Construction and Infrastructure case note: Victorian Supreme Court 'plainly wrong'; insolvent construction companies may be able to recover debts via the Security of Payment legislation

Mar 15, 2019

Last month, the New South Wales Court of Appeal (NSWCA) handed down its decision in Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq) [2019] NSWCA 11 (Seymour Whyte) concerning the applicability of the Building and Construction Industry Security of Payment Act 1999 (NSW) (NSW SOP Act) to insolvent companies.

Unanimously, the five-judge bench of the NSWCA found that the NSW SOP Act does apply to companies in liquidation and that the decision of the Victorian Court of Appeal (VCA) in Façade Treatment Engineering Pty ltd (in liq) v Brookfield Multiplex Constructions Pty Ltd [2016] VSCA 247 (Façade Treatment) was “plainly wrong” and should not be followed.

The decision of the NSWCA demonstrates a divergence between the positions in New South Wales and Victoria in relation to the applicably of each state’s respective Security of Payment legislation to insolvent construction companies.

Victoria

In Façade Treatment, a three-judge bench of the VCA considered, amongst other things, whether the Building and Construction Industry Security of Payment Act 2002 (Vic) (Vic SOP Act) applied to construction companies in liquidation.

The VCA found that s 9 of the Vic SOP Act (s 8 of the NSW SOP Act) does not create an entitlement to progress payments for companies in liquidation as they are not continuing to carry out construction work or supply related goods or services.

The VCA also found that Part 3 of the VIC SOP Act is not available to persons in liquidation as the payment regime in the Vic SOP Act, which is intended to be an interim regime, would instead become a final payment regime if payments were allowed in accordance with the Vic SOP Act to construction companies in liquidation, which would then become available for distribution to creditors and could not be ‘clawed back’.

New South Wales

In contrast, in Seymour Whyte, the NSWCA also considered the applicability of analogous provisions of the NSW SOP Act to determine whether it should apply to construction companies placed into liquidation.

The NSWCA found that the NSW SOP Act does apply to companies in liquidation and that there is nothing in s 8 or s 13 to support the position that a claimant is only entitled to a progress payment if it continues to carry out construction work or supply related goods or services.

The NSWCA further noted that a claimant is entitled to a final payment under the NSW SOP Act even though they are not continuing to undertake construction work or supply related goods and services.

Intervention by NSW parliament

It is likely that the inconsistency between the NSW and Victorian authorities will not last long. The NSW parliament has passed the Building and Construction Industry Security of Payment Amendment Act (2018) (NSW Amendment Act), which is not currently in force (as at 15 March 2019).

When the NSW Amendment Act eventually comes into force, section 32B will expressly prohibit construction companies in liquidation from serving a payment claim or taking any action to enforce the payment claim or any action to enforce an adjudication determination.

The effect of the NSW Amendment Act will mean that construction companies in liquidation will not have access to the interim payment regime as provided for in the NSW SOP Act, which will see NSW aligned with Victoria.

More information

To learn more about the decision, or for advice, please contact Darren Cain, Principal Lawyer and Head of KCL Law’s Building and Construction practice, on (03) 8600 8835 or dcain@kcllaw.com.au, or Dominic Brown, Lawyer, on (03) 8600 8851 or djbrown@kcllaw.com.au.

Author

More information on the author, Dominic Brown.

KCL Law is a leading firm in the area of security of payment adjudications and judicial review of adjudications, having been involved in many leading cases.

Note: This update is a guide only and is not intended to constitute legal advice.

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