Liquidation bars progress payments in Victoria

In New Zealand, set-offs usually do not apply to a statutory demand issued in reliance on the Construction Contracts Act 2002 (‘CCA’). This is because section 79 prohibits set-offs other than those of an undisputed liquidated amount. What has not been settled is whether this section would apply to prevent set-off when liquidators are appointed to a company. As previously highlighted, the High Court has suggested that it does not. A recent decision in the Victorian Court of Appeal may provide further weight to the school of thought that construction contract legislation does not provide a trump card once liquidation is actually underway.

Façade Treatment Engineering Ptd Ltd (in liq) v Brookfield Multiplex Constructions Pty Ltd [2016] VSCA 247 involved an appeal by Façade Treatment Engineering (‘Façade’) against a decision that it was not entitled to enter summary judgment against Brookfield Multiplex Constructions (‘Brookfield’). Façade’s payment claims had not been fully paid by Brookfield. No payment schedule had been provided so, under Victoria’s equivalent construction legislation (the Building and Construction Industry Security of Payment Act 2002 (Vic) (‘BCISP Act’)), the unpaid amount had become a debt due to Façade. However, Façade subsequently entered liquidation.

In dismissing the appeal, the Court of Appeal made two key findings:

  • A company in liquidation has no entitlement to progress payments under the BCISP Act.
  • Once a company has gone into liquidation, a payment claim cannot be enforced through a summary judgment and there is no scope for prohibiting cross-claims or defences under the equivalent to s 79 CCA. To allow such a prohibition would be inconsistent with the set-off provision of the Corporations Act 2001 (Cth), which trumps state legislation.

These findings have been particularly helpful in clarifying the relationship between insolvency and construction law in Victoria. However, there is no commonwealth/state legislation hierarchy in New Zealand. That said, given the mandatory language of section 310 of the Companies Act, which governs set-off in liquidation, it would be a brave court that declares that s 310 does not trump the CCA in such circumstances. Furthermore, the Victorian Court of Appeal’s interpretation of the BCISP Act to preclude companies in liquidation from asserting a right to progress payments is equally applicable to the CCA. The BCISP Act provisions relied upon by the court in preferring this interpretation are not particularly persuasive. The more compelling argument centres on the fact that respondents forced to ‘pay now argue later’ under construction contract legislation may be entitled to recover these payments. Such a recovery is extremely unlikely where the claimant is in liquidation.

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