Recently, the Victorian Supreme Court handed down a decision that gives guidance on the application of the prohibition against set-off in the security of payment legislation in circumstances where the claimant becomes insolvent.
Façade Treatment Engineering v Brookfield Multiplex  VSC 41
The case clarifies that judgment will not be given under section 16 of the Building and Industry Security of Payment Act 2002 (Vic) (SOP Act) where the claimant is in liquidation and the respondent intends to file a counterclaim or defence in relation to the amount claimed. The case also demonstrates that the courts will not be overly technical in determining whether a purported payment schedule complies with section 15 of the SOP Act.
Façade Treatment Engineering Pty Ltd (In Liq) (plaintiff) and Brookfield Multiplex Constructions Pty Ltd (defendant) were parties to a subcontract in relation to the Upper West Side Redevelopment. The dispute concerned payment claims 18 and 19 issued by the plaintiff in August and September 2012. The defendant did not issue a payment schedule in response to payment claim 18 and only paid the plaintiff approximately 50% of the amount claimed. The defendant responded to payment claim 19 by asserting that it was invalid in an email to the plaintiff on 5 October 2012 (5 October Email). The plaintiff was placed into liquidation on 6 February 2013.
The plaintiff commenced proceedings under section 16 of the SOP Act to recover the amounts unpaid in relation to payment claims 18 and 19 on the basis that the defendant had failed to provide the requisite payment schedules. At trial, the defendant asserted that it intended to file a defence and counterclaim in relation to amounts sought by the plaintiff.
The court dismissed the plaintiff's application. Vickery J held that:
• the 5 October Email was a payment schedule for the purposes of the SOP Act; and
• section 16 of the SOP Act was invalid to the extent that it was inconsistent with the set-off provisions under section 553C of the Corporations Act 2001 (Cth) (Corporations Act).
His Honour considered that a court should not be overly technical in determining whether a document satisfies the description of a payment schedule under section 15 of the SOP Act. As the 5 October Email made it clear that the defendant did not intend to pay the plaintiff anything in relation to payment claim 19, His Honour was of the view that this proposal to pay nothing is 'an amount' for the purposes of section 15(2)(b) of the SOP Act. Further, the 5 October Email satisfied the requirements of section 15(3) of the SOP Act as it stated that the defendant considered payment claim 19 to be invalid and indicated why the defendant intended to pay the plaintiff 'less than the claimed amount'.
As the plaintiff was in liquidation and the defendant intended to file a defence and counterclaim, the prohibition against raising a cross-claim in section 16(4) of the SOP Act was inconsistent with the right of set-off established by a law of the Commonwealth Parliament in section 553C of the Corporations Act. As such, under section 109 of the Australian Constitution, the SOP Act was invalid to the extent of the inconsistency and judgment could not be entered in favour of the plaintiff. His Honour noted that the situation may have been different had the defendant indicated an intention not to proceed with the counterclaims.