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Bell, Matthew; Vella, Donna --- "From Motley Patchwork to Security Blanket: The Challenge of National Uniformity in Australian "Security of Payment" Legislation" [2010] UMelbLRS 20

Last Updated: 6 September 2011

This paper was first published in the Australian Law Journal, Volume 84, Issue 8, 2010

From motley patchwork to security blanket: The challenge of national uniformity in Australian “security of payment” legislation

Matthew Bell and Donna Vella[*]

The modern form of legislation designed to achieve “security of payment” within the building and construction industry was introduced into New South Wales in 1999. The primary aim was to ensure that cash flow was maintained for all participants in the contractual chain. A decade later, legislation based upon the New South Wales model is in place in all States and Territories and there is a substantial body of case law governing how the Acts work in practice. At the same time, however, significant differences in approach across jurisdictions as to key planks of the legislative platform have the potential to defeat its original intent. This article proposes, therefore, that the Australian construction industry faces a moment of decision as to the future of such legislation.

1. INTRODUCTION AND OUTLINE

Just before Christmas in 2009, a legislative project which had commenced its journey more than 10 years previously in the New South Wales Parliament passed a significant milestone. Upon the granting of Royal Assent to the Building and Construction Industry Security of Payment Act 2009 (Tas) on 17 December 2009, every Australian State and Territory had in place “security of payment” legislation based, to a greater or lesser extent, upon the Building and Construction Industry Security of Payment Act 1999 (NSW).[1]

The passage of the Tasmanian Act, coming hard on the heels of enactments in the Australian Capital Territory and South Australia,[2] allows a picture to emerge of the national scheme comprised by the eight Acts. It is, however, a picture which lacks coherence as to either its broad thrust or its detail. Initial commentaries have, therefore, focused on the missed opportunity to achieve uniformity and the real risk that the new Acts will, as Ian Bailey has proposed, add to, rather than lessen, the “burden for the construction industry and for those involved in dispute resolution who wish to practise in more than one jurisdiction”.[3]

Within the regulatory landscape of Australian construction law, such a criticism is by no means unique to security of payment; indeed, it reflects what is arguably a perennial state of affairs recognised, for example, more than a quarter of a century ago by Justice Michael Kirby: “[t]he result of this fractured and disparate industry, and of our Federal system, is a multitude of regulations governing builders ... They are a builder’s minefield; but often a lawyer’s delight”.[4] Nonetheless, the growing realisation that differences between the Acts are multiplying rather than being reduced has led many commentators to call for national uniformity as a matter of urgency in order to avoid the natural tendency of inconsistency to lead to inefficiency.[5] In turn, the compelling case for uniformity offered by such commentators, and the absence of any real justification being offered as to why the regimes differ to the extent that they do,[6] make, it is submitted, a strong argument for giving detailed consideration to what the elements of a national scheme should look like.

This article seeks to contribute to this consideration. It does so, primarily, by charting how the present, unsatisfactory state of the law has been reached and by suggesting a means of securing the industry consensus required in order to ensure that the next generation of the legislation achieves not only coherence but also promotes greater efficiency within the industry.

Part 2 outlines the current situation in the legislation and case law. It commences by identifying two related tensions which may be seen to underpin both the disparate nature of the legislative approaches and also a number of the ongoing controversies in relation to security of payment. These are whether the legislation should apply throughout the contractual chain and, if so, the balance to be struck against freedom of contract. The history of implementation of the Australian Acts is then examined. This highlights: the disparate threads of judicial analysis; the conceptual divide between the “East Coast” Acts (those of the Australian Capital Territory, New South Wales, Queensland, South Australia, Tasmania and Victoria) and “West Coast” Acts (Northern Territory and Western Australia);[7] and the differing approaches, in terms of matters which can be claimed, between the Victorian Act and the other East Coast Acts.

Part 3 considers the challenges which are faced by any proposal to achieve national uniformity in the legislative scheme, including: the tendency towards “competitive behaviour”[8] demonstrated by the States and Territories in framing their respective statutes; and whether adjudication, as currently conceived, is an appropriate vehicle for dispute resolution in this area. The logical next step, it is suggested, is for further, detailed research to be undertaken which is directed towards identifying (and, where necessary, forging) industry consensus as to the conceptual foundations of the next generation of security of payment legislation.[9]

In Part 4, the article concludes by noting solutions which have already been proposed – including that the legislation be limited to the small business sphere or modelled on a hybrid or dual-track structure depending upon the type and value of the claim – and reflecting upon the prospects for success of the achievement of national uniformity.

2. THE STORY SO FAR

2.1. Underlying and unresolved tensions

2.1.1. Origins of the Australian legislation

The Australian conception of “security of payment” is one which “refers to attempts to redress a consistent failure to ensure that participants in the building and construction industry are paid in full and on time for the work they have done, even though they have a contractual right to be paid”.[10] The evolution of legislation seeking to achieve this goal since the late 1990s (and, indeed, that of the liens-based legislation, dating back well over a century in some States and remaining extant in New South Wales, South Australia and Queensland)[11] has been well documented elsewhere.[12] It is, however, worth recounting certain aspects this history as it assists in explaining how the current state of the law has been reached.

The genesis of the NSW Act was within Pt 2 of the Housing Grants, Construction and Regeneration Act 1996 (UK) (HGCR Act), omnibus legislation passed early in the tenure of the Blair Government as a result of the review undertaken by Sir Michael Latham during the dying days of John Majors’s Prime Ministership.[13] Three years later, in seeking to effect the desire of the Minister for Public Works and Services to “stamp out the unAustralian practice of not paying contractors for work they undertake on construction”,[14] the drafters of the New South Wales legislation turned to, and substantially adopted, the HGCR Act’s provisions relating to statutory adjudication.[15]

Upon the passage of the NSW Act in 1999 – and even before 26 March 2000, the date on which it began to apply to contracts – the seeds were sown for the current ongoing controversy as to the two key matters which are discussed in this article: scope of application and the right of appeal.

Crucial to the first of these, the NSW Act adopted a widened version of the already-broad definition within the HGCR Act of the types of contract to which the Act’s default payment procedures apply,[16] with the upshot that the only limitations are by reference to industry sector rather than, for example, relative bargaining power or contract value.

2.1.2. Industry-wide reform or limited to small business?

This (close to) comprehensive application reflects an apparent intent that the Act be a vehicle for wide-ranging reform across the industry, not simply seeking to protect, as had been Minister Iemma’s explicit focus, “small subcontractors” who, when not paid, “cannot survive financially ... with severe consequences for themselves and their families”.[17]

Such a reform intent is indicated not only elsewhere in the Minister’s comments, but also in the Second Reading Speeches for the other Australian Acts,[18] and in the objects provisions for the Acts, each of which is widely cast as to the participants within the industry at whom the Act is directed.[19] Moreover, when the NSW Act was reviewed in 2002, there were many amendments directed towards emphasising its compulsory application and designed, according to its proponent, to “make the Act even more effective”.[20] For example:

• the definition of “construction contract” (s 4) was extended to “other arrangement[s]”, meaning that agreements not evidenced in writing were captured;[21] and
• the “no contracting out” provision (s 34) was changed so as to render void not only provisions of “construction contracts” but also any other agreement which “may reasonably be construed as an attempt to deter a person from taking action under this Act”.

Ian Bailey has recently proposed that the way forward for the national scheme is that the Acts’ application be limited to the small and medium enterprise sphere (see Part 4, below). Moreover, the 2006 amendments to the Victorian Act have already gone some way towards implementing such a reform (see Part 2.2.3, below). Regardless of the merits of such proposals, it needs to be recognised, based upon the foregoing analysis, that such a limitation runs contrary to the apparent and explicit intent of the various State and Territory legislatures that their legislation have far-reaching goals to reform behaviour across the industry.

2.1.3. An unjustified incursion into freedom of contract?

It is this broad application which has brought to bear criticisms that the legislation represents an unjustified incursion into freedom of contract. For example, writing of the HGCR Act in the year the NSW Act was passed, Ian Duncan Wallace QC (who has been described as “[p]erhaps the most trenchant polemicist of the legislation”[22]) characterised the HGCR Act as “a monument of what legislation should not be – an inadequately considered surrender of public and customer/consumer interests to thinly disguised producer lobbies in an industry which has done little or nothing to deserve it”.[23] In 2001, Judge Humphrey Lloyd commented, in relation to the way in which coverage of the HGCR Act was framed:

it is hard to think of another comparable case of Parliament singling out parts of a sector of the commercial life of the country and requiring them to alter their contracts ... on the basis that it knew better than its members how their commercial relationships should be regulated. It is a remarkable interference in the freedom of contract enjoyed by people who are normally well able to look after themselves.[24]

For his part, Duncan Wallace was particularly critical of the HGCR Act’s application (which is replicated in the Australian legislation) as between the principal and the main (or head) contractor as well as in downstream contracts:

Here adjudication does not fill a gap, as it might be said to do in ... sub-contracts ... but it quite simply abrogates at a stroke the long-established machinery of professional administrative regulation during the construction period, subject to later arbitration or litigation, which has evolved and been implemented by most commonly used forms of main contract in England and the Commonwealth for over a century.[25]

He also focused upon what he regarded as the “procedural unfairness” inherent in the “extraordinarily short” time limits (generally, in the order of 10 business days) under the legislation applying only to respondents.[26] In turn, claimants were said to be “free to prepare massive and detailed claims over whatever periods of time they may choose and launch them without warning”.[27] Such “ambush” tactics by claimants have been notorious in the United Kingdom for many years[28] and are becoming better understood in Australia;[29] concerns over their availability are linked to the criticism of the apparent reversal of the onus of proof (see Part 2.2.2, below).

