1 Executive Summary
This paper examines select key differences between the Building and Construction Industry Security of Payment Act 1999 (NSW) (‘the NSW Act’) and the Building and Construction Industry (Security of Payment) Act 2009 (ACT) (‘the Territory Act’) and identifies simple and proven opportunities for reform to the Territory Act to give better effect to the legislative purpose of the Security of Payments regime.
This paper focuses on the development of the Territory Act, and its relative stagnation when compared with the development of the NSW Act, by identifying key differences which would substantially improve the operation of the Territory Act. It does not traverse the ground covered by Division 2A ‘Claimant’s rights against principal contractor’ and Part 3A ‘Investigation and enforcement powers’ of the NSW Act.
2 Legislative History
The origins and legislative history of the Security of Payments regime across Australia has been covered more than comprehensively by others, most notably John Murray AM in the 2017 report titled: Review of Security of Payment Laws – Building Trust and Harmony (‘Murray Review’).1 This paper assumes the reader has some familiarity with the Murray Review.
From the commencement of the Territory Act in 2009, the legislation largely mirrored the NSW Act. The introduction of the relevant Bill in the ACT Legislative Assembly highlighted the “preferred model for administering security of payment being that of New South Wales”.2 However, since that time the Territory Act has remained essentially unchanged. Amendments to the NSW Act, particularly in October 2019, have significantly improved the operation of the Security of Payments regime by reducing complexity and improving the rights to make a progress claim under the statutory scheme.
Relevantly, these improvements to the NSW Act included:
While the ACT Government undertook a review into the operation of the Territory Act, in the context of a broader review of the construction industry, in 2015, no amendments have been made and it is not being actively considered by the ACT Government.
3 Key Differences
3.1 Reference Dates
The concept of a ‘reference date’ introduces an unnecessary complexity to the statutory scheme where the objective is to facilitate prompt progress payments and reform payment practices in the construction industry. In particular, a ‘reference date’ is a jurisdictional precondition to the making of a valid payment claim,3 meaning an error by a claimant or an adjudicator may render an adjudication determination void.
Further, a reference date in the ACT is ‘a date stated in, or worked out under, the contract’4 or where no date can be determined, the last day of each named month. Where the contract terms govern the existence of a reference date, reference dates can be limited. A common contractual provision is that reference dates do not arise between ‘practical completion’ and ‘final completion’. This may have the effect that, if a variation were directed in that period, no statutory right to a progress payment would arise until the final payment.
These inherent implications of the concept of a reference date undermine the legislative intention of the scheme to facilitate prompt progress payments, and reform payment behaviours in the construction industry.
In contrast, the NSW Act provides that a progress claim may be made on the last day of a named month, or an earlier date in that month if provided by the contract.5 There is significantly less scope for procedural error by a claimant, or jurisdictional error by an adjudicator, and significantly more scope for recovery of progress payments in an industry well known for poor payment practices.
3.2 Maximum payment terms
The NSW Act was amended in April 2014 to introduce maximum payment terms for progress payments.6 The Murray Review provides an overview of the extent of late payments in the construction industry, with Australia having among the world’s worst performance for prompt payment.7
The Territory Act still provides for the parties to a construction contract to specify the date on which a progress claim becomes payable. Unsurprisingly, this can result in payment terms in excess of 75 calendar days, with head contractors passing (or creating) risk down the contractual chain to protect their own cashflow.
This results in suboptimum outcomes from both a policy and practical perspective. As a matter of policy, shorter payment terms will result in less insolvencies in the construction industry, which is already grossly overrepresented, being a key policy aim of the security of payment regimes. As a matter of practice, the due date for payment is critical to determining some rights under the Territory Act, including the right to suspend work, or recover the unpaid amount of a progress payment where no payment schedule was given.8
Similarly, the ability to make an adjudication application where no payment schedule has been provided is contingent upon a failure to make payment by the due date for payment, (which is noted above could be delayed by a Contract provision) and subsequent notice of intention to apply for adjudication.9
Given that maximum payment terms have been operating in NSW for over 8 years, any argument that its introduction is unworkable in the ACT should be met with scepticism.
