The Court of Appeal of the Victorian Supreme Court has heard an appeal of decision of Vickery J in Facade Treatment Engineering Pty Ltd (in liquidation) v Brookfield Multiplex Constructions Pty Ltd [2015] VSC 41.  In that earlier decision it was has held that provisions of the Building and Construction Industry Security of Payment Act 2002 (Vic) (the BCISP Act) are constitutionally inconsistent with provisions of the Corporations Act 2001 (Cth) relating to set-off and mutual credits and debts in the context of insolvency under the provisions of the Corporations Act 2001 (Cth).

On appeal, the Court found that it was unnecessary to consider the issue of constitutional inconsistency on the basis that it found that section 9(1) of the BCISP Act does not create an entitlement to progress payments for persons who are in liquidation and the payment regime in Part 3 of the BCISP Act is not available to persons in liquidation. 

The Facts

Facade and Multiplex entered into a subcontract dated 7 September 2011 for the design, supply and installation of facade and curtain wall works on the Upper West Side development in Melbourne. Payment claims were to be submitted on the 25th day of each month and were to include work done to the last day of the month.  Facade made Payment Claim 18 on 23 August 2012 and Payment Claim 19 on 27 September 2012.

On 18 September 2012, following Multiplex becoming aware about outstanding amounts payable to subcontractors, Multiplex expressed concern at Facade's apparent lack of underlying cash balances to complete the works.  On 5 October 2012, in response to Payment Claim 19, Multiplex responded alleging that Facade had supplied insufficient information to Multiplex and that the payment claim was therefore invalid.  In particular concern was expressed about accuracy of the Statutory Declaration about payment of subcontractors.  On 10 October 2012 Multiplex served notice on Facade taking the works out of Facades hands.

On 6 February 2013, the Supreme Court made winding up order for Facade.

After Facade commenced proceedings under s16(2)(a)(i) of the BCISP Act for recovery of unpaid amounts of $1,193,469.20, Multiplex revealed that it had claims against Facade in excess of the quantum of those claims of $10,309,650 which it sought to set-off against the payment claims brought by Facade.

The Decision

Facade appealed the decision on constitutional issues, the application of s553C(2) of the Corporations Act 2001 (Cth) and whether the 5 October 2012 email constituted a valid payment schedule.

In addition, Multiplex contended that the decision of the trial judge should be affirmed on the additional ground that the BCISP Act only applies to claimants that are going concerns.

In the decision, regard was had to the stated objectives of the BCISP Act and the parliamentary second reading speeches.  In particular, the stated objective of the BCISP Act is to ensure prompt payment to assist those in the construction industry who depend on cash flow for their continued existence.  The logic followed that once a party enters liquidation, it no longer requires cash flow to conduct construction work or to supply related goods and services.

This was a slightly narrower interpretation to the New South Wales decision of Young CJ in Eq in Brodyn Pty Ltd v Dasein Construction Pty Ltd (2005) 21 BCL 443 where it was found that the NSW Act did not apply where the subcontractor seeking payment was not a going concern.  The decision also distinguished liquidation from administration.

It was decided that s9(1) of the BCISP Act creates an entitlement to progress payments only for persons who have undertaken to, and continue to, carry out construction work or supply related goods and services and that once a winding up order is made in respect of a builder that it would cease to be a claimant for the purposes of Part 3 of the BCISP Act.

Lessons from the Case

Following this decision, it is confirmed that a claimant who is in liquidation is no longer entitled to progress payments or the payment regime in Part 3 of the BCISP Act.

A claimant who is in, or is likely to be in, a perilous financial state needs to exercise their rights under the BCISP Act to pursue recovery within a short period of time and before a winding up order is made.  Alternatives to liquidation including administration need to be considered to preserve rights under the BCISP Act.

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