Clarification of 1 March 2021 NSW Security of Payment Amendments

Last week I wrote the article ‘Questions relating to ‘Adjudication of NSW Residential Payment Disputes’. Refer Questions relating to Adjudication of NSW Residential Payment Disputes.

The answer to the first question was well received, however the second question generated a great deal of interest and controversy amongst some legal practitioners and professional preparers.

1. After 1 March 2021, the due date for payment when a home builder makes a payment claim to a homeowner is found in section 11 (1C) of the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act). It is 10 business days unless otherwise stated by the construction contract. This is because section 11 (1A) was amended by the Statute Law (Miscellaneous Provisions) Act 2020 in October 2020 which inserts “(other than an exempt residential construction contract)” after “construction contract” in section 11(1A). This means both subsections 11(1A) and 11(1B) of the Act apply to progress payments to be made under construction contracts, other than exempt residential construction contracts.

2. It is the response to the second question which caused controversy. ‘Will payment claims made to homeowners under an owner occupier construction contract entered into before 1 March 2021 be subject to the Act? Can these payment claims be adjudicated?’

   I published the opinion of the NSW Department of Customer Service being:

   From 1 March 2021, the Act will apply to owner occupier construction contracts entered into on or after this date. This is because there is a significant body of authority from the High Court on the presumption against retrospectivity. That is, legislative amendments affecting a person’s rights, interests, and liabilities are to be construed as having a prospective operation only, in the absence of clear legislative provisions to the contrary. The Act and 2020 Regulation do not contain any transition provisions that would counter this presumption.

   Therefore, with respect to owner occupier construction contracts entered into prior to 1 March 2021, the laws in place at the time these were entered into will continue to apply.

   Today, the Department adds:

   Many stakeholders have sought clarification on which construction contracts the Building and Construction Industry Security of Payment Act 1999 (the Act) will apply to from 1 March 2021. In answer to this question, other than the contracts explicitly excluded from the Act under sections 7(2), (3) and (4) of the Act, from 1 March 2021 the Act will apply to all construction contracts including owner occupier construction contracts entered into on or after 1 March 2021. The Act will not apply to owner occupier construction contracts entered into before 1 March 2021.

   And

   From 1 March 2021 a homeowner who is party to an owner occupier construction contract will fall within the definition of ‘Principal’ under the Act. Homeowners captured by the owner occupier construction contract definition will, from 1 March, be required to comply with the requirements under the Act and Regulation. The homeowners’ role in the industry will be changing, as they become part of the construction chain.

   Some practitioners and professional preparers disagree with the Department’s opinion arguing that a home builder may make a payment claim for work performed on or after 1 March 2021 to a homeowner under the Act in relation to an owner occupier construction contract made before 1 March 2021. One of the emails received by Adjudicate Today (AT) referred to a furious debate between partners of the law firm on this question.

   As stated in the last week’s article, AT is not advocating, nor has the statutory capacity to advocate, any particular interpretation. Our interest is to see certainty to the answer.

   Having regard to AT's statutory obligations to refer each application for adjudication of a payment claim to an adjudicator, AT will perform this function under all circumstances, including referring applications made under an exempt residential construction contract entered prior to 1 March 2021 to an adjudicator. It will then be up to the adjudicator to form a view in the normal way on whether he or she has jurisdiction.

   Presumably, after receipt of submissions from the parties, the adjudication determination will be made and (probably) appealed to the Supreme Court.

   I look forward to a court decision on this important matter.

   In relation to the Department’s second statement that ‘From 1 March 2021 a homeowner who is party to an owner occupier construction contract will fall within the definition of ‘Principal’ under the Act’.

   This seemingly carries the implication that a head contractor serving a payment claim on a homeowner must not serve such payment claim unless the claim is accompanied by a supporting statement that indicates that it relates to that payment claim. Refer section 13 ‘Payment claims’ subsections (7), (8) and (9) of the Act. There are substantial penalty provisions for non-compliance.

   Importantly for adjudication, the NSW Court of Appeal in TFM Epping Land Pty Ltd v Decon Australia Pty Ltd [2020] NSWCA 93 (14 May 2020) has resolved the question of whether failure to provide the supporting statement referred to in section 13(7) is fatal to a payment claim by deciding that the section does not invalidate a payment claim served without a supporting statement, nor the act of serving the payment claim.

   The Department is currently revising the supporting statement and we expect the amended statement to be downloadable from the AT website by week’s end.