Chapter 15 Security of Payment Legislation South Australia
The security of payment legislation in South Australia consists of two acts:
- the Building and Construction Industry Security of Payment Act 2009 (SA) (SA Act); and
- the Worker’s Liens Act 1893 (SA) (SA Liens Act).
The SA Act closely resembles the security of payment legislation in NSW, Victoria and Queensland, with some differences as to timeframes and adjudication. Generally, where there are differences between those Acts, the SA Act has adopted the NSW Act provisions, although it is important to note that there have been changes made to the NSW Act which are not in the SA Act.
When does the legislation apply?
The SA Act applies to any contract, whether written or oral, to carry out construction work (or to supply related goods and services) within South Australia.
‘Construction work’ is defined broadly, and exclusions are essentially limited to mining operations. The SA Act will apply to most typical construction contracts and consultancy agreements.
The SA Act does not apply to a construction contract:
- that forms part of a loan agreement, a contract of guarantee or a contract of insurance;
- for residential building work if the owner lives or intends to live in the building;
- where it is agreed that the consideration payable is not calculated by referring to the value of the work carried out or the goods and services supplied (for example an agreement for lease);
- under which a party undertakes to carry out construction work, or supply related goods and services, as an employee; and
- to the extent the construction work or related services are carried out outside South Australia.
There are other various exemptions to the SA Act. However, the SA Act applies, where the work is carried out in South Australia, even if the construction contract specifies that it is governed by the law of another jurisdiction.
Contracts cannot include a ‘pay when paid’ provision, which is where a contractor makes its liability to pay a subcontractor dependent on payment to the contractor by a principal. Contractual provisions to this effect have no influence.
It is not possible to contract out of the SA Act.
What rights does the legislation confer on contractors?
When can contractors make a claim?
A contractor is entitled to make a claim for a progress payment (known as a payment claim) on the ‘reference date’. A ‘reference date’ is the date on which the payment becomes due and payable under the contract. Where the contract makes no express provision, payment is on the date occurring 15 business days after the payment claim is made. Only one payment claim may be served for each reference date.
A payment claim can only be served within the period specified in the contract or within the period of six months after the relevant construction work was carried out (whichever is later).
How does a contractor make a payment claim?
A claimant makes a progress claim by serving the progress claim on the person who is liable to make the payment under the construction contract (respondent).
A payment claim must:
- identify the construction work or related goods and services;
- specify the amount of the progress payment claimed (claimed amount);
- state that it is made under the SA Act.
What types of payment are excluded?
No types of payment are expressly excluded from being claimed, however the payment claim must only include payment for construction work under the contract. Unless the contract expressly makes provision for payment of damages for a breach of contract, they are not claimable in a payment claim.
What must a principal do when faced with a claim?
Respondent to serve payment schedule
If a respondent is served with a progress claim, it may reply to the progress claim by providing a payment schedule to the claimant setting out the amount of payment (if any) that the respondent proposes to make. If a respondent does not respond within the time limit, it may be liable to pay the claimed amount.
When to serve a payment schedule
The respondent must provide the payment schedule to the claimant within 15 business days after receiving the payment claim or any shorter time that is stated in the contract. If the relevant contract states a different time limit, that time limit must be shorter than the mandated 15 business days period.
What must be included in the payment schedule?
To comply with the SA Act the payment schedule must:
- identify the relevant payment claim;
- indicate how much the respondent proposes to pay (scheduled amount); and
- if the scheduled amount is less than the claimed amount, explain why and give reasons for withholding payment.
In Fabtech Aust Pty Ltd v Exact Contracting Pty Ltd  SADC 44 Muecke J held that, whilst the question of whether or not a payment schedule complies with the above requirements should not be overly technical, the payment schedule must achieve the basic objective of putting the claiming party on notice as to how much the party making payment intends to pay with reference to the payment claim and the reasons why that amount is lower than the amount claimed, if that is the case.
What amount must be paid?
If the respondent does not provide a payment schedule within the time limit, it is liable to pay the full amount of the payment claim.
If the respondent provides a payment schedule, it must pay the scheduled amount.
When is payment due?
A progress payment becomes due and payable:
- on a date determined in accordance with the construction contract; or
- if the contract does not specify a particular date, 15 business days after service of the payment claim.
