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Beware! Recent Developments to Security of Payment Act NSW Claims

Nick Kallipolitis

Security of Payment Act NSW

In the recent case of Patrick Stevedores Operations No.2 Pty Ltd v McConnell Dowell Constructors (Aust) Pty Ltd [2014], the Supreme Court explored two very important features of the Security of Payments Act (SOPA) legislation in NSW:

  1. Can there be a valid payment claim if it is issued after the contract has been terminated and the reference dates do not survive termination?
  2. Does plant and material on order/removed post termination by the contractor fall within the meaning of construction work under the Security of Payment Act?

In both cases the Court answered ‘No.’

The case

Dowell was contracted by Stevedores to carry out upgrade works at its Port Botany Container Terminal. Stevedores terminated the contract before the work was completed.

Under the contract Dowell was entitled to claim for work performed, as well as plant and material ordered up until the date of termination, demobilisation costs and a fixed termination fee. Dowell accordingly issued a Security of Payment Act claim for $55 million which Stevedores disputed.
Feature 1

Dowell took the dispute to adjudication, where the Adjudicator decided on some items claimed in the Application in the amount of $8million. The Adjudicator ran out of time to examine all items as the parties failed to agree on an extension of time.

Dowell, in accordance with s26 of the Security of Payment Act NSW, withdrew the first Application and made a second. The second Adjudicator decided on the amount of $23million. Stevedores filed proceedings in the Supreme Court to have both Adjudication Determinations declared void.
Justice Ball agreed with Stevedores. The payment claims were found to be invalid - the reference dates ceased to exist when the contract was terminated and there was no survival clause about reference dates surviving termination. The Adjudications were void.
Feature 2

Justice Ball also found that plant and materials ordered by Dowell, the costs of demobilisation and the fixed termination fee, didn’t fit the criteria of construction work, or the supply of related goods and services, under the Security of Payment Act NSW.

His Honour found that the ordering of plant and materials was done to put Dowell in a position to meet the contract. It was prepatory in nature, not actual construction work or the supply of related goods and services. Similarly, the removal of equipment was the result of construction work coming to an end, not the termination of the contract. The Court found that the $10 fixed termination fee had no connection to the construction work undertaken.
The lessons

There are a couple of important lessons to learn from this case.

Firstly, in order to potentially avoid your Security of Payment Act NSW claim being invalid, your contracts need to state that reference dates survive termination.

Secondly, that construction contracts should clearly define construction work to include demobilisation and prepatory works, although, there is currently no certainty as to the effectiveness.

It is important that advice is sought from the time of contract negotiation, during the term of the contract, and prior to termination and that any action to exercise any rights under the contract is taken early.

For more information on how to make sure your contract protects you from an invalid Security of Payment Act claim, please contact our Accredited Specialist in Commercial Litigation:

For more information on the Security of Payment Act NSW, please view our Plain English Guides:

Plain English Guide to Contesting a Claim under the Building & Construction Industry Security of Payment Act 1999 (NSW)

Plain English Guide to Making a Claim under the Building & Construction Industry Security of Payment Act 1999 (NSW)