REUTERS | Darren Staples

Security of payment legislation in Australia – a time for change?

You may recall that back in November I blogged about the UK government’s review of the 2011 amendments to the Construction Act 1996, and I revisited the topic after the consultation closed in January. The results of the consultation have not been published and the relevant page of the BEIS website does not give an indication of when they might be published; rather, it simply states that “We are analysing your feedback”.

However, I was interested to see that the UK is not the only country reviewing its security of payment legislation, and that John Murray has published his review of the Australian legislation, “Building Trust and Harmony”.

I should begin with a confession. I’ve not read the whole of the report but, in fairness, it is 350 pages long and includes 86 recommendations, so it is a mammoth piece of work. I thought that I would take a look at just a few of those recommendations in this week’s blog.

Harmonisation of security of payment legislation in Australia – I should be so lucky

While I have worked abroad, I’ve never worked in Australia, and I’m embarrassed to say that I’ve never been to that great country. Therefore, I’ve not had cause to review Australia’s adjudication legislation in any detail. However, prior to reading the Murray Report I was aware that the different States and Territories each have their own adjudication legislation. In some cases, the legislation differs significantly, although it can broadly be divided into an East Coast model, based on the Building and Construction Industry Security of Payment Act 1999 (New South Wales) and the West Coast model, based on the Construction Contracts Act 2004 (Western Australia).

I am no expert on the Australian federation and its different legal systems, but I have to admit that it has always baffled me that each of the states introduced different security of payment legislation. Although Sydney and Perth are separated by 2,000 miles, they still fall under the same federal government and the same large contractors must work throughout the country.

The different legislation has clearly caused confusion because one of Murray’s principal recommendations is to harmonise it, and to base that on a modified version of the East Coast model. My understanding is that this modified model still only provides for disputes regarding payment claims to be referred to adjudication, and Murray has resisted the urge to change to a UK type model where all disputes can be adjudicated upstream or downstream.

Harmonisation must make sense, but how likely is it? The States and Territories are responsible for their own legislation and the federal government cannot introduce the changes itself. Unless each State and Territory commits to change and is prepared to compromise, harmonisation appears unlikely.

Other recommendations

My overall view of the other recommendations is that, while they are clearly intended to address issues that have arisen with the operation of the legislation over the past 20 years in Australia, there is a risk of over-complicating matters.  For example:

  • In regard to the appointment of adjudicators, Murray recommends that Authorised Nominating Bodies (ANBs) can nominate adjudicators, but they have to be appointed by a Regulator. Alternatively, in disputes which have a value of more than $250,000 the parties can agree the identity of the adjudicator; this seems to me to be far too complex.
  • Murray considers that parties should be able to make an application for a review of the adjudicator’s decision, but he doesn’t clarify whether this is only in respect of jurisdiction, or also concerns the merits of the dispute. Surely a court could not be asked to review the merits as that could stifle the entire adjudication process?
  • According to Murray, adjudicators should be more heavily regulated, including being registered and graded by the Regulator. Is this really necessary?
  • Murray recommends that the legislation should void contractual time bars if compliance with them would not be reasonably possible, would be unreasonably onerous or would serve no commercial purpose. However, although I can see the merits in this proposal, there will clearly be arguments as to what was reasonably possible in the circumstances, etc.

That said, one recommendation that I wholeheartedly agree with is the proposal to stop the adjudication clock over the Christmas shutdown period. After all, nobody wants to work over the festive holiday period!

And finally

While I acknowledge that the UK legislation is far from perfect, it has a refreshing simplicity. Any harmonised legislation that adopts Murray’s recommendations could end up being a lot more complex, but this has got to be better than the patchwork quilt of legislation that currently exists. This is definitely not a case of better the devil you know for the Australian States and Territories.

MCMS Ltd Jonathan Cope

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