3.3 Statutory Trusts for retention
While not strictly relevant for the purposes of an adjudication, it is worth noting that the regime for the imposition of statutory trusts in NSW is well established at the top of the contractual chain,10 and can be extended through regulation.11 The statutory trusts scheme has been the subject of reviews,12 and its merits are broadly accepted. Its introduction will protect the most vulnerable of participants in the construction industry – those at the bottom of the contractual chain – from those at the top of contractual chain, who frequently impose harsh subcontract conditions.
Statutory trusts represent low-hanging fruit, easily legislated and enacted via regulation after consultation with the industry.
3.4 Regulation of Authorised Nominating Authorities and adjudicators
Eligibility to be an adjudicator under the NSW Act is restricted to a natural person who “has such qualifications, expertise and experience as may be prescribed by the regulations for the purposes of this section.”13 The Building and Construction Industry Security of Payment Regulation 2020 (‘NSW Regulation’) defines the qualifications for adjudicators, requiring a relevant qualification and 5 years relevant experience,14 or at least 10 years relevant experience,15 as well as undertaking the required continuing professional development set out in the CPD Guidelines for Adjudicators.16
Nominally, the Territory Act has stricter requirements for the qualification of adjudicators, requiring that an adjudicator is an individual who "has the qualifications, expertise and experience to perform adjudications” and “has successfully completed a relevant training course.”17 However, that is the extent of the requirements in the ACT. There is no explanation of what constitutes a “relevant training course” or any detail as to the qualifications, expertise and experience required.
Similarly, the NSW Act provides for better regulation of authorised nominating authorities,18 with the Building and Construction Industry Security of Payment—Authorised Nominating Authorities (Code of Practice) Order 2020 (‘Code of Practice’) regulating standards of conduct, avoidance of conflict of interest, professional management arrangements, complaints and internal dispute resolution policies, notice requirements for fees and information, and reporting requirements.
In particular, the Code of Practice contains express requirements for an authorised nominating authority to:19
In contrast, the Territory Act sets out the factors that the relevant Minister must consider when assessing an application to be an authorised nominating authority. The positive and relevant obligations prescribed in NSW are entirely lacking, with the ACT focusing instead on factors which the Minister must “have regard to” (and are presumably disqualifying), such as:20
The differences between the ACT and NSW are stark. In NSW, authorised nominating authorities are well regulated with positive obligations, and adjudicators have clear requirements for eligibility including continuing development. In the ACT, an adjudicator who has completed a “relevant training course” can be appointed by an ANA which need only comply with relatively basic concepts of corporate governance.
There appears to be very little justification for the ossified regulatory approach in the ACT, and wholesale adoption of the NSW approach seems an obvious solution.
4 Conclusion
Despite a declared affinity for the ‘preferred model’ of NSW, the Territory Act has not kept pace with the reform welcomed by the construction industry across the border. This is particularly inapposite where the Australia Capital Territory is an island surrounded by NSW, where builders and subcontractors alike freely operate across borders and jurisdictions. There is no proper justification for legislative inaction which perpetuates a more procedurally complex regime with less regulation for adjudicators, allowing worse cashflow for subcontractors and less protection against loss of retention.
5 Specific Differences
5.1 ‘State’ or ‘Indicate’
Under the NSW Act, a payment claim must ‘indicate’ the amount of the progress payment claimed,21 and the payment schedule must ‘indicate’ the amount that the respondent proposes to pay.22 In contrast, the relevant term under the Territory Act is ‘state’.
This difference arguably points to a requirement for greater specificity, with a related question of whether submissions made in an adjudication application or response are “properly made” within the meaning of the relevant Act.
