AML/CTF Reforms – What Existing Reporting Entities Need to Do before 31 March 2026

Kenneth Hong, Nicholas Lim, Laura Oh 27 Feb 2026

1. Overview of the Reforms
Significant changes to Australia’s Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) regime are taking effect under the Anti-Money Laundering and Counter-Terrorism Financing Amendment Act 2024 (the Amendment Act) and the Anti-Money Laundering and Counter-Terrorism Financing Rules 2025 (the Rules). These reforms represent a fundamental shift toward an outcomes-based, risk-oriented framework, aligned with international standards set by the Financial Action Task Force.
The core pillars of the reform include:
• Stronger governance and oversight, with clearer accountability for the board and senior management;
• Expanded risk assessments, including explicit coverage of Proliferation Financing (PF) risk; and
• New transitional measures, including a three-year transition period for initial Customer Due Diligence (CDD) obligations.

2. Who Do These Reforms Apply To?
The AML/CTF reforms affect a broad range of businesses. If your business provides any of the designated services regulated under the AML/CTF Act, you are a “reporting entity” and must comply with the reformed regime.

Existing Reporting Entities (Tranche 1)
Entities already regulated under the AML/CTF Act must comply with the reformed regime from 31 March 2026. These include:
• banks, building societies, and credit unions;
• life insurers and friendly societies;
• securities dealers, futures brokers, and managed investment scheme operators;
• remittance service providers;
• gambling service providers, including casinos and online wagering operators;
• bullion dealers; and
• virtual asset service providers (formerly digital currency exchange providers).

Newly Regulated Entities (Tranche 2)
A major expansion of the AML/CTF regime will bring approximately 90,000 new businesses under AUSTRAC regulation from 1 July 2026. These “Tranche 2” entities include:
• lawyers and law practices;
• accountants;
• real estate agents;
• trust and company service providers; and
• dealers in precious metals and stones (jewellers).
Tranche 2 entities will be able to enrol with AUSTRAC from 31 March 2026 and must be enrolled by 29 July 2026. AUSTRAC has released sector-specific guidance and program starter kits to assist newly regulated entities in preparing for their obligations.

3. Governance and Oversight: New Statutory Obligations
A central feature of the reforms is the introduction of defined roles for the “Governing Body” and “Senior Manager”, together with heightened expectations for effective internal controls.

Governing Body
The “Governing Body” refers to the individuals or body (such as a Board of Directors) with primary responsibility for the governance of the reporting entity. The Governing Body is expected to maintain ongoing oversight of AML/CTF compliance and be sufficiently informed of Money Laundering (ML), Terrorism Financing (TF), and Proliferation Financing (PF) risks to ensure that the AML/CTF Program is identifying and mitigating those risks in practice.
Under the Amendment Act, the Governing Body has proactive obligations to provide “appropriate ongoing oversight”. The Australian Transaction Reports and Analysis Centre (AUSTRAC) has indicated that this may be demonstrated by:
• including AML/CTF compliance and ML/TF/PF risk as a regular standing agenda item in board or management meetings;
• reviewing relevant matters in AML/CTF compliance officer and independent evaluation reports;
• questioning how the business will address any adverse findings in those reports; and
• interrogating the root causes of non-compliance and the effectiveness of existing controls.

Senior Manager
A “Senior Manager” is an individual who makes, or participates in making, decisions affecting the whole or a substantial part of the reporting entity. The reforms sharpen accountability by making them legally responsible for approving the ML/TF/PF Risk Assessment, AML/CTF policies, and any material updates to those documents.
The Senior Manager's approval is also required for high-risk individual matters, including:
• providing designated services where politically exposed persons are involved; or

• establishing or maintaining a nested services relationship.
Both of these roles must be held by individuals with greater active governance, oversight and executive decision-making responsibility.

