The New South Wales Government has announced that the Building and Construction Industry Security of Payment Act 1999 (NSW) (“the Amendment”) and the Building Construction Industry Security of Payment Amendment Regulation 2019 (NSW) (“the Regulation”) will commence on 21 October 2019.
These security of payment amendments will have an impact on developers, head contractors, subcontractors and building material suppliers who operate within the construction industry in New South Wales. This short article will outline the key implications of the Amendment and the Regulation, as well as the steps you will have to take to make sure you are ready for the changes.
Summary: Security of Payment Amendment (NSW)
It should be noted that the Amendment will not be retrospective and will apply to all new contracts entered into after 21 October 2019.
The first key changes are pursuant to the recent New South Wales Court of Appeal decision in Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq) (“Seymour Whyte”) which established that an insolvent company is able to remain a “claimant” for the purposes of their entitlement to serve a payment claim even once they become insolvent.
Although the Seymour Whyte decision set a vital initial precedent, the New South Wales Parliament has indicated that they do not want insolvent claimants taking benefit of the New South Wales Security of Payment legislation. The Amendment now prohibits a claimant in liquidation from serving a payment claim, taking action to enforce a payment claim (including by making an adjudication application) or enforcing an adjudication determination. If a company makes an application for adjudication but subsequently enters into liquidation prior to a decision being made, the application for adjudication is deemed to be withdrawn on the day on which is commenced to be in liquidation.
Given the Amendment has now overturned the precedent set by the Seymour Whyte decision, claimants need to be aware that they can no longer rely on the case law principles set out in Seymour Whyte should they enter into liquidation.
Some additional key changes pursuant to the Amendment are as follows:
• Progress payment and payment claim under the Amendment have now been simplified, with the removal of a reference date requirement for a valid payment claim. There is also the right to serve a payment claim on a monthly basis by the claimant. This can be done at the end of each month in which the construction work was first carried out (or the related goods and services were first supplied), and on the last day of each month afterwards.
• If a contract has been terminated by one party, there is now a statutory entitlement for a payment claim to be validly served on and from the date of termination.
• The requirement for payment claims to be endorsed by, or specifically state that it is made pursuant to the Building and Construction Industry Security of Payment Act 1999 (NSW).
• The due date for payment of payment claims by head contractors to subcontractors has been reduced from 30 to 20 business days after the date it was initially made.
• The entitlement for a claimant to withdraw an application for adjudication can only be done should the adjudicator consider it to be in the interests of justice and if the respondent of the adjudication provides their consent.
• The Supreme Court of New South Wales has the power to set aside any part of an adjudication determination based on a jurisdictional error. As a result, this does not impact the entire enforceability of an adjudication decision based on a jurisdictional error.
Summary of the Regulation
As noted above, the Regulation will also come into force on 21 October 2019. The key changes as a result of the Regulations commencement are:
• An owner occupier entering into a construction or building works contract with a builder will be an excluded class of construction contract for the purposes of the security of payment provisions.
• In relation to trust account retention monies, individual executives can be held liable for offences committed by their governing corporation.
What does this mean for you?
All parties engaged in the construction industry are required to understand how the changes will impact them. Industry participants are required to acknowledge the stricter penalties for offences committed after the Amendment. We encourage you to re-visit previous contracts and ensure that project management or administrative processes are compliant.
How can we help?
If you are a developer, construction company or small subcontractor and operate in New South Wales, please contact the Construction Team at Rostron Carlyle Rojas Lawyers on (02) 9307 8900 or email us at [email protected].
Please note that this article has been prepared by Jakob Mignone, Law Clerk and settled by John Christian, Associate of Rostron Carlyle Rojas Lawyers. Its contents are for general information purposes only and does not by any means constitute legal advice, nor should it be relied upon.