SECURITY OF PAYMENT LEGISLATION

SOUTH AUSTRALIA



The security of payment legislation in South Australia consists of two acts:

The SA Act closely resembles the security of payment legislation in NSW, Victoria and Queensland, with some differences as to timeframes and adjudication. Generally, where there are differences between those Acts, the SA Act has adopted the NSW Act provisions, although it is important to note that there have been some recent changes to the NSW Act which are not reflected in the SA Act.

The Supreme Court of South Australia has also recently confirmed that the NSW Act and SA Act are for all intents and purposes identical. On this basis, the Supreme Court confirmed that the case law arising from the NSW Act can be used a guide to interpreting the SA Act.



Building and Construction Industry Security of Payment Act 2009

(SA) (SA Act)



When does the legislation apply | What rights does the legislation confer on contractors | What must a principal do when faced with a claim | Contractor's rights if not paid - how to enforce its rights | Adjudication


When does the legislation apply?



The SA Act commenced operation on 10 December 2011. The SA Act applies to any contract, whether written or oral, to carry out construction work (or to supply related goods and services) within South Australia.

'Construction work' is defined very broadly, and exclusions are essentially limited to mining operations. It includes construction, alteration, repair, maintenance, extension, demolition and dismantling of most buildings or structures that can form part of land. Accordingly, the SA Act will apply to most typical construction
contracts and consultancy agreements.

The SA Act does not apply to a construction contract:


  • that forms part of a loan agreement, a contract of guarantee or a contract of insurance;
  • for residential building work if the owner lives or intends to live in the building;
  • where it is agreed that the consideration payable is not calculated by referring to the value of the work carried out or the goods and services supplied (for example an agreement for lease);
  • under which a party undertakes to carry out construction work, or supply related goods and services, as an employee; and
  • to the extent the construction work or related services are carried out outside South Australia.

There are also other various exemptions to the SA Act. However, the SA Act applies even if the construction contract specifies that it is governed by the law of another jurisdiction.

Contracts cannot include a 'pay when paid' provision, which is where a
contractor makes its liability to pay a subcontractor dependent on payment to the contractor by a principal.

It is not possible to contract out of the SA Act.


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What rights does the legislation confer on contractors?



When can contractors make a claim?



A contractor is entitled to make a claim for a progress payment (known as a 'payment claim') on the 'reference date'. A 'reference date' is the date on which the payment becomes due and payable under the contract or, if the contract makes no express provision on the matter, on the date occurring 15 business days after the payment claim is made. Importantly, only one payment claim may be served for each reference date.

A
payment claim can only be served within the period specified in the contract or within the period of six months after the relevant construction work was carried out (whichever is later).


How does a contractor make a payment claim?



A claimant makes a progress claim by serving the progress claim on the person who is liable to make the payment under the construction contract (respondent).

A payment claim must:


  • identify the construction work or related goods and services;
  • specify the amount of the progress payment claimed (claimed amount);
  • state that it is made under the SA Act.

However, minor arithmetical errors will not invalidate a claim.


What types of payment are excluded?



No types of payment are expressly excluded from being claimed. However, the payment claim must only include payment for construction work under the contract. Unless the contract expressly makes provision for the payment of damages for breach, they are not claimable in a payment claim.

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What must a principal do when faced with a claim?



Respondent to serve payment schedule



If a respondent is served with a progress claim, it may reply to the progress claim by providing a payment schedule to the claimant setting out the amount of payment (if any) that the respondent proposes to make. However, if a respondent does not respond within the time limit, it becomes liable to pay the claimed amount.


When to serve a payment schedule



The respondent must provide the payment schedule to the claimant within 15 business days after receiving the payment claim or any shorter time that is stated in the contract.


What must be included in the payment schedule?



To comply with the SA Act the payment schedule must:

  • identify the relevant payment claim;
  • indicate how much the respondent proposes to pay (scheduled amount); and
  • if the scheduled amount is less than the claimed amount, explain why and give reasons for withholding payment.


What amount must be paid?



If the respondent does not provide a payment schedule within the time limit, it must pay the full amount of the payment claim.

If the respondent provides a payment schedule, it must pay the scheduled amount.



When is payment due?



A progress payment becomes due and payable:

  • on a date determined in accordance with the construction contract; or
  • if the contract does not specify a particular date, 15 business days after service of the payment claim.


Right to interest on unpaid amount



Interest is payable on the unpaid amount of any progress payment that has become due and payable at the rate:

  • specified under the contract,

whichever is the greater.


