Application of the Security of Payment Act in Mixed Use Developments

The recent Supreme Court decision in Piastrino v Seascape Constructions Pty Ltd [2022] VSC 202 (Piastrino) provided clarification on the application of the Building and Construction Industry Security of Payment Act 2002 (Vic) (SOP Act) in relation to a mix-use development involving both domestic building work and commercial work.

Adjudication

In October 2017, Mr and Mrs Piastro (Owners) entered into a building contract (Contract) with Seascape Constructions Pty Ltd (Contractor) for the construction of a mix-use development comprising four apartments, a hair salon and a car stacker (Works).

On 11 June 2021, the Contractor commenced an adjudication application under the SOP Act in relation to an unpaid payment claim. The Owners submitted that the adjudicator did not have jurisdiction to determine the adjudication application and that the SOP Act did not apply as the Contract involved domestic building work and the exemption under section 7(2)(b) of the Act applied.  

The Adjudicator rejected the Owners’ submission and determined that he had jurisdiction to determine the adjudication application. Further, the Adjudicator held in favour of the Contractor, whereby the Owners were ordered to make payment of the payment claim in full.

Supreme Court Proceedings

The Owners commenced Supreme Court proceedings seeking an order that the adjudication determination be quashed.

The Supreme Court considered whether the domestic building works exemption under section 7(2)(b) of the Act applies to mix-use developments. Further, the Court considered whether the Owners were in the business of building residences, and if so, was the Contract entered into in the course of or in connection with their business. 

The Supreme Court refused to quash the adjudication determination. Notwithstanding that the dominant character of Works under the Contract was domestic building work, the Court held that the exemption under section 7(2)(b) of the Act did not apply as the Owners were in the business of building residences.

Conclusion

The Supreme Court decision in the Piastrino case highlights the importance of distinguishing between domestic building work and other works in mix-use development contracts with respect to the operation of the exemption under section 7(2)(b) of the Act. Further, if an Owner is in the business of building residences and the Contract is entered into in the course of or in connection with the Owner’s business, the exemption under section 7(2)(b) of the Act will not apply. 

To learn more about applications of the Security of Payment Act in mixed use developments, or if you require legal assistance, please contact Chris Moshidis, Director and Principal Lawyer on +61 9521 7956 or at chris@urbanlawyers.com.au.