SOPA Not So Super?

As the Building and Construction Industry (Security of Payment) Act 2021 (“SOPA”) continues in its infancy alongside the Constructions Contracts Act 2004, there remain questions as to how effective SOPA is in quickly resolving payment disputes. Recently, Musikanth J in OSB Group Pty Ltd v Complete Hire & Sales Pty Ltd [2024] WASC 310 (“OSB”) discussed a point of contention between SOPA and the Australian Consumer Law 2010 (Cth) (“ACL”) when seeking summary judgment for a payment claim under SOPA.

How payment disputes arise under SOPA

A person who, under a construction contract, has undertaken to carry out construction work or supply related goods and services is entitled to a ‘progress payment’.¹

The mechanism by which the right arises is the giving of a ‘payment claim’ to the person who is or may be liable for the payment (“Respondent”).²

The person liable to pay the payment claim has an opportunity to respond by giving a ‘payment schedule’ to the person making the claim (“Claimant”), within 15 business days (or earlier if required by the contract).³

If the Respondent does not provide a payment schedule in the prescribed time, the Respondent becomes liable to pay the claimed amount by the due date.⁴

If, by the due date, a respondent fails to pay the claimed amount or indicates a scheduled amount that is less than the claimed amount, the claimant may either:

1. 1. commence proceedings, in a court of competent jurisdiction, to recover the unpaid portion of the claimed or scheduled amount as a debt due to the claimant; or
   2. make an adjudication application in relation to the payment claim.⁵

If the claimed amount is not paid by the due date, SOPA creates a statutory debt in favour of the claimant which may be recovered in proceedings before a competent court.

Importantly, and for this case note, should the claimant elect to commence recovery proceedings in a court of competent jurisdiction, the respondent is not entitled to bring a cross-claim against the claimant.⁶ Nor is the respondent entitled to raise any defence in relation to matters arising under the construction contract in those circumstances.⁷

In a bid to resolve disputes quickly, SOPA supposedly provides security for contractors working in WA. If a payment dispute arises, SOPA aims to keep money flowing by enforcing timely payment with rapid and summary adjudication.

Background of OSB

In the case of OSB, the Claimant undertook to carry out construction work for the Respondent under a construction contract, within the meaning of SOPA. The claimant issued, under SOPA, a payment claim to the respondent which they did not pay.

The claimant commenced proceedings, and rather than applying for adjudication, sought to recover the claimed amount as a statutory debt under SOPA. They sought summary judgment in the Supreme Court of Western Australia.

In OSB, the claimant pleaded that the failure of a respondent to pay a claimed or scheduled amount owed enables the claimant to enforce that statutory debt summarily.⁸ The respondent argued that the claimant had engaged in misleading and deceptive conduct, which rendered the contract void ab initio.

The claimant argued that this was a claim arising out of or in connection to the contract, and accordingly was statute-barred.

The respondent argued that the misleading and deceptive conduct did not arise out of the contract. However, if it did, to the extent the SOPA barred the respondent from claiming relief under the Act, it was rendered void pursuant to s 109 of the Constitution.

Musikanth J agreed with the respondent who pointed out that there is nothing within SOPA that affords an entitlement to summary enforcement.⁹ Rather, it is Order 14 of the Rules of the Supreme Court 1971 (WA).¹⁰ Therefore, summary judgment could not be granted as there were real questions to be tried.

Whether to commence proceedings or apply for adjudication under SOPA

In light of Musikanth J decision, it would seem that recovering the payment claim via summary judgment carries a degree of uncertainty.

The respondent in OSB raised whether there was an entitlement to relief under the ACL, arising from alleged misleading and deceptive conduct by the claimant, inducing any construction contract between the parties, as a defence to the claimant’s claim.¹¹

In OSB, Musikanth J found that the respondent would have been entitled to remedies under the ACL which could be raised as a defence to the payment claim.¹² This meant that there was an inconsistency between the rights conferred by the ACL and the entitlement relied upon by the claimant to payment of a statutory debt under s 26 of SOPA.¹³

S 27(3)(b)(i) and (ii) of SOPA were inconsistent with the ACL as they alter, impair, or detract from the regulation of conduct in trade or commerce under the ACL. That being, the respondent could not raise a cross-claim or defence, in relation to matters arising under a contract.¹⁴ As a result, s 109 of the Constitution renders invalid any entitlement the claimant might have had, to the extent of the inconsistency.¹⁵

Although Musikanth J only found that there is a serious question to be tried, until this matter has been finalised, there is uncertainty a summary judgement application will be successful. Although SOPA proposes a means to keep money flowing, if you are entitled to a payment claim, it may be beneficial to seek an adjudication application rather than commencing proceedings to enforce your entitlement.

¹Building and Construction Industry (Security of Payment) Act 2021 s 17(1) (“SOPA”).
² Ibid s 22.
³ Ibid s 25(1).
⁴ Ibid s 26.
⁵ Ibid s 27(2).
⁶ SOPA s 27(3)(b)(i).
⁷Ibid s 27(3)(b)(ii).
⁸ OSB Group Pty Ltd v Complete Hire & Sales Pty Ltd [2024] WASC 310, [20] (“OSB”).
⁹ Ibid [21].
¹⁰ Rules of the Supreme Court 1971 (WA) O 14.
¹¹ OSB [29].
¹² Ibid [39].
¹³ Ibid [41(1)].
¹⁴ Ibid [41(2)].
¹⁵ Commonwealth Constitution s 109.