September & October 2024 Security of Payment ‘Wrap-Up Across the States’

Below, we outline the key takeaways from recent Security of Payment (SOP) decisions (across Victoria, New South Wales and Queensland) and the practical implications of these decisions for contractors and principals. We also advise of the proposed SOP reforms that were recently endorsed by the Victorian Government.

Victoria

Babicka v ASD Corporation Aust Pty Ltd & Anor [2024] VSC 587

This decision is a reminder of the importance of reference dates to the validity of payment claims under the Building and Construction Industry Security of Payment Act 2002 (Vic) (Vic Act). If a contract provides for milestone payments at defined stages, a reference date only arises for each stage if the stage is completed. In some cases, a reference date for a subsequent stage can only arise if the earlier stages have been completed (even if the works expressly required for that later stage are complete).

The existence of a reference date is currently a requirement in Victoria, Queensland, Tasmania, South Australia and the Northern Territory (but not in New South Wales and Western Australia). However, the Victorian Government has recently endorsed the findings of a review of the Vic Act. One of the endorsed findings recommended the removal of reference dates in Victoria, so this requirement may soon no longer be relevant to Victoria. We look at some of the other proposed reforms in greater detail below.

The plaintiffs (Mr Babicka, Ms Babicka and the MAZS Investment Group) engaged ASD to construct warehouses under three separate contracts relating to different lots of the same development. Each contract provided for the work to be completed in stages, and ASD was entitled to milestone payments for the completion of each stage.
ASD issued milestone payment claims to each of the plaintiffs. The payment claims issued to the Babicka’s related to the ‘Lock Up’ stage. The payment claim issued to MAZS related to the earlier ‘Structures’ stage. The claims were disputed. The adjudication determinations were in ASD’s favour and found that the plaintiffs owed the amounts claimed to ASD.
The plaintiffs applied for judicial review of those determinations. They argued that because the ‘Structures’ stage had not been completed for any of the contracts, no reference date had arisen, and the payment claims were invalid. The plaintiffs argued that the earlier ‘Structures’ stage had to be completed before a valid payment claim could be made in respect of the subsequent ‘Lock Up’ stage.
The Court agreed with the plaintiffs and concluded that no reference dates had arisen under the contracts because the works required for those stages had not been completed. The Court found that, for these contracts, the earlier ‘Structures’ stage had to be completed before a reference date could arise for the ‘Lock Up’ stage.
This meant that the payment claims were invalid. Therefore, the adjudicators had no jurisdiction (because an adjudicator will only have jurisdiction if there is a valid payment claim) and the adjudication determinations were set aside.

Proposed changes to the Vic Act

As foreshadowed above, the Victorian Government has recently endorsed recommendations made by a Parliamentary Inquiry to amend the Vic Act.

The other key recommendations that were endorsed include:

(Removing the ‘excluded amounts’ regime) Uniquely, the Vic Act includes a regime for ‘excluded amounts’, which cannot be claimed in a payment claim or applied as a deduction in a payment schedule. Excluded amounts include non-claimable variations, time related costs, costs for latent conditions and changes to regulatory requirements and damages for breach of contract. The removal of this regime, in particular, will likely result in a significant increase in the use of adjudication in Victoria (as, in practice, the majority of disputes about payment claims relate to excluded amounts).
(Introducing a shutdown period) Under the Vic Act, a claimant can submit a payment claim on a respondent during the summer holiday period, when the construction industry and legal profession is closed and are required to implement a skeleton staff. The Victorian Government supports the recommendation to include a shutdown period from 22 December to 10 January.
(Unfair time bars and contractual terms) Under the proposed changes, an adjudicator, court or arbitrator could determine that time bars (or other contractual provisions) can be deemed unfair where compliance with the clause is not reasonably possible or would be unreasonably onerous.
(Extension of time limit for payment claims) The Victorian Government supports the recommendation to extend the period for a claimant to submit a claim after completion of construction works from 3 months to 6 months (or later if the contract allows).
(Allowing claims for retention money) The Victorian Government supports the recommendation that there be an entitlement to claim retention monies as part of a payment claim or as a standalone claim. An adjudicator will also have the statutory power to decide whether, when and how much retention money is to be returned.
(Prohibiting new reasons for withholding payment) The Vic Act allows a respondent to include new reasons for non-payment in its response to an adjudication application, which were not included in its payment schedule. The Victorian Government supports the recommendation to expressly prohibit respondents from providing new reasons in an adjudication response.

The Victorian Government has not indicated when a bill to implement these proposed changes will be introduced to parliament.