Right to lien



Where a progress payment becomes due and payable, a claimant may exercise a lien in respect of the unpaid amount over any unfixed plant or materials which the claimant has supplied for use in connection with the carrying out of the construction work for the respondent.


Right to suspend work



A claimant may suspend construction work being carried out (or related goods and services being supplied) if at least two business days have passed since the claimant gave a notice of intention to do so to the respondent because the respondent has not paid:

  • the payment claim (where no payment schedule was given);
  • the scheduled amount the respondent proposed to pay in the payment schedule; or
  • the adjudicated amount.

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Contractor's rights if not paid - how to enforce its rights



A claimant has two options to enforce its rights if it is not paid. It may apply:

  • to the court for a summary judgment; or
  • for adjudication of the payment claim.


Obtaining a summary judgment



The claimant may enforce its right to a progress payment by applying to the court for summary judgment in the amount of:

  • the payment claim, where the respondent fails to serve a payment schedule in accordance with the SA Act; and
  • any unpaid scheduled amount which remains unpaid on the due date for payment.

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Adjudication



How and when to make an adjudication application



A claimant can apply for adjudication of the payment claim if:

  • the respondent provides a payment schedule but:

  • the scheduled amount in the payment schedule is less than the amount in the payment claim (and the application is made within 15 business days after the claimant receives the payment schedule); or
  • the respondent fails to pay the whole or part of the scheduled amount by the due date for payment (and the application is made within 20 business days after the due date for payment); or

  • the respondent fails to provide a payment schedule and fails to pay the whole or part of the claimed amount by the due date for payment of the amount.

An adjudication application relating to the second bullet point above (ie failure to provide a payment schedule and pay the claimed amount) cannot be made unless:

  • the claimant has notified the respondent, within 20 business days immediately following the due date for payment, of the claimant's intention to apply for adjudication; and
  • the respondent has been given an opportunity to provide a payment schedule to the claimant within 5 business days after receiving the claimant's notice.

In addition to the requirements for service within the specified times described above, the adjudication application must:

  • be in writing;
  • be made to an authorised nominating authority chosen by the claimant;
  • identify the payment claim to which it relates;
  • identify the payment schedule to which it relates, if any;
  • be accompanied by the authorised nominating authority's application fee, if any; and
  • be served on the respondent concerned.

A claimant may also include submissions with the adjudication application.

On receiving an adjudication application, the authorised nominating authority must refer that application to an adjudicator as soon as practicable.

The adjudicator must not be a party to the contract or have been nominated by either or both parties to be an adjudicator in relation to the contract.

To accept an adjudication application and be appointed to determine the application, the adjudicator must first serve a notice of acceptance on the claimant and the respondent.



How to respond to an adjudication application



The respondent may lodge a response to the adjudication application (adjudication response) at any time within:

  • five business days after receiving a copy of the adjudication application; or
  • two business days after receiving notice that the adjudicator has accepted the adjudication application,

whichever time expires later.

The adjudication response:

  • may only be lodged if the respondent provided a payment schedule within the time limit;
  • must be in writing;
  • must identify the adjudication application to which it relates;
  • must be served on the claimant; and
  • may contain submissions relevant to the response, as long as any reasons for withholding payment were previously raised in the payment schedule provided to the claimant.


When will the adjudicator make their determination?



The adjudicator must determine the adjudication application as expeditiously as possible and in any case within 10 business days after the lodgment of an adjudication response. However, the parties may agree to extend this timeframe.

The adjudicator is required to determine:


  • the amount of the progress payment to be paid (adjudicated amount);
  • the date on which the amount becomes payable; and
  • the rate of interest on the amount.

In making a determination, an adjudicator can only consider the following matters:

  • the provisions of the SA Act;
  • the provisions of the relevant construction contract;
  • the payment claim, together with all submissions (including relevant documentation) made by the claimant in support of the claim;
  • the payment schedule (if any), together with all submissions (including relevant documentation) made by the respondent in support of the claim; and
  • the results of any inspection carried out by the adjudicator.

The adjudicator's determination must be in writing and must include reasons. However, the adjudicator does not need to include reasons in the determination if such a request has been made by both the claimant and the respondent.


When is payment due?



The respondent must pay that adjudicated amount within five business days of the respondent receiving the determination, or a later date as determined by the adjudicator.


Consequences of failing to pay the adjudicated amount



If the respondent fails to pay the whole or any part of the adjudicated amount, the claimant may request an adjudication certificate from the authorised nominating authority and then file the adjudication certificate as a judgment debt in a court.