4. Proliferation Financing (PF)
A key reform is the explicit requirement for reporting entities to identify, assess, and manage PF risk. PF involves financing activities linked to the development or acquisition of weapons of mass destruction. While many institutions are already familiar with sanctions compliance and screening requirements, the reforms clarify that PF must be treated as a distinct AML/CTF risk category.
PF should be integrated into the ML/TF/PF Risk Assessment as part of routine risk management. For many entities, this will require refining existing methodologies to ensure PF is assessed with sufficient specificity (for example, through jurisdictional exposure, transaction typologies, and counterparty risk indicators), rather than being subsumed within broader AML/CTF risk settings.
Where an entity reasonably assesses PF risk as low, a standalone Counter-Proliferation Financing policy is not required, provided the risk is appropriately managed through existing ML/TF controls. However, any low-risk assessment must be properly documented to satisfy AUSTRAC’s expectations for an auditable process. If PF is not addressed at all in the Risk Assessment and AML/CTF Program documentation, the framework may be non-compliant.

5. Implementation Timeline and Transitional Measures
The compliance deadline for existing reporting entities is 31 March 2026. Entities should use the remaining time to finalise necessary structural and governance updates.

Three-Year Transition for Initial CDD
On 22 January 2026, AUSTRAC announced that existing reporting entities will be granted an additional three years (i.e. until 30 March 2029) to comply with the new initial CDD obligations. During this period, entities may choose either to:
• continue applying their existing Applicable Customer Identification Procedures when onboarding new customers; or

• transition to the reformed initial CDD obligations at any time before 30 March 2029.
Entities must apply whichever framework they choose consistently across all new customers and customer types. Once an entity formally transitions to the reformed CDD obligations, it must apply the new requirements from that point forward.
The three-year transition applies only to initial CDD (i.e. new customer onboarding). Ongoing CDD obligations under section 30 of the AML/CTF Act must be implemented from 31 March 2026 with no deferral.

Other Transitional Measures
AUSTRAC has also confirmed the following transitional arrangements:
• existing reporting entities have until 30 May 2026 to notify AUSTRAC of their AML/CTF Compliance Officer;

• staggered deadlines will apply for entities that have recently completed an independent review; and

• on 9 February 2026, AUSTRAC released exposure draft amendments to the AML/CTF Rules for industry consultation. The transitional rules being developed by the Department of Home Affairs under Schedule 12 of the Amendment Act are expected to be finalised shortly.

6. Your Compliance Readiness Checklist

With the 31 March 2026 deadline imminent, each reporting entity should assess its current position against the following:
(i) Integrating PF as a distinct risk category in your ML/TF/PF Risk Assessment, ensuring the assessment methodology is sufficiently specific to identify threats;
(ii) Clearly designate the Senior Manager responsible for statutory approvals of policies and risk assessments and define the Governing Body's duty to exercise “appropriate ongoing oversight”;
(iii) Assess whether the AML/CTF Compliance Officer meets the new statutory criteria, including being an Australian resident (where applicable), a fit and proper person, and possessing sufficient authority and independence;
(iv) Refresh AML/CTF Programs and controls to align with the updated Rules and the outcomes-based framework;
(v) Align evaluation schedules with the new statutory requirement to test Program effectiveness at least every three years, noting that any adverse findings now trigger an immediate review of the Risk Assessment;
(vi) Implement ongoing CDD processes under section 30 of the AML/CTF Act; and
(vii) Document transitional implementation steps, including approvals, milestones, and remediation activity.
The immediate task for existing reporting entities is not to start from scratch, but to ensure that existing frameworks are updated to meet the new expectations in governance accountability, PF risk assessment, and CDD obligations.
AUSTRAC has made clear that its approach to compliance will be “pragmatic and proportionate” but has also signalled that entities that fail to manage their ML/TF risks or ignore their obligations will face regulatory action. Having a documented implementation plan in place by 31 March 2026 is essential.

7. How We Can Assist

H & H Lawyers has extensive experience advising reporting entities on AML/CTF compliance, risk assessments, and governance frameworks. We understand the practical challenges these reforms present, particularly for businesses operating across multiple jurisdictions.
Our team can assist with:
• reviewing and updating your ML/TF/PF Risk Assessments and AML/CTF Programs;
• advising on governance structures, including the designation of Senior Manager and Governing Body roles;
• assessing AML/CTF Compliance Officer suitability under the new statutory criteria;
• preparing documented implementation plans and transitional strategies; and
• providing ongoing compliance support as the reforms take full effect.
To discuss how these reforms affect your business, please do not hesitate to contact us.