The author is not aware of any judicial consideration of the different meaning, if any, between those words, likely as a result of the relatively low number of adjudications in the ACT. In Creative Building Services Pty Ltd v TIO Air Conditioning Pty Ltd [2016] ACTSC 367, Mossop J interpreted the amount of the progress payment as a jurisdictional fact, and held that it was objectively less than that interpreted by the adjudicator. However, this did not turn on any analysis of the meaning of “indicate” in the NSW Act. It is possible that the decision may have been different in NSW, but this remains an academic exercise at this time.
This can be contrasted with the requirement that a payment claim “state that it is made under the Act”23 in both the ACT and NSW. The principles for interpreting this section are relatively settled:24
Whether these requirements would also apply to the requirement to “state the amount” remains to be seen.
The foregoing is further complicated by section 19 of the Territory Act which provides as follows:
19 Adjudication applications
(1) A claimant may apply to an authorised nominating authority, chosen by the claimant, for adjudication of a payment claim (an adjudication application) if—
(a) the respondent provides a payment schedule under this part, but—
(i) the scheduled amount indicated in the payment schedule is less than the claimed amount indicated in the payment claim…
(emphasis added)
Arguably, any exacting requirement implied by the term “state” may be read down in light of the reference to “indication” in section 19. Until there is judicial consideration of this distinction, the ambiguity will remain.
5.2 Service of Application
In contrast to the NSW Act, there is no requirement in the Territory Act that a claimant serve a copy of an adjudication application on the respondent.
Instead, an adjudicator who gives a notice of acceptance “must give the respondent a copy of the adjudication application.”25 Practically speaking, this will typically be undertaken by the authorised nominating authority.
While this may appear to be a relatively minor and easily understood change when compared to the NSW Act, it has the potential to cause confusion and lead either the respondent or the adjudicator into error when calculating the timing for the adjudication response, which is discussed in the section that follows.
5.3 Adjudication Response & Determination Timing
Under the Territory Act, a respondent has a comparatively stately minimum of 7 business days in which to provide an adjudication response.26 This is the later of:Notably, this is 7 business days after “the respondent receives a copy of the application”, not after “the adjudicator gives the respondent a copy of the adjudication application” (emphasis added). The time under section 22(1)(a) appears to start when the first copy is received.
Consequently, it is foreseeable that a claimant may also serve a copy of the adjudication on the respondent, as they would otherwise be required to do in all other jurisdictions including NSW. When the authorised nominating authority also serves a copy of the application, and advises the adjudicator, it may be necessary to inquire whether any other copy has been provided to the Respondent, and the date and manner of that service.
Similarly, the time for giving an adjudication decision would turn on receipt of any copy of the adjudication application, where the respondent is not entitled to give a response. The adjudicator must determine the application not later than “10 business days after the respondent receives a copy of the adjudication application”27 – again, not after being given a copy by the Adjudicator. It would be prudent for an adjudicator to request confirmation that no other copy has been served to ensure that any determination is made within time.
5.4 Matters to be considered
Under the NSW Act, an adjudicator determining an adjudication application “is to consider the following matters only”, listing several including “all submissions (including relevant documentation) that have been duly made…” by the parties.28
Under the Territory Act, an adjudicator “must only consider the following”, listing several matters including “any submission, including relevant documentation, properly made…”29 by the parties (with changes emphasised).
It is highly likely that judicial interpretation of these comparable sections will result in the same outcome. However, this begs the question as to why these seemingly semantic differences have found their way into the Territory Act at all, where the operation of the scheme in the ACT and NSW is otherwise largely identical.
If no difference in operation is intended, and given the wealth of judicial interpretation of the NSW Act, any legislative review of the Territory Act should strongly consider exact duplication to increase clarity and certainty.
5.5 No contracting out
The provision of the Territory Act which prevents attempts to contract out of the Act are narrower than those in NSW. The Territory Act provides as follows:30
42 No contracting out
(1) This Act has effect despite any provision in any contract, agreement or arrangement.
(2) A provision of any contract, agreement or arrangement, whether in writing or not, is void to the extent that it—
(a) is inconsistent with this Act; and
(b) purports to, or has the effect of excluding, modifying or restricting the operation of this Act; and
(c) may reasonably be construed as an attempt to deter a person from taking action under this Act.
