Australia: One security of payment regime to rule them all?

The Commonwealth government has released its eagerly awaited Review of Security of Payment Laws.

The plural is telling. It is no news to anyone in the industry that there is different legislation in each State and Territory. This legislation has been repeatedly amended. Unsurprisingly, the first and critical recommendation in the Review of Security of Payment Laws is a call for greater simplicity:

'Security of payment legislation should seek to promote prompt payment so as to maintain a contractor's cash flow. Such an outcome is more effectively achieved through adoption of a legislative regime broadly based on the East Coast Model.'

WHAT WAS THE MURRAY REVIEW?

The Review of Security of Payment Laws (Murray Review) was conducted by John Murray AM. Mr Murray is a lawyer and adjudicator, and a former national executive director of the Master Builders Association, among many other appointments.

Mr Murray began his review in December 2016 and consulted over 60 organisations and 20 individuals together representing much of the industry. While Mr Murray submitted his report at the end of 2017, it has only recently been publicly released.

WHAT DID IT RECOMMEND?

The headline recommendation is that security of payment legislation in Australia be harmonised based on the 'East Coast Model'. The East Coast Model captures the legislation in the Australian Capital Territory, New South Wales, South Australia, Tasmania, Victoria and Queensland. These Acts differ sharply from those in Western Australia and the Northern Territory.

A moment's thought reveals many questions. Does the East Coast Model include Queensland's split between complex and standard claims? Victoria's 'excluded amounts' regime? The New South Wales approach of not requiring payment claims to be endorsed as payment claims under the Act?

In the course of 86 recommendations, the Murray Review deals with these and many other detailed but important questions.

HOW WILL IT AFFECT CONTRACTS AND CONTRACT ADMINISTRATION?

The headline recommendation should not distract from many individually significant recommendations that would affect how contracts are drafted and how claims are made and assessed.

  • There would be no concept of reference dates. Instead, there would simply be a right to make a payment claim every month (or more often if the contract provides).
  • A claimant would need to identify payment claims as being made under the relevant Act (unlike in NSW, and shortly, in Queensland).
  • A payment claim would, however, need an accompanying supporting statement. The supporting statement would need to include a declaration that all subcontractors had been paid.
  • The Victorian concept of 'excluded amounts' would not be adopted in the harmonised legislation.
  • There would be a uniform definition of business days that would exclude weekends, public holidays and the period from 22 December to 10 January.
  • The time for payment would be as provided for in the contract (as long as this did not exceed 25 business days after the payment claim); or if no time were provided, 10 business days after the payment claim.
  • There would be a deemed statutory trust on all construction projects over $1 million. For example, when a principal paid a head contractor, the head contractor would hold any part of that money attributable to the work of subcontractors and suppliers on trust for those subcontractors and suppliers. (There would be no project bank accounts like those in Queensland and Western Australia.)
  • Clauses that made a right to a claim conditional on some notice being given would be void if the notice requirement was not reasonably possible to comply with, was unreasonably onerous or served no commercial purpose.

HOW WILL IT AFFECT THE ADJUDICATION PROCESS?

The Murray Review recommends an adjudication system that amalgamates features from many jurisdictions. These are the critical aspects.

  • Adjudicators would be trained by and registered with a new Regulator. While the details of the Regulator are sparse, the role would seem similar to that of the Queensland Building and Construction Commission Registrar.
  • The adjudicator in a particular dispute would normally be nominated by an Authorised Nominating Authority for consideration by the Regulator. The Regulator would then appoint an adjudicator. Alternatively, at the time of the dispute, the parties could agree on an adjudicator if the amount claimed exceeded $250,000.
  • There would be a one-size-fits-all approach to adjudication. For example, there would be no distinction between standard and complex claims as there is in Queensland.
  • In limited situations, there would be a right to have adjudications reviewed by the Regulator. The main triggers would be that the adjudicated amount exceeded the amount in the payment schedule by $100,000 or more, or was lower than the amount in the payment claim by $100,000 or more.
  • The Murray Review did not deal in detail with rights to seek judicial review for jurisdictional error.

WHEN WILL IT BE IMPLEMENTED?

The Commonwealth government has not yet endorsed the recommendations in the Murray Review. It seems that there will be a further process of consultation as the government considers the recommendations. If the government does decide to legislate, it might do this through Commonwealth legislation based on the corporations power (although this would not cover every industry participant).

Alternatively, the States and Territories might agree on a scheme which could then be implemented in several ways.

This raises several questions. In Queensland, is there an appetite for further change given existing reform is on foot? Tranches 2 and 3 of the Building Industry Fairness Act 2017 are expected to be implemented in the next six months, and further recommendations from a to-be-established Evaluation Committee are anticipated. There is also the question of the West Coast. Since the Murray Review did not recommend the framework in place in Western Australia and the Northern Territory, there might be concern about the position of those jurisdictions. On 23 February 2018, however, the McGowan Government in Western Australia launched an Industry Advisory Group chaired by prominent barrister John Fiocco to improve security of payments for subcontractors. Importantly, the terms of reference explicitly ask the Industry Advisory Group to consider further issues raised by the Murray Review.

These and other issues are the subject of discussion in the Corrs High Vis podcast on the Murray Review: http://www.corrs.com.au/thinking/insights/corrs-high-vis-episode-26-murray-report-reviewing-the-national-security-of-payment-laws/.

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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