Claire Rewais and Osama Rewais t/as McVitty Grove v BPB Earthmoving Pty Ltd [2024] NSWSC 1271 (McVitty v BPB)
Previously, contractors were entitled to progress payments under the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act) even if they did not comply with trade licensing and insurance requirements under the Home Building Act 1999 (NSW) (HBA).
This issue was considered in McVitty v BPB, which concerned a dispute adjudicated in early July 2024. On 20 August 2024, amendments were made to the SOP Act which reversed the position adopted by the Court and modified a contractor’s entitlement to progress payments.
McVitty v BPB (Old Position)
Background
In McVitty v BPB, the owners of a residential property entered into an oral agreement with a contractor to carry out earthworks at their residential property.
Subsequently, the contractor ceased all works on the property and issued an invoice for the work completed. The owners refused to pay, and the contractor lodged an adjudication application. The adjudicator determined that the owners had to pay the contractor for the work completed.
The owners then commenced proceedings in the Supreme Court seeking an order to quash the adjudicator’s determination on the grounds that the contractor was not licensed or insured to carry out residential building works under sections 4 and 92 of the HBA, and that sections 10 and 94 of the HBA, prohibited the contractor from enforcing the oral agreement due to his breach of sections 4 and 92 of the HBA.
Decision
The Supreme Court held that a failure to be properly licenced or insured for residential building work did not preclude the contractor from seeking progress payments. There were three main reasons provided by the Court.
Sections 4 and 10 of the HBA
Section 10 sets out the consequences of a contractor failing to be licensed under section 4 of the HBA. Breaching section 4 of the HBA attracts civil consequences including prohibiting contractors in breach of sections 4 from seeking damages for breach of contract. However, section 10 does not deprive the contractor from seeking payment under the SOP Act which is a statutory remedy.
Sections 92 and 94 of the HBA
Section 94 sets out the consequences of a contractor failing to provide insurance under section 92 of the HBA. Breaching section 92 prohibits a contractor from seeking damages for breach of contract or recovering payment under any other right of action. However, a right of action refers to the right to commence legal proceedings in court and bringing an adjudication application could not be characterised as enforcing a “right of action”.
Adjudicator’s Jurisdiction
Furthermore, section 22 of the SOP Act provides that an adjudicator is only allowed to consider provisions of the SOP Act, not the HBA. At the time of the adjudication, section 8(2) of the SOP Act had not been added and hence the adjudicator could not consider sections 4 and 92 of the HBA.
Recent Amendment to SOP Act (New Position)
On 20 August 2024, section 8(2) of the SOP Act was added as follows:
“8 – Right to progress payments
- A person is not entitled to a progress payment under subsection (1) if the construction contract—
- does not comply with the Home Building Act 1989, section 4, or
- involves construction work that is residential building work done in contravention of the Home Building Act 1989, section 92.”
Section 8(2) now expressly provides that compliance with sections 4 and 92 of the HBA is a condition precedent to the entitlement to progress payments.
Sections 4 and 92 of the HBA concern trade licensing and insurance requirements (i.e., home building compensation fund (HBCF)) for contractors undertaking residential building work.
With the recent addition of section 8(2), the position in McVitty v BPB is no longer relevant. The SOP Act now expressly prohibits contractors carrying out residential building work from claiming progress payments if they are not licenced and insured under the HBA. By the amendment, an adjudicator now has the jurisdiction to consider compliance with sections 4 and 92 of the HBA in making its determination.
Key takeaway
Contractors and subcontractors should ensure they are fully licensed and insured to carry out residential building works, otherwise they will not be entitled to collect progress payments for work completed.
If you would like to discuss this article with us, please contact Brett Vincent, Partner, , or Rhianna Brooker, Paralegal on (02) 9261 5900.