Construction Contracts and the Security Payment Act – nailing the progress payment

By Su-Ann Loh

Since it came into operation in January 2003, there has not been a lot of case law around the application of the Building and Construction Industry Payment Act (2002) (VIC) in Victoria.

We have found that many of the contract disputes that come across our table for building work or supply of goods and services could be mitigated with reference to the Act in the paperwork and a proper understanding of its application to the dispute in question.

The statutory entitlement available under the Act (and its sister Regulation) for a contractor or a sub-contractor or, as the case may be, a supplier, for progress payments is powerful and was broadened by amendments in 2007 to include the accrual of penalty interest to unpaid progress payments and provides that contracts that try to remove the entitlement will be void (under section 48).

A reason for some reluctance in actively relying on the Act may be because of the pressures associated with completing a construction job. Another reason may be the misunderstanding of the application of section 47 with other parts of the Act.

In short, section 47 says that, notwithstanding the procedure by which a contractor is able to recovery progress payments, a party can still exercise their legal right to proceed to Court on the very construction contract in question, and if the Court makes a decision on the contract they must, in their decision, take into consideration any amounts paid and, if appropriate, order a restitution (refund, for example) of any amounts paid.

So does this section allow the builder to sue the contractor, after the builder has made a progress payment to the contractor (because of the contractor’s payment claim under the Act) for a refund of what the builder just paid the contractor?

In the Supreme Court of Queensland case of Gambaro -v- Rohrig (Qld) Pty Ltd [2015] QCA 288, Gambaro argued “yes”: there should be a restitution, whilst Rohrig argued “no”.

Gambaro complied with the adjudicator’s determination that a progress payment be paid to Rohrig but then immediately made application to the Court for restitution for some sums of money on the basis that the construction contract did not allow for that sum to be payable as a progress payment as it would exceed the assessed variation sums in the construction contract, and therefore Gambaro was entitled to restitution of that excess. Gambaro relied on section 100 of the Queensland equivalent of the Act in support of its argument that they were entitled to recover the excess immediately if there was no contractual entitlement to it as a progress payment even if there is no final determination on the interpretation of construction contract.

Predictably Rohrig took the opposite view, which was a view the Court ultimately agreed with. It was found that although a final determination on the interpretation of the construction contract may override the progress payment such that there is a restitution, it is not in line with the objectives of the Act to override the statutory entitlement to a progress payment until the final determination of the construction contract and the entitlements therein is made.

In short, progress payments are made on account only and are not the ultimate determiner of contractual entitlements. It is the antithesis of the object of the Act if once the progress payment is made the payer/builder/principal can apply to the Court to have it immediately refunded.

In reality this means that suing for a refund (if entitled to one) is only available to the payer/builder/principal after completion of the contract.

Although this case only has persuasive value in Victoria it is another bow in the arrow for contractors during the course of a project, especially where continued funding for ongoing work is necessary.

This is not an easy area to understand so if you would like advice on how best to respond to a payment claim or to make a payment claim for progress payments including general advice on ensuring you are entitled to make those claims based on your paperwork, please contact Su-Ann Loh (Senior Associate, Dispute Resolution Practice Group) or Adam Foster (Associate, Dispute Resolution Practice Group) on 03 9629 9629.