Building and Construction Industry Security of Payment Act – The Effect of Section 34 on Various Agreements

23/03/2021

Section 34 of the Building and Construction Industry Security of Payment Act (SOP Act) states:

          “Not contracting out

1. The provisions of this Act have effect despite any provision to the contrary in any contract.
2. A provision of any agreement (whether in writing or not):-
   1. under which the operation of this Act is, or is purported to be, excluding, modified or restricted (or that has the effect of excluding modifying or restricting the operation of this Act); or
   2. that may reasonably be construed as an attempt to deter a person from taking action under this Act,

SOP Act; effect of negotiations and agreements

Section 34 of the SOP Act is expressed very widely.

Recently the Supreme Court of New South Wales in Reward Interiors Pty Limited (Reward) v Master Fabrications (NSW) AU Pty Limited (Master) had to decide whether a subcontractor was entitled to summary judgment for the difference between an amount claimed in a Payment Claim (referred to as the February Payment Claim) where the Contractor had paid the difference between the amount set out in the Payment Claim and the amount said to have been agreed to by the Contractor and Subcontractor to settle that claim.

This matter was dealt with by way of an Application for a Summary Judgment. 

The facts were briefly:

1. On 29 February 2020 Masters served Reward a Payment Claim for $566,285.61. 
2. Reward did not serve a Payment Schedule.
3. The failure to serve a Payment Schedule would usually give a right under Section 15(2) of the SOP Act for judgment in the amount of $566,285.61 being the amount set out in the Payment Claim.
4. However Reward asserted that there was an agreement with Master that Master would accept the sum of $202,066.81 in full satisfaction of the amount of the February Payment Claim.
5. On 31 March 2020 Master sent an email to Reward stating:
6. “The total payable amount for the February 2020 Progress Claim is $202,066.81”.
7. Later on 31 March 2020 Master served a further Payment Claim (the March Payment Claim) on Reward for $266,570.81 which included the unpaid amount of $202,066.81 from the February Payment Claim.  This confirmed in effect the agreement to accept $202,066.81 for the February Payment Claim.
8. Reward did not serve a Payment Schedule in response to Master’s March Payment Claim.
9. On 21 April 2020 Reward and Master had a meeting (the April Meeting). Reward alleged that there was an agreement reached that Master and Reward agreed that the amount then payable by Reward was no more than $202,066.81.
10. On 22 April 2020 Reward paid Master the sum of $202,066.81 in accordance with the alleged April Meeting agreement.

Master sought summary judgment in the sum of $64,504 being the difference between the March Payment Claim and the amount paid.  As the matter was being dealt with by way of a summary judgment the Court had to assume that Master had agreed to accept $202,066.81 in full satisfaction of the March Payment Claim and that but for Section 34 that agreement would be binding on Master.  His Honour Justice Stevenson based on this assumption said it would be hard to see how such an agreement (to accept a lesser figure following the issue of the Payment Claim) could be characterised as one purporting to exclude, modify or restrict the operation of the SOP Act for the purposes of Section 34(2)(a). 

His Honour said such an agreement in effect acknowledges the operation of the Act but records the parties’ agreement that in the particular circumstances their rights will instead be governed by their agreement. 

The Court then indicated that it was at least arguable that the April agreement assuming it was made was not rendered void by Section 34.  Therefore His Honour dismissed Master’s Application for Summary Judgment for $64,504.

The real question is whether Section 34 of the SOP Act renders void an agreement entered into between the parties to a Building Contract following service of a Payment Claim to compromise a dispute concerning the amount due under that Payment Claim. 

It is our expectation that in the circumstances following the service of the Payment Claim and the parties agreeing as to the amount paid would not be in breach of Section 34 of the SOP Act.

If you have any queries in relation to any building and construction matters including Applications under the Building and Construction Industry Security of Payment Act please contact our experienced Building and Construction Lawyers at Watson & Watson Lawyers by contacting Richard Watson Accredited Specialist Building & Construction or his Personal Assistant, Shereen Da Gloria to discuss your matter and seek timely advice.

This is only a preliminary view and is not to be taken as legal advice without first contacting Watson & Watson Solicitors on 9221 6011.