The NSW Act provides as follows:31
34 No contracting out
(1) The provisions of this Act have effect despite any provision to the contrary in any contract.
(2) A provision of any agreement (whether in writing or not)—
(a) under which the operation of this Act is, or is purported to be, excluded, modified or restricted (or that has the effect of excluding, modifying or restricting the operation of this Act), or
(b) that may reasonably be construed as an attempt to deter a person from taking action under this Act,
is void.
5.5.1 Application
The application of both provisions is not restricted to any construction contract, being the defined term in the relevant Act.32 The ACT provision in particular is curiously broader than the definition of construction contract (“contract or other arrangement”), by introducing the additional concept of “agreement” in direct contradistinction to “contract” and “arrangement”.
5.5.2 Criteria
The Territory Act posits three criteria, all of which must be met, for a provision of any contract, agreement or arrangement to be void. This includes an additional requirement of being “inconsistent with this Act”; it is not clear whether or how this is different from the other two criteria.
In particular, it is possible that a provision of a contract could purport to modify or restrict the operation of the Territory Act, but would not be “reasonably constructed as an attempt to deter a person from taking action under this Act.”
Adjudicators should carefully consider whether all three criteria have been met before determining whether a provision is void.
5.5.3 Effect
The scope of the ‘voiding’ provision in the Territory Act is significantly reduced in comparison with the NSW Act.
Under the NSW Act, where a provision meets the two criteria, the “provision… is void.”
Under the Territory Act, where a provision meets the criteria, the “provision…is void to the extent” (emphasis added) that it meets the three criteria.
This has the effect that an adjudicator is required to determine “to what extent” the provision is void, rather than it being a relatively prescribed outcome that the provision itself is void.
5.6 Judicial Review and remitting a decision
Uniquely, the ACT contains an express right to seek, with leave, judicial review of an adjudication decision in the ACT Supreme Court.33 While there are requirements for seeking leave,34 the particularly interesting aspect of this provision is the orders that the Court may make.
The Court may confirm, amend or set aside the adjudication decision. The Court has the power to rewrite all or part of the determination, apparently without limit.
The Court may also remit the adjudication to the same adjudicator, or “a new adjudicator appointed by the Supreme Court”. It is not clear how the Court would determine an adjudicator’s eligibility, particularly whether the person appointed had “successfully completed a relevant training course.” When remitting the determination, the adjudicator must consider or reconsider “the Supreme Court’s opinion on the question of law which was the subject of the appeal.” It is not clear why the Court’s determination of an appeal is expressed as “an opinion on the question of law”, except that this mirrors the language in section 34A of the Commercial Arbitration Act 2017 (ACT).
The adjudicator has 10 business days to consider the decision remitted by the Court, apparently without the opportunity for the parties to provide any further submissions unless requested by the adjudicator.
In Fulton Hogan Construction Pty Ltd v Brady Marine and Civil Pty Ltd,35 Mossop J, in relation to remitting a decision, said at [65]:
“It is appropriate to remit the adjudication decision rather than to amend it or set it aside. Notwithstanding the error of law that I have found to exist, it is not so clear that the defendant’s claim for any payment under the SOP Act, which is not conceded by the plaintiff, should fail. Whether or not the actual element of reliance can be established upon the whole of the material that was before the adjudicator is a question of fact and is fundamentally one for the adjudicator. Similarly, the issues raised by the proposed notice of contention are ones which may be able to be raised before the adjudicator and which are ultimately dependent upon factual findings. (emphasis added)
Similarly, in relation to which adjudicator to remit the decision to, Mossop J said at 67:
“In my view it is appropriate to remit the adjudication decision to the adjudicator who made the original decision. That is because there will be cost and time efficiencies in having the original decision-maker reconsider the claim.”
