Corrs High Vis: Episode 55 – WA Security of Payment legislation update

Brianna Dos Santos – Hi and welcome to Corrs High Vis. I’m Brianna Dos Santos, a graduate rotating through the Corrs Perth Projects team. With me today is Spencer Flay, a partner in the Projects Disputes team. Our topic, which should be clear from the title of the podcast, is “The New Building & Construction Security of Payment Act” which was passed by the WA parliament on the 22^nd of June 2021. Welcome Spencer.

Spencer Flay – Thanks Bri.

Brianna Dos Santos – So I guess the first thing to start with would be what are the major differences between the new Act and the old Act?

Spencer Flay –Well the old Act effectively was in three parts. It contained prohibited provisions, implied provisions and then provided a statutory adjudication regime. Now all those features are in the new Act but there is plenty more.

So the structure of the new Act mandates that construction contracts have to be in writing and maintains a statutory right to progress payments. As with the old Act, it also prohibits particular provisions but with some refinements. So, for example, the definition of what constitutes a paid when paid provision has been expanded. It also introduces a new and unique regime for declaring notice-based time bar provisions unfair in certain circumstances. It introduces a mandatory regime for obtaining progress payments. It completely replaces the existing adjudication regime which was based on the UK’s Housing Grants, Construction and Regeneration Act and adopts the East Coast regime most similar to the regime in New South Wales.

It also introduces the ability to withdraw an adjudication application which didn’t exist previously. It introduces a mechanism to review adjudicator’s determinations by a review adjudicator. It introduces the ability for a contractor to substitute a performance bond for retention money and requires a principal to give notice before calling on a performance bond. It introduces new rights if adjudication determinations are not paid in addition to suspending work. It introduces an offence for threatening or intimidating claimants. It creates a retention money trust regime and last, but not least, it significantly increases the powers of the Building Commissioner. So there is quite a lot in that.

Brianna Dos Santos – Yes it does seem like a lot. I doubt we’ll probably do more than scratch the surface in this podcast. So let me ask you then who do you think will be the most affected by changes to this Act?

Spencer Flay – So of course contractor’s rights and protections are significantly enhanced but I think it is the principals who will most significantly be affected and, in particular, the principals in particular industries. For example, the mining exclusion in the previous Act which operated to exclude particular types of construction work, particularly work which consisted of fabricating or assembling items of plant used for extracting or processing oil, natural gas or derivatives, has been removed entirely. So the only exclusion is for drilling for oil and gas, constructing a shaft, a pit quarry for the purposes of extracting a mineral or constructing watercraft. So this means the Act will potentially capture a significant amount of construction work on mining sites which was previously excluded. So that’s one significant area for principals.

Another is a number of oil and gas companies whose operations were excluded may now find the construction of offshore facilities captured because of amendments made to the definition of a site in Western Australia. So the new definition now includes an area of water adjacent to WA which is outside the territorial limits of WA provided the contract is governed by the laws of Western Australia.

Now there is no clear indication where the power of the WA legislature comes from to make this law but we think the power comes from either the Constitutional Powers Coastal Waters Act or the Australia Act or a combination of both and why that’s significant is because a number of the FPSOs - so that’s Floating Offshore Processing Facilities - which were not previously captured by the Act now might be captured.

Brianna Dos Santos – What about the principals generally then?

Spencer Flay – So there’s lots of changes but two significant ones are that principals may have to change their accounting practices. So where the old Act prohibited payment terms longer than 42 days, the new Act provides that payments by a principal to a head contractor must be paid within 20 business days and payments to a subcontractor must be paid within 25 business days and that may for some of our oil and gas clients be significant – well sorry, for many of our principals may be significantly shorter than their current accounting regimes are set up for.

It does have this curious feature – “business day” is defined, as it was in the old Act, to be a day which is not a Saturday, Sunday or public holiday or a day between the 22^nd of December or the 10^th of January, and this was to stop people adjudicating over the Christmas break. But the effect of using the definition of “business day” means that if you submit a payment claim now on the 21^st of December you might be waiting an extra two weeks to be paid, and I’m not sure that was the intention of the drafters.

Brianna Dos Santos – That’s very interesting. I guess the last question for this podcast is are there any features of the new adjudication regime that you think are particularly interesting?

Spencer Flay – Yes. In WA, as you probably know, because of the decision in CMA v John Holland, principals have always been able to rely on time bars to resist claims of payment where the claim has not been notified in accordance with the contract. So a classic example is a claim for delay costs which arise from an EOT entitlement. So in order to be entitled to an EOT most standard form contracts require notices of likely delay, a notice of delay to be submitted often within tight timeframes. However, now if a claimant can show that the notification regime – sorry, however, if a claimant can show that it was not reasonably possible to comply with the notice regime or compliance would have been unreasonably onerous, an adjudicator can now declare the notification regime unfair and of no effect in respect of particular payment claims.

So that’s a pretty significant change for two reasons. The first is it’s unique to WA. I’m not aware of a similar regime elsewhere in the world, and importantly the power to declare a notification regime is not limited to adjudicators but is also extended to the courts, arbitrators and expert determiners. So you can imagine international arbitrators on a significant dispute arising from the construction of, say, an oil and gas project in WA having to grapple with this previously unknown power which doesn’t exist in other regimes, and it’s also significant because there is no law around when a notification regime will be determined unfair except for a list of things that should be taken into consideration in section 16(6) of the new Act. So there is a potential for a lot of litigation around what might be an unfair notification regime that just previously didn’t exist and will be a bit of a lawyer’s picnic, I’m afraid.

Finally, I’m pretty sure our listeners will be grateful if I don’t go into detail about the new regime but, in short, under the new regime respondents to a payment claim must do so by way of a payment schedule. If the payment claim isn’t paid in full, give reasons for non-payment. Now if the non‑payment gives rise to an adjudication then the respondent is limited to the reasons in the payment schedule to justify non-payment, which all makes sense. What’s interesting is if a respondent does not issue a payment schedule or fails to pay the undisputed amount in a payment schedule in the time allowed for under the contract, then the claimant can, under section 27(2), recover the unpaid portion of the claim as a debt due in a court of competent jurisdiction or make an adjudication application.

Now the adjudication route is pretty well understood, but if you ever seek to recover in court, section 27(3) provides that (a) provided the court is satisfied that the relevant circumstances exist, ie that there is a certified sum which is unpaid, or there was no payment certificate, then the respondent is not entitled to bring a cross-claim or raise any defence in relation to matters arising under the construction contract.

Now that’s significant because the easiest application I think you would make to a court is for a statutory demand under the Corporations Act. Under the Corporations Act, the bar to resisting a statutory demand is low. You pretty much just need to show you have a valid set‑off or a genuine defence to the claim the subject of the statutory demand, but that bar has now been removed which I think is a bit inconsistent with the Corporations Act regime which means that if there is an unpaid amount you will succeed, I suspect, on your statutory demand because none of the defences are available to you, and if you succeed and the amount is still not paid then you can proceed to winding up orders and, again, I’m not sure that was what the drafters intended.

Brianna Dos Santos – That’s a very good summary there, Spencer, thank you for that. I think that’s all we’ve really got time for at this point.

If any of our listeners do have any questions then please don’t hesitate to reach out to Spencer or any of the Corrs Projects team here in Perth. Thank you again for tuning in and until the next Corrs High Vis Podcast, good bye.

This podcast is for reference purposes only. It does not constitute legal advice and should not be relied upon as such. You should always obtain legal advice about your specific circumstances.