Released to the public on 21 May 2018 by John Murray AM, the ‘Review of Security of Payment Law – Building Trust and Harmony’ report is a forward thinking and comprehensive look at one of the most dynamic and widely utilised areas of building and construction law, the security of payment legislative regime.
Morrissey Law & Advisory is firmly of the view that the security of payment provisions across Australia are in dire need of harmonisation, and we largely agree with the position adopted in the report.
The report is extensive and contains over 80 recommendations that Mr Murray believes will lead to a more harmonious, effective and accurate security of payment system, including the adjudication of payment disputes.
We have distilled the vast number of recommendations down to five key points, which will give an insight into what will potentially be the future of the security of payment regime across Australia.
1.Australian Government intervention and nationally consistent SOP laws
The report is drafted with the view that the SOP laws should be consistent and cohesive across the nation, and states this will only be possible by intervention of the Federal Government.
This nationwide approach is particularly important as the propensity for construction to be undertaken by entities in several states is only increasing by the day.
We believe this is well overdue, given the vast differences across jurisdictions that currently make navigating the laws extraordinarily difficult.
East coast rules: The preferable model to achieve the primary objective of contractor cashflow
While the report recommends many particular aspects of each state’s SOP regime, the overall consensus is that the east coast model (being the model in force in every state and territory other than WA and NT) is the preferred national model moving forward.
This is due in part to the robust nature of the east coast model which promotes a ‘pay now, argue later’ philosophy.
As regular practitioners in the SOP space, we agree that the east coast model is the better model in this regard.
The need for a balance between speed and fairness in the adjudication process
The report recommended the following be made applicable nationwide:
- A provision stating that where an adjudicator has committed jurisdictional error of law in part of an adjudication determination which does not affect the whole of the decision, a court with the requisite power may sever that part of the decision that constitutes an error of law, to preserve the correctly determined parts of the decision;
- The claimant’s ability to withdraw and make a new application if an adjudicator has not accepted its application within 4business days, an adjudicator fails to determine an application within the prescribed timeframe (under the South Australian SOP Act) or an adjudicator has given notice of their withdrawal from the adjudication;
- The ability of the claimant to suspend construction work being performed for the respondent in certain circumstances and subject to the requisite notice provision (under the NSW SOP Act);
- A party’s right to make an application for a review of an adjudication determination if the adjudicated amount is equal to or greater than $100,000 of the scheduled amount, or $100,000 (or more) lower than the claimed amount; and
- The respondent’s obligation to make payment of any adjudicated amount within 5 business days of the determination, or such other period as decided by the adjudicator.
Appointment, training and assessment of adjudicators should be left to regulators
The report recommends retaining Authorised Nominating Authorities (ANA) to refer adjudication applications to adjudicators, a more consistent regulatory focus on ANAs and also that adjudicators should be trained, registered and graded by a relevant regulatory authority and not ANAs or any other private body.
Currently, ANAs are responsible for appointing adjudicators and their conduct and activities are monitored by the regulator, however, there is no uniformity regarding the degree of regulatory oversight of ANAs as some regulators impose stricter oversight methods than others and the legislative provision regarding ANA monitoring differ from jurisdiction to jurisdiction.
Victoria and Tasmania are the only jurisdictions in which the regulator is specifically allowed to impose conditions on an ANA’s authorisation.
It is recommended that the legislation should contain provisions:
- regulating the oversight of ANAs which required ANAs to provide the regulator with such information as reasonably requested to enable the Regulator to monitor the operation of the legislation and the ANA’s and adjudicators’ activities;
- regarding the registration, renewal, suspension and cancellation of adjudicators and the review of adjudicators’ performance;
- so that where an adjudicator has been found by a court to have acted not in good faith twice or more in the last 5 years, such a person must not be nominated or appointed as an adjudicator by an ANA.
The report also recommended that adjudicator’s fees should be fixed at a rate prescribed by the regulator.
Implementing statutory trusts to protect lower tier contractors
The report recommends that in order to protect contractors on the lower tiers of the contractual chain, statutory trusts should be used on all projects worth over $1 million, whereby money paid by a principal never forms part of the consolidated revenue of any party in the contractual chain, except where that party is entitled to claim money as part of its direct contribution to the works or supply.
A statutory trust operates so that whenever a payment is made by a principal or by a head contractor or subcontractor which includes payment in respect of work and materials carried out and supplied by subcontractors, sub-subcontractors or suppliers, then the lead contractor will, from the moment of receipt of those moneys, hold them as trust moneys on behalf of the subcontractors of sub-subcontractors or suppliers as the case may be, for the sole purpose of payment of moneys due and payable to such subcontractors, sub-subcontractors or suppliers.
The major difference between the recommended statutory trust and its predecessor, project bank accounts, is that the PBA regime only provides for the holding and payment of money for and to contractors directly below the lead contractor in the contractual chain by a bank, whereas the statutory trust concept protects all contractors down the entire contractual chain.
Overall, many of these recommendations point towards the same notion, that the balancing act between speed and fairness in the adjudication process as it relates to SOP disputes, must be given the appropriate attention and effort in order to achieve a nationally consistent dispute resolution process.
Morrissey Law & Advisory will keep you updated in respect of the impact this report has on any legislative action, in the meantime do not hesitate to contact us if you have any questions regarding your rights and obligations under the Security of Payment legislative regime that is applicable to you.
This article was prepared by Michael Morrissey and Patrick Ireland.
Disclaimer: This publication by Morrissey Law & Advisory is for general information and commentary only and should not be considered or relied upon as legal advice. Formal legal advice should be sought in relation to any matters or transactions that may arise in relation with communication.