Companies in liquidation prevented from obtaining judgment for interim entitlements under the Building and Construction Industry Security of Payment Act 2002 (Vic)

Today the Victorian Supreme Court handed down a decision which provides certainty for the construction industry as to whether companies in liquidation can seek to recover interim entitlements under the Building and Construction Industry Security of Payment Act 2002 (Vic) (SOP Act).

In Facade Treatment Engineering Pty Ltd (in liquidation) v Brookfield Multiplex Constructions Pty Ltd [2015] VSC 41, Justice Vickery held that the Plaintiff, being a company in liquidation to which section 553C of theCorporations Act 2001 (Cth) applies, was precluded from obtaining judgment under the SOP Act for unpaid payment claims.

Facts

The Plaintiff and the Defendant were parties to a subcontract for construction works and the Plaintiff, now in liquidation, sought judgment for the amount of two unpaid payment claims under the SOP Act.

The Defendant said that despite any interim entitlements the Plaintiff might have under the SOP Act, upon the final resolution of the amounts owed under the Subcontract, the Defendant would be owed a substantial amount by the Plaintiff relating to the increased cost to complete the subcontract works and accrued liquidated damages.

Judgment

Section 553C of the Corporations Act applies “where there have been mutual credits, mutual debts or other mutual dealings between an insolvent company that is being wound up and a person who wants to have a debt or claim admitted against the company.”

The Defendant said that the provisions of the SOP Act were inconsistent with the express right to set-off under section 553C of Corporations Act and therefore, under section 109 of the Constitution, the SOP Act was invalid to the extent of the inconsistency.  

The Court agreed and held that a company in liquidation is precluded from entering any judgment under section 16(2)(a)(i) of the SOP Act and is further precluded from relying on section 16(4)(b) of the SOP Act, as a bar to a respondent bringing a cross-claim or raising a defence by way of set-off.

Further, the judgment, citing previous authorities, found that the relevant date for the purpose of section 553C(2) of the Corporations Act was the date of entry into the subcontract.  His Honour therefore held that as the Defendant had no notice or knowledge of the Plaintiff’s insolvency at the time of entering into the subcontract, section 553C(2) did not preclude the right to set-off.

In addition, on a separate argument advanced by the Defendant in relation to one of the payment claims, the judgment reinforced previous case law in support of the proposition that there ought not be overly technical requirements as to whether or not a document or email satisfies the requirements for a payment schedule under the SOP Act.  The Court found that the Defendant had met the requirements of the SOP Act by stating in an email that it regarded the payment claim as invalid and the reasons why.