Right to interest on unpaid amount
Interest is payable on the unpaid amount of any progress payment that has become due and payable at the rate:
- prescribed under the Supreme Court Act 1935 (SA) in respect of judgment debts of the Supreme Court; or
- specified under the contract,
whichever is the greater.
Right to lien
Where a progress payment becomes due and payable, a claimant may exercise a lien in respect of the unpaid amount over any unfixed plant or materials which the claimant has supplied for use in connection with the carrying out of the construction work for the respondent.
Right to suspend work
A claimant may suspend construction work being carried out (or related goods and services being supplied) if at least two business days have passed since the claimant gave a notice of intention to do so to the respondent because the respondent has not paid either the payment claim, the scheduled amount or the adjudicated amount.
A claimant retains the right to suspend work for up to three business days after they have received payment. A respondent is also liable to reimburse a contractor for any loss or expenses incurred as a result of the suspension. A claimant is unlikely to be liable for losses incurred by the respondent as a consequence of the suspension.
Contractor’s rights if not paid – how to enforce its rights
A claimant has two options to enforce its rights if it is not paid. It may apply:
- to the court for a summary judgment; or
- for adjudication of the payment claim.
Obtaining a summary judgment
The claimant may enforce its right to a progress payment by applying to the court for summary judgment in the amount of:
- the payment claim, where the respondent fails to serve a payment schedule in accordance with the SA Act; and
- any unpaid scheduled amount which remains unpaid on the due date for payment.
How and when to make an adjudication application
A claimant can apply for adjudication of the payment claim if:
- the respondent provides a payment schedule but:
- the scheduled amount in the payment schedule is less than the amount in the payment claim (and the application is made within 15 business days after the claimant receives the payment schedule); or
- the respondent fails to pay the whole or part of the scheduled amount by the due date for payment (and the application is made within 20 business days after the due date for payment); or
- the respondent fails to provide a payment schedule and fails to pay the whole or part of the claimed amount by the due date for payment of the amount provided:
- the claimant notifies the respondent, within 20 business days after the due date for payment, that the claimant intends to adjudicate the payment claim; and
- the respondent is given an opportunity to provide a payment schedule within 5 business days of receiving the notice.
In addition to the requirements for service within the specified times described above, the adjudication application must:
- be in writing;
- be made to an authorised nominating authority chosen by the claimant;
- identify the payment claim to which it relates;
- identify the payment schedule to which it relates, if any;
- be accompanied by the authorised nominating authority’s application fee, if any (the fee must not exceed the Ministerially determined quota); and
- a copy must be served on the respondent concerned.
A claimant may also include submissions with the adjudication application.
On receiving an adjudication application, the authorised nominating authority must refer that application to an adjudicator as soon as practicable.
The adjudicator must not be a party to the contract or have been nominated by either or both parties to be an adjudicator in relation to the contract.
To accept an adjudication application and be appointed to determine the application, the adjudicator must first serve a notice of acceptance on the claimant and the respondent.
How to respond to an adjudication application
The respondent may lodge a response to the adjudication application (adjudication response) at any time within:
- five business days after receiving a copy of the adjudication application; or
- two business days after receiving notice that the adjudicator has accepted the adjudication application,
whichever time expires later.
The adjudication response:
- may only be lodged if the respondent provided a payment schedule within the time limit;
- must be in writing;
- must identify the adjudication application to which it relates;
- must be served on the claimant; and
- may contain any submissions relevant to the response, as long as any reasons for withholding payment were previously raised in the payment schedule provided to the claimant.
When will the adjudicator make a determination?
The adjudicator must determine the adjudication application as expeditiously as possible and within 10 business days after the adjudication response is lodged. The parties may agree to extend this timeframe.
The adjudicator is required to determine:
- the amount of the progress payment to be paid (adjudicated amount);
- the date on which the amount becomes payable; and
- the rate of interest on the amount.
In making a determination, an adjudicator can only consider the following matters:
- the provisions of the SA Act;
- the provisions of the relevant construction contract;
- the payment claim, together with all submissions (including relevant documentation) made by the claimant in support of the adjudication application;
- the payment schedule (if any), together with all submissions (including relevant documentation) made by the respondent in support of its response to the adjudication application; and
- the results of any inspection carried out by the adjudicator.
