Converting security in Western Australia: the 5-business day warning

As a part of the Western Australian Government's reforms to the Building and Construction Industry (Security of Payment) Act 2021 (WA) (Act), a notice requirement was introduced regarding a party having recourse to security under the construction contract.

This reform somewhat follows the statutory requirement in Queensland for building contracts that, where a party holds security, it is required to give written notice prior to having recourse to security. This requirement is imposed by section 67J of the Queensland Building and Construction Commission Act 1991 (Qld) (QBCC Act).

Where a party to a construction contract intends to have recourse to security in Western Australia, failure to give the appropriate written notice will likely have serious consequences.

What are the requirements under the Act?

Pursuant to section 57(1) of the Act, a party to a construction contract is not entitled to have recourse to security under the contract unless:

1. the party has given the other party to the contract notice of the intention to have recourse to the security; and
2. at least five business days have passed since the party gave that notice or, if the contract provides for a longer period, the period specified in the contract has passed.

Section 57(2) also mandates the form of the notice.  The notice must:

1. be given in writing and be in the approved form (if any);
2. identify the construction contract and the provisions of the contract that the party relies on to have recourse to the security; and
3. describe the circumstances that entitle the party to have recourse to the security.

A party therefore must provide a written notice and allow at least five business days to pass before having recourse to security under a construction contract.

It is imperative to point out that section 57 will only apply to construction contracts as defined by section 5 of the Act. Therefore, if the relevant contract does not fall within the definition of a construction contract under the Act, the party seeking recourse to security is not required to comply with section 57.

What is the consequence of failing to give notice in accordance with section 57?

Given that section 57 has only recently been introduced, there are no case authorities to confirm with certainty the effect of failing to give the required notice.

However, considering the language in the Act and the case authorities from Queensland Courts regarding a failure to give notice in accordance with section 67J of the QBCC Act, it appears that non-compliance with section 57 of the Act will result in a Court declaring the recourse to security invalid.

This outcome is further supported by section 57(3) of the Act, which specifies that the requirements of section 57 are considered terms of every construction contract and have effect despite any other term of the contract.

Takeaway

Parties to a construction contract in Western Australia must provide written notice at least five business days before seeking recourse to security (or if the contract specifies a longer notice period, that longer period must be adhered to).  A party intending to have recourse to security must ensure strict compliance with this requirement to prevent the possibility of the security recourse being declared invalid.

Additionally, it is advisable to amend security provisions to accurately reflect the relevant written notice requirements.  This will help to prevent contract administrators from erroneously attempting to have recourse to security.

Authors

Hendrik van Aswegen | Partner | +61 8 9404 9125 | hvanaswegen@tglaw.com.au

Samuel Speechly | Senior Associate | +61 7 3338 7529 | sspeechly@tglaw.com.au