Disclaimer
This newsletter is intended as general information only and does not constitute legal advice. The content is current as at 23 February 2026. Readers should seek professional advice tailored to their specific circumstances before making compliance decisions. To the extent permitted by law, H & H Lawyers excludes all liability for any loss or damage arising from reliance on the information contained in this newsletter.

Key Contacts

Kenneth Hong

Partner

Nicholas Lim

Senior Associate

Laura Oh

Lawyer

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Artificial Intelligence (AI) and International Arbitration

International arbitration has long been valued for its flexibility, neutrality, and adaptability. In recent years, however, the emergence of artificial intelligence (AI) has introduced a new set of opportunities and challenges that are likely to reshape arbitral practice. Unlike earlier waves of technological change, AI has a particularly pervasive impact: it is capable of touching almost every stage of the arbitral lifecycle; from pre-dispute planning and arbitrator selection to evidentiary and document review, hearings, award drafting, and enforcement. AI in the Context of International Arbitration AI in arbitration may be grouped into several broad categories: • Language and speech technologies: real-time transcription, machine translation, speech analytics, and voice synthesis. • Document and data analysis: technology-assisted review (TAR), document clustering, contract analytics, and predictive search. • Reasoning and drafting support: summarisation, brief drafting, case law synthesis, and award-structuring tools. • Forensics and authenticity: detection of manipulated evidence, such as deepfakes, and analysis of metadata. • Decision support and analytics: outcome prediction, damages modelling, and arbitrator selection analytics. Each class of AI raises distinct questions regarding admissibility, transparency, fairness, and due process, all of which are central to the credibility, integrity and legitimacy of arbitral proceedings. Impact Across the Arbitral Lifecycle Pre-dispute Planning and Arbitrator Selection AI is increasingly shaping arbitration before disputes even arise. Contract drafters now anticipate AI-related risks by including specific provisions in arbitration clauses; for example, restrictions on uploading confidential information to public AI systems, or agreement on translation protocols.In arbitrator selection, AI-driven analytics tools reveal past decision-making patterns, areas of expertise, and potential conflicts. These tools broaden candidate pools and might assist in promoting diversity. However, there is also a danger of over-reliance on statistical patterns, creating feedback loops that favour “safe” or well-documented profiles, while sidelining lesser-known but equally qualified candidates. The key future challenge might be ensuring that arbitrator appointments remain a human decision, informed (but not dictated) by algorithms. Pleadings and Written Submissions AI tools assist counsel in drafting, citation-checking, and issue-spotting, leading to faster production of submissions. However, they also raise the very real risk of ‘hallucinations’, in which non-existent cases or inaccurate authorities are cited. If not carefully verified, such errors may undermine the credibility of submissions and result in disciplinary and costs sanctions.Tribunals may need to implement integrity protocols requiring parties to certify that authorities cited have been human-verified and that any AI-generated drafting has been carefully reviewed. In short, efficiency gains must not come at the expense of accuracy and reliability. Evidence and Document Production One of the most transformative effects of AI is in document review. TAR and clustering tools can reduce costs and streamline discovery, especially in multilingual disputes. But new problems may arise: • Privilege risks: Uploading confidential or privileged documents into public AI systems may inadvertently waive privilege or breach confidentiality obligations. • Authenticity concerns: The rise of deepfakes means tribunals must adopt more robust standards for authenticating video, audio, and photographic evidence. Best practices include adopting AI evidence protocols that require disclosure of the tool used, validation steps, and an auditable chain of custody. Tribunals should also anticipate the need for forensic experts to test the reliability of AI-processed evidence.Although AI can accelerate document production, it can also magnify risks of privilege breaches and fabricated evidence. Hearings AI is already embedded in arbitral hearings through transcription and machine translation. While these tools enhance accessibility, they introduce risks of misinterpretation that