While such criticisms may have lesser resonance in Australia given that most standard forms in common use require contractors and subcontractors to notify claims within a set time,[30] similar concerns have been raised here.[31] As is noted in the next section, broader but associated issues – namely, that the legislation has unjustifiably shifted the cash flow risk up the contractual chain to the respondent – have arisen from the way in which the legislation has been interpreted by the Australian courts.

2.2. Legislative division and “mission drift” in case law: 1999-2009

2.2.1. From beginnings to Brodyn

The lack of industry consensus at the outset as to key underpinnings of the legislation has been reflected in oscillations within the case law and legislation over the ensuing decade.

In the first five years of operation of the NSW Act (1999-2004), implicit support for its aims was reflected through the substantial adoption of its form within the Victorian Act in 2002 and the Queensland Act in 2004. Moreover, Commissioner Cole included among his recommendations arising from the Royal Commission into the Building and Construction Industry in 2003, the national adoption of a legislative scheme substantially based upon the NSW Act.[32] It could not be said, however, that the New South Wales courts demonstrated such support in these early years. Rather, cases such as Baulderstone Hornibrook Pty Ltd v HBO+DC Pty Ltd [2001] NSWSC 821,[33] have been cited as reflecting “judicial hostility” in turn resulting in “mission drift” away from the core legislative intent of maintenance of cash flow.[34]

A significant year in the development of security of payment legislation was 2004. The Queensland Act, WA Act and NT Act were passed, with the latter two being based upon on a different drafting model to that of the East Coast.[35] It was also the year when the New South Wales Court of Appeal handed down the landmark judgment in Brodyn Pty Ltd (t/as Time Cost & Quality) v Davenport [2004] NSWCA 394; (2004) 61 NSWLR 421, effectively all but closing the door in New South Wales to judicial review of adjudication decisions in the absence of jurisdictional error by the adjudicator, other than by way of a full merits rehearing of the matter in a court or, if specified in the relevant contract, arbitration.[36]

2.2.2. Pay now, (maybe) argue later

Brodyn, along with the myriad subsequent cases testing the limits of its application,[37] has provided at least a modicum of certainty in relation to the key issue of reviewability of adjudication decisions. As at mid-2010, however, it is something of a moot point whether Brodyn remains good law. As described by McDougall J in Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd [2010] NSWSC 332 at [21], the issue (based on a contention submitted by counsel for the plaintiff) is whether:

the reasoning in Brodyn had been effectively undermined by the decision of the High Court of Australia in Kirk ... That is because the reasoning in Brodyn, which disagreed with the proposition that relief in the nature of certiorari was available for jurisdictional error of law, was based on the proposition that the scheme of the Act displayed an intention to displace the power of [the New South Wales Supreme] Court to grant relief in the nature of certiorari.

McDougall J directed the parties to refer this question to the New South Wales Court of Appeal. The potential impact of Kirk v Industrial Relations Commission (NSW) [2010] HCA 1; (2010) 239 CLR 531 upon Brodyn likewise has been recognised as an issue at trial level in Queensland and the Northern Territory.[38]

Regardless of whether Brodyn remains good law, it is controversial at a conceptual level because, fundamentally, it positions the law on this point at the end of the spectrum which gives preference to rapid resolution over detailed consideration of disputes, thereby reflecting the types of concerns outlined above (see Part 2.1.2-3). It is, however, broadly consonant (albeit Brodyn codifies the grounds for review by reference to the “basic and essential requirements” of the Act) with the English approach, recently summarised by Judge Peter Coulson: “If the adjudicator had the jurisdiction to reach the decision he did, and if he arrived at that conclusion in a way that was not obviously unfair, it will be enforced, no matter how wrong it may ultimately prove to be.”[39]

In any case, in 2009, Victoria departed from the Brodyn approach in relation to the availability of judicial review. In Grocon Constructors v Planit Cocciardi Joint Venture [No 2] [2009] VSC 426,[40] Vickery J ruled that, while “the statements of law enunciated in Brodyn, as applied to the NSW Act, are in substance persuasive”,[41] he was “compelled” to find that the relevant principles were inapplicable in Victoria based upon the distinctive provisions of the Victorian Act and Victorian Constitution. Thus, his Honour concluded, “relief in the nature of certiorari, on all of the grounds available under the writ, including error on the face of the record, is not excluded either expressly or by implication under the Act in Victoria”.[42]

While this schism over reviewability may have turned the River Murray into something of a gulf, a whirlpool of judicial activity in relation to the legislation generally has, nevertheless, continued during the past decade. This is especially the case north of that river, in New South Wales and Queensland.[43] Much as has been the case in the United Kingdom (where Duncan Wallace referred to the initial stream of cases as a “near torrent”)[44] and in other jurisdictions which have introduced similar legislation, virtually every aspect of the scheme has been tested, whether procedural (in 2009-2010, for example, there were many cases on whether a matter which has been adjudicated upon can be included, in one form or another, in a subsequent payment claim)[45] or as fundamental as its constitutional validity.[46]

Even though such challenges have tended to fail, the mere fact that they are attempted often has the effect of thwarting claimants’ desire for rapid access to cash flow. Thus, as has recently been observed, “early success” for claimants gained through the Acts’ default procedures “may only be the first step on a long and tortuous road to recovery against a respondent intent on evading payment”.[47] Conversely, as Judge Frances Kirkham observed, it may be that respondents do not go on to seek final court resolution of a claim despite being disgruntled with the adjudication in respect of it:

I wonder whether it is sufficient consolation for that party to know that this is only a temporary decision, and of course he may like to relitigate the whole issue. Businesses have only limited time, means and appetite for disputes. I wonder in how many cases a party decides just to live with a bad adjudication decision because it feels that one journey through the dispute resolution maelstrom is enough.[48]

Generally speaking, though, the courts in New South Wales and Queensland are currently upholding adjudication decisions on a “pay now, argue later” basis,[49] thereby reflecting a core assumption of the Latham Report[50] that “an adjudication result had to be implemented at once, [but] it could subsequently be overturned by the courts or an arbitrator”.[51] As a concomitant of this, it is accepted, for example, that an adjudicator’s decision need be neither reasonable nor correct in order to be enforceable,[52] so long as it otherwise complies with the “basic and essential requirements” derived from Brodyn.

Rashda Rana has characterised the overriding judicial concern in these States as being that the person for whom the work has been done “pay[s] something now”.[53] Thus, the goal of the courts in New South Wales and Queensland appears to have become aligned with the underpinning concern of the legislation to ensure that cash continues to flow to the claimant in the short term, even though it is recognised that “the inherent limitations in the adjudication process, and the interim nature of the procedure, mean that it could not be seen as an accurate predictor of the outcome of a fully prepared hearing”.[54] Marcus Jacobs has observed that this is “a true but quite a startling observation”, putting forward as a particular concern that the upholding of an improperly-calculated payment claim could well cause the insolvency of the respondent: “Without apparently realising this consequence, the legislature has turned the usual onus of proof on its head.”[55]

On the other hand, it seems clear, based upon the statements emanating from the parliaments around the passage of the Acts (see Part 2.1.2, above), that the explicit intention, at least on the East Coast, was, in fact, to shift the bargaining position towards those further down the contractual “food chain”.[56] Moreover, it may be that the prospect of respondent insolvency through the erroneous upholding of ambit claims looms less ponderously now than it did a few years ago given that the average value of adjudicated claims appears, at least on the East Coast, to be in a downward trend.[57]

2.2.3. What can be claimed?

It is proposed above that the 2009 cases of Hickory Developments Pty Ltd v Schiavello (Vic) Pty Ltd [2009] VSC 156 and Grocon have turned the Murray River into a gulf so far as reviewability of adjudication decisions is concerned. Similarly, in 2006, amendments to the Victorian Act created a rift in relation to the types of matters which can be included in a payment claim and therefore be subject to the default regime for payment and adjudication under (at least) the East Coast Acts. Key features of that regime, as set out in the East Coast Acts, include:

• the principal becoming liable to pay the claimed amount where it does not provide a “payment schedule” in accordance with the Act within 10 business days after service of the claim (or any shorter period provided by the relevant contract);[58] and
• the claimant’s ability to apply for adjudication under the Act in specified circumstances.[59]

The HGCR Act had allowed “any dispute or difference” to be referred to adjudication, a position which, when it was transmitted to the Construction Contracts Act 2002 (NZ),[60] Duncan Wallace regarded as “obviously unconsidered and potentially calamitous”.[61] On the other hand, the lack of such words in the NSW Act was assumed to mean that the “statutory adjudicator’s jurisdiction in interim payment matters does not ... extend to claims for damages for breach of contract by the defendant but is limited to enforcing the contract or statutory provisions for periodic payment”.[62] Philip Davenport, who was engaged by the New South Wales Government to assist in the drafting and implementation of the NSW Act, has confirmed that the intended scope was of this type; he has characterised the key focus of the rapid adjudication provisions as being upon certification claims.[63]

