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Michael Murray’s on-going commentary on issues in corporate and personal insolvency law and related policy and law reform, in Australia and internationally. Given the scope of insolvency, this extends to business, consumer and professional conduct, and ethics, governance and regulation, criminal, tax, environmental and administrative law, and the courts and government.

 

Building security of payment laws – the impact of the claimant’s insolvency

Now that we have some consistent security of payment laws across the states and territories protecting building sub-contractors, there is a need for the various Supreme Courts to adopt consistent legal interpretation. Any variation in approach should be the exception. The Courts might have their own jurisdictional limits, but the building industry doesn’t.

An exception to judicial consistency has arisen in relation to a 2019 decision of the NSW Court of Appeal – of 5 judges – that has rejected a 2016 finding of the Victorian Court of Appeal (VCA) in Façade Treatment Engineering v Brookfield Multiplex[1] that once a claimant contractor becomes insolvent, its claim could not be pursued. 

In Seymour Whyte Constructions v Ostwald Bros (in liq)[2], the NSW Court of Appeal[3] held that the Building and Construction Security of Payment Act 1999 (NSW) (SPA), as a matter of construction, is capable of operating for the benefit of a builder or sub-contractor which has gone into insolvent liquidation.

The lead NSW Judge, Sackville AJA, used standard judicial language in saying that

to the extent that the VCA “decided to the contrary in Façade, I consider, with the greatest respect, that it was plainly wrong and should not be followed”.

Leeming JA agreed, saying

“once it is appreciated that a liquidator is empowered to, and may wish, to continue to trade, so as to sell (or at least, to investigate whether it might be possible to sell) the company’s business as a going concern, it is clear that the central premise in Façade – that the making of a winding up order ipso facto meant that the company ceased to trade – is incorrect”.

Some detail

The proceedings arose out of progress payment claims under a works contract between the appellant (Seymour) as contractor and the first respondent (Ostwald) as subcontractor to perform road works on the Pacific Highway in NSW.

Ostwald served a progress payment claim on Seymour for $6.3m pursuant to s 13(1) of the SPA. Seymour responded by providing a payment schedule pursuant to s 14 of the SPA, stating that it proposed to pay $2.5m as a progress payment.

Ostwald then purported to make an adjudication application under s 17(2)(a)(ii) of the SPA and the adjudication subsequently determined that the amount due to Ostwald was $5,074m.

Seymour challenged the adjudication determination as being applied for outside the time limit set by the SPA. Ostwald filed a cross-claim seeking rectification of the contract to alter the dates on which Seymour was required to make progress payments. In the alternative Ostwald claimed the unpaid $2.5m as a statutory debt pursuant to s 16(2)(a)(i) of the SPA.

Then, in the midst of the proceedings, Ostwald entered a creditors voluntary winding up under s 439C(c) of the Corporations Act.

The question

The end question was whether the SPA as a matter of construction incapable of applying to a builder or subcontractor which had gone into liquidation in insolvency. This had been so decided by the Victorian Court of Appeal in Façade.

The NSW Court of Appeal held that while the adjudication application was served out of time and was invalid, Ostwald was still entitled to seek recovery under the SPA.

Importantly, an entitlement to a progress payment under s 8(1) of the SPA does not depend on the claimant actually continuing to perform work under a contract. Accordingly, even though Ostwald was in liquidation, the SPA continued to apply and Ostwald, through its liquidator, was entitled to pursue its claim to judgment.

It was in that latter finding that the decision in Façade was not to be followed.

In both cases, issues of set off in bankruptcy and under s 553C of the Corporations Act, and constitutional consistency between the SPA and the Corporations Act were in issue.

Security of payment laws

Each State and Territory has its own security of payment laws that provide legislative protections for contractors to provide quick processes to speed up payment of disputed monies under an ‘adjudication’. The adjudication schemes in each state and territory provide similar protections, although there are differences in how the laws operate.[4]

Judicial consistency

The need for consistency between courts in interpreting the then national Corporations Law was emphasised by the High Court of Australia in ASC v Marlborough Gold and later cases.

This was re-stated in Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22 this way:

“Intermediate appellate courts and trial judges in Australia should not depart from decisions in intermediate appellate courts in another jurisdiction on the interpretation of Commonwealth legislation or uniform national legislation unless they are convinced that the interpretation is plainly wrong. Since there is a common law of Australia rather than of each Australian jurisdiction, the same principle applies in relation to non-statutory law”.

The NSW Court of Appeal has gone through the process and its view will prevail in NSW. It addressed the reasoning of the VCA on the issue of constitutional inconsistency, that s 109 of the Constitution provided ‘independent additional support’ for the narrow construction it adopted.

The question is now which view prevails in Victoria and in other states and territories. The decision might be accepted by another court of appeal in Victoria; a further option is that it be settled by the High Court, given the constitutional issues that were debated in both courts of appeal.

 

 

[1] Façade Treatment Engineering Pty Ltd (in liq) v Brookfield Multiplex Constructions Pty Ltd [2016] VSCA 247.
[2] Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq) [2019] NSWCA 11,
[3] Sackville AJA, with Leeming, Payne, White JJA and Emmett AJA agreeing.
[4] See the Security of Payment Laws Checklist of the Australian Building and construction Commission

 

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