Chapter 15 Security of Payment Legislation Tasmania

The security of payment legislation in Tasmania is:

Building and Construction Industry Security of Payment Act 2009 (Tas) (Tasmanian Act)

When does the legislation apply?

The Tasmanian Act applies to any contract or other arrangement to carry out building or construction work (and related goods and services) carried out inside Tasmania (see Forico Pty Limited v Sive [2018] TASSC 21). It also extends to the supply of construction related goods and services carried out within Tasmania for building or construction work carried out in another state.

The definition of ‘building or construction work’ is expressed to apply to a wide range of work. Unlike security of payment legislation in other states, the Tasmanian Act applies to ‘residential structures’ (regardless of whether the party for whom the work is carried out resides or intends to reside at the premises).

The Tasmanian Act does not apply:

  • where a claim for the payment has been made in another jurisdiction;
  • to a contract that forms part of a loan agreement, a contract of guarantee, insurance or indemnity;
  • where it is agreed that the consideration payable is not calculated by reference to the value of the work carried out or the related goods and services supplied;
  • to a contract to the extent that a party undertakes to carry out work or supply related goods and services as an employee; and
  • to a building or construction contract, or a class of building or construction contracts, prescribed to be a contract or class of contracts to which the Tasmanian Act does not apply

The Tasmanian Act applies 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. 

It is not possible to contract out of the Tasmanian Act.

CASE STUDY

Forico Pty Limited v Sive [2018] TASSC 21

Facts
  • Forico and SEMF Pty Ltd were parties to a contract for building and construction work.
  • Forico sought a review of an adjudication determination which held that a payment claim was valid.
  • After the contract had ended, a dispute arose concerning certain defects in the works.
  • SEMF engaged engineers to conduct an independent engineering assessment and then claimed the costs of the engagement from Forico.
  • The parties disagreed that those costs were carried out under a building or construction contract. 
Result
  • The court held that the costs of the engagement of the engineers was not a payment claim under the Tasmanian Act because the work referred to in the accompanying tax invoice was not the subject of agreement between SEMF and Forico.
  • The court reached its decision based on the limited period of work under the original contract, and that the further work fell outside the agreed contractual period.  There was no extension to the original contract, or new a contract, which was the subject of SEMF’s claim for the costs of the engineers.
  • The adjudicator did not have jurisdiction to make his adjudication under the Tasmanian Act and therefore the adjudicator’s determination was quashed.

The right to make a payment claim

When can a contractor make a claim?

A claim for a progress payment (payment claim) can only be made on or after the date specified in the contract (reference date). If there is no reference date, then the claim may be made on the last day of each month. Importantly, only one payment claim may be served for each reference date. 

Unless the construction contract provides otherwise, a payment claim cannot be made 12 months after the construction work is finished or related goods and services to which the claim relates were last supplied.

How does a contractor make a payment claim?

A person may make a payment claim by addressing a written claim to a person who is liable to make the payment. 

A valid payment claim must:

  • be in writing;
  • be addressed to the person on whom it is served;
  • state the name of the claimant;
  • identify the work or related goods and services in sufficient detail to enable the recipient to assess the claim;
  • specify the amount of the progress payment claimed;
  • state that the claim is made under the Tasmanian Act; and
  • include any prescribed details.

CASE STUDY

Skilltech Consulting Services Pty Ltd v Bold Vision Pty Ltd [2013] TASSC 3

Facts
  • An adjudicator determined that Skilltech Consulting Services Pty Ltd (Skilltech) should pay Bold Vision Pty Ltd (Bold Vision) on a set of documentation dated 14 August 2012 that related to a reference date of 25 July 2012. These were among multiple documents that purported to be payment claims.
  • The parties disagreed on what constituted the contract and its terms. Without requesting further submissions from the parties, the adjudicator determined that a subcontract agreement signed by the parties was the relevant contract. This was partially inconsistent with the parties’ submissions.
Result
  • The court held that a payment claim that had been submitted prematurely could still be valid if all of the characteristics outlined in the Tasmanian Act were satisfied.
  • When multiple payment claims are submitted in relation to a single reference date, the particular payment claim that satisfies the conditions of the Tasmanian Act is the valid payment claim for that reference date, rather than the first of those multiple payment claims.

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 must respond by serving the claimant with a payment schedule setting out the amount that the respondent proposes to pay.

When to serve a payment schedule

The respondent must serve the payment schedule within:

  • 20 business days after the payment claim is served – if a claim relates to a residential structure and the respondent is the owner and not a building practitioner; or
  • 10 business days – for other cases.
What must be included in the payment schedule?

The payment schedule must:

  • identify the payment claim to which it relates;
  • indicate the amount the respondent proposes to pay; and
  • provide an explanation if the scheduled amount is less than the claimed amount.
  What amount must be paid?

If the respondent does not provide a payment schedule within the time limit, it must pay the full amount of the payment claim.

If the respondent does provide 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, payment is due:
  • 20 business days after the payment claim was served – if a claim relates to a residential structure and the respondent is the owner and not a building practitioner; or
  • 10 business days – for other cases.
Right to interest on unpaid amount

Interest is payable on an unpaid amount of a progress payment at the rate prescribed under the Supreme Court Civil Procedure Act 1932 (Tas) or as specified by the contract, whichever is the greater amount.

Contractor’s rights if not paid – how to enforce its rights

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 Tasmanian Act; or
  • any unpaid scheduled amount which remains unpaid on the due date for payment.
Right to lien

If a payment becomes due, the claimant may exercise a lien over any unfixed plant or materials which it has supplied in connection with the carrying out of the work.

