New South Wales takes action on security of payment laws

The NSW Security of Payment Act (SOPA) amendments will apply to construction contracts entered into after 21 October 2019, and will deliver long-awaited changes for building and construction contractors in the state. They provide a sensible template for national security of payment reform, which is much needed for building contractors operating across the eight different jurisdictions in Australia.

The amendments implement some of the recommendations made by John Murray in his Review of Security of Payment Laws report, released in December 2017. Murray's report made 86 recommendations to improve consistency in security of payment legislation and enhance the level of protection afforded to building contractors, particularly subcontractors.

The NSW announcement is the first significant step by a state or territory government towards implementing the Murray recommendations. This slow progress is in part due to urgent issues facing the building industry which are being prioritised by building ministers, such as combustible cladding and code compliance for high rise buildings. The Building Ministers' Forum, made up of state and territory ministers from across Australia, has been asked to respond to the findings and recommendations of the Murray review. However, there was no mention of security of payment reform in its most recent update, dated 18 July 2019.

The changes to security of payment legislation in NSW include:

Abolition of 'reference dates'

The amendments abolish the concept of the 'reference date'.

The new rules provide that a claimant can serve a payment claim on and from the last day of the month in which construction work was first carried out or related goods and services first supplied, and then on and from the last day of each subsequent month unless the contract provides an earlier date for serving a payment claim. It is hoped that these changes will remove some of the confusion around the existing concept of a 'reference date'.

Re-introduction of SOPA endorsement

The amendments reintroduce the requirement that a payment claim must state that it is made under the Act.

This welcome change reintroduces certainty for recipients of payment claims. It could be further improved by requiring payment claims to be accompanied by a warning statement.

Shorter subcontract payment terms

The amendments shorten the maximum payment period for payments from a head contractor to a subcontractor from 30 business days to 20 business days after a payment claim is made.

The maximum payment period for payments from a principal to a head contractor remains unchanged at 15 business days after a payment claim is made.

Payment claims allowed following termination

The amendments introduce a statutory entitlement for a claimant to serve a payment claim on and from the date of termination.

This change clarifies when payment claims can be served following termination, which is a topic that has been addressed in many courts including the High Court.

Withdrawal of adjudication application

The amendments clarify that a claimant can withdraw the adjudication application before the adjudicator is appointed or, if an adjudicator has been appointed, before the application is determined. The respondent may object to the withdrawal if the adjudicator has already been appointed, in which case it will be for the adjudicator to decide whether to uphold the objection.

Severance of a challenged adjudication determination

A new SOPA section will allow the Supreme Court to set aside an adjudicator's determination in whole or in part if it finds that a jurisdictional error has occurred. This amendment will mean that a minor error does not invalidate the whole adjudicator's decision.

Insolvent parties

The amendments confirm that insolvent parties can no longer serve a payment claim.

This resolves recent tension between Victoria and NSW's positions on this issue. The NSW Court of Appeal recently concluded that the Victoria Court of Appeal's position on the availability of security of payment legislation to insolvent parties was "plainly wrong".

Code of practice for authorised nominating authorities

The amendments allow the NSW building minister to publish a code of practice, to be observed by authorised nominating authorities.

Tom Heading, Chris Zhang and Nicola Macrow are construction law experts at Pinsent Masons, the law firm behind Out-Law.