Federal Law And The Enforcement Of Security Of Payment Debts

The 2003 amendments to the Building and Construction Industry Security of Payment Act 1999 (NSW) (BCISPA)¹ went to some length to discourage actions to frustrate the enforcement of money payable under it. It has enjoyed a measure of success. Generally, provided the adjudication complies with the essential prerequisites set out in Brodyn Pty Limited v Davenport², the options to overturn or frustrate such enforcement action are either very limited or doomed to fail.

There is however, one line of attack that, if the facts permit, seems a reliable strategy to overwhelm BCISPA's defences. The Constitution provides that Commonwealth legislation generally has precedence over that of the states. This presents opportunities to press ahead with action to upseta BCISPA enforcement action, despite that act's prohibitions and limitations.

Instances of Commonwealth legislation overwhelming the BCISPA's defences frequently occur in the context of winding up and bankruptcy action to enforce BCISPA debts, making those forms of enforcement action unreliable in the BCISPA environment.

The BCISPA's defences have also been breached where the adjudication determination was procured by misleading or deceptive conduct in breach of s52 of the Trade Practices Act (Cth)³.

The recent case of Katherine Pty Limited v The CCD Group Pty Limited⁴;(Katherine's case) demonstrates a further ground by which BCISPA's defences may be circumvented.

In Katherine's case the respondent faced adjudicated determinations to a value of $340,000. $100,000 of that figure related to work done and materials supplied. The balance was interest calculated in accordance with the terms of the contract, at an interest rate of 9% per month.

McDougall J was satisfied that such an interest rate well exceeded the loss actually incurred by the claimant through late payment, to such an extent that it comprised a penalty, being a circumstance in which equity would grant relief on the basis that it is unconscionable.

Unconscionable conduct by a corporation in trade or commerce is prohibited under s51AA of the Trade Practices Act (Cth). Section 80 of the Trade Practices Act entitles the court to make such order as it thinks appropriate against the person who engaged in the unconscionable conduct, where the court considers that such orders will compensate the person who has suffered, or is likely to suffer, loss or damage by the offending conduct.

In Katherine's case, the supremacy of the Commonwealth legislation barely rated a mention, indeed it was practically assumed. The claimant's main line of defence was to propound the interest rate of 9% per month compounding as not being unconscionable. In the alternative, if it was, it argued that relief should not be granted in any event.

McDougall J held that the interest rate of 9% per month was unconscionable. In respect of the issue as to whether relief should be granted he noted that the respondent did not have adequate regard for its own interests and was lax in its attention to its payment obligations. Despite that, he found that it would be an injustice to permit the claimant to have the full benefit of a bargain that is unconscionable.

To relieve the unconscionability, McDougall J upheld the adjudication to the extent that it related to the actual costs of goods and services supplied. However, enforcement of the balance was limited to the extent of the interest rate applicable from time to time on the claimant's overdraft bank account, whilst such account was maintained within its limits.

Part V of the Trade Practices Act, dealing with unfair practices, presents considerable potential to upset the enforcement of debts owed under the BCISPA. The grounds of misleading and deceptive and unconscionable conduct still have much unexplored potential. Prohibitions on false or misleading representations (s53 TPA), harassment and coercion (s60 TPA), unsolicited goods and services (s64 and 65 TPA) and possibly others remain as yet untouched.

1 the 2003 amending Act is the Building and Construction Industry Security of Payment Amendment Act 2002 (NSW).

2 (2004) 61 NSWLR 421.

3 Bitannia Pty Limited v Parkline Constructions Pty Limited (2006) 67 NSWLR 9.

4 [2008] (NSWSC 131)

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.