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Judgment handed down in Facade Treatment Engineering Pty Ltd v Brookfield Multiplex Constructions Pty Ltd
14 October 2016
The Court of Appeal delivered an important insolvency decision today. It decided that companies in liquidation cannot use the progress payment regime under the Building and Construction Industry Security of Payment Act 2002 (‘BCISP Act’) to enforce payment claims.
The Court dismissed an appeal by Façade Treatment Engineering Pty Ltd (‘the applicant’) against a decision that it was not entitled to enter summary judgment against Brookfield Multiplex Constructions Pty Ltd (‘the respondent’) under s 16(2)(a)(i) of the BCISP Act in respect of unpaid payment claims.
The applicant and respondent had entered into a subcontract for the design, supply and installation of façade and curtain works. The BCISP Act applied to the subcontract. Section 9 of that Act establishes an entitlement to progress payments, through the submission of payment claims. Broadly, s 16 of the BCISP Act provides for a party to obtain summary judgment against a respondent who fails to pay on a payment claim, and precludes the respondent from bringing any cross-claim or relying on any defence.
The subcontract provided for the applicant to submit payment claims to the respondent on the 25th day of each month in respect of work done in that month. Within 14 days of receiving the payment claim, the respondent was required to assess the claim, and it could issue the applicant a payment schedule stating the amount of payment to be made to the applicant.
In August and September 2012 the applicant submitted payment claims to the respondent, but the respondent did not pay the first payment claim in full, and did not pay any amount under the second payment claim. The applicant, by then in liquidation, commenced proceedings in the Supreme Court to recover the outstanding amounts under the payment claims, pursuant to s 16 of the BCISP Act. The respondent counterclaimed for completion costs, as the respondent had taken the works out of the applicant’s hands, and liquidated damages. The trial judge dismissed the applicant’s proceeding.
The Court of Appeal considered the construction and operation of the BCISP Act, and concluded that the text, context and purpose of the BCISP Act provided a number of indications that the entitlement to progress payments under s 9 of that Act is only available to persons who have undertaken to, and are capable of, carrying out construction work and/or supplying related goods and services. Consequently, s 9, and therefore pt 3 of the BCISP Act, was not available to persons in liquidation, meaning the applicant was not entitled to progress payments.
The Court of Appeal also considered whether those parts of s 16 of the BCISP Act that provide for summary judgment and preclude cross-claims and defences are inconsistent with s 553C of the Corporations Act 2001 (Cth) (‘Corporations Act’) pursuant to s 109 of the Commonwealth Constitution. Section 553C of the Corporations Act provides for set-off of mutual claims. It provides that, in the context of the winding up of an insolvent company, a party to whom the company owes a debt is entitled to set off that debt against any sum it owes to the company.
The Court held that once a company has gone into liquidation, and where there are mutual dealings so that s 553C is engaged, a payment claim cannot be enforced by means of a summary judgment under s 16(2)(a)(i) of the BCISP Act, and there is no scope for the ousting of the cross-claims or defences under s 16(4)(b). It held that there is an inconsistency between s 16(2)(a)(i) and ss 16(4)(b)(i)–(ii) of the BCISP Act and s 553C of the Corporations Act. The applicant was therefore unable to invoke the protection of s 16(2)(a)(i) and ss 16(4)(b)(i)–(ii) because they were inoperative with respect to the applicant.
Finally, the Court of Appeal determined that the respondent was not precluded from relying on s 553C of the Corporations Act by reason of the exception in s 553C(2). The relevant time for determining notice of insolvency for the purposes of s 553C(2) was the time of entry into the subcontract. As the respondent did not have notice of the applicant’s insolvency at that time, s 553C(2) did not apply in this case. The respondent was therefore able to rely on s 553C.