Australian Consumer Law a potential defence to entitlements in construction disputes

The case between OSB Group Pty Ltd and Complete Hire & Sales Pty Ltd concerned a summary judgment application for a claimed amount where Complete failed to serve a payment schedule within an agreed timeframe and also failed to pay the claimed amount in accordance with the new Building and Construction Industry (Security of Payment) Act 2021 (WA).

As justification for that action, Complete raised an argument that it was misled in breach of the ACL into entering into the contract in the first place, with the effect that it should not be obliged to pay any amount at all. 

While the court did not determine the merits of that argument, it was satisfied that it raised a serious question to be tried and so dismissed OSB’s summary judgment application.

The court’s reasoning was centred on the possibility of an inconsistency between the ACL - Commonwealth legislation - and the new Act - WA legislation - which would render the WA legislation unenforceable by operation of section 109 of the Australian Constitution.

Background to the case

OSB Group Pty Ltd and Complete Hire & Sales Pty Ltd operate in the construction and mining sectors. OSB undertook construction work for Complete on a development that was part of an iron ore project in the Pilbara, in WA. According to OSB, it performed that work under a 'construction contract' within the meaning of the Building and Construction Industry (Security of Payment) Act 2021 (WA).

In accordance with the Act, OSB issued a payment claim to Complete which Complete presumably did not provide a payment schedule for, or pay. OSB then commenced proceedings in the Supreme Court of Western Australia and applied for a summary judgment to recover the claimed amount as a statutory debt in line with section 27(2)(a) of Act.

Section 27(2) of the Act provides that if a claimant makes a payment claim for a progress payment, the respondent does provide a payment schedule, and the respondent does not pay the claimed amount within the time required, the claimant can either:

• recover the unpaid portion of the claimed amount owed as a debt due in a court of competent jurisdiction in line with section 27(2)(a); or
• make an adjudication application in line with section 27(2)(b).

Critically to the decision, section 27(3)(b) of the Act provides that, should the claimant elect to commence recovery proceedings in a court of competent jurisdiction, the respondent is:

• •not entitled to bring any cross-claim against the claimant in line with section 27(3)(b)(i); and
• •not entitled to raise any defence in relation to matters arising under the construction contract in those circumstances in line with section 27(3)(b)(ii).

Complete resisted the summary judgement application and said that, despite the provision in section 27(3)(b)(ii) of the Act, it would be able to raise defences to an action under s 27(2)(a) that no construction contract existed or, alternatively, that it was entitled to relief under the ACL in the form of a declaration that the construction contract be ‘void ab initio’ - without legal effect - under section 243(a) read with section 237(1) of the ACL, due to OSB’s alleged misleading or deceptive conduct prior to works commencing.

In indicating that it would rely on those arguments, Complete also submitted that if there was a serious question to be tried as to whether Complete could raise an ACL defence, it followed that the argument was not “a matter arising under the construction contract” and that, as a result, there was a constitutional inconsistency between section 27(3)(b) of the Act and Complete's asserted rights under the ACL.

The court’s decision

The only question the court was required to determine in the summary judgment application was whether any of the grounds raised by Complete gave rise to a serious question to be tried.

The court found that there was a serious question to be tried and, accordingly, refused summary judgment and granted Complete unconditional leave to defend.

The judge, Musikanth J, found that Complete had demonstrated, on a summary judgment basis, that OSB made representations about the resources required to perform certain construction work within the time required and that Complete may have been induced by those representations into permitting OSB to perform part of the works in breach of the ACL. If that can be proved - and experience shows that it will be a steep hill for Complete to climb - Complete will argue that it was required to finish part of the works when OSB failed return to the site, resulting in loss and damage with a consequent defence to OSB's claim by way of an equitable ‘set-off’.

Musikanth J found that such a defence would not be prohibited by section 27(3)(b)(ii) of the Act because it would not be “in relation to matters arising under the construction contract”.

Musikanth J also stated that there was likely to be an inconsistency between section 27 of the Act, which entitled OSB to payment of a statutory debt, and Complete’s asserted rights under the ACL to the extent section 27(3)(b)(ii) of the Act precludes Complete from raising a defence based on its asserted rights under the ACL, and also in circumstances where section 27(3)(b)(i) of the Act imposed an unqualified prohibition on Complete bringing any cross-claim to seek relief under the ACL.

Practical implications

Musikanth J’s finding that the ACL-based defence may not be prohibited by section 27(3)(b)(ii) of the Act because it would not be “in relation to matters arising under the construction contract” indicates that there may be defences to be argued which are not prohibited by section 27(3)(b) the Act.

If an ACL defence can be run - as appears likely based on the dismissed summary judgment application - that can lead to more detailed and protracted proceedings that would require evidence of reliance, such an outcome would be antithetical to quick determinations under the Act.

It would also seem to be antithetical to the purpose of the Act which Musikanth J noted was to provide “an effective and fair process for securing payments to persons who undertake to carry out construction work, or to supply related goods and services, in the building and construction industry”. This object is achieved by, among other things, creating a statutory entitlement to progress payments in favour of such persons, and by establishing an expedited process for making and responding to such claims and for the adjudication of disputed ones.  However, if that purpose can be thwarted by a cleverly constructed ACL based argument, the Act may be of limited utility in establishing sorely needed cashflow in the construction industry. 

This case serves as a reminder that whether a party is entitled to judgment summarily must be determined in line with the well-established principles relevant to such an application. As pointed out by Complete, there is nothing within the Act itself which affords an entitlement to summary enforcement. It is O 14 of the Rules of the Supreme Court 1971 (WA) which permits such a claimant to apply for summary judgment, and summary judgment will only be granted when there is no real question to be tried.

Co-written by Aaliya Sallie of Pinsent Masons.