WA security of payment reforms: No payment, no work – A contractor’s right to suspend for non-payment

Clive Luck, Mathea McCubbing
08 Sep 2022 Time to read: 4 MIN

The expanded right to suspend work will operate in addition to other SOPA rights a contractor may opt to exercise in the event of non-payment.

A novel feature of the Building and Construction Industry (Security of Payment) Act 2021 (WA) (SOPA) – a “claimant’s right to suspend work or supply” – essentially will allow a contractor claiming payment effectively to stop work, in certain circumstances, where payment has not been made. Both contractors / subcontractors and principals / head contractors alike should familiarise themselves with the scope of this right, to understand when it may be exercised, and how it will affect works, or the supply of goods and services, under a construction contract.

When will parties be able to exercise their right to stop work?

A contractor's (or subcontractor’s) right to suspend work will be enlivened when an amount owed to it, by a principal (or head contractor, as the case may be) is not paid, and where certain SOPA requirements are fulfilled. Similar rights and requirements will apply when the retention money provisions are enacted.

Essentially, to exercise this right a contractor will first need to have issued a payment claim, and the principal will then need to have not paid:

  • the claimed or scheduled amount (ie. sum certified in a payment schedule) in full on or before the due date for the progress payment; or
  • an adjudicated amount within 5 business days after receiving an adjudication determination (or by the later date determined by the adjudicator).

If a contractor is not paid an amount owed in either of those circumstances, it will be permitted to suspend work or supply. This is an expansion of the existing right to suspend in the Construction Contracts Act 2004 (WA) (CCA), which only provides for a right to suspend where a principal fails to pay an adjudicated amount to a contractor in accordance with an applicable adjudication determination. Notably, the Courts have recognised that the inclusion of this right suspend is important, as it demonstrates “that there are serious consequences for non-compliance with an adjudicator’s determination”.

Notably, this right will operate in addition to other SOPA rights a contractor may opt to exercise in the event of non-payment, such as a right to commence proceedings to recover a claimed or scheduled amount owed (which was not available under the CCA) and to seek enforcement of an adjudicated amount.

Notice of intention

Contractors who intend to suspend work on this basis will need to consider the related notice of intention requirements outlined under the SOPA. Specifically, the notice will be a written record of the contractor's intention to suspend work, which must be given to the respondent (principal or head contractor, as the case may be) at least two business days before any work is suspended. Contractors and subcontractors will also need to ensure they include in the notice a specific statement providing that the notice of intention is given under the SOPA.

When the right cannot be exercised: Adjudication review is underway

We’ve already touched on the “adjudication review” process which is set to replace the adjudication review process provided for under the CCA. Under the CCA, parties had a limited right of review from the outcome of an adjudication to the Western Australian State Administrative Tribunal, which has now been replaced with a more limited right of review by a “review adjudicator” for certain types of determinations.

Contractors and subcontractors will not be able to exercise the right to suspend pursuant to the SOPA when a SOPA adjudication review process commenced by the respondent (ie. principal or head contractor) is underway – it will only be able to do so once the review has been determined by the applicable “review adjudicator”.

Principal's concerns

Timeframe for suspension

Principals and head contractors should be aware that the timeframe for the suspended works and / or goods and services will not automatically come to an end when payment is received by the contractor or subcontractor – under the SOPA, the suspension will continue for an additional 3 business days after payment has been received. Equally, a suspension related to a failure by the principal or head contractor to pay any retention money relating to a progress payment into a retention money trust account will continue for an additional 3 business days after they pay the money account and notify the contractor or subcontractor of the same.

Liability

Principals and head contractors may become liable to pay the expense and damage incurred by a contractor or subcontractor as a consequence of the suspension of the works and / or supply of goods and services under the SOPA. They will become liable to do so if they remove any work from the applicable construction contract, while the contractor or subcontractor is exercising its right to suspend under the SOPA. This will be the case even if the removal of work is actioned pursuant to a right conferred by the applicable construction contract. Where this occurs, the contractor or subcontractor will be entitled to claim the loss associated with the removal of that work via the submission of a further payment claim (this essentially means that the SOPA process will again apply to the further claimed amount, despite the payment claim otherwise including a claim for general damages).

Principals and head contractors need to bear in mind that they will not be entitled to recover loss in the same way. If there is a suspension of works and / or supply of goods and services under the SOPA, principals and head contractors will have no recourse to claim any expenses or damages arising from the suspension from the contractor or subcontractor (as the case may be). The contractor or subcontractor will not have to be concerned about being held liable for those costs, even if the reason for the suspension is later found to be invalid by the courts – so long as long as it acted in good faith.

Where to from here?

There is very limited Western Australian case law concerning the right to suspend under the CCA. Some indication of how the expanded right will be treated – and the confidence contractors and subcontractors can have in exercising it – can be had by looking to decisions from the East – where Courts (including the New South Wales Court of Appeal) have recognised these sorts of statutory rights

“can only work if a claimant can be confident of the protection given by [the applicable section]: if the claimant faced the prospect that an adjudicator’s determination could be set aside on any ground involving doubtful questions of law, as well as of fact, the risks involved in acting under [the section] would be prohibitive, and [the section] could operate as a trap” (Shade Systems Pty Ltd v Probuild Constructions (Aust) Pty Ltd (No 2) [2016] NSWCA 379).

For now, in the absence of WA-specific judicial guidance on this right, we would recommend construction industry participants take caution in exercising this statutory right. If in doubt, they should seek legal advice as to whether they are entitled to and indeed, ought to (as a matter of strategy), exercise this right.

GET IN TOUCH

Jay Capelli

Perth
Senior Associate
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