While early cases under the NSW Act denied the right to include delay claims,[64] in Coordinated Construction Co Pty Ltd v JM Hargreaves Pty Ltd [2005] NSWCA 228; (2005) 63 NSWLR 385, the New South Wales Court of Appeal confirmed that adjudications under the NSW Act could extend to contractually-based delay costs and damages.[65] Jeremy Coggins has proposed that this represents an extension of the types of matters which can be brought within the statutory adjudication scheme beyond those which were originally intended and in turn, is open to criticism as a further example of “mission drift”.[66] Conversely, he has proposed that, if the courts had narrowed their interpretation of amounts which could be claimed to “physical construction work carried out or for related goods and services supplied” then this would promote the achievement of the original, core intent of the legislation in facilitating cash flow.[67]

Certain of the amendments to the Victorian Act by way of the Building and Construction Industry Security of Payment (Amendment) Act 2006 (Vic) had such a limiting effect.[68] These amendments (primarily to ss 10A and 10B) made certain matters “excluded amounts” under the Act, being:

• variations (other than “claimable variations”);[69]
• amounts “claimed under the construction contract for compensation due to the happening of an event” (including in respect of latent conditions, delay costs and changes in regulatory costs but, again, excluding amounts incorporated into claimable variations);
• claims for damages; and
• claims outside the construction contract.

The end result of these complicated provisions is, essentially, to apply a tourniquet to the types of matters which can proceed through a “payment claim” under the Victorian Act.

Coggins has suggested that the complexity of the Victorian Act, including these amendments, “may possibly deter industry usage”. Likewise, Toby Shnookal has recently reported, from his viewpoint as a Victorian adjudicator and barrister, that “adjudication remains relatively unused. Undoubtedly that is the natural consequence of our complex and difficult Act”.[70] He argues, therefore, in counterpoint to Coggins’s view, that because “a party that starts an adjudication does not want to just be paid its progress payment; it wants to resolve the entire dispute” any restriction of the types of matters which can be adjudicated “is a fetter on adjudication as an ADR process”.[71]

The labyrinthine nature of the Victorian Act post-2007 is undeniable, as is the fact that the number of adjudications in Victoria continues to be very low compared to those in the northern States. For example, in the 2007-2008 financial year, the number of adjudication applications in Victoria was approximately one-third of those in Western Australia, one-fifth of Queensland and just over one-tenth of New South Wales.[72]

Nonetheless, Coggins’s and Shnookal’s observations underpin a vital question: whether the Victorian Act, as amended, provides an effective basis for facilitating cash flow in the small to medium enterprise sector of the industry. This goes directly to, for example, the viability of current proposals seeking either to restrict the scope of the legislation to small business or to provide for a “dual track” approach with certification disputes referred to statutory adjudication and those in respect of other subject matter to other forms of dispute resolution (see Part 4, below).

Therefore, in seeking to design the next generation of security of payment reforms, there is a need to identify the factors which influence, for example, a subcontractor’s decision whether or not to utilise the claims procedures under the various Acts.[73] Of even greater importance is the need to assess the respective weight which each of those causes – whether familiarity with the legislation, confidence in its processes, the effect of prevailing economic conditions or myriad others – brings to bear upon such decisions and the extent to which they vary under the different legislative regimes.

Such research might well yield surprising results. Figures published by the Victorian Building Commission indicate that there has been an increase in the number of adjudication applications in Victoria since the more restrictive regime was introduced in 2007.[74] In 2006-2007 there were 31 adjudication claims recorded in Victoria, in 2007-2008 (when, presumably, contracts entered into after the amendments became effective were entering the disputes phase) there were 71, and there were 72 in 2008-2009. However, while the changes are significant in percentage terms, Victoria still lags behind its northern neighbours in absolute terms: in Queensland, for example (which has a smaller economy than Victoria),[75] 999 adjudication applications were lodged during 2008-2009.[76]

Given that the Victorian amendments appear directed towards ensuring that only claims relating directly to progress payments on account of the original contract sum may be the subject of adjudication, it may have been expected that the average amount determined might have declined. In fact, the figures indicate that this amount remained relatively steady (in the range $350,000-$500,000) from 1 July 2007 to 30 June 2009. The average dropped, however, by more than 10% in the six months to December 2009; if this trend continues, it will reflect that in Queensland and New South Wales, where the average claim value has tracked downwards in recent years.[77]

2.3. Legislative scheme in 2010

With the enactment of legislation in South Australia, the Australian Capital Territory and Tasmania, it is possible to step back and analyse how the legislation deals with the myriad constituent elements which comprise the legislative scheme. These elements include the types of work and contracts covered, the mechanisms for enforcing regular payments and the process for undertaking and enforcing adjudication of disputes arising under the Acts. While a detailed analysis is beyond the scope of this article, those which have been published reveal substantial inconsistency in respect of each of these key elements.[78]

Holding a mirror up to the situation as it existed in late 2009, the commentary in the latest edition of Jacobs, Security of Payment in the Australian Building and Construction Industry, runs to more than 300 pages (reproducing the legislation adds a further 400-odd pages to the text) and lists well over 300 cases. Jacobs has not minced words in relation to the lack of uniformity, noting that “the sooner there is uniform legislation in a relatively small country such as Australia, the better for the construction industry”.[79]

Broadly speaking, and as has already been noted, there exists what Teena Zhang has termed, a“significant divide” between the East Coast Acts, so called because they have as their drafting basis the NSW Act (as amended in 2002, and those of the West Coast, which are organised on distinct drafting lines. The distinction, as summarised by the then Western Australian Minister for Planning and Infrastructure, is that the West Coast Acts seek to “enforce the contract between the parties” whereas the East Coast Acts “introduce a separate, and possibly conflicting, statutory right to payment”.[80]

3. THE CHALLENGE OF UNIFORMITY

3.1. Is disconformity itself a remarkable achievement?

3.1.1. Overcoming parochialism

As was noted at the outset, it seems to be a truth universally acknowledged that the current level of inconsistency across State borders is a matter which ought to be addressed on an urgent basis. At the same time, there is a palpable sense of incredulity by observers that consistency has not been able to be achieved already. As Commissioner Cole observed in 2002, “it is not obvious why subcontractors in one State or Territory have better prospects of receiving payment for their work than subcontractors working in any other State or Territory”.[81] On the other hand, given that the security of payment reforms have fallen within the legislative bailiwicks of the States and Territories – each of which retains within the Australian federal system independent power to make laws as it sees fit in relation to matters within that sphere – it may fairly be regarded as remarkable that even a semblance of uniformity has been achieved.[82]

This legislative autonomy at State level apparently has translated into a “competition between various vested interests” when a new security of payment Act is being contemplated.[83] While industry consultation is a foundation of the research needed to resolve the present “appallingly inconsistent”[84] state of the law (see Part 3.2, below), the conception that security of payment is primarily a matter for the States and Territories to deal with arguably presents a key barrier to the achievement of national uniformity in the short to medium term. This is compounded by the need, in order to seek uniformity within the existing structure, for engagement with the processes of the Standing Committee of Attorneys-General and the Council of Australian Governments,[85] both of which are organisations facing the perennial challenge of a full agenda yet limited time. Moreover, the stakeholders of those bodies, the State and Territory governments, are elected to represent the people and interests of those States and Territories, not those of the Australian nation.

It is, therefore, not surprising that commentators are suggesting that the logical vehicle for a uniform scheme is by way of Commonwealth legislation, perhaps by way of a two-stage process (a model law adopted by all States and Territories, followed by the referral of the law-making power to the Commonwealth and the enactment of a single, Commonwealth Act) akin to that which evolved in relation to the corporations law.[86]

Regardless of what the process for achieving it might be, the result of such a proposal – there being only one piece of legislation rather than eight – has an obvious conceptual attraction. However, it would, on its face, require a significant shift away from the traditional assumption that security of payment falls within the inherent power of the State legislatures towards recognition that it more naturally sits within one of the Commonwealth’s referred heads of power. This is, in any case, an assumption which should be examined further. Commissioner Cole expressed the view,[87] by reference to the trade and commerce and corporations powers in s 51 of the Commonwealth Constitution, that the “Commonwealth’s legislative power would extend to regulating any transaction in which at least one of the businesses is incorporated”.[88]

Moreover, such a shift arguably represents an opportunity to deliver upon the explicit intent of the State legislatures (see Part 2.1.2, above) to undertake root and branch reform of behaviour within the construction industry. The reasons for this include that the Commonwealth is the only level of government which can legislate comprehensively in relation to insolvency, the risk of which remains a key driver of security of payment reform.[89]

Thus, the natural home of security of payment legislation may well be regarded as being within Commonwealth legislation. It would flow from acceptance of such a proposal that regulatory responsibility for the reforms ought to sit within the realm of the Office of the Australian Building and Construction Commissioner (or any replacement authority), an organisation which is relatively well-resourced compared with the inconsistent approaches taken at State level to administering the existing security of payment legislation.[90]

Admittedly, the prospects of the States and Territories conceding that the law-making power in such a critical area rests with the Commonwealth may seem remote. On the other hand, it seems – as evidenced by the health reform plan negotiated in mid-2010 – that there currently exists at least a modicum of appetite for reconsidering the existing Commonwealth-State compact on the grounds of increased economic efficiency and better outcomes for stakeholders. Moreover, it was reported in early March that the New South Wales Premier, acknowledging that the Commonwealth has “primary responsibility in cases where insolvency is a factor”, had asked her Minister for Commerce to write to the Commonwealth as part of the New South Wales Government’s review of security of payment in light of the collapse of Austruc Constructions Limited.[91]

Zhang has recently commented: “The States, Territories and the federal government need to confront their constitutional and political difficulties in power-sharing and bring the vehicle of delivery in line with the espoused objectives.”[92] The time seems ripe for re-consideration of whether, as Commissioner Cole proposed back in 2003,[93] the next generation of security of payment legislation should be by way of a unified Act emanating from the Federal Parliament.

