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16 Mar 2010

Security of Payment - new legislation: What you need to know

by Jonathan McTigue, Paul Trewartha

The Tasmanian Security of Payment Act has commenced operation. The South Australian and the ACT Acts have passed but have not yet commenced. Each of the new Acts closely reflect the NSW legislation, although in the case of Tasmania (unlike its mainland counterparts) the Act applies to some residential building work.

These three Acts each apply to a broad range of construction work. Each Act entitles contractors to receive progress payments and pursue disputed progress payments by referring them to a rapid adjudication process. If an adjudicator determines any amount to be owed, it will be an enforceable debt. However, the outcome of an adjudication is provisional, in the sense that it will not prejudice any subsequent arbitration or court proceedings.

Similar schemes are already in force in New South Wales, Victoria, Queensland, Western Australia and the Northern Territory.

Tasmania

The Building and Construction Industry Security of Payment Act 2009 (Tas) commenced operation on 17 December 2009.

A key point of difference between the Tasmanian scheme and the security of payment regimes in other jurisdictions is that the Tasmanian Act applies to building work or construction work that is performed on residential structures where one party is the owner. However, homeowners undertaking construction work on their homes are granted more leniency under the Act (eg. through the use of more generous timeframes) than commercial entities.

The Act also amends the Judicial Review Act 2000 (Tas) so that a decision made by an adjudicator under the Act will not qualify for review under the Judicial Review Act. This is in response to a recent Victorian case which held that an adjudication under the Victorian security of payment legislation was susceptible to judicial review.

Australian Capital Territory

The Building and Construction Industry (Security of Payment) Act 2009 (ACT) will apply to contracts entered into after 1 July 2010.

The ACT Act is based largely on the NSW legislation but is silent as to whether it binds the Crown, meaning the ACT Act will not bind the Crown in right of the Commonwealth. Head contractors entering into contracts with the Commonwealth should be conscious that they may be in a position where they have security of payment obligations under a subcontract without having any security of payment rights under the corresponding head contract with the Commonwealth. This position could be altered if the Commonwealth elects to be bound by the scheme, either by:

  • including provisions in relevant head contracts on a select basis; or
  • the development of a Commonwealth policy to be bound by the ACT Act.

The ACT Act provides a right of appeal from an adjudicator's decision to the ACT Supreme Court on a question of law.

The relevant Minister must review the operation of the ACT Act on 1 July 2012.

South Australia

The South Australian parliament is yet to proclaim a commencement date for the Building and Construction Industry Security of Payment Act 2009 (SA), however a date is expected to be proclaimed following the General Election in that state on 20 March 2010.

Like the ACT Act, the SA Act is based on the NSW legislation and is silent as to whether it binds the Crown. However, because of the Acts Interpretation Act 1915 (SA), the SA Act binds the Crown in right of South Australia, "but also (so far as the legislative power of the State permits) to the Crown in any other capacity" (unlike the position in the ACT).

The definition of "construction work" is slightly broader than in other states as it includes contracts which govern construction work involving "fences", while the definition of "business day" also excludes any "day on which there is a Statewide shut-down of the operations of the building and construction industry".

The SA Act also provides:

  • where a construction contract is silent on the issue, a valid payment claim must be submitted by the claimant within six months of the completion of the work to which the claim relates (NSW, Tasmania and the ACT have 12 months); and
  • that certain timeframes for various requirements under the Act (for example, issuing a payment schedule after the receipt of a payment claim, or making an adjudication application in circumstances where the scheduled amount is less than the claimed amount) are set at 15 business days unlike the period of 10 business days in other jurisdictions such as NSW, Victoria and the ACT.

The SA Act is to be reviewed by the relevant Minister at the end of three years following the date on which the Act comes into operation to ensure the policy objectives remain valid.

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Disclaimer

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.