One of the important innovations introduced by the Building and Construction Industry (Security of Payment) Act 2021 (WA) (SOPA) is a new remedy for claimants (such as contractors and subcontractors) who are owed progress payments: a statutory lien over unfixed plant or materials supplied by the claimant under section 64 which came into effect from 1 August 2022 and applies to construction contracts entered into from that date. In this article we’ll explore these new SOPA liens and the major issues for principals, head contractors and subcontractors.
What is a lien?
There are multiple types of liens – contractual, statutory and common law – but in summary, a lien claim involves a creditor taking or maintaining possession of property, or seeking priority over proceeds of property, to secure payment or performance of a debt obligation. The debt obligation will generally arise in the ordinary course of the debtor's business (e.g. regular supplies of goods or services on credit terms). Lien claims over key plant and equipment can be extremely disruptive to the debtor's business (and will therefore, usually require immediate attention and renegotiation of existing arrangements, a speedy commercial resolution or urgent court intervention through directions, declarations or injunctive relief).
Most lien disputes will boil down to overlapping considerations of:
- Timing (ie. identifying the date from which the lien rights were asserted, the prior-in-time property interests that are already in play and the priority positions of those interests).
- Scope (ie. identifying what property is subject to the lien, identifying the costs and charges that are secured by the lien and determining whether there is alignment between the lien scope and the costs and charges that are being claimed by the creditor).
- Quantum (ie. considering the value of the lien property, understanding where value will break in a priority dispute, identifying how much the creditor is owed and (again) how much of that amount is secured by the lien).
The new statutory lien under the SOPA
Section 64 of the SOPA creates a specific lien:
64 Lien over unfixed plant and materials in respect of unpaid progress payments
(1) If a progress payment becomes payable, the claimant is entitled to exercise a lien in relation to the unpaid amount over any unfixed plant or materials supplied by the claimant for use in connection with the carrying out of construction work for the respondent.
(2) Any lien or charge over the unfixed plant or materials existing before the date on which the progress payment becomes payable takes priority over a lien under this section.
(3) This section does not confer on a claimant any right against a third party who is the owner of the unfixed plant or materials.
(4) Except as provided by this section, the law applying to the determination of priorities between different interests in personal property applies to the determination of priorities between a lien under this section over any unfixed plant or materials and any other interest in the unfixed plant or materials.
(5) The Personal Property Securities Act 2009 (Cth) section 73(2) is declared to apply to liens under this section.
Testing the SOPA lien
The following points will be material to determining the enforceability of the SOPA lien:
- Given that it is a statutory lien, a valid and enforceable section 64 lien has prescriptive requirements. We expect a large number of SOPA liens will be asserted by claimants, and, in many cases, will be open to challenge because they do not follow those requirements to the letter.
- The term “unfixed plant or materials” has a broad definition and has the potential to touch on valuable property such as machinery, equipment, building supplies and inventory. Self-evidently, the lien cannot be claimed over fixed plant or materials (say, for instance, once materials are used up and form part of a building).
- The lien must be exercised over “unfixed plant or material supplied by the claimant for use in connection with the carrying out of construction work for the respondent”. Therefore, if the lien is being claimed over unfixed plant or material that has already been incorporated into the works, there will be obvious grounds to challenge it.
- Further, the SOPA lien will not give a claimant any rights in priority to the owner of the unfixed plant or materials and, again, we expect title / ownership disputes may arise as a result.
- As a starting point, a lien cannot exist or be maintained without an underlying debt obligation and SOPA liens are no different. If you are affected by a SOPA lien, you should consider:
- Whether a progress payment is in fact payable (or is otherwise open to challenge – which might in turn deal with the lien).
- Whether the claimant has tied their lien back to a particular progress claim (at which point, you can make a commercial decision regarding whether you will simply pay the claim to have the unfixed plant or materials released or move to challenge the lien on other grounds).
- Earlier other liens or charges over particular unfixed plant or materials (including earlier SOPA Liens) will take priority over later SOPA liens (section 65(2)).
- Generally speaking, a party claiming a lien must already have possession of the relevant property to be able to enforce and maintain it (with the exception of some common law / equitable liens). Section 64 is not clear on whether possession is required before the lien can be enforced and unfortunately this point has not been considered by case law in respect of Section 64 or equivalent statutory liens in other States. On that basis, until this issue is judicially resolved, there will likely be disputes between claimants seeking to enter a site to reclaim / enforce a SOPA lien over property and principals / head contractors with control and security of the site. However, given the clear purpose of the SOPA lien to protect unpaid suppliers, it would not be surprising if this provision is ultimately given a broad interpretation to allow such suppliers to enforce the lien, subject to any others rights or liens over the property that take priority, even if they do not have actual physical possession of the property at the time.
- Secured parties beware! If you are a secured party under the Personal Property Securities Act 2009 (Cth), you may lose priority to unfixed plant and equipment in favour of a SOPA lien. Most likely, parties who supply goods on retention of title terms to building and construction projects will avoid the operation of SOPA liens as they remain owners of the goods. However, section 64(5) may have implications for parties who take security / ALLPAP interests over principals / projects.