3.1.2. The holy grail of “appropriate” dispute resolution

Achieving consensus as to the form and content of a national scheme is further complicated by the fact that one of its key planks, expedited adjudication, is itself a form of alternative (or, as conceived more recently “appropriate”)[94] dispute resolution.[95] Because of this, deliberations as to the form that security of payment legislation should take and the types of disputes it should apply to can, and should, be seen in the wider context of the ongoing industry debate revolving around ensuring that, as Justice Vickery has put it “the forum fit[s] the fuss”.[96]

In many ways, the advent of quasi-compulsory statutory adjudication via the security of payment Acts has focused and intensified this debate through the possibility, played out many times in the courts in recent years,[97] that the same payment dispute may find its way not only into an adjudication process which lasts a month but also, when that process is challenged, into superior court litigation which has the tendency to last for months or years.[98]

Thus, a remarkable dynamic appears to be emerging between these two forms which otherwise appear to sit at opposite ends of the spectrum in terms of the time, cost and (arguably) quality of dispute resolution inherent in their processes.[99] Not only are State Supreme Courts favouring, through the upholding (albeit on an interim basis) of erroneous adjudication decisions as noted above,[100] speedy resolution over accuracy, Australian judges are explicit in their desire that, as was expressed by Vickery J in Hickory, “a court should, wherever possible, expeditiously deal with short points of law or construction”.[101]

The achievement of commercial certainty through dispute resolution is, however, a finely-balanced and dynamic process. Writing extra-curially, the Chief Justice of Canada, the Rt Hon Beverley McLachlin PC, has recently encapsulated the tensions underlying such a process within the construction law sphere, noting that, while construction disputes are inherently complex, “[c]onstruction companies, like other commercial actors, want to get the job done and move on; setting the law on an arcane issue [through receiving a judgment in a court of record] is far down on their list of priorities, if it figures at all”.[102]

In light of these challenges, along with the underlying tensions as to the scope of the reform agenda and its potential for incursion into freedom of contract (see Part 2.1.3, above), it may seem that the enactment of rational, uniform security of payment legislation is an unachievable goal. On the other hand, within a practically- and commercially-focused industry such as construction, identification of such impediments may also be seen as simply the first step towards addressing and overcoming them.

3.2. Need for questions then answers

The logical next step is to suggest that further, detailed research be done to ascertain what it is that the industry actually wants from security of payment legislation.

Various proposals for solutions have already been put forward (see Part 4, below). These might well provide at least part of the ultimate answer for what the underlying intent of the legislation should be. Their particular merit at this stage, however, is that they assist in framing the questions which should be asked and, bearing in mind the observations of Judge Kirkham in addressing the United Kingdom Adjudication Society conference several years ago, those to whom they should be asked:

I do not need to warn you that if you do not provide what the industry wants, then the goose laying the golden eggs will become rather less fertile. Remember the lessons of domestic arbitration: keep the process under control, ensure that adjudicators are competent, don’t overdo the fees, and, above all, get it right.
Adjudication, of course, was introduced for the benefit of the parties, not for the benefit of lawyers or adjudicators – not even for judges. So, what matters most is what the industry wants.[103]

Research into the way forward needs not only to be empirically based but also not to be undertaken in a vacuum which neglects the significant existing body of history, experience and legal consideration which is encapsulated in the existing situation.

The project needs to recognise, for example, that a scheme based on the original HGCR Act policy and drafting has been in place in the United Kingdom, New Zealand and Singapore,[104] as well as Australia, for more than a decade. This alone would tend to militate against generating a completely new Act and likely would lead, as Commissioner Cole concluded in 2003, to having as a drafting base something akin to the East Coast Acts.[105] Having said that, it is imperative, as Zhang has pointed out,[106] that consideration of a national approach be mindful of regional differences where they exist, particularly the need – which, after all, underpins the federal compact that led to the formation of the Australian Commonwealth – not to allow the legitimate concerns of jurisdictions with a smaller population to be eclipsed.

Above all, though, such deliberations offer the opportunity to reconsider every aspect of the scheme by reference to national and international best practice as well as the underlying policy goals. The seeking of best practice may be derived from a comparison, not just of the existing Australian Acts, but also the approaches taken using a similar legislative template in the United Kingdom (especially in the light of recent amendments to the HGCR Act,[107] the report released in early 2010 by Lord Justice Jackson into civil litigation costs,[108] and the vast array of cases dealing with similar issues generated by the British courts), New Zealand and Singapore.[109] The experience in other countries which deal with security of payment by other means (notably, Canada and the United States, where the mechanism of liens remains prevalent)[110] ought also to inform this consideration.[111]

Put in this way, the task appears daunting indeed. However, much of the groundwork for such a reform process has already been commenced or completed. As is noted in each of the Second Reading Speeches, the State and Territory governments consulted widely with stakeholder groups in framing their respective Acts,[112] and Commissioner Cole likewise took evidence from across the industry in framing his commentary and recommendations.[113] Furthermore, a number of empirical studies, notably those by Michael Charles Brand and Thomas Uher,[114] and detailed analyses of key aspects of the legislative scheme,[115] including comparative charts,[116] have already been undertaken.

Finally, it is suggested that, in terms of identifying the types of questions which the Australian industry should ask itself, the seven set out by Judge Lloyd in 2001 continue to encapsulate the key concerns. Perhaps the most pertinent amongst these are the following:

1. What types of construction contract should be subject to adjudication?
...
4. What disputes are to be referred? ...
5. What measures might be taken to improve the quality of decisions? ...
...
7. Above all, is it necessary to legislate to reform construction industry contracts and practice?[117]

4. CONCLUSION: A MOMENT OF DECISION

There can be little doubt that security of payment – fundamentally, the means of providing to those who need it a “fast and easy way to get paid” –[118] remains a real and vital challenge for the Australian construction industry. The problem is compounded by the fact that the legislative vehicles which have been designed by the State and Territory Parliaments to drive on the road to reform are, in many respects, incompatible; indeed, they have an inherent tendency to collide with one another.

This article has sought to chart how this present situation has been reached and to suggest a process by which it might be unravelled. Fundamental to this process is the need for further detailed research in order to understand what stakeholders across the industry want. The passage of the legislation in the Australian Capital Territory, South Australia and Tasmania mean that 2010 provides a critical yet opportune moment in the evolution of the schemes in which to undertake this project.

Such a review ought not only to be industry-focused but also pragmatic in its goals. For example, it needs to be acknowledged that broad-based legislative intervention is by its very nature something of a blunt instrument for regulating parties’ behaviours. This is especially the case in an industry such as construction which is signally diverse in both its activities and in the bargaining power and commercial sophistication of its participants. Moreover, substantial inroads have already been made into proposals for what the next generation of legislation should look like. Prominent among these are the considerations given, each as a result of extensive evidence from across the industry, to the form of a national Bill by Commissioner Cole, and the amendments proposed to the United Kingdom Scheme for Construction Contracts as a result of the recent amendments to the HGCR Act.[119]

Bailey has recently proposed that the way forward lies in ensuring that “[t]he beneficiaries of the short, sharp interim adjudication procedure should be participants in small business. The scheme should be limited only to claims for payment for the value of the work performed”.[120] Such a reform may be expected to ameliorate the concerns, relating to the linked issues of unjustified incursion into freedom of contract and favouring of the interests of those down the contractual chain.[121] It also broadly replicates the manner in which the Victorian Act now largely excludes from its claims (and therefore adjudication) procedures matters other than straightforward payment disputes, except in contracts with a value less than $150,000. Therefore, if it were to be the industry consensus that the benefit of the legislation’s claiming and adjudication procedures were to be limited to small businesses, the Victorian Act provides an example of what, in this aspect at least, the legislation could look like.

The Victorian amendments, however, are not only cumbersome in their drafting, they are problematic in their use of contract value as a proxy for the contracting sophistication of parties. Moreover, as Zhang has pointed out,[122] it can create, at the least, administrative problems within the chain of contracts where, for example, a subcontractor has a right to seek expedited adjudication as against its head contractor, while that head contractor cannot take advantage of such a mechanism in resolving a dispute relating to the same variation as against the principal.

