Companies in Liquidation and the Security of Payment Act 1

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Monday, March 30th, 2015
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On 24 February 2015, the Supreme Court of Victoria made a decision that clarifies the entitlements of companies in liquidation under the Building and Construction Industry Security of Payment Act 2002 (Vic) (SOP Act) and reinforces that the Corporations Act 2001 (Cth) regime in section 553C is paramount.

In Facade Treatment Engineering Limited v Brookfield Multiplex Constructions Pty Ltd [1], the Supreme Court found that the plaintiff could not obtain judgment for interim entitlements under the SOP Act because, as the plaintiff was in liquidation, the amount owing between the parties should be determined in accordance with section 553(C) of the Corporations Act 2001 (Cth).

The position adopted by the Supreme Court of Victoria is likely to be substantially similar in other states and territories which have similar legislative provisions. Particularly, the decision is consistent with the reasoning in the earlier NSW case of Broydn Pty Ltd v Dasein Constructions Pty Ltd [2] (which was cited by the Court [3]) and the recent WA case of Hamersley Iron Pty Ltd v James [4].

Plaintiff’s claim

The plaintiff, a subcontractor, brought a claim in the Supreme Court of Victoria for unpaid payment claims under the SOP Act [5].

The plaintiff was placed into liquidation after making the payment claims but prior to commencing the proceeding.

The plaintiff relied on the usual position under the SOP Act that when a payment claim has been validly made, and there has been no payment schedule, then the plaintiff is entitled to judgment for the amount of the payment claim [6] and the defendant cannot bring a cross claim or raise a defence in relation to matters arising under the contract [7].

Defendant’s response

In the proceeding, the defendant said it had a substantial cross claim against the plaintiff for the additional cost to complete the contract works and liquidated damages.

The defendant also argued that, as the plaintiff was in liquidation, section 553C (1) of the Corporations Act, which provides for opposing claims between the parties to be set off, applies to determine the amount owed between the parties.

The defendant said that to the extent which the operation of section 553C was inconsistent with the SOP Act, then in accordance with section 109 of the Constitution the federal legislation (the Corporations Act) should prevail over the state SOP Act.

Section 553C of the Corporations Act

The Court agreed with the defendant that the application of sections of the SOP Act would be inconsistent with 553C(1) of the Corporations Act and in those circumstances, the Corporations Act should prevail to the extent of the inconsistency. [8]

Particularly, the Court said that to award judgment under the SOP Act without taking into account a cross claim or defence by way of set off, would “would fly directly in the face” [9] of section 553C.

Therefore, the Court concluded that a company in liquidation, to which section 553C applies, is precluded from entering any judgment under section 16(2)(a)(i) of the SOP Act and is further precluded from relying on section 16(4)(b) of the SOP Act, as a bar to a respondent bringing a cross-claim or raising a defence by way of set-off. [10]

Notice under section 553C(2)

The Court also considered section 553C(2) of the Corporations Act, which prevents a party relying on section 553C(1), if it had notice of the other party’s insolvency at the relevant time.

The Court said, following a line of established case law, that the relevant time referred to in section 553C(2) was the date that the parties entered the contract [11]. As in this case, there was no suggestion of the plaintiff’s insolvency at the date of the contract, section 553C(2) did not apply and thus the defendant was entitled to rely on section 553C(1) [12].

Payment Schedule

In the proceeding, the defendant also raised that it had responded to one of the payment claims with a schedule for a nil amount. The Court accepted that position and cited previous case law to conclude that the requirements for a payment schedule “should not be approached in an overly technical manner.”[13]

The Court found that an email from the defendant to the plaintiff, which disputed that the payment claim was valid and explained why, was sufficient to be a payment schedule.

[1] [2015] VSC 41.
[2] [2004] NSWSC 1230.
[3] [2015] VSC 41 at [77]; Vickery J.
[4] [2015] WASC 10
[5] Section 16(2)(a)(i) of the SOP Act.
[6] Ibid.
[7] Section 16(4)(b) of the SOP Act.
[8] [2015] VSC 41 at [81]; Vickery J.
[9] Ibid at [80]; Vickery J.
[10] Ibid at [85]; Vickery J.
[11] Ibid at [97]; Vickery J.
[12] Ibid at [99] and [100]; Vickery J.
[13] [2015] VSC 41 at [29].
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  1. G Barry Higgs

    Seems to be an eminently sensible judgement