Last month the government released the Murray Report: A Review of Security of Payment Laws. It is a welcome – if low profile – step towards a national scheme, although the lack of fanfare, and the delay between delivery of the report in December 2017 and its release in May this year, do not reflect the sense of urgency that many would be hoping for.
The review was intended to identify ‘legislative best practice’ to improve ‘consistency in security of payment legislation’ and the better protection of subcontractors: the question is clearly not whether there should be a national scheme, but rather, what a national scheme should look like.
East Coast v West Coast
One of the major issues addressed by the 382 page report (available here) is the type of model to be used – essentially a choice between the ‘East Coast Model’ – deployed in NSW, Victoria, Queensland, South Australia, Tasmania and the ACT – and the ‘West Coast Model’ used in Western Australia and the Northern Territory.
There are variations even between the states that use the same model, but in broad outline the key differences are:
- The East Coast model provides a statutory payment scheme that can override contractual provisions whereas the West Coast model provides ‘legislative assistance’ to supplement the existing contractual arrangements.
- The East Coast model only allows claims ‘up the line’ i.e. to a head contractor but not to a sub-contractor – compared to the West Coast Model allows claims in both ‘directions.’
- Under the East Coast Model a failure to provide a ‘payment schedule’ in reply to a payment claim and to pay by the due date creates a statutory debt for the claimed amount, capable of enforcement.
- The West Coast model allows the parties in dispute to select the adjudicator that they believe is best suited to resolve the dispute, an adjudicator is independently allocated under the East Coast Model.
The report recommends a modified East Coast Approach.
Murray recommends that a deemed statutory trust model should apply to all parts of the contractual payment chain, in preference to any expansion of the limited Project Bank Account regimes currently in place in WA and Queensland.
There is extensive discussion of the administration burden imposed by PBAs, and it seems clear that some of those who welcome the protection that a PBA provides would prefer to avoid the paperwork involved in providing similar protection to their own sub-contractors!
The report states:
“…the concept of a deemed statutory trust has not only been operating in large parts of North America for many years without inhibiting the smooth functioning of the industry, but it has also (unlike the case of the various security of payment laws in Australia) not been the subject of significant critical reviews.”
Surprisingly, it seems that the review was undertaken without any input from ARITA, or any individual insolvency practitioner. Perhaps that is why the report has not identified any of the practical problems that arise from creating the type of trust arrangements that it proposes, or explained whether and how such problems have been solved in those overseas jurisdictions.
The website of the Department of Jobs and Small Business explains that the Government is using the Building Ministers’ Forum (BMF) – the group of Federal, State and Territory Ministers with responsibility for building and construction – to consider and respond to the review, and that Federal Government responsibility has been transferred to the Department of Industry, Innovation and Science.
For comment on the Queensland regime, introduced whilst the Murray review was under way – and recently delayed until 17 December 2018 – see here.