An alternative model was put forward by Davenport in 2007.[123] Essentially, it provides for a “dual track” system of resolution of payment disputes, whereby:

• simple matters which would, absent the legislation, be the province of certification, proceed on a “fast track” akin to the present system of adjudication under the East Coast Acts; and
• other matters (including claims for damages) are referred to “traditional” dispute resolution processes, along the lines of the West Coast Acts (and indeed, those of the United Kingdom and New Zealand).

The broad thrust of this proposal appears to be to return the fast-track process to being confined to what Davenport and others have noted was its original intent in New South Wales: adjudication of disputes over payment claim certification.[124] Moreover, it has the apparent benefit that it “combine[s] the established strengths of the East Coast and West Coast model statutory adjudication processes”.[125]

Without question, both of these models deserve detailed consideration as part of the review called for above. Ultimately, however, it needs to be remembered that any harmonised legislation is unlikely to adequately address all concerns. This is especially the case because, as was pointed out by Commissioner Cole, default payment and dispute mechanisms of the type set out in the extant Acts are only one plank in the security of payment platform (with others including prequalification procedures for parties to ensure financial viability, insurance schemes and education).[126]

The complexity of the interrelationships between these threads provides another reason, alongside those canvassed above, why the logical vehicle for the next stage of reforms is the Commonwealth Parliament. However, as the recent United Kingdom experience in relation to amendments to the HGCR Act demonstrates, even in a governmental system which is essentially unitary in relation to security of payment, and despite extensive consultation and legislative deliberation, it is unlikely that there will be universal acclaim of any reform package. As one commentator has observed from the United Kingdom, “[s]ubcontractors are saying that the Bill does not go far enough, while employers are worried that the amendments are simply increasing the number of hoops they need to jump through when employing their project team”.[127]

Finally, it needs to be acknowledged that for many industry participants the legislative scheme, though flawed, does facilitate cash flow.[128] As has been pointed out in the context of the New Zealand legislation:

The Act’s biggest effect has, undoubtedly, been simply because it exists. Employers and contractors (at least those who are familiar with the Act) are, I believe, being more sensible about payment than they were or may have been previously, because they do not wish to get involved in adjudication.[129]

All in all, then, neither the current state of legislation nor the result of the review process suggested above should ultimately be regarded as anything more than chapters in the continuing evolution of security of payment legislation in Australia. The question for our dynamic, innovative yet often fraught, industry, therefore, is whether the next step will be forwards or backwards.

[*] Matthew Bell BA(Hons) LLB(Hons) MConstrLaw (Melb): Lecturer and Co-Director of Studies for Construction Law, Melbourne Law School, University of Melbourne. Donna Vella BComm LLB (Hons) (LaTrobe). The authors acknowledge with thanks the research assistance undertaken for this article by Paul Trewartha and Kellie Wyrostek and by the Law Research Service at the Melbourne Law School, and comments made on drafts of this article by Michael Earwaker, Toby Shnookal and Andrew Stephenson. Responsibility for the article rests, however, with the authors alone.

[1] In this article, references to the “Victorian Act” etc are to the respective State or Territory’s legislation as set out here: Building and Construction Industry (Security of Payment) Act 2009 (ACT); Construction Contracts (Security of Payments) Act 2004 (NT); Building and Construction Industry Payments Act 2004 (Qld); Building and Construction Industry Security of Payment Act 2009 (SA); Building and Construction Industry Security of Payment Act 2002 (Vic); Construction Contracts Act 2004 (WA). For general commentaries on the Acts, see eg, Davenport P, “Security of payment now Australia wide” (2010) 131 Australian Construction Law Newsletter 36; Jacobs MS, Security of Payment in the Australian Building and Construction Industry (3rd ed 2010); Zhang T, “Why national legislation is required for the effective operation of the security of payment scheme” (2009) 25 BCL 376; Loots P and Charrett D, Practical Guide to Engineering and Construction Contracts (2009) pp 239-242; Cremean DJ, Shnookal BA and Whitten MH, Brooking on Building Contracts (4th ed, 2004) pp 250-252; Davenport P, Adjudication in the Construction Industry (2nd ed, 2004); Moss F, “Lack of Uniformity in SOP legislation warrants care” (2005) 17(2) Australian Construction Law Bulletin 13; Redenbach K, “Getting paid in the construction industry – national perspective” (2007) 23 BCL 92; Coggins J, “A review of statutory adjudication in the Australian building and construction industry, and a proposal for a national approach” (Paper presented at the Royal Institution of Chartered Surveyors COBRA conference, Cape Town, 2009).

[2] The ACT Act received Assent on 26 November 2009 and the SA Act on 10 December 2009. While the Tasmanian Act was the last Act to be passed, it is not the last to take effect: the Tasmanian Act applies to contracts entered into after its commencement date of 17 December 2009 (s 44(1)), the ACT Act to contracts entered into after 1 July 2010 (s 9(6)) and the SA Act to contracts entered into after its commencement date (Pt 4); as at 2 August 2010, this date had not been proclaimed.

[3] Bailey I, “Harmonisation or Reform of Legislation: Construction Industry and Dispute Resolution” (Paper delivered at Construction Law Seminar, Melbourne Law School, 10 November 2009) at 1-2).

[4] Kirby M, “Building, Disputes and the Law” Building Dispute Practitioners’ Society Newsletter, September 1983, p 2.

[5] See eg, Zhang, n 1 at 376 (see also at 391: the current “inaccessible” regime across the States runs the risk of offending against the requirement under Commonwealth Constitution, s 92 that trade and commerce be “absolutely free”); Briggs I, “Introduction” in Minter Ellison, Security of Payment – 2009 Annual Roundup (2010) p 4; Jacobs, n 1, p 16; Coggins, n 1 at 16.

[6] Cole T, Final Report of the Royal Commission into the Building and Construction Industry (2002), Vol 8, pp 255-256, noted that, of the many government and industry submissions to the Royal Commission, only one, that of the State of Tasmania, did not support the principle of national consistency (though, as expressed by a submission by WA, “not necessarily a uniform approach” (emphasis added)) in the legislation. Tasmania’s concern was that solutions need to be tailored to each jurisdiction so as to take account of the size of the market. This concern appears, from the recent enactment of the Tasmanian Act, now to have been sublimated to an overriding desire not to be out of step with the rest of the country (see also Second Reading Speech, n 18).

[7] The use, for convenience rather than necessarily reflecting geographical accuracy, of the “East Coast” and “West Coast” classifications is fairly well entrenched and dates back several years (eg, as used by Nick Xenophon in his Second Reading Speech for the first iteration of the Bill for the SA Act on 12 September 2007: Parliamentary Debates, Legislative Assembly (SA) p 36). The categories have recently been described by Davenport as, respectively, “the Australian model” and “the UK model”: n 1 (“Security of payment”) at 36.

[8] Zhang, n 1 at 397. See also Davenport P, Construction Claims (2nd ed, 2006) p 21.

[9] Substantial research has already been undertaken, notably the survey-based analysis undertaken by Michael Charles Brand and Thomas Uher (Brand MC and Uher T, “Follow up empirical study of the performance of the New South Wales construction industry security of payment legislation” (2010) 2(1) International Journal of Law in the Built Environment 7 at 20-21 (listing other studies which they have published on the topic)).

[10] Cole, n 6, p 229.

[11] The Acts remaining in place are: Contractors’ Debts Act 1997 (NSW); Subcontractors’ Charges Act 1974 (Qld); Worker’s Liens Act 1893 (SA). While these may properly be regarded as forming part of the legislative scheme for security of payment in Australia they are not referred to in any detail as they relate to aspects outside the core subject matter of this article.

[12] See eg, Merity P, “Paradise postponed: A history of attempts to ensure payment in the building and construction industry of New South Wales” (2002) 18 BCL 169; Jacobs, n 1, pp 13-16; Davenport, n 1 (Adjudication), pp 1, 7, 13; Davenport P, “A proposal for a dual process of adjudication” [2007] AUConstrLawNlr 38; (2007) 115 Australian Construction Law Newsletter 12; Davenport, n 8, pp 20-21; Redenbach, n 1 at 93.

[13] Department of the Environment (UK), Constructing the Team, Final Report of the Government/Industry Review of Procurement and Contractual Arrangements in the UK Construction Industry (1994) (Latham Report).

[14] Iemma M, Second Reading Speech, Building and Construction Industry Security of Payment Bill (NSW), 29 June 1999.

[15] There are, however, significant differences in approach between the HGCR Act and NSW Act: see eg, Dawson P, “Introduction of a statutory right to progress payments: Outline and review of the Building and Construction Industry Security of Payment Act 1999 (NSW)” [2000] ICLR 611 at 619 (NSW Act enforces a right to a progress payment whereas the HGCR Act does not). For comparative analyses of the HGCR Act and Australian legislation, see eg, Coulson P, Construction Adjudication (2007), pp 196-206; Fenwick Elliott R; Coggins J, “Adjudication Down Under: A Survey of the Adjudication Legislation in Australia” (2007) 23(5) Const LJ 365; Shnookal T, “Building adjudication in Victoria” Building Dispute Practitioners’ Society Newsletter December 2009, p 9.