The adjudicator’s determination must be in writing and must include reasons. However, if both the claimant and the respondent so request, the adjudicator does not need to include reasons in the determination.
When is payment due?
The respondent must pay that adjudicated amount within five business days of the respondent receiving the determination, or a later date as determined by the adjudicator.
Consequences of failing to pay the adjudicated amount
If the respondent fails to pay the whole or any part of the adjudicated amount, the claimant may request an adjudication certificate from the authorised nominating authority and then file the adjudication certificate as a judgment debt in a court.
Further, as the objective of the SA Act is to ‘pay now, argue later’, it is not possible to prevent a claimant from obtaining an adjudication certificate from the authorised nominating authority simply on the basis that there is a high likelihood of the claimant being insolvent. However, if the evidence establishes that there is a high likelihood that the claimant is insolvent, the court has an inherent power, if it is in the interests of justice, to grant an injunction.
- Romaldi and Adelaide Interior Linings Pty Ltd (Linings) were parties to a subcontract for the supply and installation of linings. A dispute arose when Romaldi failed to pay an invoice for progress payments to Linings. Linings served on Romaldi a payment claim under the SA Act, in response to which Romaldi served a payment schedule.
- At adjudication the adjudicator found Romaldi liable for an initial progress payment of $48,194.
- Romaldi was granted an interlocutory injunction restraining Linings from obtaining an adjudication certificate for the adjudication sum on the basis that there was a ‘real risk’ that the impecuniosity of Linings would prevent the recovery of the adjudication sum if the District Court action was successful.
- The Supreme Court discharged the injunction, allowing Listings to obtain and file an adjudication certificate in the Magistrates Court as a judgment for debt. Romaldi’s application for stay of execution was refused on the basis that it sought to circumvent the outcome of the adjudication.
- Romaldi subsequently appealed.
- The court dismissed both appeals, noting that Romaldi had not established a proper ground for granting the injunction, given that Romaldi could still apply for a stay of execution of judgment if no injunction were granted and, as Romaldi had not demonstrated its prospects of success in its damages claim against Linings, had not shown that it would be prejudiced if no stay of execution was granted.
- If Romaldi had established a ground for a stay, the court would have exercised its discretion by balancing all relevant considerations, giving each the weight it deserved. These would be the strength of the plaintiff’s claim; the likelihood of the defendant’s inability to pay; the potential prejudice to the defendant if a stay were granted; the effect of the Act which places the risk that a subcontractor will be unable to refund progress payments on a final determination on the principal or head contractor; and the entitlement of the defendant to a progress payment.
- While the magistrate erred in refusing to hear and determine the application for stay of execution of the judgment on the merits, it was, nonetheless, inevitable that the application for a stay should be dismissed on the merits, as Romaldi had failed to establish that it had a viable claim for damages for breach of contract.
Challenges to the adjudicator’s determination
Section 25(4) of the SA Act provides that if a respondent commences proceedings to set aside a judgment debt (where an adjudication certificate has been filed with a court under section 25(1) of the SA Act), the respondent is not entitled in those proceedings to challenge the adjudicator’s determination. However, following the NSW case law which has evolved in this area, two respondents in SA have attempted to do so.
For example, in Built Environs Pty Ltd v Tali Engineering Pty Ltd & Ors  SASC 84 the Supreme Court of South Australia found that an adjudication determination could be set aside, if:
- the payment claim does not comply with the requirements under the SA Act and does not allow a reasonable principal to ascertain with sufficient certainty the basis of the claim (notwithstanding minor arithmetical errors);
- there is a denial of natural justice (eg. if the adjudicator fails to invite further submissions or evidence from the parties);
- there is a reasonable apprehension of bias on the part of the adjudicator or person nominating the adjudicator; or
- the adjudicator made an error of law.
Maxcon Constructions Pty Ltd v Vadasz (2018) 264 CLR 46;  HCA 5
This case concerned an appeal to the High Court challenging the adjudicator’s determination on the grounds of an error in law. The head contractor also asserted that the payment schedules issued to the contractor were valid and not a ‘pay when paid provision’. The High Court unanimously dismissed the appeal on both points.
- Maxcon (head contractor) and Mr Vadasz (subcontractor) entered into a subcontract for the design and construction of the pilings for an apartment development.
