From 21 October 2019, new amendments to the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act) come into effect, including important changes to the adjudication process, new investigation and enforcement powers and significant personal liability provisions. We look at some of the key changes and their impacts below.

Entry into contract

The amendments will apply to contracts entered into on and from 21 October 2019, while existing contracts will be governed by the current Act. For that reason, it is important for stakeholders to know when any upcoming contracts will be entered into, and which regime will apply.

Payment procedures

The concept of ‘reference dates’ will be removed from the Act. This appears to be a significant change because ‘reference dates’ have been at the centre of significant controversy and case law under the Act. Instead, parties will have a statutory right to serve a payment claim on and from the last day of each month (or an earlier date if provided in the contract).

In good news for subcontractors, claimants will be allowed to make a claim even after the contract has been terminated. This closes the loophole identified by the High Court in Southern Han Pty Ltd (in liq) v Lewence Construction Pty Ltd ¹, and will discourage respondents from terminating a contract immediately after work is complete in order to prevent claims being made under the Act.

Importantly, all claims under the Act will need to state that they are made under the Act. This returns the Act to its pre-2014 position and is positive news for both claimants and respondents. Respondents will now have better clarity on which claims need to be responded to with a payment schedule, and will not be ‘trapped’ or ‘tricked’ in situations in which it is not clear whether a claim is or isn’t a claim under the Act; for example, where draft claims are issued for discussion purposes. Claimants who are unfamiliar with the Act can elect whether or when to use the Act, and will also be less likely to inadvertently use up their entitlement to submit a claim, by (for example) issuing repeat unpaid invoices or other claims. Claimants will need to decide whether to label all claims as being made under the Act, or only particular claims for which they intend to utilise the mechanisms of the Act.

Subcontractors will soon benefit from shorter payment terms of no more than 20 business days (compared to the previous 30 business days). Head contractors will need to carefully review their standard contract terms to ensure their upstream payment terms are adjusted so that they can meet their downstream payment obligations to subcontractors for contracts entered into after 21 October 2019.

Adjudication procedures

The Act will now specifically allow for withdrawal of an adjudication application by a claimant, either before or after an adjudicator has been appointed. This will assist where the parties settle the dispute before a determination is made. However, any adjudicator’s fees will still need to be paid. An adjudicator will also have 10 business days after lodgement of the adjudication response to make their determination, which slightly extends the time for making a determination.

If there is an application to the Supreme Court to set aside an adjudicator’s decision for jurisdictional error, the Supreme Court will now have power to set aside only the part of the determination that is affected by that error (as opposed to the whole determination). This means disgruntled respondents will have less incentive to apply for judicial review, except where the jurisdictional error has affected all or a significant part of the adjudicator’s decision, resulting in it being more difficult to have the whole of a determination set aside.

Claimant in liquidation

A company in liquidation will not be allowed to serve a payment claim under the Act or enforce a payment claim or adjudication determination. As we pointed out in April, companies in liquidation currently have the benefit of the Act in NSW, but only until these changes come into effect.

Personal liability for corporate offences

The new laws will also introduce a suite of personal liability provisions for corporate offences.

A new section 34D will create ‘executive liability offences’. Directors and other officers can now be held personally liable for certain corporate offences under the Act or the Building and Construction Industry Security of Payment Regulation 2008 (the Regulation) if they know of, or are recklessly indifferent to the commission of an offence, and fail to take steps to prevent commission of the offence. Executive liability will apply to offences under sections 13(7) and 13(8) of the Act – that is, service of a payment claim by a head contractor without a supporting statement, or service of a false or misleading supporting statement – as well as certain offences under the Regulation regarding the requirements of retention money trust accounts. The amendments to the Act also leave it open for the Regulation to elevate other offences to ‘executive liability offences’ in the future.

A new section 34C will also introduce accessorial liability for corporate offences. This will expose directors and other officers to personal liability for being an accessory to an offence committed by the corporation.

Along with increases to the penalties in the Act for all corporate offences, company officers should be aware of these significant amendments and what is required, particularly in relation to head contractor supporting statements.

Robust investigation and enforcement powers

Finally, a new Part 3A will provide a comprehensive framework for the investigation and enforcement of compliance with the Act by Fair Trading NSW (or the Department of Finance, Services and Innovation). These new provisions are significantly more far-reaching than the powers Fair Trading NSW previously had under the Act. Parliament has suggested that the new framework will bring the powers of Fair Trading NSW in line with the enforcement powers it has under other laws it administers.

¹ [2016] HCA 52.