[16] The definition of “construction work” (in Tasmania, “building and construction work”) is fundamental under each of the relevant Acts because it is contracts for such work, or for “related goods and services”, which are “construction contracts” to which the Act applies: Building and Construction Industry (Security of Payment) Act 2009 (ACT), Dictionary, and ss 7-9; Building and Construction Industry Security of Payment Act 1999 (NSW), ss 4-7; Construction Contracts (Security of Payments) Act 2004 (NT), ss 5-7, 9; Building and Construction Industry Payments Act 2004 (Qld), ss 3, 10-11 and Sch 2; Building and Construction Industry Security of Payment Act 2009 (SA), ss 4-7; Building and Construction Industry Security of Payment Act 2009 (Tas), ss 4-7; Building and Construction Industry Security of Payment Act 2002 (Vic), ss 4-7; Construction Contracts Act 2004 (WA), ss 3-5, 7.

[17] Iemma, n 14.

[18] For example, RE Schwarten, in delivering the Second Reading Speech for the Queensland Bill (18 March 2004), noted that it was aimed at “improving payment outcomes for all parties operating in the building and construction industry”. Similarly broad aspirations are expressed in the Second Reading Speeches for the other State and Territory legislation: ACT (Hargreaves J, 15 October 2009); NSW (Iemma, n 14); NT (Toyne P, 14 October 2004); SA (Kenyon T, 5 March 2009); Tasmania (Singh LM, 4 November 2009); Victoria (Thomson MR, 21 March 2002); WA (MacTiernan AJ, 3 March 2004).

[19] Building and Construction Industry Security of Payment Act 1999 (NSW), s 3(1); Building and Construction Industry Security of Payment Act 2009 (Tas), s 3; Building and Construction Industry Security of Payment Act 2002 (Vic), s 3(1), refer to the right of “any” party to a construction contract to receive a progress payment. Building and Construction Industry Payments Act 2004 (Qld), s 7 refers to “a person”. Building and Construction Industry (Security of Payment) Act 2009 (ACT), s 6(1); Building and Construction Industry Security of Payment Act 2009 (SA), s 3(1) go on to refer to “under certain construction contracts” (emphasis added), but this difference appears more to be a drafting change reflecting the reality that the Act does not apply to all contracts than to indicate a narrow intended scope. Construction Contracts (Security of Payments) Act 2004 (NT), s 3(1) has as its express objective the “promot[ion] of security of payments under construction contracts” whereas the WA Act, though drafted along similar lines to that of the NT Act, has the narrower focus of (among other things) “provid[ing] a means for adjudicating payment disputes arising under construction contracts” (preamble). See, further, Coggins, n 1 at 4; Zhang, n 1 at 377-378.

[20] MacDonald I, Second Reading Speech of the Building and Construction Industry Security of Payment Amendment Bill (NSW), Legislative Council, 5 December 2002.

[21] See Cordery D, “Changes to the Construction Act” (2009) 25(8) Const LJ 684 at 688, where it is noted that the equivalent UK provision, Housing Grants, Construction and Regeneration Act 1996 (UK), s 107, has recently been amended along similar lines.

[22] Bailey J, “Public Law and Statutory Adjudication” (2008) 24(6) Const LJ 461 at 461.

[23] Duncan Wallace IN, “HGCRA adjudication: Swarms of wannabes?” (1999) 15(1) Const LJ 20 at 37.

[24] Lloyd H, “Adjudication” [2001] ICLR 437 at 448.

[25] Duncan Wallace, n 23 at 21.

[26] Claimants also are subject to time limits in respect of certain matters including the making of adjudication applications (see eg, Building and Construction Industry Security of Payment Act 1999 (NSW), s 17(3)).

[27] Duncan Wallace IN, “HGCRA: A New Zealand Version” [2002] ICLR 130 at 130-131.

[28] See Kirkham F, “Tomorrow and tomorrow and tomorrow: Keynote address to the Adjudication Society conference” (2004) 20(4) Const LJ 189 at 193: notes that ambush in adjudications appears to be “a frequently used tactic” and suggests that such a phenomenon, in the face of attempts in other dispute resolution fora to avoid ambush, undermined confidence in adjudication. See also, eg Macob Civil Engineering Ltd v Morrison Construction Ltd [1999] BLR 93 at [123] (Toulmin J); Duncan Wallace IN, “Human Rights and HGCRA Adjudication: Drawing the Sting” (2001) 17(3) Const LJ 216 at 216; Lloyd, n 24 at 459-460.

[29] See eg, Shnookal, n 15 at 13 (outlines practical aspects of what is required in order to respond to adjudication application within 5 business days, especially where served late on a Friday, and notes that the rationale behind such an “ambush encouraged by the legislation” is that “the respondent should always be ready to, and be able to, defend its decision not to pay an amount claimed in a payment claim”).

[30] For commentary on such provisions, see eg, Bailey I and Bell M, Understanding Australian Construction Contracts (2008) Ch 28; Clayton B, “Can a contractor recover when time barred?” [2005] ICLR 341.

[31] See eg, comments similar to those of Duncan Wallace in relation to the NSW legislation: Fenwick Elliott R, “10 Days in Utopia” (Proceedings of the Institute of Arbitrators and Mediators Australia, Glenelg, South Australia, 2007) at 3, as cited in Coggins J, “Has mission drift rendered statutory adjudication in NSW open to valid criticisms?” (Paper presented at the Royal Institution of Chartered Surveyors COBRA conference, Cape Town, 2009) p 9); Jacobs, n 1, p viii: the legislation is “draconian”.

[32] Cole, n 6, Vol 8, p 263, Recommendation 116; see also, Vol 8, Appendix, which sets out the proposed Commonwealth Act styled as the Building and Construction Industry Security of Payment Bill 2003; pp 262-267, discussion of its key features (including departures from the then-current legislation).

[33] In this case, Bergin J refused to order summary judgment in relation to a claim arising from the NSW Act, her Honour’s decision being primarily on the basis of guidance provided in a Practice Note which pre-dated the Act and therefore took no account of its policy of maintaining cash flow.

[34] Kennedy P and Milligan J, “Mission drift in statutory adjudication” in Proceedings of the Construction and Building Research Conference of the Royal Institution of Chartered Surveyors (COBRA 2007) (Georgia Tech, Atlanta, US) p 13.

[35] See, generally, Coggins, n 1 at 3-9.

[36] For commentary upon the application of these principles in the other jurisdictions see: Jacobs, n 1, pp 279-290; Davenport, n 1 (“Security of payment”).

[37] See, Jacobs, n 1, pp 246-279, summarising: Transgrid v Siemens Ltd [2004] NSWCA 395; (2004) 61 NSWLR 521; Minister for Commerce v Contrax Plumbing (NSW) Pty Ltd [2005] NSWCA 142; Rothnere Pty Ltd v Quasar Constructions NSW Pty Ltd [2004] NSWSC 1151; John Holland Pty Ltd v Roads & Traffic Authority (NSW) (2007) 23 BCL 205; Downer Constructions (Australia) Pty Ltd v Energy Australia [2007] NSWCA 49; (2007) 69 NSWLR 72.

[38] Hansen Yuncken Pty Ltd v Ericson [2010] QSC 156 at [12]- [14] (McMurdo J); Sheppard Homes Pty Ltd v FADL Industrial Pty Ltd [2010] QSC 228 (Fryberg J); GRD Group (NT) Pty Ltd v K & J Burns Electrical Pty Ltd [2010] NTSC 34 (Mildren J).

[39] Coulson, n 15, p 25, see also, p 204: “in the light of what the NSW Court of Appeal said about natural justice in Brodyn, it may well be thought that the differences between the courts’ overall approach to adjudication in Australia, on the one hand, and in England, Wales and Scotland, on the other, are in practice of narrow compass”. These comments were, however, made before the handing down of Hickory Developments Pty Ltd v Schiavello (Vic) Pty Ltd [2009] VSC 156 and Grocon Constructors v Planit Cocciardi Joint Venture [No 2] [2009] VSC 426 which are discussed below.

[40] See eg, Shnookal, n 15; Shnookal T, “Security of payments in Victoria – its use as an effective payment tool” Building Dispute Practitioners’ Society Newsletter, May 2010, pp 19-20; Patrick B, “Building Balances into Progress Payments” (2010) 85(3) Law Inst J 29.

[41] [2009] VSC 426 at [91], drawing upon his Honour’s observations in Hickory Developments Pty Ltd v Schiavello (Vic) Pty Ltd [2009] VSC 156. On this case, see eg, Carroll L, “A Closer Look at the Victorian Security of Payment legislation” in Clayton Utz, Projects Insights, 16 September 2009; Davenport, n 1, “Security of payment” at 37).

[42] [2009] VSC 426 at [102]. See also Metacorp Australia Pty Ltd v Andeco Construction Group Pty Ltd [2010] VSC 199 (Vickery J) and Metacorp Pty Ltd v Andeco Construction Group Pty Ltd [No 2] [2010] VSC 255.