In Nova Builders Pty Ltd v Civil & Civic Corporation Pty Ltd,36 McWilliam AsJ set aside and remitted an adjudication decision to the adjudicator on the basis that the adjudicator failed to give proper reasons. Her Honour did not discuss the factors she considered in making that order, but seemed to proceed on the basis that remitting the decision was appropriate in circumstances where there was a failure to give proper reasons. Her Honour did not refer to the decision in Fulton Hogan Construction Pty Ltd v Brady Marine and Civil Pty Ltd.37
The NSW Act contains no right of appeal, but does provide for the Court to set aside only part of a determination affected by jurisdictional error.38
6 Other differences of academic interest only:
| ACT | NSW |
|---|---|
| Amount of a progress payment is the amount “worked out”. | Amount of a progress payment is “calculated” in accordance with the terms of the Contract.39 |
| An adjudicator makes a “decision”. | An adjudicator makes a “determination”40 However, in relation to fees “decision” is used. |
| No express requirement for the adjudicator to serve a copy of the decision on the claimant or the respondent. | Adjudicator serves a copy on the claimant or the respondent.41 |
| Slip rule has no express scope to correct for “an error arising from an accidental slip or omission” or “a defect of form”.42 | Express scope to correct for “an error arising from an accidental slip or omission” or “a defect of form”.43 |
| An adjudicator is entitled to be paid “costs and expenses” for which the parties are “each liable” to pay.44 | an adjudicator is entitled to be paid “fees and expenses” the parties are “jointly and severable liable” to pay.45 |
| Adjudicators are protected from liability provided they act “honestly and without recklessness”. | Adjudicators are protected from liability provided they act “in good faith” and “in the reasonable belief.”46 |
| No provision relating to the service of notices. | Provisions for service of notices.47 |
1 Department of Employment and Workplace Relations, Review of Security of Payment Laws – Building Trust and Harmony (2017), in particular, section 4, pages 21 to 47
2 https://www.hansard.act.gov.au/hansard/2009/week12/4543.htm
3 Southern Han Breakfast Point Pty Ltd (in Liquidation) v Lewence Construction Pty Ltd [2016] HCA 52
4 Territory Act, section 9 (3)(a)
5 NSW Act, section 13(1A) and (1B)
6 NSW Act, section 11(1A), 11(1B) and 11(1C).
7 Murray Review, section 3.4, page 13.
8 Territory Act, section 17(2).
9 Territory Act, section 19(2).
10 NSW Act, section 12A;
11 Building and Construction Industry Security of Payment Regulation 2020 (NSW)
12 Murray Review, Chapter 17, in particular 17.2
13 NSW Act, section 20
14 NSW Regulation 19(1)(a)
15 NSW Regulation 19(1)(b)
16 NSW Regulation 19(2)(a)
17 Territory Act, section 20
18 NSW Act s28A
19 Code of Practice, Part 2
20 Territory Act, section 32.
21 NSW Act, section 13(2)(b)
22 NSW Act, section 14(2)(b)
23 Territory Act, section 15(2)(b)
24 Walter Construction Group Ltd v CPL (Surry Hills) Pty Ltd [2003] NSWSC 266
25 Territory Act, section 21(2)
26 Territory Act, section 22(1)
27 Territory Act, section 23(3)(b)
28 NSW Act, section 22 (2)
29 Territory Act, section 24(2)
30 Territory Act, section 42
31 NSW Act, section 34.
32 NSW Act, section 4(1); Territory Act, Dictionary.
33 Territory Act, section 43
34 Territory Act, section 43(4)
35 [2015] ACTSC 384
36 [2022] ACTSC 209
37 [2015] ACTSC 384
38 NSW Act, s32A
39 NSW Act, section 9; Territory Act, section 11
40 NSW Act, section 22; Territory Act, section 24
41 NSW Act, section 22(3)(c).
42 NSW Act, section 22(5)(b) and (d)
43 NSW Act, section 22(5)(b) and (d)
44 Territory Act, section 36.
45 NSW Act, section 29.
46 NSW Act, section 30; Territory Act, section 37
47 NSW Act, section 31.
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