Addressing the Property Council NSW on the Security of Payments Act

This report addresses the Property Council of New South Wales on the Building and Construction Industry Security of Payments Act 1999 and its 2002 amendment. The report examines the Act's functionality, its rationale for introduction, and its role in court proceedings, specifically referencing the Castle Constructions Pty Ltd v Ghossayn Group Pty Ltd [2017] NSWSC 1317 case. The analysis delves into legal issues, identifies key legal ideas such as head contractors and supporting statements, and explores the Act's impact on reducing insolvency in the construction industry. The report also highlights the amendments made to provide rights and protections to subcontractors, including changes to payment claim declarations, supporting document requirements, and payment deadlines. The conclusion summarizes the key points, emphasizing the Act's role in securing contractors' rights and protecting the construction industry.

ADDRESSING THE PROPERTY
COUNCIL OF NEW SOUTH WALES
ON THE BUILDING AND
CONSTRUCT

TABLE OF CONTENTS
INTRODUCTION ..........................................................................................................................1
MAIN BODY...................................................................................................................................1
1. How does the Act work?.........................................................................................................1
2. Why was it introduced?...........................................................................................................3
3. How does the Act work in relation to the regular court actions?............................................4
4. Recent amendments that have been made to the Act where a subcontractor of the builder
has not been paid by the builder and in particular what rights has the subcontractor in relation
to the owner of the property........................................................................................................5
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
The present report is prepared to address Property Council of New South Wales on the
Building and Construction Industry Security of Payments Act 1999 and the Building and
Construction Industry Security of Payment Amendment Act 2002. The Act is to strengthen
financial security of people dealing in goods and services for Building and construction industry
through enforcing progress payment form debtors to person who is entitled for it. In the report,
case law used as reference is Castle Constructions Pty Ltd vs Ghossayn Group Pty Ltd [2017]
NSWSC 1317 and case is about issuing a decree for a contract which is not covered under the
Act.
MAIN BODY
1. How does the Act work?
A. Legal issue within case law: payment to sub-contractors
Head contractor issue: Ghossayn Group Pty Ltd was recognised as a head contractor in
this case by Castle contractions who was other party to contract. It was started that head contract
is eligible Igor progress payment when the claim for it is accompanied by a supporting statement
as per section 13 (9) of the Act.
Service issue: Another issue related with this case was determination of the date on
which notice was received by castle construction.
The main issue in this case was related with identification of head contractor and
statements of payment to sub-contractors as they would serve as supporting document for
releasing payment from other party to whom construction services were provided1.
B. Identification of legal ideas involved in the issue, findings and Analysing Authorities:
Section 4, Head contractor: A person under construction contract is to carry out
construction work for or supply goods and services related with construction to principal (main
contract) and for that person, such work is carried out as a part or incidental to the work under
main contract (sub contract). In case principle enters into direct contract with subcontractor,
there is no head contractor.
1 Hwang, B. G., Zhu, L. and Ming, J. T.T., 2016. Factors affecting productivity in green building
construction projects: The case of Singapore. Journal of Management in Engineering. 33(3).
p.04016052.
1

Section 13(7): A head contractor must not serve a right for progress payment to the
principal unless it is accompanied by a supporting statement indicating that it is related with its
Payment claims.
Section 13(9): Supporting statement means a document/statement in prescribed form as
per the regulation which includes a declaration that all subcontractors have been paid with
amount that has become due and payable related to construction work concerned.
J Hutchinson Pty Ltd v Glavcom Pty Ltd [2016] NSWSC 126: In this case, Supreme
Court of NSW passed a judgement that a submission of a subcontractor’s statement which is
precondition for accrual of reference date was void under section 34 of this Act.
Section 34: no contracting Out-
1. The provision of this act prevails despite any condition which is contrary in any contract.
2. The provision to any agreement, under which operation of this act is modified, excluded
restricted or reasonably take any action that deter a person from taking any action under
this act is considered to be Void.
Findings of the case: After commencement of construction work, Ghossayn submitted
three claims for progress payment to castle and all of them were accompanied by supporting
documents. For payment claim, completion of work is an essential element and same was not
signed off by any engineer or surveyor as approval for payment2. The question that arises in this
case is to whether a sub-contractor may unintentionally become a head contractor under this act
when it engages sub-contractors.
Arguments: Here, it is argued that defendant used its terms of trade to pay the
subcontractors and Castle construction is principle contractors and pay all other sub-contractors
within the same term3. In argument of this, it can be contented by the plaintiff that as both Castle
north and Castle construction were related and Ghossayn must not be recognised as head
contractor the payment is made as it was final claim.
Other argument that can be presented in this case by defendant is to determine that head
contractor and principal are related and a reference date must be prescribed for making payment
2 Wong, P. S., Wang, Z. H. and Do, D., 2014. Use of the security of payment act in resolving
disputes in Victoria, Australia. Journal of Legal Affairs and Dispute Resolution in Engineering
and Construction. 7(1). p. A4514001.
3 Lim, B. T. and Loosemore, M., 2017. The effect of inter-organizational justice perceptions on
organizational citizenship behaviours in construction projects. International Journal of Project
Management, 35(2), pp.95-106.
2

