April 2020

Practical implications of the changes to the Building and Construction Industry Security of Payment Act 1999 (NSW) – a SOPA update

It has been more than five months since the amendments to the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOPA) have taken effect. Bearing in mind that since the changes apply to construction contracts in New South Wales executed on or after 21 October 2019, these provisions are just beginning to be tested. Early signs as to some of the effects have been evident in some areas:

  • Withdrawing an Adjudication Application – Previously only available under very limited circumstances under s.26; and

  • Penalty Provisions – Department of Fair Trading powers of enforcement – previously only applicable to Head Contractors Statements.

Withdrawing an application

The introduction of section 17A of SOPA allows a claimant to withdraw an adjudication application voluntarily at any time before an adjudicator is appointed or, if an adjudicator has been appointed, before the application is determined. This section also gives power to an adjudicator (where appointed) to refuse withdrawal of an application if any other party to the construction contract objects to the withdrawal and it would be in the interest of justice to uphold the objection.

Prior to these latest amendments, it was not possible for a Claimant to withdraw an Adjudication Application once it had been lodged, unless certain extenuating circumstances existed, and the Adjudicator had not been nominated or an Application had not been determined within time. Although on many occasions Claimants purported to withdraw Applications, and authorised Nominating Authorities accepted the withdrawals when this occurred, there was no formal statutory power to do so. In circumstances where the parties had reached agreement as to the value of the claim, there was no merit in either party or the adjudicator continuing with the Adjudication.

What is the position after a withdrawal, where the Respondent makes no objection? Is the Claimant free to re-lodge the Application with another nominating Authority, if still within time?

The NSW Supreme Court proceedings of John Holland Pty Ltd v Made Contract Pty Ltd [2008] NSWSC 374 is an example of a claimant validly making an application with a second authorised nominating authority. In this case, the plaintiff (respondent) commenced proceedings to set aside an adjudication determination. The adjudicator of the first application identified issues with the form of the application and notified the parties of the issues. This adjudicator erroneously gave an option to the first defendant (claimant) that it could elect for the application to be determined or allow the time for making a determination to lapse. The claimant elected to allow time to pass, which meant the adjudicator did not make a determination in the time allowed and a fresh application was made (second application), pursuant to section 26 of SOPA. The plaintiff did not object at that stage. The court ultimately determined that as no prejudice was suffered due to the plaintiff being aware of the material surrounding circumstances, the first defendant was at liberty to make the second application.

Recently, we encountered an interesting scenario when acting for a respondent in adjudication application. The claimant made an application to an authorised nominating authority and then, due to concerns about the effectiveness of a lodgment made by electronic means, a second application was lodged with another nominating authority on the same day. Once it had been ascertained that both Applications has been received, the Claimant elected to withdraw one of the Applications and proceed with the other.

Whilst the introduction of section 17A into the Act has opened the door for claimants to withdraw applications on a voluntary basis, there is no scope in SOPA to accommodate either a simultaneous lodgment with two nominating authorities, nor is there any room for a claimant to make more than a single choice when proceeding to adjudication of a payment claim. In this matter, submissions were made to the adjudicator to that effect. However, it was concluded that no prejudice was suffered by the respondent and, on that basis, there was no issue on jurisdiction to determine the remaining Application.

In this instance the adjudicator did not consider in detail whether once an application is made to an (singular) authorised nominated authority and it is withdrawn, the withdrawal ought to be considered final for any further application(s) relating to the same payment claim. In other words, once an application is withdrawn from the original authorised nominating authority, can it serve any further purpose?

Despite the amendments to SOPA, there is no clear answer yet on the question of multiple lodgment of adjudication applications and a claimant’s right to validly withdraw in such situation.

New investigation and enforcement powers

Further, the new suite of enforcement powers under part 3A of SOPA provide a wide-ranging suite of powers to fine and prosecute offenders for a wide range of offences.

The offences under the Act for which an on the spot fine can be given include:

s.13(7) – Head Contractor failing to serve Head Contractor’s Statement with payment claim

s.26A(5) – Failing to advise issuer of Payment Withholding Request if no longer Principal Contractor

26B(5) – Claimant must serve Adjudication Determination on Principal Contractor within 5 Business Days of receiving Determination

26D(3) – Claimant must advise Principal Contractor or Withdrawal of Adjudication Application within 5 Business days of withdrawal

26E(2) – Respondent failing to advise Adjudicator details of Principal Contractor when requested by Adjudicator.

Authorised Officers Powers

Section 32C of the act specifies an authorised officer is a person employed in the Department of Finance, Services and Innovation or an Investigator appointed under section 18 of the Fair Trading Act 1987.

The powers available to authorised officers include:

32G – power to require information and records

32H – power to require answers

32I – power to enter premises

32J – power to enter residential premises with search warrant

32K – power to issue search warrants

32L – power to require owner or occupier to provide assistance

32M – power to be exercised on premises

32N – power to deal with seized things.

Notwithstanding these new powers and offences, there does not appear to be any successful prosecutions for offences under the new provisions. It remains to be seen how effective the ability to issue fines for offences will be in the coming months.

Conclusion

Very little evidence of the effectiveness of the new changes to the Security of Payment Act in New South Wales is presently available. The ability to withdraw an adjudication application on a voluntary basis, whilst a new feature of the act, merely ratifies the accepted practice prior to the introduction of section 17A. It remains to be seen whether an adjudicator will find any circumstance sufficient to uphold an objection by a respondent against a withdrawal of an adjudication application requested by a claimant. This is particularly so given the usual convention is for claimants to make payment for adjudication determination is in the first instance.

The new powers available to authorised officers for various offences under the act are significant. How widely used these powers are or how ready the regulatory authority will be to prosecute offenders is yet to be seen in practice.

 

Authors: Robert Kalde and Arvand Ghazizadeh