Beyond Contractual Barriers: Maximizing SOP Act Protections for Progress Payments

By Dr Samer Skaik

The Security of Payment (SOP) Act stands as a crucial piece of legislation designed to facilitate timely progress payments in the construction industry. However, complexities arise when contractual preconditions conflict with the objectives of the SOP Act. In this post, we discuss legal issues surrounding the invalidation of such preconditions, drawing insights from various authorities. We will also explore how the SOP Act (Vic) interacts with and potentially supersedes other statutory requirements imposed by the Domestic Building Contracts Act 1995.

The Power of SOP Act Precondition Prohibitions:
Section 48 of the SOP Act (VIC) explicitly prevents respondents from contracting out of the Act by imposing preconditions to payment claims. For instance, a contractual clause sought to modify or restrict the circumstances in which a person was entitled to a progress payment was deemed invalid in the case of J Hutchinson Pty Ltd v Glavcom Pty Ltd [2016] NSWSC 126. The Act’s stance on contractual preconditions is a crucial aspect that safeguards claimants’ rights.

Precedents Invalidating Contractual Constraints:
Numerous authorities consistently invalidate contractual preconditions that undermine the SOP Act’s objectives. For instance:

  • Lean Field Developments Pty Ltd v E & I Global Solutions (Aust) Pty Ltd [2014] QSC 293 emphasizes that clauses delaying or preventing a reference date from arising will likely be deemed invalid.
  • Hutchinson Pty Ltd v Glavcom Pty Ltd [2016] NSWSC 126 highlights the invalidity of clauses imposing conditions on a reference date or modifying a contractor’s entitlement to a progress claim.
  • BRB Modular Pty Ltd v AWX Constructions Pty Ltd [2015] QSC 218 declares void a precondition requiring a statutory declaration from the contractor.
  • John Holland Pty Ltd v Coastal Dredging & Construction Pty Ltd [2012] QCA 150 rejects preconditions that attempt to contract out of the SOP Act.

Harmonizing SOP Act with Other Legislation:
As a fundamental legal principle, the SOP Act in Victoria, being a more recent statute, may modify or override older legislation. In a recent successful adjudication case, the SOP Act’s explicit grant of statutory rights to progress payments prevails over requirements in the Domestic Building Contracts Act (1995) about the availability of domestic building insurance (also known as home warranty insurance) as a precondition to make payment to the contractor. The argument in that case asserted that the SOP Act’s legislative intent is to streamline payment processes, emphasizing financial stability in the construction industry, independent of any other contractual or statutory terms that seek to negate the contractor’s right to progress payment.

Jurisdictional Boundaries:
Adjudicators under the SOP Act must assess jurisdictional limits carefully. Engaging with provisions from other acts, such as the Domestic Building Contracts Act, may risk overstepping these boundaries. The focus should remain on determining whether a construction contract under the SOP Act exists.

SOP Act Applicability:
Section 7(2)(b) of the SOP Act excludes certain domestic building contracts, but it is crucial to recognize that this exclusion may not apply to certain cases. If the building owner is engaged in the business of building residences, as evident in the adjudication case, the SOP Act remains applicable, granting the adjudicator jurisdiction to handle the adjudication application.

Understanding the legal dynamics surrounding contractual preconditions and the SOP Act is paramount for claimants seeking progress payments in the construction industry. By recognizing the invalidation of such constraints and harmonizing the SOP Act with other legislative requirements, stakeholders can navigate the complexities and uphold the principles of fair and timely payment outlined in the SOP Act.

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