Australia: Companies in liquidation precluded from recovering progress payments under the Building and Construction Industry Security of Payment Act 2002 (Vic)

Today in Victoria, the Court of Appeal handed down a decision which provides greater certainty for the construction industry as to whether companies in liquidation can seek to recover interim entitlements under the Building and Construction Industry Security of Payment Act 2002 (Vic) (SOP Act) and clarified the relationship between the SOP Act and the set off provisions in the Corporations Act 2001 (Cth) (Corporations Act).

In Facade Treatment Engineering Pty Ltd (in liquidation) v Brookfield Multiplex Constructions Pty Ltd [2016] VSCA 247, Chief Justice Warren and Justices of Appeal Tate and McLeish held that the Applicant, being a company in liquidation, was precluded from obtaining judgment under the SOP Act for unpaid payment claims.

Facts

The Applicant and the Respondent were parties to a subcontract for construction works and the Applicant, by then in liquidation, sought judgment for the amount of two unpaid payment claims under the SOP Act.

The Respondent asserted that despite any interim entitlements the Applicant might have under the SOP Act, upon the final resolution of the amounts owed under the Subcontract, the Respondent would be owed a substantial amount by the Applicant relating to the increased cost to complete the subcontract works.

Judgment

The Court of Appeal held, in favour of the Respondent, that the SOP Act does not create an entitlement to progress payments for persons who are in liquidation, because such persons are no longer carrying out construction work pursuant to a construction contract.

In addition, the Respondent succeeded in its contention that the provisions of the SOP Act were inconsistent with the express automatic set-off under section 553C of Corporations Act and therefore, under section 109 of the Constitution, the SOP Act was invalid to the extent of the inconsistency.

Section 553C of the Corporations Act applies "where there have been mutual credits, mutual debts or other mutual dealings between an insolvent company that is being wound up and a person who wants to have a debt or claim admitted against the company."

The Court of Appeal upheld the decision of Justice Vickery, that a company in liquidation 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.