New South Wales

Fredon Infrastructure Pty Ltd v Hitachi Rail GTS Australia Pty Ltd [2024] NSWSC 1244

This decision is an important reminder to take a conservative approach when calculating the timeframes for submitting payment schedules. The timeframes are short and non-compliance can result in a principal being liable to pay the entire amount claimed in a payment claim, which, in some jurisdictions, can lead to a judgment debt without a claimant needing to first obtain an adjudication certificate.

Hitachi engaged Fredon to carry out work on the Victoria Cross and Crows Nest Metro Stations in Sydney under separate (but similar) construction contracts.
On 21 February 2024, Fredon sent to Hitachi’s officers two payment claims under the Building and Construction Industry Security of Payment Act 1999 (NSW) (NSW Act). The primary issue in this case was whether these payment claims were taken to be served on 21 February 2024 or on 22 February 2024.
This was important because Hitachi served its payment schedules on 7 March 2024. This was 10 business days after 22 February 2024 (i.e. within the time required by the NSW Act) but 11 business days after 21 February 2024 (i.e. outside the time required by the NSW Act).
Following detailed consideration of the relevant factual circumstances, the Court found that the payment claims were received by Hitachi on 21 February 2024 and were validly served on this date. Therefore, Hitachi’s payment schedules served on 7 March 2024 were served out of time, and Hitachi was liable to Fredon for the full amounts in the payment claims.
Hitachi also argued that the payment claims were invalid because they were sent to its employees and not to Hitachi’s nominated representative (as required by the contracts). This argument was rejected. The Court found that, even if this were a requirement of the contract, that requirement would be void by reason of section 34 of the NSW Act. This requirement would purport to exclude or modify the effect of section 31 of the NSW Act, which permits service by other means. The Court held that the recipients had actual authority to receive the payment claims on behalf of Hitachi under the terms of their employment contracts.

Claire Rewais and Osama Rewais t/as McVitty Grove v BPB Earthmoving Pty Ltd [2024] NSWSC 1271

This decision emphasises that an adjudication determination can only be set aside by the courts if the adjudicator made a ‘jurisdictional error’ and establishing jurisdictional error is difficult.

The plaintiffs engaged BPB to perform building works and earthworks at their property in New South Wales.
On 24 April 2024, BPB sent emails to Dr Rewais, with the attached documents forming BPB’s payment claim. BPB’s solicitors then sent a letter via email and express post on 22 May 2024 referring to the payment claim and the plaintiffs’ failure to provide a payment schedule within the time allowed by the NSW Act. The letter included BPB’s notice of its intention to apply for adjudication under section 17(2) of the NSW Act.
On 11 June 2024, Dr Rewais received an email from BPB containing a link to a OneDrive folder that contained copies of the 24 April emails and a copy of the 22 May letter. Dr Rewais had not opened, read or seen the 24 April emails or the 22 May letter before receiving the 11 June email.
BPB commenced an adjudication on 13 June 2024. The plaintiffs then submitted a payment schedule on 18 June 2024. The adjudicator found in BPB’s favour and determined that the plaintiffs had been served with the payment claim on 24 April 2024, and therefore owed BPB approximately $277,000.
The plaintiffs applied to have the adjudication determination set aside by the Court. The plaintiffs argued that the determination was invalid, as BPB’s payment claim and its notice of intention to seek adjudication were not served until 11 June 2024 and the adjudication application was, therefore, premature and invalid.
The Court agreed that, contrary to the adjudicator’s findings, the payment claim and the notice were not served until 11 June 2024 and that the adjudication application was, therefore, premature. However, the Court concluded that the errors made by the adjudicator on those matters were not jurisdictional errors and the adjudication determination could not be set aside.
The Court stated that the adjudicator dealt with the parties’ submissions comprehensively, demonstrating a bona fide attempt to exercise the adjudicator’s powers. Even though the Court came to a different conclusion, it was open to the adjudicator to find as he did.

Rogers Construction Group Pty Ltd v Mirage Interiors & Construction Pty Ltd [2024] NSWSC 1344

The decision is timely reminder that it is only in rare circumstances, particularly in New South Wales, that a challenge to an adjudicator’s determination will succeed on the basis of procedural fairness. This reflects the ‘rough and ready’ nature of the adjudication process, which is designed to maintain cash flow in the construction industry by providing for quick, interim determinations with limited rights of review.

