2019 Changes to NSW Security of Payment Act (SOPA)

*This post was most recently updated in October 2019.

In late 2018 the NSW Government approved amendments to the Building and Construction Industry Security of Payment Act (or 'SOPA'). The changes will commence on 21 October 2019. This article summarises the amendments.

What is changing?

The changes fall into three categories:

1. Miscellaneous tweaks to the SOPA payment claim and statutory adjudication process, and related provisions.
2. Increasing the focus on compliance, including the introduction of director and manager penalties.
3. Introducing a code of practice for authorised nominating authorities.

These are discussed below. You can find a copy of the amending Act here, and a copy of the amending regulation here.

Changes to the payment claim and adjudication process

In a practical sense, the two biggest changes are:

• SOPA payment claims will (once again) need to expressly state that they are made under the Act; and
• the longest payment terms allowed under subcontracts will be changed to 20 business days (down from 30 business days).

Various other changes have been made, mostly to address issues that have been the subject of litigation. These include the following:

1. The concept of ‘reference dates’ has been entirely removed from the legislation.
2. If a contract is terminated, the contractor will have an express right to make a payment claim under the Security of Payment Act.
3. A corporation in liquidation will not be able to serve payment claims or take action to enforce them, including by making an application for adjudication.
4. A claimant now has an express right to withdraw an adjudication application. A respondent may object to the withdrawal if an adjudicator has been appointed.
5. The Act gives the court an express right to set aside an adjudication determination for jurisdictional error. If only part of a determination is affected by jurisdictional error, the court may set aside that part only, while confirming the balance of the determination.
6. The exemption from SOPA for residential owner occupier contracts has been moved from the Act to the regulations. There is no substantive change in intent.

Increase in penalties

The maximum penalties for corporations for offences under the Security of Payment Act will significantly increase. Some of the penalties for non-compliance by individuals will increase as well. The main changes are summarised in the table below.

*At the time of publication, one ‘penalty unit’ in NSW equates to $110. The dollar values in the table above are current at the date of this post, but may change over time.

The Act also empowers authorised officers to issue penalty notices (effectively fines) for offences scheduled in the regulations, instead of seeking a prosecution in Court. Although the maximum amounts payable under these penalty notices are lower than the amounts payable above, a person who receives a penalty notice will need to make a Court application if s/he wishes to have the penalty notice set aside.

Personal liability for directors and managers

Individuals working within corporations can be exposed to liability under the Act where they are:

• a director of the corporation; or
• involved in the management of the company and are in a position to influence the conduct of the corporation in relation to the commission of the offence.

Where a director or manager is ‘knowingly concerned’ in the commission of an offence by the corporation, they can face penalties of up to $22,000 and 3 months imprisonment.  ‘Knowingly concerned’ includes aiding and abetting, inducing and conspiring with others.  Some active involvement in the commission of the offence appears to be required.  This type of personal liability can arise in respect of any offence committed by the corporation under the Act or regulations.

In addition, there are specific circumstances where a director or manager can face personal liability, even if they are not 'knowingly concerned' in the breach.  Personal liability can also arise for a director or manager if they:

• know that an offence is being committed by the corporation; or
• are recklessly indifferent as to whether it would be or is being committed, and fails to take all reasonable steps to prevent or stop it.

This second type of liability only arises where the corporation commits an ‘executive liability’ offence, being an offence involving any of the following:

• serving a payment claim without a supporting statement;
• knowingly serving a false or misleading supporting statement;
• on a construction project with a value of at least $20 million, a head contractor failing to perform its obligations in respect to the creation and operation of a trust account for subcontractor retention amounts;
• knowingly providing false or misleading information to the Secretary/authorised officer.

The Act suggests various steps that could be taken by managers and directors with a view to preventing or stopping the commission of an executive liability offence, such as assessing compliance, regular professional assessments of the organisation’s compliance and the provision of information, training, instruction and supervision to ensure compliance.

If you are a director or manager wishing to reduce your potential exposure for personal liability for offences committed by your company under the Act, the list above provides a good starting point for consideration. (Should you need any assistance around training, auditing or systems development, we would be happy to help.  You can contact us here.)

Authorised nominating authority code of practice

The Act will empower the Minister to make a code of practice to be observed by authorised nominating authorities. The second reading speech for the amending legislation explained that the purpose of this change is to ‘address stakeholder concerns about the function and effectiveness of ANAs’. Further:

‘The code of practice will outline and clarify the expectations, responsibilities and obligations of ANAs when undertaking their function. Specifically, the code will address matters in relation to the conduct, assessment and selection, training and monitoring of adjudicators, as well as complaint-handling procedures. A failure to comply will be an offence and will also be grounds for withdrawing authorisation.’

As of July 2019, no new code of practice had been released. Unless the Government has changed its intent, we expect a new code of practice will be issued (although the timing of this is unclear).

Key takeaways

• The 2019 changes to the NSW Security of Payment Act and Regulations will take effect on 21 October 2019.
• Contractors will need to review and possibly amend their subcontracts, to ensure SOPA compliance.
• All organisations governed by the Act will need to implement formal training and audit programs, if they wish to avoid the possibility of their directors and managers being exposed to personal liability for non-compliance.