Watch out! Another application for summary judgment for a SOP Act ‘statutory debt’ is rejected

Recent decisions in WA, New South Wales and Victoria confirm that a defence of misleading and deceptive conduct can prevent a claimant from recovering a statutory debt under the relevant security of payment legislation.

Key takeaways

• Recovering a ‘statutory debt’ under the Building and Construction (Security of Payment) Act 2021 (WA) (SOP Act) is not as straightforward as it seems.
• Claimants should carefully consider whether to bring an application for summary judgment for a SOP Act statutory debt, or pursue alternative pathways (such as adjudication) to recover payment.
• A defence of misleading and deceptive conduct raised in a summary judgment application can prevent a claimant from recovering a statutory debt under the SOP Act. [1]
• As the case law in WA continues to develop, it may become more clear if adjudication applications are the most effective way for a claimant to recover payment.

The SOP Act

The SOP Act contains a process where, if a payment claim is made and:

• no payment schedule is given; or
• a payment schedule is given, but the scheduled amount is not paid, 

the claimant may choose to recover the claimed amount by either:

1. applying to the Court for summary judgment in respect of the ‘statutory debt’; or
2. making an application for adjudication under the SOP Act to recover payment.  

No Entitlement to Cross-Claim or Defence

The SOP Act provides that if a claimant makes a debt claim under the SOP Act, then the respondent is not, in those proceedings, entitled to bring any cross-claim against the claimant nor raise any defence in relation to matters arising under the construction contract. [2]

The recent Supreme Court decision of OSB Group Pty Ltd v Complete Hire & Sales Pty Ltd [2024] WASC 310 highlights that: 

• the existence of a ‘statutory debt’ under the SOP Act does not guarantee that a party will be successful in an application for summary judgment; 
• summary judgment will only be granted if the relevant circumstances exist,[3] and there is no serious question to be tried [See our earlier article Don’t Get Caught Out: What You Need to Know Before Applying for Summary Judgment for a SOP Act ‘Statutory Debt’]; [4] and
• a misleading or deceptive conduct defence can be successful in defeating an application for summary judgment for a ‘statutory debt’ under the SOP Act. 

OSB Group Pty Ltd v Complete Hire & Sales Pty Ltd

OSB Group Pty Ltd (OSB) asserted that it performed ‘construction work’ for Complete Hire & Sales Pty Ltd (Complete) under a ‘construct contract’. OSB issued a payment claim to Complete.  Complete did not pay the payment claim. 

OSB commenced proceedings to recover the payment as a statutory debt under the SOP Act by way of an application for summary judgment under Order 14 of the Rules of the Supreme Court 1971 (WA).

Serious questions to be tried

Complete opposed OSB’s application and submitted that there were serious questions to be tried, including that if Complete was not permitted to claim relief under the Australian Consumer Law 2010 (Cth) (ACL) for alleged misleading or deceptive conduct by OSB, whether there is an inconsistency between the SOP Act and Complete’s rights under the ACL such that s 27(3)(b) of the SOP Act (prohibiting any cross-claim or any defence) is invalid pursuant to section 109 of the Commonwealth Constitution to the extent of any inconsistency.[5]

Decision

Justice Musikanth stated that the legal question underpinning one of the serious questions to be tried was substantially the same as that raised in Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2006] NSWCA 238, being “whether precluding a respondent in recovery proceedings brought under a State security of payment law from pursuing its rights under Commonwealth legislation in the face of misleading or deceptive conduct by a claimant gives rise to constitutional inconsistency”.[6]

Justice Musikanth held that:

• Complete raised a serious question to be tried as to whether it was entitled to a remedy under the ACL, including a remedy which might neutralise the existence of any construction contract. 
• Absent the availability of such a defence, there is arguably an inconsistency between s 27(3)(b)(i) of the SOP Act and the ACL resulting in s 27(3)(b)(i) being 'inoperative' to that extent.[7]

OSB’s application for summary judgment was refused.

This article was written by Lauren Cook, Partner and Matthew Endo Solicitor | Projects, Infrastructure & Construction

Footnote:

[1] This is notwithstanding that the SOP Act prohibits a respondent from bringing any cross-claim against the claimant or raising any defence in relation to matters arising under the construction contract.

[2] OSB Group Pty Ltd v Complete Hire & Sales Pty Ltd [2024] WASC 310 at [13(14)-(15)]; Building and Construction Industry (Security of Payment) Act 2021 (WA) ss 27(3)(b)(i)-(ii).

[3] The relevant circumstances must exist in order for judgment to be given, being those set out in s 27(4) of the SOP Act as follows: a) the respondent's failure to respond to the payment claim by giving a payment schedule to the claimant within the time allowed for the response (s 27(4)(a)(i)); and (b) the respondent having not paid the claimed amount in full on or before the due date for the progress payment (s 27(4)(b)). 

[4] Summary judgment will only be granted when there is no real question to be tried: OSB Group Pty Ltd v Complete Hire & Sales Pty Ltd [2024] WASC 310 at [24] citing Sutton Investment Pty Ltd v Realistic Investments Pty Ltd [2017] WASCA 14 [24].

[5] OSB Group Pty Ltd v Complete Hire & Sales Pty Ltd [2024] WASC 310 at [29].

[6] OSB Group Pty Ltd v Complete Hire & Sales Pty Ltd [2024] WASC 310 at [70].

[7] OSB Group Pty Ltd v Complete Hire & Sales Pty Ltd [2024] WASC 310 at [72].