[43] See Jacobs, n 1, Index, listing approximately 200 NSW cases, 20 Qld cases and fewer than 10 Vic cases, albeit not all relate directly to the current Acts and the listing does not purport to be comprehensive.

[44] Duncan Wallace, n 28 at 216.

[45] See eg, Dualcorp Pty Ltd v Remo Constructions Pty Ltd [2009] NSWCA 69; (2009) 74 NSWLR 190, University of Sydney v Cadence Australia Pty Ltd [2009] NSWSC 635, Perform (NSW) Pty Ltd v Mev-Aus Pty Ltd [2009] NSWSC 416; Watpac Constructions v Austin Corp [2010] NSWSC 168.

[46] Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2006] NSWCA 238; (2006) 67 NSWLR 9. See also eg, Redenbach, n 1 at 95-66; Shnookal, n 40, p 21.

[47] Duthie L, Chau P, Hartmann A and Rom B, “Security of Payment: Is the Tide Moving Back Towards Principals?” (2009) 129 Australian Construction Law Newsletter 44 at 47.

[48] Kirkham, n 28 at 191. Shnookal, n 40, p 18, makes a similar observation.

[49] This phrase derives from the speech of Lord Ackner during debate on the Bill for the HGCR Act in the House of Lords (see eg, Kirkham, n 28 at 192) and has been cited frequently in Australian cases since at least 2003 (see eg, Multiplex Constructions Pty Ltd v Luikens [2003] NSWSC 1140 at [96] (Palmer J)). See, generally, Jacobs, n 1, pp 19-26.

[50] Latham Report, n 13.

[51] Coulson, n 15, p 8. See also eg, Lloyd, n 24 at 439.

[52] See eg, Spankie v James Trowse Constructions Pty Ltd [2010] QSC 29 at [19], [32] (McMurdo J). Similar principles continue to underpin the approach under the HGCR Act, see Coulson, n 15, p 23: “It is a theme regularly taken up in the later decisions of the [courts], when setting out how and why the adjudicator’s decision should be enforced provided that he had the jurisdiction to reach it, no matter how mistaken that decision might seem, to emphasise that the decision is of a temporary nature only.”

[53] Rana R, “Adjudications and judicial review: An update on the position in England and Australia” [2006] ICLR 503 at 516 (emphasis added).

[54] Walter Construction Group v Robbins Co (2005) 21 BCL 236 at [30] per McDougall J.

[55] Jacobs, n 1, p 22.

[56] See Davenport, n 1 (Adjudication), p 3: “Adjudication redresses [the] imbalance and puts the claimant on a more even footing.

[57] See n 77.

[58] See eg, Building and Construction Industry Security of Payment Act 2002 (Vic), s 15(4).

[59] These are where the principal indicates in a payment schedule that the amount payable is less than was claimed (see eg, Building and Construction Industry Security of Payment Act 2002 (Vic), s 18(1)(a)(i)), fails to pay the amount set out in a payment schedule as required under the contract (ss 17(2)(a)(ii), 18(1)(a)(ii)), or fails both to provide a schedule and to pay the claimed amount (s 18(1)(b)).

[60] See generally, Kennedy-Grant T, A Guide to the Construction Contracts Act (2nd ed, 2009); Kennedy-Grant T, “Adjudication: the New Zealand position” (2008) 24(5) Const LJ 382; Davenport, n 1 (Adjudication). Duncan Wallace, n 27 at 134 viewed the NZ Act as “essentially pro-producer and anti-customer legislation”.

[61] Duncan Wallace, n 27 at 130.

[62] Duncan Wallace, n 27 at 130, citing Dawson, n 15 at 614. See also, Duncan Wallace, n 28 at 217. It has been pointed out, however, that in fact the Latham Report, n 13, had recommended that all matters be within the adjudicator’s jurisdiction: Capper P, “Arbitration and adjudication after 1996: Practice, procedures and opportunities” (1997) 13(6) Const LJ 369 at 373.

[63] Davenport, n 12 (“A proposal”) at 14.

[64] See eg, Leighton Contractors Pty Ltd v Campbelltown Catholic Club Ltd [2003] NSWSC 1103.

[65] See Coordinated Construction Co Pty Ltd v Climatech (Canberra) Pty Ltd (2005) 21 BCL 364; Kembla Coal & Coke Pty Ltd v Select Civil Pty Ltd [2004] NSWSC 628. Given that this proposition has become a key point of national debate in recent years, and, for that matter, that the broad scope of matters which can be referred to adjudication is regarded as a very significant difference between the NSW Act and its antecedent in the HGCR Act (see eg, Coulson n 15, p 199), it is somewhat ironic (admittedly with the benefit of four years’ hindsight) that the High Court refused special leave to appeal in the Co-ordinated cases based, at least partly, upon the view that they “concerned the interpretation of a statute of the NSW Parliament that does not appear to have its counterparts in other jurisdictions”: Coordinated Construction Co Pty Ltd v JM Hargreaves (NSW) Pty Ltd [2006] HCATrans 9 per Gleeson CJ.

[66] Coggins, n 31 at 5.

[67] Coggins, n 31 at 12-13.

[68] See, generally, O’Reilly S and Stankiewicz L, “Unique overhaul of security of payment in Victoria”, Clayton Utz, Projects Insights, 16 August 2006; Ridley S, “Security of payment changes continue in Victoria” (2006) 18(7) ACLB 81; Warren E and Thwaites A, “Amendments to the Victorian security of payment regime underway”, Allens Arthur Robinson, Client Update, 8 May 2007; Redenbach, n 1 at 102-104.

[69] In Building and Construction Industry Security of Payment Act 2002 (Vic), s 10A, “claimable variations” are defined as variations falling into one of two classes. The first is where all key matters have been agreed (in which case it is not immediately apparent why the claimant would wish to take advantage of the default mechanisms under the Act in any event); the second depends on the original contract price under the contract: if less than $150,000, there is no limit to the number of class two variations which can be claimed; if between $150,000 and $5m, 10% of the contract price can be claimed; and if the price exceeds $5m and there is a dispute resolution mechanism in the contract, no class two variations may be claimed.

[70] Shnookal, n 15 at 9. See also, Davenport, n 1 (“Security of payment”) at 36 (similar conclusion).

[71] Shnookal, n 40 at 18.

[72] Coggins, n 1 at 10. See also Shnookal, n 15 at 10.

[73] For example, Fenwick Elliott and Coggins, n 15 at 366, identified as a significant deterrent to the use of the Victorian Act, “depriving the process of virtually all of its teeth”, the option (under s 25(1)(a)) to provide security for an amount determined to be payable in an adjudication in lieu of payment. Similarly, Coulson, n 15, p 197, noted this provision (as it appeared in the original version of the NSW Act) “defeated the whole purpose of the Act”. Unfortunately, however, under the 2006 Amending Act, the repeal of this provision within the Victorian Act took effect simultaneously with the introduction of the “excluded amounts” amendments, thus making it difficult to identify in isolation whether the provision did, in fact, have such a deleterious impact upon use of the Act in Victoria.

[74] See http://www.buildingcommission.com.au; Shnookal, n 40 at 18 (also notes such an increase).

[75] By way of indication, State-based Final Demand GDP for Victoria in the December 2009 quarter was $76.558b whereas it was $61.619b for Queensland: see Australian National Accounts (Publication 5206.0, Table 21), http://www.abs.gov.au.

[76] Building and Construction Industry Payments Agency (Qld), Adjudication Statistics June 2009, at 1.

[77] For example, according to figures cited in Coggins, n 31 at 2, the average value of claims in NSW has declined from $945,503.56 in 2005 to $198,973.29 in 2008.

[78] See eg, Minter Ellison, n 5, pp 13-21.

[79] Jacobs, n 1, p 16.

[80] MacTiernan, n 18.

[81] Cole, n 6, Vol 8, p 255. See also Zhang, n 1 at 379. The lack of consistency in relation to security of payment may be contrasted to that in another related area affecting the construction industry, ie, domestic arbitration. The enactment of the Commercial Arbitration Acts, including the reform of those Acts in 2009-2010, may well inform the process for achieving uniformity in respect of security of payment.

[82] See Coggins, n 1 at 1: “Of the eight Commonwealth jurisdictions which have enacted payments legislation for the building and construction industry, five have been Australian States and Territories” (those figures are now, respectively, 11 and eight).

[83] Davenport, n 8, p 21. Reflecting this, of the eight Second Reading Speeches referred to in n 18, six noted expressly that industry groups (whether State- or nationally-based) offered views which led to the relevant Act being put forward, but only one (Tas) referred to the desire to align conditions with those in other jurisdictions. See, however, Thomson MR, Second Reading Speech for the 2006 Bill amending the Victorian Act, 15 June 2006: “benefit[ting] building and construction firms with national or interstate operations by improving consistency between payment regimes across all three jurisdictions”.

[84] Bailey, n 3 at 1.

[85] Bailey, n 3 at 1-2, 6-7.

[86] See eg, Zhang, n 1 at 392-393.

[87] Royal Commission into the Building and Construction Industry, Security of Payments in the Building and Construction Industry, Discussion Paper 12, 2002, pp 21-22.