Right to suspend work

A claimant may suspend work or the supply of related goods and services two days after serving, on the respondent, a notice of its intention to suspend.

If a claimant is removed from a contract, part of the work or supply of related goods and services as a result of the suspension, the respondent is liable to pay the claimant loss or expenses related to that removal.

Adjudication

How and when to make an adjudication application

A claimant can apply for adjudication of the payment claim within:

  • 10 business days after receiving a payment schedule if the scheduled amount is less than the amount claimed; or
  • 20 business days after the date for payment if the respondent did not pay all of the scheduled amount.

If no payment schedule has been issued and the full amount claimed has not been paid, the claimant must:

  • within 20 business days serve a notice on the respondent of its intention to apply for an adjudication;
  • allow the respondent 5 business days to provide a payment schedule;
  • within 10 business days after that 5 day period, apply for adjudication.

The adjudication application must:

  • be in writing;
  • be made to a nominating authority authorised under the Tasmanian Act to nominate an adjudicator;
  • identify the payment claim and schedule, if any, to which it relates;
  • be accompanied by the application fee, if any, determined by the nominating authority;
  • contain any submissions relating to the application that the applicant thinks fit; and
  • be copied and served on the respondent.

A claimant may withdraw an application at any time before it has been determined, however, the applicant will be liable for any fees and expenses to which the adjudicator is entitled.

A nominating authority must refer the matter to an adjudicator as soon as practicable. The nominated adjudicator may accept the appointment by serving notice of acceptance on the parties. 

How to respond to an adjudication application

The respondent must lodge its adjudication response by the later of:

  • 10 business days after receiving any application; or
  • 5 days after receiving the notice of the adjudicator’s acceptance.
The adjudication response

A respondent may only lodge an adjudication response if the respondent issued a payment schedule within the time allowed by the Tasmanian Act.

The adjudication response:
  • must be in writing;
  • must identify the adjudication application to which it relates;
  • may contain any relevant submissions which the respondent thinks fit but may only contain reasons for withholding payment if those reasons were included in the payment schedule;
  • must be copied and served on the claimant.

An adjudicator must not consider an adjudication response lodged out of time.

When will an adjudicator make a determination?

An adjudicator is to determine an application no later than:

  • 10 business days after receiving an adjudication response, or if no response is lodged, 10 business days after the date by which the respondent may lodge a response;
  • if no payment schedule is issued, 10 business days after the adjudicator accepted the application; or
  • any further period as agreed between the parties.

The adjudicator is required to determine:

  • if any or all of a progress payment is to be paid to the claimant; and if so
  • the amount of the payment;
  • the due date of the payment; and
  • the rate of interest payable on the amount.

The Tasmanian Act allows an adjudicator to determine liability for costs in relation to frivolous or vexatious conduct or the making of unfounded submissions. 

In making a determination an adjudicator must only consider:

  • the provisions of the Tasmanian Act;
  • the provisions of the relevant contract;
  • the payment claim, together with all submissions and relevant supporting documentation;
  • the payment schedule and supporting documentation;
  • the results of any inspection carried out by the adjudicator.

A determination must be in writing and contain reasons, unless the parties both request the exclusion of reasons.

CASE STUDY

Modscape Pty Ltd v Francis [2017] TASSC 55

Facts
  • Modscape Pty Ltd (Modscape) was engaged by Fairbrother Pty Ltd (Fairbrother), the head contractor, to construct and install certain modules as part of the redevelopment of a hospital in Tasmania.
  • Modscape subcontracted the electrical part of the works to Stowe Australia Pty Ltd (Stowe).
  • A dispute arose between Fairbrother and Modscape, which resulted in Fairbrother taking work out of Modscape’s hands.  Fairbrother engaged Stowe directly to perform this work. 
  • On 19 September 2016, Stowe served a payment claim on Modscape, claiming payment for work performed after 26 May 2016 under the subcontract. 
  • Modscape disputed the payment claim on the grounds that all of the work carried out after 26 May 2016 was performed under Stowe’s contract with Fairbrother and not the subcontract. 
  • Stowe made an adjudication application in respect of the payment claim. 
  • The adjudicator determined that Stowe was entitled to a progress payment on the amount it had claimed. 
  • On 24 February 2017, Stowe served a second payment claim on Modscape.
  • In the second adjudication, the adjudicator invited and received submissions from the parties on whether Modscape was ‘seeking to re-agitate issues which were determined’ in the first adjudication.
Results
  • The court held that there was no denial of natural justice, as the adjudicator had in fact determined the matter on a basis advanced by Stowe. 
  • An adjudicator will breach the requirements of natural justice where an application is determined on a basis for which neither party contended. 
  • The rules of natural justice do not require an adjudicator to give parties the opportunity to comment on their provisional conclusions.  
When is payment due?

A respondent must pay an adjudicated amount within 5 business days after the determination is served, or a later date otherwise determined by the adjudicator. 

Consequences of failing to pay the adjudicated amount

If a claimant files an adjudication certificate in court it is enforceable as a judgment for a debt. The claimant may also suspend the work or the supply of related goods and services two days after serving a notice of intention to suspend on the respondent.

Challenges to the adjudicator’s determination

The Tasmanian Act provides that a respondent cannot challenge the adjudicator’s determination.

Adjudication determinations under the Tasmanian Act can be challenged on similar grounds to security of payment legislation in other states (jurisdictional error) as demonstrated in the case studies set out above. These grounds are very limited.

Updated October 2020