claim. In an analogical response, claimant can state that there was no direct relationship between
principle (castle north) and plaintiff as both Castle north and Castle Construction did not share a
direct contractual relationship.
Another averment that can be made by Ghossayn can be related with redefining
contractual relation between both parties to contract. In given case it is a relation of principal and
head contractor but it must be of head and sub-contractor as the excavation and other work was
given to Ghossayn by castle constructions. In this argument, it can be presented by Castle
construction that it entered into contract as per provision of the SOP act and relationship is
defined as per section 13 subsection 7 and 9.
2. Why was it introduced?
Act was introduced in the year 1999 and main purpose is to introduce specific legislation
that is intended to reduce incidence of insolvency in construction industry. With increase in the
infrastructure projects, buildings and construction works, more debts were becoming incidental
to this industry. For reducing these debts, which could have led to insolvency of organisation in
this field, this act was established. With formation of this act,
 contractors were provided with certain rights and protection and
 a statutory mechanism was prescribed for recovering of progress payments.
All states and territories in Australia have security of payment legislation. However, they
differ state wise4. The act is same in all states and territories but certain provision is various as
per different behavioural habits and preferences of the public in those areas. The main aim of
introduction of this act was reducing the risk of insolvency in construction industry and
protection of payment rights of head and sub-contractors from principal under construction
contracts.
For case of Castle Constructions Pty Ltd v Ghossayn Group Pty Ltd [2017] NSWSC
1317, it can be stated that interest of contractor Ghossayn is-protected with the amended act by
removal of payment claim declaration and introduction of penalty provision for late and non-
payments.
Castle north and castle construction were not related as per provision of this act, hence,
their contention for claiming Ghossayn s head contractor was upheld and declared that it was in
breach of section 13.
4 Yung, P. and Rafferty, K., 2015. Statutory adjudication in Western Australia: adjudicators’
views. Engineering, Construction and Architectural Management. 22(1). pp.54-72.
3

For reference date, it is stated in this act that a notice must be served 2 business days
prior to declaration of a decree and in this case, it was held that reference date was calculated
form the date when notice was actually received by company in physical form not form the date
when it was posted to it.
3. How does the Act work in relation to regulate court actions?
The act assist court proceeding in form of presenting legal regulations and provisions
and its applicability in given case and facts and finally reaching to a decision.
With introduction of this Act insolvency risk was minimised in this industry and also
payment to contractors and sub-contractors were now more secured with application of provision
of SOP (Securities of payments) Act.
For case of Castle Constructions Pty Ltd v Ghossayn Group Pty Ltd [2017] NSWSC
1317, two issues identified are; first non-submission of supporting documents with payment
claim and second, determination of reference date for presentation of averment against notice of
the court.
Reason behind these can be interpreted as, application of provision of section 13 (7) and
13 (9) in this case and stating that contract does not fall under the Act. Another fact that is
applied in this case, making an assumption of declaring Ghossayn as head contractor though it
was a sub contactor of Castle-construction Pty Ltd.
The major drawbacks and ambiguity found in this case was related with relation of parties to
contract5. The decision in this case needed more vigilance for accessing the contractual
relationship. Ghossayn entered the contract as sub-contractor of Castle Construction but was
declared as head contractors and all provisions related with that were applied to it and was
declared in breach of section 13 of the SOP Act.
For presentation of arguments in relation to decision given in this case it is averred that
judgement passed in this case law does not include a sound vigilance of provisions of this act.
The rights and provision related with sub-contractors were neglected throughout court
proceedings and allegations were made for head contractors and non-fulfilment of endowments
related to it.
5 Building and Construction Industry Security of Payment Act 1999 No 46. 2018. [Online].
Available through: <https://www.legislation.nsw.gov.au/#/view/act/1999/46/full>.
4

