In a recent decision of the Supreme Court of Victoria the Court
held that a company in liquidation will not be successful in
recovering interim entitlements owed to it under the Victorian
Building and Construction Industry Security of Payment Act
2002 (SOP Act) in circumstances where the
statutory set-off scheme in s553C of the Corporations Act
2001 (Cth) (Corporations Act) could operate
to determine amounts owing between the parties.
In Facade Treatment Engineering Pty Ltd v Brookfield
Multiplex Constructions Pty Ltd  VSC 41, the plaintiff
subcontractor sought judgment to recover from the defendant
contractor unpaid amounts claimed in two payment claims submitted
in accordance with the SOP Act.
The plaintiff relied on s16(2)(a) of the SOP Act which provides
that where a payment claim has been validly submitted under the SOP
Act and no payment schedule is subsequently received in reply, the
plaintiff is entitled to judgment in the amount outstanding to it
(under the claims) as a debt. S 16(4)(b) of the SOP Act further
provides that a defendant in proceedings for recovery of that debt
is not entitled to raise a defence or bring a cross-claim.
The plaintiff was placed into liquidation following submission
of the two relevant payment claims, but before the commencement of
proceedings for their recovery.
The defendant contractor argued that despite any interim
entitlements owed to the plaintiff subcontractor under the SOP Act,
it was in fact owed substantially more entitlements relating to
increased costs for completion of the subcontracted works and
associated damages, which would form the basis of a significant
counter claim against the plaintiff subcontractor for liquidated
The defendant argued that, as the plaintiff was in liquidation,
the statutory set-off scheme outlined in s553C(1) of the
Corporations Act was automatically enlivened to enable the
defendant to pursue its counterclaim against the plaintiff with a
view to set it off against any moneys owing to the plaintiff under
the SOP Act.
S553C of the Corporations Act applies where there have been
'mutual credits, mutual debts or other mutual dealings
between an insolvent company that is being wound up and a person
who wants to have a debt or claim admitted against that
In reaching its decision, the Court considered the interplay
between the SOP Act and Corporations Act, having regard to s109 of
the Constitution which provides that when a law of a State is
inconsistent with a law of the Commonwealth, the latter shall
prevail and the former shall, to the extent of the inconsistency,
The Court determined that to the extent of any inconsistency
between the operation of s553C of the Corporations Act and the SOP
Act, the Commonwealth legislation prevailed.
The Court said that to simply award a monetary judgment under
the SOP Act without consideration of a defence of cross-claim by
way of set-off would "fly directly in the face of"
s553C of the Corporations Act."
The Court concluded that where there is a set-off claim
available against a company in liquidation under the Corporations
Act, that company is barred from entering judgment under 16(2)(a)
of the SOP Act and is further unable to rely on s16(4)(b) of the
SOP Act to prevent a set off claim being made against it.
The decision is consistent with the reasoning of the New South
Wales Supreme Court in Brodyn Pty Ltd v Dasien Constructions
Pty Ltd  NSWSC 1230 but goes a step further than Justice
Beech in Hammersley Iron Pty Ltd v James  WASC 10.
Justice Beech, in consideration of s553C of the Corporations Act
and the relevant security of payment legislation in Western
Australia, addressed the legislative interaction by simply staying
a head contractor's claim to enforce a judgment under the
relevant Western Australian act pending determination of the
asserted counter claim for set-off.
Nevertheless, the outcome for an insolvent subcontractor appears
to be the same: despite a claim under state security of payment
legislation, there is a mechanism by which a court will allow a
contractor to counter claim and set off its debts against that
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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