Subcontractors and contractors alike can submit payment claims upon a principal/owner under the Building and Construction Security of Payment Act 2002 (“the Act”).

The rationale of the system is to expedite payment. Some critics of the system consider it to be oppressive to respondents and principals as they have a narrow window of time to respond. We once had a matter concerning a project of state significance where close to the end of the project the client/respondent received a litany of claims, and about three lawyers in the law firm has to be deployed for some weeks. This was to prepare the responses with the assistance of the client in light of the fact that the timeframes were incredibly tight under the Act and the consequences of not providing the responses within the requisite period of time were dire.

The Mechanics of Security of Payment

A claimant can only lodge a claim for payment if the claim relates to building work carried out within the gamut of a construction contract. In one case where Lovegrove & Cotton acted [1] for the respondent in the County Court of Victoria, the firm was successful in countering the claim for payment by arguing that the agreement governing the carrying out of the building works was not a “construction contract” pursuant to the Act. Rather, the agreement was in the form of a joint venture/profit sharing arrangement. Thus, his Honour Judge Anderson found that the agreement did not fit the “construction contract” permutation.

The time for processing and responding to a payment claim is as follows:

• Response with a payment schedule, which includes details such as date/payment claim number and states the amount owed, if any;
• The relationship is generally either that of a contractor and subcontractor, or contractor and developer or principal, and the respondent has only ten business days to respond to the payment claim with a payment schedule;
• Although the claimant may take many weeks to prepare the payment claim, the respondent is in an invidious position with a tight timeframe to provide a response.

“Sudden Death” time limits

If the respondent fails to respond to the payment claim, the ‘guillotine’ comes down and the respondent’s ability to contest the claim is “severed”. Hence, as soon as respondents receive a payment claim, they must act with alacrity, and would be well advised to instruct a construction law firm to protect its interests.

When Does A Matter Go To Adjudication?

If the claimant wishes to exercise its rights to obtain payment, it will have one of two options:

• Make an application to a Court or Tribunal in the relevant list; or
• Alternatively, there is the option of appointing an adjudicator to adjudicate and provide a written decision.

Appointing an adjudicator:

• You must issue a written application to an Authorised Nominating Authority (ANA) and then the ANA will appoint an adjudicator.
• Then the adjudicator will ask the parties to provide the payment claim, the payment schedule (if any) and any germane information, including submissions.
• The adjudicator has a strict timeframe to write and publish his/her determination and will not ordinarily release the determination without the adjudicator’s fees paid in full.

Appeal Rights

Appeal rights reside with the Supreme Court of Victoria and the Supreme Court will only be receptive to the appellant’s position if there is an error of law.

Conclusion

Adjudication is a system that is claimant (plaintiff) friendly and respondent (defendant) unfriendly. The time periods are strict and uncompromising, and are set in statute. Respondents and principals cannot afford to be ‘asleep at the wheel’ when the claim is lodged.

For other Security of Payment articles, please see:

Architects and Security of Payment

This is a Lovegrove and Cotton publication. Article updated on the 1/5/2023.

Disclaimer

This article is not legal advice and discusses it’s topic in only general terms. Should you be in need of legal advice, please contact a construction law firm. The experienced team at Lovegrove & Cotton can help property owners and building practitioners resolve any type of building dispute.

References

[1] Fulconstruction Pty Ltd v ABP Consultants Pty Ltd [2016] VCC 1732.