2024 has been a big year for Hamilton Mott, but one of the most notable events was our representation of CBEM Holdings Pty Ltd in a court case that not only secured a favourable outcome for our client but also prompted legislative reform for the building industry.

In Sunshine East Pty Ltd v CBEM Holdings Pty Ltd [2023] NSWSC 744, CBEM, represented by Hamilton Mott and Counsel Mark Shelden (7 Wentworth Selborne), successfully defended its entitlement to payment under the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOPA). The case exposed a key legislative gap—namely, contractors claiming payments under SOPA despite non-compliance with licensing and insurance requirements under the Home Building Act 1989 (NSW) (HBA).

The legislative response came with the Better Regulation Legislation Amendment (Miscellaneous) Bill 2024, effective 20 August 2024. These amendments have introduced stricter compliance requirements, with implications for building contractors . This article examines the case, and its legislative and practical implications for the construction industry.

Background: Sunshine East Pty Ltd v CBEM Holdings Pty Ltd

CBEM is a civil contractor, who was engaged for construction works in Dural, New South Wales. CBEM entered into a trade contract for civil and stormwater works, executed on behalf of the project principal, Chunlin Fan. A dispute arose when a progress payment claim for $420,952.39 was neither paid nor responded to under SOPA’s strict timeframe.

At first instance, the District Court of New South Wales entered summary judgment in favour of CBEM for a statutory debt, ruling that Sunshine East had no triable defence. The matter was subsequently appealed to the Supreme Court of New South Wales.

One of the key issues on appeal was whether the works constituted “residential building work” under the HBA and if so, if CBEM’s failure to obtain the required insurance and hold the appropriate licence barred its payment entitlement.

Justice Fagan dismissed the appeal, finding:

1. Insurance requirements: While CBEM breached HBA’s insurance requirements, it was nonetheless entitled to progress payments under SOPA. Justice Fagan noted that CBEM had disclaimed responsibility for insurance in its quotation, shifting the obligation to the project manager.
2. Licensing requirements: CBEM’s lack of a contractor licence was insufficient to bar payment claims under SOPA. Justice Fagan relied on established precedent, affirming that SOPA entitlements operate independently of HBA compliance.

Legislative gap addressed

The decision in Sunshine East reaffirmed the strength of SOPA in securing contractor payments. However, it also exposed a significant gap: contractors could claim progress payments under SOPA even when non-compliant with HBA licencing and insurance requirements.

To address this issue, the 2024 amendments to SOPA introduced subsection 8(2), which states:

“A person is not entitled to a progress payment under subsection (1) if the construction contract—

(a) does not comply with the Home Building Act 1989, section 4, or

(b) involves construction work that is residential building work done in contravention of the Home Building Act 1989, section 92.”

Section 4 of the HBA prohibits unlicensed residential or specialist building work, while Section 92 mandates insurance under the Home Building Compensation Fund for residential work. The new provision explicitly links SOPA entitlements to compliance with these sections, closing the loophole highlighted in Sunshine East.

Retrospective Application

Notably, the amendments apply retrospectively to contracts entered into before 20 August 2024. This ensures that principals can rely on the new protections regardless of when a contract was signed, providing safeguards against unlicensed or uninsured contractors from using SOPA to extract money from principals.

Implications for the Industry

For contractors, the amendments represent a significant shift. Non-compliance with licensing or insurance requirements under the HBA now bars access to SOPA’s "pay now, argue later” machinery. This change necessitates a proactive approach to regulatory compliance.

For principals, the reforms provide greater leverage in managing disputes and a clearer pathway to defending claims under SOPA when contractors fail to meet statutory requirements.

Lessons Learned

The amendments to SOPA reflect the evolving nature of construction law in New South Wales. While the Sunshine East decision emphasised the primacy of SOPA in protecting contractor payments, the legislative response demonstrates a commitment to ensuring accountability and compliance within the industry.

Contractors must now prioritise licensing and insurance obligations, as failure to do so could undermine their to claim payments. Meanwhile, principals are better equipped to address non-compliance without the risk of incurring liability for statutory debts.

At Hamilton Mott, we remain at the forefront of these developments, helping clients navigate the complexities of SOPA, HBA, and related legislation.

For guidance on construction matters, including payment claims and compliance with legislative requirements, please contact the team at Hamilton Mott at:
https://hamiltonmott.com.au/#c...

Further information about the CBEM court case can be found at:
https://hamiltonmott.com.au/insights/case-study-sunshine-east-cbem

A link to the CBEM Court Judgment can be found at:
Sunshine East Pty Ltd v CBEM Holdings Pty Ltd - NSW Caselaw.

Author:

Hugh Robinson - Law Clerk
E: hugh@hamiltonmott.com.au