Legal considerations in the operation of security of payment legislation

By Dr Samer Skaik

The Building and Construction Industry Security of Payment (SOP) Act in New South wales is a crucial piece of legislation that impacts the Australian construction industry. This Act holds significant implications for contracting parties, civil proceedings, judicial intervention, and the overall resolution of payment disputes. In this post, we will delve into the key provisions of the SOP Act and the impact it has on various aspects of construction contracts.

Contracting out of the SOP Act

The SOP Act explicitly prohibits contracting parties from attempting to contract out of its provisions. Any provision in an agreement that seeks to exclude, modify, or restrict the operation of the SOP Act is deemed void. This provision has been subject to intense debates in courts, reflecting the challenges faced by adjudicators and judges in its practical application. The Act has transformed from providing default mechanisms to establishing a strong entitlement to prompt, interim progress payments.

Effect on Civil Proceedings

The SOP Act recognizes the provisional nature of the adjudication process and clarifies that it does not affect rights under the contract or any civil proceedings arising from it. It allows for the commencement of proceedings before, during, or after the start of the adjudication process. Furthermore, the Act mandates that courts or tribunals in proceedings related to construction contracts must consider any amount paid under the SOP Act and may make orders for the restitution of any mistakenly paid amount. This provision acts as a safeguard to correct any adjudicator errors in subsequent proceedings.

Clarifications from Judicial Precedents

Several court cases have provided valuable clarifications regarding the SOP Act. In Ceerose Pty Ltd v Building Products Australia Pty Ltd, the court clarified the purpose of section 32 within the SOP Act, emphasizing that it doesn’t grant jurisdiction to hear claims but reinforces the final rights of the parties as determined by the court. Additionally, section 32 is seen as a safety net for aggrieved parties affected by interim determinations.

Judicial Intervention

The SOP Act minimizes judicial involvement in adjudication procedures but does not preclude judicial review of adjudication determinations. It allows for the registration of an adjudicator’s determination as a judgment, with provisions for the respondent to challenge the determination. However, the respondent is required to pay the unpaid portion of the adjudicated amount into the court as security pending the final determination of proceedings. Judicial review of adjudication determinations is permissible under the legislative scheme, provided that the adjudicator committed a jurisdictional error.

The Role of Adjudicators

The role of adjudicators is pivotal in the application and interpretation of the Security of Payment (SOP) Act within the construction industry. Courts have extensively examined the position of adjudicators, acknowledging their unique function within the framework of the SOP Act. The nature of an adjudicator’s role is not clear-cut, with varying judicial interpretations regarding their position in relation to administrative tribunals or inferior courts. Adjudication, known for its abbreviated timeframes, has been acknowledged as a rough and ready dispute resolution process. Australian courts have generally upheld adjudicator’s decisions containing non-jurisdictional errors of law, only quashing those where adjudicators have strayed outside the boundaries of their jurisdiction. However, the success of the legislation in dealing with smaller payment claims has led to numerous judicial review applications challenging adjudicator’s determinations on large payment claims, leading to the formalization of the adjudication process, deviating from the simple process envisioned by Parliament. The stringent timeframes and the complexity of cases often place adjudicators in a pressure-cooker environment, requiring them to make decisions on complex claims involving substantial volumes of documents within limited time. This has led to concerns about the intellectual engagement of adjudicators, particularly in cases involving overwhelming volumes of paperwork and complex legal submissions. The inability of an adjudicator to actively engage with such material within a short timeframe may leave room for potential judicial challenges on the grounds of breach of natural justice and want of good faith.

In essence, the role of adjudicators within the framework of the SOP Act is multifaceted, with courts recognizing the challenges and complexities involved in their decision-making process. It is crucial to consider the practical implications of adjudication and the need for a balanced approach to ensure fair and effective resolution of payment disputes within the construction industry.


The Security of Payment (SOP) Act stands as a cornerstone in the construction industry, providing a framework for fair and timely resolution of payment disputes. Through its provisions, the Act safeguards the rights of contracting parties, acknowledges the provisional nature of adjudication, and allows for judicial intervention in cases of jurisdictional errors. Furthermore, the Act’s prohibition on contracting out of its provisions ensures the preservation of contractual freedoms while upholding the entitlement to prompt, interim progress payments.

However, the evolving interpretations of the Act’s provisions and the challenges faced by adjudicators underscore the need for a balanced approach. The multifaceted nature of adjudicators’ roles, coupled with the complexities of payment disputes, necessitates continual examination and refinement of the adjudication process. The formalization of adjudication and the potential for judicial challenges on grounds of breach of natural justice and want of good faith highlight the need for ongoing dialogue and adaptation within the industry.

In navigating the landscape governed by the SOP Act, stakeholders in the construction industry must remain cognizant of the Act’s implications, judicial precedents, and the practical challenges faced by adjudicators. By understanding and addressing these complexities, the industry can strive towards fostering fair and effective resolution of payment disputes, thereby upholding the integrity of construction contracts and promoting sustainable relationships among contracting parties.

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