Rogers challenged an adjudicator’s determination under the NSW Act on the basis that the determination was founded on a position not advocated for by either party and which neither party could have reasonably contemplated.
Rogers submitted that the adjudicator made no finding as to the scope of works under the written contact between the parties, and that the adjudicator proceeded on the basis that the scope of works under the oral contract between the parties was the same as the written contract.
The Court rejected Rogers’ submission and found that implicit in Rogers’ submissions in its adjudication response was an understanding of the scope of works overlap between the two contracts.
The Court held that there had been no denial of procedural fairness and made the following remarks:
- An adjudicator under the NSW Act must accord the parties procedural fairness when exercising their powers as an adjudicator. However, the structure and scheme of the NSW Act means that the ‘content of the requisite procedural fairness is reduced’.
- A determination will only be found to be invalid where an adjudicator has significantly departed from the ordinary requirements of procedural fairness and that departure led to a substantial practical injustice in all the circumstances.

Queensland

RE Oakey Pty Ltd v Canadian Solar Construction (Australia) Pty Ltd [2024] QCA 202

This decision confirms the practical approach adopted by courts if a contract does not mandate service of documents (or payment claims which may trigger SOP processes) in a particular way. For principals, this decision reinforces the criticality of ensuring that email inboxes which may receive payment claims are monitored to avoid unintended SOP consequences (namely, being liable to pay the amount claimed in a payment claim due to a failure to give a payment schedule).

The Court of Appeal considered appeals by RE Oakey (principal) and Canadian Solar (contractor) in relation to a payment dispute arising out of a solar farm project.
The dispute concerned whether a payment claim (PC64) had been validly served under the contract and for the purposes of the Building Industry Fairness (Security of Payment) Act 2017 (Qld) (Qld Act). PC64 was sent via email to a director of the principal and was copied to 6 other representatives of the project management company designated as the principal’s agent under the Contract. The email bounced back from the director but was received by all other recipients.
The primary judge found that PC64 was ‘given’ to the principal as it was copied to the project manager who was appointed under the contract as the principal’s agent in the exercise of all of its functions under the contract. In doing so, the primary judge held that a proper interpretation of the contract supported a conclusion that there was no contractual requirement for a payment claim to be served in a specified way. The primary judge therefore found that the relevant payment claim had been served appropriately, and that the principal did not respond within time, such that it was liable to pay the contractor the sum of $4,030,714.74 plus interest.
On appeal, among other issues, the principal argued that the primary judge had erred in the interpretation of contractual provisions which supported the finding that the relevant payment claim was ‘given’ to the principal.
The Court of Appeal agreed with the primary judge’s analysis. In particular, the Court of Appeal identified that the notices clause carved out notices ‘being given under the SOP Act’. There was a separate clause dealing with SOP matters, however it did not deal with service of SOP matters. The Court of Appeal found that nothing in that clause specified an express manner of service of notices or evidenced any intention to specify an express manner of service of SOP claims. The email had otherwise been received by the project manager who had the authority to assess PC64.
Absent a contractual provision which provided for a specified mode of service, the Court of Appeal found that the payment claim was given if (as was the case here):
- it had actually been received; and
- it had come to the attention of a person with authority to deal with it under the contract.

Chevron Park Pty Ltd v Groupline Constructions Pty Ltd [2024] QSC 202

This decision emphasises that section 88 of the Qld Act means that the role of an adjudicator is to assess the payment claim and payment schedule that are the subject of the adjudication. It is not the adjudicator’s role to conduct a reconciliation of the amounts actually paid at the time of the payment schedule to determine the amount to be awarded.

Chevron engaged Groupline to construct a residential building. Groupline served a payment claim on Chevron for around $3 million (PC19). In response, Chevron delivered a payment schedule to Groupline with the net sum recommended for payment of around $900,000. Groupline applied for adjudication, and the adjudicator determined the amount payable by Chevron to be around $1.4 million.
Chevron applied for judicial review of the adjudication, arguing that the adjudicator failed to take into account ‘past payments’ preceding the date of PC19 which it contends were in reduction of the amount claimed in PC19. The second part of Chevron’s complaint related to ‘subsequent payments’ Chevron made post-dating PC19.
Chevron submitted that, in deciding the adjudicated amount ‘to be paid’ pursuant to section 88(1) of the Qld Act, there must be a ‘reconciliation’ by the adjudicator of the amount claimed against the amounts known to have been paid in relation to the claimed amounts.
The Court rejected Chevron’s construction of section 88(1) of the Qld Act and dismissed the application for the following reasons:
- The adjudicator is to decide ‘the amount’ of the progress payment to be paid. This adjudicated amount is linked to the payment claim and payment schedule which responds to the payment claim, and, pursuant to section 68 of the Qld Act, expressly relates to the identified ‘construction work’ as a defined term. The adjudication is therefore in respect of the work which has been done or is claimed to be done under the relevant payment claim.
- Building construction, and therefore payments, are progressive and there is sometimes overlap between work the subject of the payment claim and the next payment claim. This does not mean that the work claimed, and paid for, in a previous payment claim may be offset against the new work claimed in the payment claim in question. Generally speaking, amounts paid prior to a particular payment claim being made are in respect of previous payment claims.
- Considering the terms of section 88(3) of the Qld Act, the adjudicator’s decision cannot consider the subsequent payments. This is because the adjudication response provided by the respondent must not include any new reasons for withholding payment that were not included in the payment schedule. Chevron was therefore not entitled to include reference to reasons which arose after the date upon which it delivered its payment schedule, which includes the subsequent payments.

