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Can a corporation in liquidation utilise the Building and Construction Industry Security of Payment Act 1999 (NSW) to enforce its progress claims?

  • March 12, 2019

The short answer is yes. The current position in New South Wales is that a corporation in liquidation is entitled to use the mechanisms of the Act.

Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (In Liquidation)

On 12 February 2019 the New South Wales Court of Appeal handed down its decision in Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (In Liquidation) 2019 NSWCA 11 (Seymour Whyte). In its decision, the Court of Appeal determined that the Act is capable of operating for the benefit of a contractor in liquidation.

The Facts:

  • Proceedings arose out of a payment claim made pursuant to a contract between Seymour and Ostwald.
  • Ostwald issued its payment claim and Seymour issued a payment schedule in response.
  • Ostwald elected to go to adjudication on the payment claim under the Act. An adjudicator subsequently determined that the amount due to Ostwald was $5,074,218.27.
  • Seymour commenced proceedings claiming that the determination was invalid because the adjudication application was made outside the time limit specified by the Act.
  • Ostwald filed a cross-claim seeking judgment for the unpaid balance of the payment schedule in the event that the determination was invalid.
  • After the proceedings were commenced the creditors of Ostwald resolved pursuant to s 439C(c) of the Corporations Act that it should be wound up.

Primary Judge Rulings:

The primary Judge held that:

(i)   The Adjudication Determination was valid;

(ii)    If, contrary to (i), the Adjudication Determination was invalid, Ostwald could seek recovery of the Payment Schedule amount in summary                          proceedings as a debt due to it pursuant to 16(2)(a)(i) of the Security of Payment Act;

(iii)   The Act continued to apply notwithstanding that the winding up of Ostwald had commenced; and

(iv)   The judgment obtained by Ostwald following the Adjudication Determination was stayed until the parties’ rights were determined in the                           liquidation by an account of their mutual dealings pursuant to s 553C of the Corporations Act 2001 (Cth)

Points of Appeal: 

Seymour appealed the decision including on the basis that the Act as a matter of construction was incapable of applying to a builder or subcontractor which had gone into liquidation in insolvency, as was held by the Victorian Court of Appeal in ‘Façade Treatment Engineering Pty Ltd (in liq) v Brookfield Multiplex Constructions Pty Ltd [2016] VSCA 247′. 

Court of Appeal Ruling:

The Court of Appeal held that:

(i)     The Adjudication Application was invalid.

(ii)    Ostwald was entitled to institute proceedings against Seymour pursuant to s 16(2)(a)(i) of the Act seeking to recover the unpaid                                           payment schedule amount as a debt.

(iii)   The fact that Ostwald’s liquidation was deemed to have commenced before it filed its cross-claim does not prevent it pursuing that claim to                     judgment. ‘Façade’ originally stated that the opposite was the case and that a company in liquidation is prevented in seeking judgment. This                     was not followed as it was ruled to have been “plainly wrong”.

(iv)    The Act, as a matter of construction, is capable of operating for the benefit of a builder or sub-contractor which has gone into liquidation in                      insolvency.

Take away

The above decision is likely to be short lived. Recent amendments to the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act) are due to be implemented in the near future.

One of the key amendments will be a stipulation that:

(i)     A corporation in liquidation cannot serve a payment claim or take action to enforce a payment claim (including by making an application for the            adjudication of the claim) or an adjudication determination; and

(ii)    If a corporation in liquidation has made an adjudication application that is not finally determined immediately before the day on                                        which it commenced to be in liquidation, the application is taken to have been withdrawn on that day.

Michael Tuck

Michael graduated from the University of New England with a Bachelor of Laws and from the Australian National University with a Graduate Diploma in Legal Practice. He also holds an Associates Degree in Policing from Charles Sturt University. Prior to joining Keystone Lawyers Michael worked in International law firms in Hong Kong within the Construction & Commercial Litigation departments. Michael has experience in a broad range of litigation and dispute resolution matters, with a focus primarily on high-value construction disputes. Before entering law Michael attained the rank of Senior Constable with New South Wales Police performing general duties and as a motorcyclist in traffic and highway patrol. Michael’s experience has provided him with a strong eye for detail and the ability to provide practical legal solutions in a range of matters.