Security of Payment Amendment Act set to commence

The Building and Construction Industry Security of Payment Amendment Act 2018 (Amendment Act), which was passed by the NSW Parliament in November last year, will commence on 21 October 2019. The Building and Construction Industry Security of Payment Amendment Regulation 2019 (Amendment Regulation) will also commence on this date. The changes made by the Amendment Act and Amendment Regulation will only apply to construction contracts entered into after this date.

The Amendment Act and Amendment Regulation introduces significant changes to the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act) and corresponding regulations, several of which are derived from the recommendations contained in John Murray’s report on the various security of payment legislation across Australia.

A summary of the more significant changes which industry stakeholders will need to be aware of are set out below.

Payment claims

The Amendment Act removes the concept of “reference dates”. Instead, any person who has undertaken to carry out construction work or to supply related goods and services may serve a payment claim on and from the last day of each month in which the relevant construction work is carried out or, if the construction contract provides for service of the payment claim on an earlier date in that month, on and from that earlier date.

If a construction contract is terminated, claimants may serve a payment claim on and from the date of termination.

The Amendment Act reinstates the requirement that a payment claim must state that it is made under the Act, to avoid confusion as to which documents comprise the payment claim.

Subcontractors must now be paid by head contractors within 20 business days of the payment claim (or an earlier date provided by the contract), rather than 30 business days.

Adjudications

Unlike other jurisdictions, the SOP Act does not expressly authorise parties to withdraw an adjudication application. The Amendment Act now provides that a claimant may withdraw an adjudication application by written notice at any time before an adjudicator is appointed. If an adjudicator has been appointed, the application can be withdrawn before the application is determined unless the respondent objects and the adjudicator is of the opinion that it is in the interests of justice to uphold the objection.

The Amendment Act provides that if the Supreme Court finds that an adjudicator’s determination is affected by jurisdictional error, the Court may set aside that part of the determination (and confirm the part of the determination not affected by jurisdictional error) or set aside the whole of the determination.

A claimant in liquidation cannot serve a payment claim or take any steps to enforce a payment claim, including applying for adjudication of the claim. This codifies recent case authorities which held that a respondent would be prevented from recovering payments made to an insolvent claimant, thereby frustrating the “pay now argue later” purpose of the SOP Act.

Enforcement powers

The Amendment Act includes a new Part 3A which gives broad powers to officers from the Department of Finance, Services and Innovation or a Fair Trading investigator (authorised officer) for the purposes of investigating, monitoring and enforcing compliance with the SOP Act.

An authorised officer may require a person to furnish information or records or answer questions, and may enter premises at any time (with or without a search warrant). If the authorised officer enters premises, he or she may examine and make inquiries, direct a person to produce records for inspection, examine and inspect records, copy records and seize anything which the authorised officer has reasonable grounds for believing is connected with an offence against the SOP Act.

A director and certain managers are liable for an offence against the SOP Act committed by the corporation if the director or manager aids, abets, counsels, procures, induces or is in any other way knowingly concerned in or party to the commission of the offence.

Directors and certain managers commit an “executive liability offence” if the corporation serves a payment claim with a supporting statement knowing that the statement is false or misleading in a material particular, knows or is recklessly indifferent as to whether the offence is being committed, and fails to take reasonable steps to prevent or stop the commission of the offence. The Amendment Regulations make certain breaches of the obligations in relation to retention money held in a trust account and associated record keeping executive liability offences.

Other penalties under the SOP Act have been increased. For example, the penalty for failing to serve a supporting statement with a payment claim, which was previously 200 penalty units, has increased to 1,000 penalty units for a corporation.

Residential building work

Under the Amendment Regulations, residential owner occupier construction contracts will be exempt from the operation of the SOP Act.

Industry stakeholders should review their processes and precedent construction contracts and take appropriate steps to prepare for the changes made by the Amendment Act and Amendment Regulation.

Authored by:

Michael Bampton, Partner

Deliang Chin, Senior Associate