Further, as the objective of the SA Act is to 'pay now, argue later', it is not possible to prevent a claimant from obtaining an adjudication certificate from the authorised nominating authority simply on the basis that there is a high likelihood of the claimant being insolvent. However, if the evidence establishes that there is a high likelihood that the claimant is insolvent, the court does possess an inherent power to grant an injunction if it is in the interests of justice to do so.


CASE STUDY



Romaldi Constructions Pty Ltd v Adelaide Interior Linings Pty Ltd (No. 2)

[2013] SASCFC 124



Facts


  • Romaldi Constructions Pty Ltd (Romaldi) and Adelaide Interior Linings Pty Ltd (Adelaide Interior) entered into a subcontract involving the supply and installation of internal and external linings.
  • After failing to pay an invoice for progress payments, Adelaide Interior served a payment claim on Romaldi in respect of that invoice pursuant to section 13 of the SA Act. Romaldi responded by serving a payment schedule on Adelaide Interior pursuant to section 14 of the SA Act. Adelaide Interior then made an application for an adjudication determination pursuant to section 17 of the SA Act.
  • An adjudicator determined that Romaldi was liable to pay an initial progress payment of $48,194 (plus adjudication fees and interest). Romaldi then sued Adelaide Interior in the District Court claiming damages for breach of contract.
  • Romaldi sought and obtained an interlocutory injunction from a Judge of the District Court restraining Adelaide Interiors from obtaining an adjudication certificate for the adjudication amount. The injunction was granted by the District Court on the basis that there was a 'real risk' that the impecuniosity of Adelaide Interior would prevent the adjudication sum being recovered if the separate action for damages against Adelaide Interior was successful.
  • In Adelaide Interior Linings Pty Ltd v Romaldi Constructions Pty Ltd [2013] SASC 110, Anderson J of the Supreme Court discharged that injunction.
  • Following the discharge of the injunction by Anderson J, Adelaide Interior obtained an adjudication certificate and filed it in the Magistrates Court as a judgment for debt. Romaldi then filed an interlocutory injunction in the Magistrates Court seeking a stay of execution of that judgment.
  • The magistrate refused to hear and determine Romaldi's application for a stay on the basis that it was an attempt to circumvent the outcome of the adjudication and Anderson J's decision.
  • Romaldi subsequently appealed against the discharge of the injunction by Anderson J on appeal and against the refusal of the stay application by the magistrate.
  • On appeal the Full Court of the Supreme Court considered:

  • whether a court may grant an interlocutory injunction restraining a party from obtaining an adjudication certificate;
  • whether Romaldi made out a ground for a grant of an interlocutory injunction restraining Adelaide Interior from obtaining an adjudication certificate;
  • whether Romaldi made out a ground for grant of a stay of execution of judgment founded on the adjudication certificate;
  • whether Anderson J erred in concluding that the proper exercise of discretion on the material before the District Court would have been to deny a stay of execution; and
  • whether the magistrate erred in not hearing and determining the stay application on its merits.

Result


  • The court confirmed that an interlocutory injunction may be granted to preserve the subject matter of the substantive action, to avoid the result of the substantive action being rendered nugatory or to protect the integrity of the court's processes once set in motion.
  • In light of this, the court dismissed both appeals on the basis that:

  • Romaldi had not established a proper ground for granting the interlocutory injunction. If no injunction were granted, Romaldi would have remained at liberty to apply for a stay of execution of judgment once the adjudication certificate was filed as a judgment. Anderson J was therefore correct to discharge the interlocutory injunction; and
  • Romaldi failed to demonstrate that it had prospects of success in its damages claim against Adelaide Interior and hence that it was exposed to a risk of prejudice if there was no stay of execution of the judgment.
  • If Romaldi had established a ground for a stay, the court would have exercised its discretion by balancing all relevant considerations, giving each the weight it deserves.
  • Although the court did not need to exercise this discretion, it summarised some of the relevant considerations as follows:

  • the strength of the plaintiff's claim;
  • the likelihood of the defendant's inability to pay;
  • the potential prejudice to the defendant if a stay were granted;
  • the effect of the Act which places the risk that a subcontractor will be unable to refund progress payments upon a final determination on the principal or head contractor; and
  • the entitlement of the defendant to a progress payment.
  • While the magistrate erred in refusing to hear and determine the application for stay of execution of the judgment on the merits, it was, nonetheless, inevitable that the application for a stay should be dismissed on the merits as Romaldi had failed to establish that it had a viable claim for damages for breach of contract.


