Introduction:

Subcontractors and contractors can submit payment claims to a principal/owner under the Building and Construction Industry Security of Payment Act 2002 (“the Act”). The purpose of this system is to ensure quick payments. However, some critics argue that it is tough on respondents and principals because they have limited time to respond.

Mechanics of Security of Payment:

Eligibility to Lodge a Claim: A claim can be lodged only if it relates to building work under a construction contract. Example Case: In one case, Lovegrove & Cotton successfully argued that an agreement was a joint venture, not a construction contract, so the payment claim was invalid.

Timeframes for Responding: Respondents have 10 business days to respond to a payment claim with a payment schedule, detailing the amount owed, if any (Section 15(4)(b) of the Act). While claimants can take weeks to prepare their claim, respondents must act quickly to provide a response.

“Sudden Death” Time Limits: If a respondent fails to respond in time, they lose the ability to contest the claim. This is outlined in Section 15(4)(b) of the Act. Respondents should immediately consult a construction law firm upon receiving a payment claim.

When Does a Matter Go to Adjudication? Claimants can either go to court or appoint an adjudicator to resolve the payment claim. To appoint an adjudicator, a written application must be made to an Authorised Nominating Authority (ANA). The adjudicator will review all relevant information and make a decision within a strict timeframe. The decision is only released once fees are paid (Section 18(1) and Section 21(1) of the Act).

Appeal Rights: Appeals can be made to the Supreme Court of Victoria, but only if there is an error of law (Section 28(2) of the Act).

Case Law:

L.H. Blue Pty Ltd v A.X.F Constructions Pty Ltd [2010] VCC (28 April 2010)
Facts: A plastering subcontractor claimed against a head contractor for unpaid payment claims under the Security of Payment laws. The head contractor did not respond in time.
Ruling: The County Court upheld the subcontractor’s claims, emphasizing the importance of timely responses to payment claims.
Citation: 1

Yuanda Vic Pty Ltd v Façade Designs International Pty Ltd [2021] VSCA 44
Facts: The case involved the interpretation of the “excluded amounts” provision under the Act. Yuanda’s payment claim included an excluded amount (interest), leading to the dismissal of the entire claim.
Ruling: The Court of Appeal held that if a payment claim includes any excluded amount, the shortcut route for claiming the amount is not available.
Citation: 2

Fulconstruction Pty Ltd v ABP Consultants Pty Ltd [2016] VCC 1732
Facts: Fulconstruction submitted a payment claim under the Act, but ABP did not serve a payment schedule on time. Fulconstruction sought summary judgment under section 16(4) of the Act.
Ruling: The County Court found that the arrangement was not a construction contract under the Act, and the claim was dismissed because the calculation method was not compliant with the Act and the claim did not sufficiently identify the services.
Citation: 3

Conclusion:

Adjudication favors claimants and is challenging for respondents due to strict time limits. Respondents should have a top construction law firm ready to protect their interests when a claim is lodged.

About Author

Justin Cotton, Director of Lovegrove & Cotton, is a senior construction lawyer and pre-eminent building practitioner advocate. Justin’s practice is cross-jurisdictional having accepted briefs in Victoria, New South Wales, Queensland, and the Australian Capital Territory. Justin is also an expert on security of payment litigation both with respect to pursuing and defending contested security for payment claims.

Disclaimer:

This article is for informational purposes only and does not constitute legal advice. For specific legal advice, please contact Justin on our landline.

Citations:

1. L.H. Blue Pty Ltd v A.X.F Constructions Pty Ltd [2010] VCC
2. Yuanda Vic Pty Ltd v Façade Designs International Pty Ltd [2021] VSCA 44
3. Fulconstruction Pty Ltd v ABP Consultants Pty Ltd [2016] VCC 1732