East Coast vs West Coast: the national Review of Security of Payment Laws recommends harmony

By Laura Walton

07 Jun 2018

Certain proposed changes require a fundamental structural and philosophical change to existing legislation.

With the release of the Murray Review, the first significant step may have been taken towards a consistent national security of payment regime for the Australian construction industry.

A major focus of the Review, and its 86 recommendations across a number of areas, is the statutory process for the recovery of progress payments, including the adjudication process.

If adopted by the States and Territories, these recommendations will eliminate the current divide between the East Coast and West Coast models, which has existed for well over a decade.

However, harmony may not come easily; below we discuss some of the biggest changes that the various State and Territory stakeholders will be required to grapple with in order to implement the Review's recommendations.

Key implications for the East Coast

The Review recommends a national security of payment regime based on the current New South Wales legislation. The New South Wales legislation was the cornerstone of the East Coast model currently in place in Queensland, New South Wales, the Australian Capital Territory, Victoria, South Australia and Tasmania.

However, the recommended national regime will not come without change for the Eastern States and Territories. Specifically:

  • Removing the concept of "reference dates" from the legislation, which is one of the central tenets of the current East Coast model. To simplify the process, the Review recommends that a claimant just be given the right to make a claim once every month (or more frequently if the contract so provides).
  • Extending the legislation to the residential sector. Currently, Tasmania is the only East Coast jurisdiction to extend its legislation to this sector. The Review makes a compelling argument for this change, although many with experience of the legislation will view this recommendation with extreme caution. The Review recognises that "additional consumer protection safeguards" will be needed to protect homeowners in this sector. To address this, it mandates that residential payment claims include information about the process and how to reply.
  • Abolishing exclusionary provisions which prevent certain classes of claims – eg. disputed variations, latent condition claims and time-related costs and damages – from being included in a payment claim under the Act. These exclusions are a key features of the current Victorian legislation, which differentiate it from other jurisdictions.

Key implications for the West Coast

A national regime based on the East Coast model will, by definition, require an even greater shift for the States and Territories operating under the current West Coast model: the Northern Territory and Western Australia.

It will require a fundamental structural and philosophical change to the current legislation. Of particular significance:

  • Restricting the ability to make a claim under the legislation to contractors (those who have carried out the work or supplied goods and services). The West Coast model currently allows either party to a construction contact to make a claim under the legislation, and refer that claim to adjudication (although the right to make a claim down the chain is not widely used).
  • Providing a statutory right to progress payments independently of, and in addition to, any contractual right. This recommendation is made with an emphasis on the underlying objective of maintaining contractor cash flow, noting that to achieve this objective, "adjudication becomes a means to an end" rather than an "end in itself". It is contrary to the current West Coast model, which only imposes a statutory right in the absence of a contractual one.
  • Enabling a claimant to obtain summary judgment for the full amount of a claim if the respondent fails to provide a complying payment schedule within time. A prominent feature of the East Coast model, the significant consequences of such provisions should not be lost on those unfamiliar with them when administering construction contracts.

Nationwide implications

There are also features of the proposed scheme which, if implemented, will effect change nationwide. They include:

  • Requiring that a payment claim under the legislation be endorsed as such. This would be a new requirement for the West Coast jurisdictions, and would reinstate a requirement which was, somewhat controversially, removed from the legislation in New South Wales and Queensland in recent times (although the Queensland legislation has not yet commenced).
  • Maintaining, as the default position, the very tight adjudication timeframes in the traditional East Coast model (eg. five business days for an adjudication response), but providing greater flexibility in the process by allowing extensions of time to be requested.
  • Appointment and oversight of adjudicators by a central government Regulator, although envisaging that Authorised Nominating Authorities will retain a role in nominating adjudicators to the Regulator. The Review's recommendations on this issue are designed to strike a balance between retaining many of the functions historically performed by ANAs, while breaking the "direct connection" between receipt of an adjudication application and the appointment of an adjudicator.
  • Allowing parties to agree upon an accredited adjudicator to decide the dispute. Such agreement could only occur at the time the dispute arises, not at the time of entry into the contract (as currently allowed under the West Coast model).
  • Introducing a merits "review" process for parties aggrieved by an adjudication decision. Such reviews would be conducted after application to the Regulator (on certain conditions) and carried out by the most senior adjudicator available at the time.

The road to harmony

As highlighted in the Review, its release comes at a time when many States and Territories have, within the last five years, undertaken their own reviews of the security of payment legislation, including having implemented significant reform in some cases.

Sceptics may argue that the road to harmony between East and West is unlikely to be an easy one to tread. While there may be good reason, and broad industry support, for a nationally consistent regime, similar recommendations have been made before.

As such, the resultant consultation and response period will be watched with interest by the construction industry nationally.

Stay tuned for further updates in the coming weeks regarding the potential implications of other important aspects of the Review.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.