Active Law’s Newsletter on the Laws affecting the Construction Industry in Queensland

Building Industry Fairness (Security of Payment) Bill 2017 Series

Issue One

On 22 August 2017, the Minister for Housing and Public Works, the Hon. Mick de Brenni introduced the Building Industry Fairness (Security of Payment) Bill 2017 (“BIFB”) into the Queensland State Parliament.

This article is the second in a series of short articles by Active Law’s construction lawyer Paul Hick which discuss the BIFB and the effect it will have on builders and subcontractors if passed into law in its current form.

One of the numerous substantial reforms the BIFB proposes to laws affecting the construction industry in Queensland is the repeal of the Building and Construction Industry Payments Act 2004 (“BCIPA”) and the inclusion of its provisions, somewhat amended, within Chapter 3 of the BIFB.

Chapter 3 – Reference Dates and Contract Termination

Throughout the life of the BCIPA and the equivalent legislation in New South Wales there has been a great deal of judicial commentary and direction on matters pertaining to reference dates. The most recent of note being the decision of the High Court in Southern Han Breakfast Point Pty Ltd (in Liquidation) v Lewence Construction Pty Ltd [2016] HCA 52 (“Southern Han”). Whilst that case may be most notable for confirming that a valid reference date is essential to a claimant’s entitlement to claim payment under security of payment legislation, it is much more significant than that because it confirmed that upon termination of a contract, the rights of the parties were limited to those which had already accrued under the contract at the time of termination.

Where a contract provides for reference dates which form the basis of the right to make a payment claim under security of payment legislation, a reference date cannot arise after termination of the contract unless the contract can be properly interpreted as providing otherwise. For example, it expressly provides for a reference date to arise after termination.

In Southern Han, the Court found that the contract in question did not provide for reference dates to arise after termination and all reference dates that had accrued before termination had been used (a claimant is prohibited from serving more than one payment claim for each reference date). Consequently, there was no reference date available from which the payment claim could be made. Southern Han was dealing with the definition of reference date in section 8(2) of the Building and Construction Industry Security of Payment Act 1999 (NSW) which is in similar terms to the definition of reference date in Schedule 2 of the BCIPA.

So, it can be said that the current state of the law is that if a construction contract is terminated in circumstances where all reference dates that accrued before termination have been used by previous payment claims and the contract does not stipulate that reference dates will arise after termination, a contractor cannot use the adjudication regime in Queensland.

Many builders and subcontractors will be familiar with the increasing prevalence of termination for convenience clauses in their head contracts and subcontracts. The purpose of these clauses is to allow a principal or head contractor the option to terminate a contract/subcontract for their own purposes and without any cause or justification (hence called “termination for convenience”) and in so doing deprive the head contractor/subcontractor of a reference date and the right to make a claim under the BCIPA.

The BIFB seeks to change that. The definition of reference date can be found in section 67 of the BIFB and is in the same terms as the definition in the BCIPA save for the addition of subsection (2) which states:

 “However, if a construction contract is terminated and the contract does not provide for, or purports to prevent, a reference date surviving beyond termination, the final reference date for the contract is the date the contract is terminated.”

The effect of the proposed new provision will be to allow a claimant, where the construction contract has been terminated, one last opportunity to make a payment claim under Chapter 3 and pursue an adjudication application should they choose to. This is a significant development and may affect the business practices and the drafting of contracts and subcontracts in the future.

Whether you are a principal, head contractor or subcontractor, it is imperative to the efficient running of your business that you are prepared for the amendments to the law proposed by the BIFB.  If passed into law in its current form the effect upon your statutory rights and obligations will be substantial.

Active Law’s construction team are very experienced in all aspects of construction law including in the drafting, negotiation and administration of contracts, dispute resolution including litigation, arbitration and of course the procedures under security of payment legislation. Active Law’s Paul Hick has been involved in the construction industry for over 35 years. He is a senior adjudicator under security of payment legislation in QLD, NSW, ACT and SA.

TAKE NOTE – IF YOU ARE SEEKING TO RECOVER PAYMENT UNDER SECURITY OF PAYMENT LEGISLATION, YOU MAY BE ELIGIBLE FOR AN INITIAL CONSULT AND APPRAISAL OF YOUR MATTER WITHOUT COST.

Contact Active Law for more information.