For present case of Castle Constructions Pty Ltd v Ghossayn Group Pty Ltd [2017]
NSWSC 1317, this can be clearly interpreted that amendments made in the act related with
payment claims were applied here and determination of plaintiff as head contractors not as sub-
contractor with certain restrictions. The limitation was related with determination of relation of
parties to the contract as principle and head contractor and not as head and sub-contractor.
4.Amendments made in the Act providing rights and protections to sub-contractors
No payment claim declaration is required: Amendment was made in section 13 of the Act as
removal of requirement related with presentation of written deceleration that payment claim is
made in accordance with provision of this Act. r
For making valid claim for payment the requirements are limited to: identifying the adequacy of
the contractor to whom contract is assigned.
 Specifying the amount of progress payment which is claimed.
 Description of goods and services are adequately defined for which payment is claimed;
and
 making sure that claim is made within 12 months from last completion of work or
delivery of goods or services.
Amendments in provision of Supporting documents:
Section 13 has been amended by making a payment claim offensive in case it is presented
without supporting documents and declaring that all subcontractors have been paid all amounts
that was payable or becomes due. The penalty for breach of this provision is set up to $22000.
with making this provision it is ensured that no head contractor will be paid until all sub-
contractors are compensated with their dues. The payment of sub concentrator has been made
more secure and risk of loss of payments is nullified.
Fixation of deadlines for payment of progress payments:
Amendment in section 11 of the act have been made regarding progress payments
becomes due to a head contractor by principal no later 15 days after a payment claim is made.
A progress payment becomes due to a sub-contractor not later than 30 days after payment claim
is made6. With this it is also ensured that subcontractors get their payment on time without any
delay.
6 Pre-conditions to reference dates arising under the SOP Act: Are they valid? 2018. [Online].
Available through: <https://www.claytonutz.com/knowledge/2016/september/pre-conditions-to-
reference-dates-arising-under-the-sop-act-are-they-valid>.
5

The rights given to sub-contractor regarding owner of property is that, they can make
payment claims within 30 days as earlier time duration have been cut short. Another right which
is empowered to sub contactors is that adjudication application can be withdrawn at any time
before declaration of determination.
CONCLUSION
From the above report, it can be concluded that with formation of Building and Construction
Industry Security of Payments Act 1999, rights and protection to contractors were provided and
insolvency of construction industry is secured. With amendment in this act, it was made sure that
obligations which were creating problem and unnecessary lengthening the procedures were cut short
or removed. Further, it can be interpreted that for case law of Castle Constructions Pty Ltd v
Ghossayn Group Pty Ltd [2017] NSWSC 1317, sub-contractors were given with a right to make
payment claim without pre declaration in written documents and submission of supporting
documents. It can be articulated that SOP Act also helps in regulation of court proceedings by
provided regulations for determination of facts and passing of decree.
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REFERENCES
Books and Journals:
Hwang, B. G., Zhu, L. and Ming, J. T.T., 2016. Factors affecting productivity in green building
construction projects: The case of Singapore. Journal of Management in
Engineering. 33(3). p.04016052.
Lim, B. T. and Loosemore, M., 2017. The effect of inter-organizational justice perceptions on
organizational citizenship behaviours in construction projects. International Journal of
Project Management, 35(2), pp.95-106.
Wong, P. S., Wang, Z. H. and Do, D., 2014. Use of the security of payment act in resolving
disputes in Victoria, Australia. Journal of Legal Affairs and Dispute Resolution in
Engineering and Construction. 7(1). p. A4514001.
Yung, P. and Rafferty, K., 2015. Statutory adjudication in Western Australia: adjudicators’
views. Engineering, Construction and Architectural Management. 22(1). pp.54-72.
Online:
Building and Construction Industry Security of Payment Act 1999 No 46. 2018. [Online].
Available through: <https://www.legislation.nsw.gov.au/#/view/act/1999/46/full>.
Building and Construction Industry Security of Payment Amendment Act 2002 No 133. 2018.
Pdf]. Available through:
<http://classic.austlii.edu.au/au/legis/nsw/num_act/bacisopaa2002n133713.pdf>.
Pre-conditions to reference dates arising under the SOP Act: Are they valid? 2018. [Online].
Available through:
<https://www.claytonutz.com/knowledge/2016/september/pre-conditions-to-reference-dates-
arising-under-the-sop-act-are-they-valid>.
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