema licence - Sunday operation - no child under fifteen.
Without the 5 day extension, how long does the adjudicator have to make a determination?
10 business days: s 22(4) BCIPA 2002
Time starts when notice of acceptance served on both parties.
While natural justice applies to Payment Act adjudications, what must also be remembered?
The Act is rapid, robust and interim only.
Administrative officials are not subject to a general common law duty to provide reasons for their decisions.
Public Service Board of NSW v Osmond [1986] HCA
Promotion recommendation - refused reasons - “overwhelming authority”.
The standard of reasons required and the consequences of non-compliance is an exercise in statutory interpretation.
Wingfoot Australia Partners v Kocak [2013] HCA
Medical panel - certiorari too late - reasons denying adequate.
The only grounds of appeal for a review is that the adjudicator considered an excluded amount.
s 28B(3) BCIP Act (Vic) 2002
If you win an adjudication, what are your commercial options?
They are:
- Do nothing - experience - losing party often is disheartened - will pay sum.
- Seek commercial settlement - capitalise on win - resolve once and for all - prevents court months or years later.
The claimant may claim directly from the Principal if they have obtained a judgement debt.
s 30 and s 31 BCIP Act 2002 (Vic)
If the circumstances set out in section 30 apply, the claimant may obtain payment of the adjudicated amount…
The Payment Act does not disturb the underlying rights of the parties, which may be independently pursued.
s 47 BCIP Act 2002 (Vic)
Subject to section 48, nothing in this Part affects any right that a party to a construction contract…
In New South Wales, judical review may be sought for non-jurisdictional error.
- Probuild Constructions (Aust) v Shade Systems* [2016] NSWSC
- Brodyn* not followed - Kirk casts doubt - ratio only concerns availability to unlicenced builders.
In the “West Coast” model, how does a reverse ambush work?
Principal files adjudication before Contractor can develop claim.
What are the inverse of liquidated damages?
Delay damages / costs.
Compensate’s Principal delay. Must be breach (“damages”) or contract specifically provides (“costs”).
Very clear words are required for parties to deny the common law or equitable right to set off on a payment claim.
Gilbert Ash (Northern) [1974] UKHL
“… one starts with the presumption that neither party intends to abandon any remedies … arising by operation of law.”
What three important principals does Metacorp Australia v Andeco Construction Group [2010] VSC stand for?
- Good faith pre-mature service is valid.
- Service on person with actual or ostensible authority (agent) is valid “service” on “person liable to pay” under s 14(1).
- s 50 is not a code - other forms of service (s 109X Corporations Act) permitted.
Though other forms of service (s 109X Corporations Act) are permitted, what forms of service does s 50 BCIPA 2002 (Vic) allow?
- personal delivery;
- lodging, posting or faxing to ordinary place of business; and
- in any other manner specified in the construction contract.
What are the two primary ways s 109X Corporations Act 2001 permits service on companies?
- Leaving at or posting to registered office.
- Person delivery to director residing in Australia or external territories.
Why are progress payments the standard method of payment in the construction industry?
Contractors cannot fund project until completion.
What is an “entire contract”?
No payment until (substantial) completion.
What is an on account progress payment?
Payment does not constitute acceptance of works.
Unless otherwise agreed, domestic building contracts must have progress payments at the following milestones - base, frame, lock up and fixing.
s 40 Domestic Building Contracts Act (1995) Vic
A builder must not demand or recover or retain…50 penalty units.
The prohibition on raising a defence or cross claim on a summary judgement application does not extend to alleging the payment claim was served in misleading or deceptive cirumstances.
Bitannia v Parkline Constructions [2006] NSWCA
Not a “defence under construction contract”- blanket prohibition on offset breachs s 109.
The security of payment regime is not inconsistent with the Kable principle.
Birdon v Houben Marine [2011] FCAFC
“…nothing about the enforcement …at odds with … the judicial process.”
How is the NZ secuirty of payment regime a hybrid of the East Coast and West Coast models?
It has:
- Default payment system;
- Able to litigate two ways and all controversies under contract.
How did the 2001 Cole Report recommend harmonising security of payment legislation?
s 51(xx)
Federal Government - corporations power.
How is Komptence-Kompetence governed under the Commercial Arbitration Act 2011 (Vic)?
s 16 Commercial Arbitration Act 2011.
Power to determine own jurisdiction subject to Court review.
What is the Protectvale problem in payment claims?
Contractual convention (total progress less amounts paid) does not “identify the construction work” (s 14(2)).
Right to an unbiased decision maker is a basic human right.
Antoun v The Queen [2006] HCA per Kirby J.
Standover man - no case submission - “that application will be refused”.
What variations can be included if the contract DOES have a method of resolving disputes?
If consideration is:
- <$150,000 - unlimited.
- $150,000 to $5 million - 10%.
- >$5 million - nil.
What variations can be included if the contract DOES NOT have a method of resolving disputes?
Unrestricted.
The question of whether there is a method of resolving disputes is therefore of critical importantce.
In Western Australia, a failure to adequately grapple with the construction contract is a jurisdictional error.
Laing O’Rourke Australia Construction v Samsung [2016] WASCA
Spectrum - reasonable error of construction - no consideration at all.
What is the risk when labelling a payment claim or schedule “without prejudice”?
Document will be ruled inadmissable.
Privilege belongs to all parties, not just one.
While an insolvent contractor may use security of payment, what are two barriers to enforcing adjudication outcome?
They are:
- Stay of enforcement on basis money will be non-recoverable; and
- s 553C Corporations Act 2001 offset.
How does a Project Bank Account (PBA) work?
Simultanteous payments from bank to subcontractors, head contractors, and retention.
Why are Project Bank Accounts not favoured by head contractors?
Increases administrative burden and reduces ability to manage cashflow.
How do Project Bank Accounts potentially fundamentally alter construction parties relationships?
Creditor-debtor to trustor-trustee.
For the purposes of determining an adjudication application, the adjudicator may request further written submissions.
s 22(5)(a) BCIPA 2002 (Vic)
may request further written submissions …must give the other party an opportunity to comment on those submissions.
