Australia: Security of Payment Legislation: An Update

Public Law Report
Last Updated: 1 April 2010
Article by Keith Redenbach and Nicholas Lennings

Security of Payment Legislation (SOPA) is now effectively an Australia wide scheme. The primary function of SOPA is to provide an expedient and inexpensive procedure by which contractors can be paid their outstanding debts. The prevalence of the scheme, championed by New South Wales and later by Victoria and Queensland, has led to the recent creation of SOPA schemes in Tasmania (Building and Construction Industry Security of Payment Act 2009 (Tas)), South Australia (Building and Construction Industry Security of Payment Act 2009 (SA)) and the Australian Capital Territory (ACT) (Building and Construction Industry (Security of Payment) Act 2009 (ACT)) (ACT Act). It is undeniable that in these uncertain times such schemes are attractive to contractors, or subcontractors, who may be concerned about the solvency of the principal or main contractor.

Moreover, the Building and Construction Industry Security of Payment Act 1999 (NSW) (NSW Act) has recently been considered by the New South Wales Court of Appeal in a number of decisions relating to the defence of res judicata in Dualcorp Pty Ltd v Remo Constructions Pty Ltd [2009] NSWCA 69 and other similar decisions.

Recent SOPA enactments in the ACT

The proposal for the ACT Act was first advanced in 2007 but was delayed due to consultations with industry who 'indicated a greater disparity of views on an appropriate model' (Hansard, p 4541).

The ACT Act is substantially based on the NSW model. Another model considered in the drafting of the ACT Act was the QLD model. The QLD model was rejected in favour of the NSW model primarily due to operating costs. The NSW model requires less than one person to manage the entire system, whereas the QLD model requires at least three administrative and/or executive staff as well as specialised assessors.

The Minister has discretion in administering the scheme, which is then passed to approved nominated authorities who monitor and licence the adjudicators under the ACT Act.

The security of payment function will be located in the ACT Planning and Land Authority, which already has other building and construction regulatory and licensing functions.

Interestingly, the ACT Act, in line with other SOPA schemes, binds the Crown inasmuch as the Crown is vested in the government of the ACT. However, this does not, pursuant to section 7(2) of the Interpretation Act 1967 (ACT), bind Commonwealth contracts. Whilst perhaps obvious, this is nonetheless important given the amount of Commonwealth contracts currently on foot in the ACT, in particular large Public Private Partnership projects. It will be interesting to see if this is remedied given the potential for disputes, particularly in climates such as those faced in 2009 and which may continue into 2010.

NSW developments

A primary concern with regard to the development of the NSW Act is the recent line of reasoning adopted by the Court of Appeal in Dualcorp. This decision has significant implications for the utility of the ACT Act, as the NSW developments are likely to be used to interpret the ACT Act.

Dualcorp Pty Ltd (a subcontractor) (Dualcorp) served a payment claim under the NSW Act upon Remo Constructions Pty Ltd (Remo) in January 2008. The claim comprised 6 invoices totalling about $660,000 (January Claim). Remo conceded the claims in respect of two invoices. In respect of the remaining 4 invoices, an adjudicator determined that Dualcorp was entitled to $75,000. The District Court entered judgment for Dualcorp in this amount.

Dualcorp was dissatisfied with the amount of the judgment on the January Claim and served another payment claim on Remo in March 2008 (March Claim). The March Claim was comprised of the same 6 invoices which were served in the January Claim. Remo failed to serve a payment schedule to the March Claim and Dualcorp commenced proceedings in the District Court for summary judgment.

The District Court declined to enter summary judgment for all 6 invoices (although summary judgment was entered for the two invoices which were not previously determined at adjudication). Dualcorp appealed to the Court of Appeal. The appeal was dismissed on the grounds that the March Claim had already been determined by the adjudicator in the determination of the January Claim and the principle of res judicata prevented Dualcorp from having the same claim re-heard.

Three key principles emerge from this case. The first is that an adjudicator's decision under the NSW Act is final. The Court of Appeal determined that the NSW Act manifests an intention to confer a sufficient degree of finality, and as such, the principle of res judicata applies.

Second, the Court of Appeal determined that the principles of res judicata and issue estoppel apply to the processes under the NSW Act. Hence, a review of an adjudicator's decision on the basis of merits by the judiciary will be estopped.

However, the principle of res judicata only applies to a determination of entitlement, not a determination of value under the NSW Act. In effect, this means that a claimant has "one shot" at adjudication in relation to an entitlement to a progress payment. The possibility that this would lead to unfair decisions was rejected by the Court of Appeal on the basis that "it is not at all unusual that persons seeking remedies in courts or other forums have a once only opportunity to bring forward evidence and submissions in support of their claim". Finally, the Court of Appeal determined that res judicata is an available defence to a summary judgment application. Dualcorp argued that a respondent is prevented from raising any defence in relation to matters arising under the construction contract in an application for summary judgment. The Court of Appeal rejected this argument and found that res judicata is an available defence:

"The restrictions in these sections as to the defences that may be raised do not in my view prevent the raising of one based upon or, to use the primary judge's expression, "akin to" res judicata, or indeed issue estoppel if that defence is otherwise available. Such a defence could not in my view be described as a matter "arising under the construction contract".

Rather, it is a matter arising out of the proper construction of the Act in conjunction with relevant common law principles. The defence may thus be raised, as may one that service of a payment claim was not effective because it involved misleading or deceptive conduct."

Dualcorp was followed in Perform (NSW) Pty Ltd v Mev-Aust Pty Ltd t/as Novatec Construction Systems [2009] NSWSC 416 and expanded upon in The University of Sydney v Cadence Australia Pty Limited & Anor [2009] NSWSC 635. In the latter case, Justice Hammerschlag determined that a second claim was illegitimate because a substantial part of it had already been adjudicated and that the repetitious use of the NSW Act was an abuse of process.

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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Keith Redenbach
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