Overview of the Security of Payment Act (South Australia)
Part I: Introduction & Basics
Introduction
South Australia enacted the Building and Construction Industry Security of Payment Act 2009 (SA) (the Security of Payment Act or the Act) to regulate progress payments in the building industry. This article provides an overview of its purpose, function and limitations.
Basic purpose of the Security of Payment Act
Ss 3 & 33 the Act
The Security of Payment Act ensures that a person who undertakes construction work can recover progress payments for the work undertaken. However, it does not finally determine disputes about payments, defects, delays, variations, or incomplete works. Notwithstanding, the Act provides a process where a dispute about a progress payment can be quickly and cheaply resolved. Regardless, the claimant and respondent remain free to pursue any ancillary claims at an appropriate time.
Each state and territory has enacted security of payment legislation. The various acts are similar, though, material differences do exist. Notwithstanding, the acts are similar enough, absent a material textual difference, that appellant-level judgments in other jurisdictions are likely to be followed (see Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22.
Basic function
The basic function of the Security of Payment Act (SA) was succinctly summarised in the second reading speech:
The bill mandates good payment practices within the building and construction industry by applying fair and reasonable payment terms into contracts that are not in writing and providing an effective and rapid adjudication process for payment disputes. The bill establishes a procedure for this which provides for:
- the making of a payment claim by a person claiming payment;
- the provision of a payment schedule by the person making payments to indicate the amount they will pay;
- the referral of any disputed claim to an adjudicator for a determination;
- the payment of the amount of the progress payment determined by an adjudicator; and
- the recovery of the progress payment in the event of failure to pay.
Application of the Security of Payment Act
Ss 4 & 7 the Act
The Security Payment Act applies to all construction contracts (as defined) where the construction work was carried out in South Australia. This includes written and oral contracts and where the relevant is said to be a jurisdiction other than South Australia.
However, the Act does not apply to:
- loan agreements, guarantees, and insurance contracts.
- Domestic building work on such part of any premises that the party for whom the work is carried out resides (or proposes to reside).
- Construction contracts that agree that payment is not to be calculated by reference to the value of the work or goods and services supplied.
- Employer/employee contracts.
Part II: Payment Claim to Judicial Review
Payment Claim
Ss 4, 8 & 13 the Act
A person entitled to make a claim for a progress payment can prepare and serve a payment claim.
A valid payment claim must:
- Identify construction works to which the progress payment relates.
- Must indicate the amount.
- Must state that it is a claim made under the Act.
- Can only serve 1 per reference date.
A valid payment claim should strictly comply with the Security of Payment Act.
Payment Schedule
S 14 the Act
A person can respond to a payment claim with a payment schedule.
A valid payment schedule must:
- Identify the payment claim.
- Indicate the amount of payment (if any) the respondent proposes to make.
- If the amount is less than the claim, the schedule must indicate why the amount is less and the reasons for withholding payment.
Adjudication application
S 17 the Act
A claimant can apply for adjudication if the respondent serves a payment schedule for less than the amount claimed or fails to pay the whole or part of the scheduled amount.
A valid application must:
- Be in writing.
- Be made to an authorised authority.
- Be made within the relevant timeframe (15-20 business days).
- Identify the relevant payment claim and schedule (if applicable).
- Be Accompanied by an application fee.
- be served on the respondent.
The application can include written submissions.
Adjudication response
Ss 19 & 20 the Act
The respondent can reply with a response to the application within 5 business days of receiving the application or 2 business days of receiving notice of the adjudicator’s acceptance (whichever is later). Importantly, the respondent can only respond if a payment schedule was served and cannot include any new reasons for withholding payment.
Adjudication
Ss 21 & 22 the Act
The application is to be determined within 10 business days after the time for a response has expired. However, the parties can agree to extend the adjudicator’s time.
The adjudicator can request further submissions, conference with parties, and carry out an inspection. However, the adjudicator must only consider the matters outlined in s22(2) of the Act.
The written determination must include the amount of the progress claim payable (if any), the date on which it is payable and the rate of any interest.
Recovery
ss 24, 25, cf 15 the Act
Respondent must pay any adjudicated amount within 5 business days after the determination unless the adjudicator determines a later date. If the respondent fails to make the payment, the claimant can obtain a judgment from a competent jurisdiction and enforce it as a judgment debt.
Judicial review
Once a claimant has registered a judgment debt, a respondent can commence proceedings to have it set aside, but is not in those proceedings entitled to:
- Bring a cross-claim.
- Raise a defence in relation to a matter arising under the construction contract.
- Challenge the adjudicator’s determination.
On one hand, these restrictions appear harsh. On the other hand, it must be remembered that it is still open to a respondent to seek judicial review for jurisdictional error as outlined in the cases below. Further, the process under the Security of Payment Act does not finally determine the rights of the parties.
Part III: Cases
Limits of judicial review under the Security of Payments Act
Maxcon Constructions Pty Ltd v Vadasz (No 2) [2017] SASCFC 2
The Appellant (respondent to the claim) appealed a decision dismissing an application for judicial review. Relevantly, there was a payment claim ($204,864.55), a payment schedule ($141,163.55.) and an adjudication ($204,864.55). The Appellant wanted the adjudication nullified. The grounds for review were: was a breach of the Bankruptcy Act 1966 (Cth), jurisdictional error, and error of law on the face of the records.
The Court held that an apparent breach of the Bankruptcy Act did not void the contract ([66],[77]). Nonetheless, the mistake by the adjudicator in relation to the retention sum was not a jurisdictional error, nor an error on the face of the record ([238], [145], CF [284]). Interestingly, the Security of Payment Act impliedly excludes relief of certiorari for error of law on the fact of the record ([181], [209]). However, had the appellant succeeded, it would not have rendered the adjudication a nullity. Rather, it would have set it aside in so far as it exceeded $165,913.55.
.
Comparative jurisdictions
Hunters Green Retirement Living Pty Ltd v J.G. King Project Management Pty Ltd [2023] VSC 536
A decision of the Supreme Court of Victoria. While this decision is based on the equivalent Victorian Act, relevantly, it does briefly compare section 13(3)(b) of the Act and notes a difference in the Victorian Act ([38]).
Misleading conduct & estoppel defences preserved
Aalborg CSP A/S v Ottoway Engineering Pty Ltd [2017] SASCFC 158
The appellant sought judicial review of a master’s decision granting summary judgment. Evidently, the claimant served a payment claim on the appellant’s registered Australian office and not by email to the head office as was required under the construction contract. Consequently, the appellant did not serve a payment schedule. At this point, the claimant relied on this failure and sought summary judgment pursuant to s 15 of the Security of Payment Act. The applicants unsuccessfully argued below that summary judgment ought not to be entered as there was an arguable case of estoppel and misleading conduct.
The appeal was allowed. The court considered whether estoppel or misleading conduct could be raised by the appellant as defences. This is because s.15 of the Act prohibits the respondent from raising a defence or cross-claim “in relation to matters arising under the construction contract”. The Court considered and applied two interstate decisions, ultimately holding that the defences were available to the appellant ([58]-[67]).
Part IV: Conclusion
Conclusion
The Security of Payment Act provides a way to make progress payments and quickly resolve disputes. Importantly, it has not entirely removed the parties’s rights to seek judicial review. Finally, the ultimate positions of the parties are preserved. Consequently, the parties can live to fight another day should they so choose.
Disclaimer
The contents of this article is of a general nature only and is not a substitute for legal advice from a qualified legal practitioner. Check the date of publication and any update as the contents may have been superseded by changes in law.