Paladin Projects Pty Ltd v Visie Three Pty Ltd [2024] QSC 230

This decision is a reminder that the prohibition in section 88 of the Qld Act on raising ‘new reasons’ does not mean that reasons not expressly stated in a payment schedule cannot be stated in an adjudication response. Provided the reasons given in the adjudication response are within the scope of the matters raised in the payment schedule, they will not be ‘new reasons’ prohibited by section 88 of the Qld Act.

Paladin was engaged by Visie to construct townhouses and submitted a payment claim to Visie.
That payment claim was the subject of an adjudication determination. Paladin applied for judicial review of that determination on the basis that the adjudicator had contravened section 88(3) of the Qld Act by taking into account ‘new reasons’ given by Visie in its adjudication response. Those ‘new reasons’ were given in respect of a variation claim for principal caused delay damages (known as ‘Variation 60’).
Paladin argued that the adjudication response contained new reasons in respect of Variation 60, including that the entitlement to delay damages was contingent upon an extension of time having been granted by the superintendent, and that at least some of the extension of time claims in question did not relate to a ‘compensable cause’ within the meaning of the contract.
The Court held that the applicant had not established jurisdictional error in relation to Variation 60 because:
- Whether ‘new reasons’ were raised in the adjudication response cannot be determined by directly comparing the payment schedule and the adjudication response. What is required is a consideration of whether the narrative response in the adjudication response reflects the scope of the matters in the shorthand response in the payment schedule.^[1] There is no prohibition on more fully articulating the existing reasons for withholding payment identified in the payment schedule.
- Even if they those arguments were ‘new reasons’, the adjudicator must have ‘considered’ those reasons for there to be jurisdictional error. This required ‘an active intellectual process and a process of evaluation sufficient to warrant the description’.^[2] While the adjudicator clearly read Visie’s adjudication response, he only made a passing reference to Visie’s submissions on Variation 60, and, in effect, did not adopt that respondent’s submissions. Therefore, the adjudicator did not actively engage with the respondent’s reasons and did not consider them for the purposes of the Qld Act.

Platform Constructions Pty Ltd v Fourth Dimension AU Pty Ltd [2024] QSC 235

This decision demonstrates that the recent amendments to section 79(6) of the Qld Act have cured the issues created by the decision of Iris Broadbeach Business Pty Ltd v Descon Group Australia Pty Ltd [2023] QSC 290. It is now clear that giving a respondent a copy of the automatic ‘adjudication form’ provided by the QBCC after lodging online will satisfy the requirement of section 79(4) of the Qld Act to give the respondent copies of the adjudication application and submissions (if any) within 4 business days after making the application.

Platform Constructions engaged Fourth Dimension to supply and install vinyl planks for a building project at Southport, Queensland.
Fourth Dimension made two adjudication applications pursuant to the Qld Act, seeking payment of money it alleged was owed under the contract.
The first application was considered by an adjudicator, who determined that the adjudicated amount was nil. His registration as an adjudicator had lapsed two days prior to the determination, which was declared void by the Court for that reason.
The second application (the focus of this summary) was determined by another adjudicator, who found the adjudicated amount to be around $135,000. Fourth Dimension’s solicitor lodged the application via the QBCC’s website. He then received an email from the QBCC providing an automatically generated ‘adjudication form’ confirming the application. Fourth Dimension’s solicitor then sent emails to Platform Construction’s solicitor attaching the PDF documents he uploaded when making the application and a copy of the automatically generated form. Due to the size of the emails exceeding the size limit of the intended recipient’s server, the emails containing 7 sub-contract documents uploaded when making the application were not received by Platform Construction’s solicitor.
Platform Constructions submitted that the second adjudication decision was void and liable to be set aside due to Forth Dimension’s failure to comply with section 79(4)(a) of the Qld Act. The alleged non-compliance was Fourth Dimension’s failure to provide Platform Constructions with a complete copy of the adjudication application and supporting submissions, including the sub-contract documents within four business days after making the application.
The Court rejected Platform Constructions’ arguments and found that the amendments to section 79(6) of the Qld Act^[3] meant that the requirements of section 79(4) of the Qld Act were met by the service of the automatic form provided by the QBCC. Therefore, the judicial review application in respect of the second adjudication was dismissed.