Challenges to the adjudicator's determination



Section 25(4) of the SA Act provides that if a respondent commences proceedings to set aside a judgment debt (i.e. where an adjudication certificate has been filed with a court under section 25(1) of the SA Act), the respondent is not entitled in those proceedings to challenge the adjudicator's determination. However, following the NSW case law which has evolved in this area, two respondents in SA have attempted to do so.

For example, in
Built Environs Pty Ltd v Tali Engineering Pty Ltd & Ors [2013] SASC 84 the Supreme Court of South Australia found that an adjudication determination could be set aside, if:

  • the payment claim does not comply with the requirements under the SA Act and does not allow a reasonable principal to ascertain with sufficient certainty the basis of the claim (notwithstanding minor arithmetical errors);
  • there is a denial of natural justice (eg. if the adjudicator fails to invite further submissions or evidence from the parties);
  • there is a reasonable apprehension of bias on the part of the adjudicator or person nominating the adjudicator; or
  • the adjudicator made an error of law.

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Worker's Liens Act 1893

(SA) (SA Liens Act)



When does the legislation apply | What rights does the legislation confer on contractors | What must the owner or occupier do when faced with a claim | How does a person enforce its rights


When does the legislation apply?



The SA Liens Act and the SA Act operate side by side. Contractors have a choice of procedures in the two Acts to enforce their rights to progress payments.

The SA Liens Act provides that a person:

  • employed in or doing any manual work or personal service (worker);
  • contracting with or employed by another person to do work, or to procure work to be done, or to furnish materials in connection with work (being every description of manual work or personal service) (contractor); and
  • contracting with or employed by a contractor or subcontractor to do work, or to procure work to be done, or to furnish materials in connection with work for the purposes of the contract made by the contractor or subcontractor,

has a right to liens and charges under the SA Liens Act.

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What rights does the legislation confer on contractors?



The right to workers liens



A worker is entitled to a lien for his or wages for doing work for:

  • the owner of land;
  • the lessee, sub-lessee, tenant or occupier of land (occupier); or
  • a contractor or subcontractor, for the benefit of an owner or occupier,

where that work is done:

  • with the express or implied assent of the owner or occupier to the land or to any fixture on the land; or
  • for the manufacture of materials which are, with the express or implied assent, of the owner or occupier, used or intended to be used for work done, or intended to be done, to the land or to any fixture on the land.

A workers lien is limited to four weeks' wages up to a maximum amount of $200.


The right to contractor or subcontractor liens



A contractor or subcontractor is entitled to a lien for the contract price, so far as accrued due, on the estate or interest in land of any owner or occupier in each of the following cases:

  • where the work is done, with the express or implied assent of the owner or occupier to the land or to any fixture on the land; or
  • where the materials are, with the express or implied assent of the owner or occupier, used or intended to be used for work done, or intended to be done, to the land or to any fixture on the land.


Limits on liens



If entitled to a lien, a worker may give the owner or occupier a notice in writing in the prescribed form, demanding payment of the wages due and stating the amount and nature of the claim. The worker must, within 14 days after giving the notice, commence an action to enforce the lien, otherwise the lien will cease.

A lien is not available is certain circumstances, including Crown land, goods belonging to the Crown, where the lien extends beyond the contract price or where there is no binding contract.

A lien is available only if it is registered within 28 days after the wages or contract price have become due.

A lien is subject to every dealing, assurance, mortgage, encumbrance, or charge on the estate or interest in the land of the owner or occupier, or on goods the subject of the lien, registered before the registration of the lien. However, a lien takes priority over any unregistered dealing, assurance, mortgage, encumbrance or charge.


The right to charges



A worker is entitled to a charge on any money payable to his or her contractor or subcontractor for his or her wages in respect of work done under the relevant contract.

A subcontractor is also entitled to a charge on any money payable to his or her contractor or subcontractor for that portion of the contract price payable to the subcontractor in respect of work done or materials furnished or manufactured under the relevant contract.


Limits on charges



A charge only attaches to money payable under the relevant contract for the purposes for which the work or materials have been done, supplied, or manufactured. The charge will lapse unless an action is brought to enforce the charge within 28 days after the wages or contract price becomes due.

A charge of a worker is currently limited to up to four weeks' wages, to a maximum of $200.

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What must the owner or occupier do when faced with a claim?



To discharge a lien or charge the owner or occupier must make payment to the court or the Registrar-General of the amount claimed.

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How does a person enforce his or her rights?



A person entitled to a lien or charge may enforce the lien or charge in any court in which the wages or contract price in respect of the lien or charge could have been recovered against the person primarily liable.

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Updated 17 June 2014