A primary objective of Security of Payment legislation in Australia is to maintain the flow of payment on construction projects. The legislation is often described as ‘pay now, argue later’, as it facilitates quick payment on an interim (not final) basis.

The New South Wales Supreme Court recently considered the circumstances in which a party may not be required to ‘pay now’ under the Building and Construction Industry Security of Payment Act 1999 (NSW), in Martinus Rail Pty Ltd v Qube RE Services (No 2) Pty Ltd (No 2) [2024] NSWSC 1223.

Qube RE Services (No 2) Pty Ltd entered into two subcontracts with Martinus Rail Pty Ltd to deliver the Moorebank Intermodal Terminal Project in Sydney. Martinus submitted a number of progress claims for payment, which Qube rejected in part, leading to a number of adjudications under the Act including two which were the subject of the Supreme Court proceedings. The adjudication determinations required Qube to pay Martinus $71 million in total.

This led to a number of proceedings in the New South Wales Supreme Court, in which Martinus sought to enforce payment of the $71 million adjudicated amounts, while Qube sought to set aside the adjudications or alternatively stay enforcement until the parties’ rights were finally determined in arbitration.

The decision contains a detailed consideration of the basis on which the adjudications might be set aside for jurisdictional error, ultimately leading to a finding that some errors existed but that these did not nullify the determinations altogether. Instead, the Court set aside part of the determinations only, as permitted by section 32A of the Act, leading to a confirmed adjudicated amount of just over $22 million.

While this would ordinarily be the end of the matter, with Qube required to pay the confirmed adjudicated amount and ‘argue later’ as to Martinus’ entitlement to that amount, Qube had also applied for a stay of enforcement pending arbitration. This was on the argued basis that if Qube were required to pay Martinus the relevant amount, Martinus would be unable to repay it in the event of a different final result at arbitration.

The Court surveyed the authorities in this area, some of which pre-dated the introduction of section 32B providing that a corporation in liquidation cannot serve a payment claim, take action to enforce a payment claim, or pursue an adjudication under the Act. Significantly, the Court found that the new statutory rule did not prevent a party from obtaining a stay in circumstances other than those set out in section 32B.

However, in these circumstances, the Court found that the evidence presented by Qube fell short of demonstrating that Martinus would be unable to repay the amount when required in the future. The policy of the Act, to ensure contractors have the cashflow needed to sustain their operations, means that a high threshold is required in order to reverse that dynamic. The Court found it is “only when insolvency becomes inevitable, or at least highly probable,” that a stay may be appropriate because of the risk that an interim SOPA payment will effectively become final.

The judgement is available here.