- The subcontractor was required to provide security in the form of cash retention of 5% of the contract sum.
- The security was to be released when the Certificate of Occupancy under the Development Act 1993 (SA) was issued.
- The head contractor deducted retention amounts from the payment schedule, which the subcontractor disputed in an adjudication.
- The adjudicator accepted that the head contractor was not entitled to deduct the retention sum, becauase the retentions amounted to ‘pay when paid provisions’ under the SA Act.
- The head contractor commenced proceedings to have the determination set aside. The head contractor alleged that the adjudicator made an error of law in deciding that the relevant clauses were ‘pay when paid’ provisions.
- The appeal was dismissed. The court held that the adjudicator had not made an error in law in determining that the retention provisions were ‘pay when paid provisions’ under the SA Act.
- The due dates for payment of the retention sum were dependent on something unrelated to the subcontractor’s performance. That is, payment of the retention sum was dependent on the completion of the head contract, which in turn would have enabled a Certificate of Occupancy to be issued. It followed that the head contractor had no right to deduct the retention sum from the scheduled amount.
- Even if the adjudicator had fallen into error, it would have been a non-jurisdictional error.
Worker’s Liens Act 1893 (SA) (SA Liens Act)
When does the legislation apply?
The SA Liens Act and the SA Act operate side by side. A contractor has a choice of procedures in the two Acts to enforce its right to payment for progress payments which have been properly made under the relevant contract and under the SA Act.
The SA Liens Act provides that a person:
- employed in or doing any manual work or personal service (worker);
- contracting with or employed by another person to do work, or to procure work to be done, or to furnish materials in connection with work (being every description of manual work or personal service) (contractor); and
- contracting with or employed by a contractor or subcontractor to do work, or to procure work to be done, or to furnish materials in connection with work for the purposes of the contract made by the contractor or subcontractor,
has a right to liens and charges under the SA Liens Act.
What rights does the legislation confer on contractors?
The right to a worker’s lien
A worker is entitled to a lien for wages for doing work for:
- the owner of land;
- the lessee, sub-lessee, tenant or occupier of land (occupier); or
- a contractor or subcontractor, for the benefit of an owner or occupier,
where that work is done:
- with the express or implied assent of the owner or occupier to the land or to any fixture on the land; or
- for the manufacture of materials which are, with the express or implied assent, of the owner or occupier, used or intended to be used for work done, or intended to be done, to the land or to any fixture on the land.
A worker’s lien is limited to four weeks’ wages up to a maximum of $200.
Right to contractor or subcontractor liens
A contractor or subcontractor is entitled to a lien for the contract price, so far as accrued due, on the estate or interest in land of any owner or occupier in each of the following cases:
- where the work is done, with the express or implied assent of the owner or occupier, to the land or to any fixture on the land; or
- where the materials are, with the express or implied assent of the owner or occupier, used or intended to be used for work done, or intended to be done, to the land or to any fixture on the land.
Limits on liens
If entitled to a lien, a worker may give the owner or occupier a notice in writing in the prescribed form, demanding payment of the wages due and stating the amount and nature of the claim. The worker must, within 14 days after giving the notice, commence an action to enforce the lien, otherwise the lien will cease.
A lien is not available in certain circumstances, including Crown land, goods belonging to the Crown, where the lien extends beyond the contract price or where there is no binding contract.
A lien is available only if it is registered within 28 days after the wages or contract price have become due.
A lien is subject to every dealing, assurance, mortgage, encumbrance, or charge on the estate or interest in the land of the owner or occupier, or on goods the subject of the lien, registered before the registration of the lien. However, a lien takes priority over any unregistered dealing, assurance, mortgage, encumbrance or charge.
Right to charges
A worker is entitled to a charge on any money payable to a contractor or subcontractor for wages in respect of work done under the relevant contract.
A subcontractor is also entitled to a charge on any money payable to a contractor or subcontractor for that portion of the contract price payable to the subcontractor in respect of work done or materials furnished or manufactured under the relevant contract.
Limits on charges
A charge only attaches to money payable under the relevant contract for the purposes for which the work or materials have been done, supplied, or manufactured. The charge will lapse unless an action is brought to enforce the charge within 28 days after the wages or contract price becomes due.
A charge of a worker is currently limited to up to four weeks’ wages, to a maximum of $200.