[88] Cole, n 6, p 260. In Discussion Paper 12, n 87, pp 21-22, various other options are canvassed including referral of the power by the States under Constitution, s 51(xxxvii) or mirror legislation akin to the approach taken in relation to trade practices or fair trading. See also Zhang, n 1 at 393.

[89] Jacobs, n 1, p 622. MacTiernan (n 18), in introducing the WA Act, recognised the inherent limitations of State-based reform, observing: “This Bill cannot remedy every security of payment issue. Insolvency can be addressed only by Commonwealth legislation.” The restriction is not insurmountable, eg, certain of the Acts allow for a limited right to payment from the principal where the head contractor is unable to pay (see eg, Contractors’ Debts Act 1997 (NSW), Pt 2; Building and Construction Industry Security of Payment Act 2002 (Vic), Pt 3 Div 4) but it does mean that the legislation cannot comprehensively deal with a matter that, as is demonstrated by the references to anecdotes in the Second Reading Speeches, clearly underpinned the original push for the Acts. See Wyhoon T, “Taking a ‘hammering’ – the effect of insolvency on a construction project” (2010) 130 Australian Construction Law Newsletter 36 for a detailed discussion of the law and impact of insolvency in the construction industry.

[90] The relevant bodies are listed in Coggins, n 1 at 2.

[91] In February-March 2010, there were calls for an urgent review of the NSW Act because it was said to be “inadequate to deal with protecting the interests of subcontractors when builders went bust”. It was reported that the Construction, Forestry, Mining and Energy Union approached clients of the company on behalf of subcontractors, on one site in Sydney securing direct payments of $700,000, and, on another, picketing the site and demanding such payment by the developer. It may well be argued that the need for such solutions, which were acknowledged by the union to be “more a moral argument than it is legal”, was exactly the sort of matter that the NSW Act was designed to forestall. See Wen P, “Subcontractors unlikely to see Austruct money”, Sydney Morning Herald, 9 February 2010; Cranston M, “Austruc liquidated owing $50 million”, Australian Financial Review, 2 March 2010; Cranston M, “Payment issue sparks protest” Australian Financial Review, 8 March 2010.

[92] Zhang, n 1 at 377.

[93] See n 32.

[94] See eg, Hulls R, Second Reading Speech for the Courts Legislation Amendment (Judicial Resolution Conference) Bill, Legislative Assembly (Vic), 28 July 2009.

[95] See Shnookal, n 40 at 18.

[96] Vickery P, The Technology, Engineering and Construction List (TEC List) – de force et de beauté (2009). Pro-active case management has been a feature of such specialist court lists for many years; see, eg, the observations on the practice of the Technology and Construction Court in the UK in Reynolds M, “Crossing the Rubicon” (2010) 26(2) Const LJ 77.

[97] For example, a series of litigation relating to levee banks in Brewarrina, NSW, first came to the NSW Supreme Court in 2002 by way of a summary judgment application in respect of a payment claim under the NSW Act (to which the Council, as principal, did not reply) for approximately $702,678.45: Beckhaus Civil Pty Ltd v Brewarrina Shire Council [2002] NSWSC 960. Macready AsJ granted that application. Over the next four years, several cases followed, including three in the NSW Court of Appeal, both resulting in the original summary judgment application being set aside (Brewarrina Shire Council v Beckhaus Civil Pty Ltd [2003] NSWCA 4; (2003) 56 NSWLR 576) and also dealing with defences and cross-claims raised by the Council. The entirety of the process is outlined in Brewarrina Shire Council v Beckhaus Civil Pty Ltd [2006] NSWCA 361 at [2]- [12] (Tobias JA). See, generally, Ritchie J, “Small town, big litigation – the ongoing saga of Brewarrina Shire Council v Beckhaus” (2005) 17(7) Australian Construction Law Bulletin 73.

[98] A classic example, albeit arising initially from arbitration rather than a security of payment adjudication, is the “juggernaut” of a dispute over a $2,000 cabinet contract which was finally halted by Brooking J (with the concurrence of Starke and Kaye JJ) nearly three years after it began its career through the Victorian courts: SMK Cabinets v Hili Modern Electrics Pty Ltd [1984] VicRp 31; [1984] VR 391 at 392-393.

[99] That security of payment adjudication sits at the end of the spectrum favouring speed (and therefore thrift) over exhaustive forensic consideration is reflected in McMurdo J’s recent acceptance that an adjudicator had discharged his duty by ruling “as best he could within the time constraints upon him”: Spankie v James Trowse Constructions Pty Ltd [2010] QSC 29 at [34].

[100] As is noted in Shnookal, n 15 at 15, a similar attitude is being taken in the Federal Court and Victorian County Court.

[101] Hickory Developments Pty Ltd v Schiavello (Vic) Pty Ltd [2009] VSC 156 at [12].

[102] McLachlin B, “Judging the ‘vanishing trial’ in the construction industry” (2010) 5(2) Construction Law International 9 at 11. Similar comments have been made by, eg, Victorian Chief Justice Warren in launching the Commercial Court (see also Warren M, “ADR and a different approach to litigation” (Speech to Law Institute of Victoria, 18 March 2009) [2009] VicJSchol 2) and by Justice David Byrne (Byrne D,“The future of litigation of construction disputes” (2007) 23 BCL 398 at 404-405).

[103] Kirkham, n 28 at 190.

[104] See eg, Chan P, “Set-offs, certified payments and Singapore’s Security of Payments Act 2004” [2005] ICLR 330.

[105] In the context of the consideration being given by Malaysia to the adoption of security of payment legislation, Constable A, “Construction industry payment and adjudication legislation: the choice that lies ahead for Malaysia” [2006] ICLR 78 at 89 has likewise identified the need “to learn from the mistakes of others, and pick the best of each system to combine together into a scheme which may be embraced by all parts of the construction industry”.

[106] Zhang, n 1 at 390.

[107] See, eg, Cordery, n 21; Thomas D, “Time to improve: Adjudication reform in the UK” (2010) 5(3) Construction Law International 33.

[108] Review of Civil Litigation Costs, Final Report (2010).

[109] See Nationwide Academy for Dispute Resolution (UK) Ltd, http://www.nadr.co.uk.

[110] See eg, Bristow DI, Glaholt DW, Reynolds RB and Wise HM, Construction, Builders’ and Mechanics’ Liens in Canada (7th ed, 2005); Sweet J and Schneier MM, Legal Aspects of Architecture, Engineering and the Construction Process (8th ed, 2009) pp 648-59. Various US States have enacted legislation which, like the East Coast Acts, intervenes within the payment provisions of construction contracts, eg the New York Prompt Payment Act 2002.

[111] While this point appears trite, very little comparative analysis of means for securing of payment across (as opposed to within) these jurisdictions has been undertaken. See (from the NZ viewpoint) Kennedy-Grant, n 60 (“Adjudication”) at 409: “there is very little reference to United Kingdom or Australian authority in the decisions which have come out of the courts under the Act”.

[112] See n 83.

[113] Cole, n 6, Vol 8, pp 229-230.

[114] See n 9.

[115] See eg, Loots and Charrett, n 1, pp 242-243; Zhang, n 1 at 383-386.

[116] See eg, Minter Ellison, n 5, pp 12-20.

[117] Lloyd, n 24 at 461.

[118] “Security of Payment: The fast and easy way to get paid” (2007 brochure by the Victorian Building Commission on the Victorian Act), http://www.buildingcommission.com.au/resources/documents/13202_BC_Security_of_Pay_DL.pdf (viewed 28 July 2010).

[119] See eg, Department for Business Innovation and Skills (UK), Consultation on Amendments to the Scheme for Construction Contracts (England and Wales) Regulations 1998 (2010).

[120] Bailey, n 3 at 3.

[121] As was noted in the Second Reading Speech for the Building and Construction Industry Security of Payment (Amendment) Bill 2006 (Vic), the revised variations scheme seeks to address “the concern that such disputes on major contracts should not be subject to the security of payment scheme and the normal contract methods of dispute resolution should apply” (Thomson MR, 15 June 2006).

[122] Zhang, n 1 at 395. See also Chan, n 104 at 336 (Singapore context).

[123] Davenport, n 12 (“A proposal”) at 14-20.

[124] Davenport, n 12 (“A proposal”) at 13.

[125] Coggins, n 1 at 14.

[126] Cole, n 6, pp 245-253.

[127] Cordery, n 21 at 690.

[128] The legislation’s success in this regard should not, however, be over-stated; eg 17% of respondents to Brand and Uher’s 2007 survey indicated that the frequency of late payments had decreased since the introduction of the NSW Act: Brand and Uher, n 9 at 15. Nonetheless, the authors conclude (at 20): “although the culture of making late payments remains well entrenched in the construction industry, there does appear to be a modest downward trend in the frequency of late payments since the [authors’] 2004 study.”

[129] Kennedy-Grant, n 60 (“Adjudication”) at 409. Similarly, Brand and Uher, n 9 at 20, propose that “the requirement under the [NSW] Act of endorsing payment claims encourages communication between the parties, thus providing an opportunity for early dispute avoidance or resolution”.