may unfairly affect witness credibility. More troubling is the possibility of covert AI assistance during testimony; for example, perhaps even the rather outlandish-sounding risk that a witness might receive real-time AI-generated prompts. Tribunals should consider addressing these risks in their procedural orders by: • approving specific transcription and translation tools, • prohibiting generative assistance during testimony, and • ensuring technological parity so that neither party has an unfair advantage. Going forward, procedural fairness is likely to require careful management of AI use during hearings. Deliberations and Award Drafting AI may certainly help arbitrators structure factual chronologies or verify consistency within an award. However, using AI in deliberations themselves raises two fundamental risks: • Breach of confidentiality: Uploading draft awards to external AI systems may compromise deliberation secrecy. • Improper delegation: If arbitrators rely on ‘opaque’ algorithms to decide on questions of facts or law, the award may be vulnerable to challenge under the New York Convention. The appropriate role for AI should therefore be limited to clerical or stylistic support, with substantive determinations reserved for the tribunal. Arbitrators must ensure that their awards are demonstrably the product of human reasoning. AI should assist, but never replace, the tribunal’s independent judgment. Post-Award Challenges and Enforcement AI use in arbitration could foreseeably feature prominently in set aside and enforcement proceedings. Parties may challenge awards on the grounds that undisclosed reliance on AI deprived them of due process (New York Convention, Article V(1)(b)) or that the award violates public policy (Art. V(2)(b)). Tribunals should mitigate such risks by keeping sealed records of any AI assistance used in drafting, limited to clerical tasks. This approach allows them to rebut speculative challenges without breaching deliberation secrecy. Regulatory and Ethical Considerations AI use runs the risk of introducing several cross-border tensions: • Data protection: Rules such as the EU’s GDPR, China’s PIPL, and Brazil’s LGPD complicate the use of AI platforms that transfer or store personal data abroad. • Confidentiality: Many consumer AI systems retain and train on user data, which conflicts with arbitration confidentiality obligations. • Export controls and sanctions: Some AI technologies are subject to restrictions, which may impact their use depending on the seat of arbitration. • Professional duties: Counsel must exercise competence and candour when using AI. Submitting unverified AI-generated content may breach professional ethics. Regulatory compliance and ethical oversight are essential in order to safeguard the legitimacy of arbitration. Costs, Time, and Environmental Impact AI can reduce costs by streamlining document review and shortening timelines, but it can also generate inefficiencies if inappropriately used. For example, hallucinated citations may necessitate costly corrections. From an environmental perspective, AI may reduce travel by enabling remote hearings, though large scale computation carries its own carbon footprint. It is likely that, in the future, tribunals will increasingly scrutinise whether parties’ AI-related expenditures are proportionate and recoverable as costs of arbitration. AI can undoubtedly make arbitration faster and cheaper if deployed responsibly, but careless use can equally have the opposite effect. Snapshot of Strategic Opportunities and Risks Opportunities: • More accurate multilingual proceedings through AI translation. • Faster and more efficient document review • Enhanced damages modelling and tribunal analytics. • Broader and more diverse arbitrator lists. Risks: • Hallucinated citations and unreliable outputs. • Privilege waivers from inappropriate AI use. • Undisclosed reliance on AI during testimony or deliberations. • Awards undermined by improper delegation to AI systems. Some Recommendations for Good Practice To integrate AI responsibly into international arbitration, tribunals and parties should adopt the following measures: • Include explicit AI provisions in Procedural Order No. 1, covering use, disclosure, authentication, and sanctions. • Require the use of enterprise-grade AI tools that do not train on confidential inputs. • Approve common translation and transcription platforms to ensure parity. • Mandate disclosure of method statements and validation for AI-processed evidence. • Establish forensic protocols for ‘deepfake’ detection. • Ensure that all substantive decisions remain with the tribunal. • Maintain audit trails of AI usage for accountability. • Allocate costs proportionately, rewarding efficient use and penalising misuse. • Safeguard deliberation secrecy by prohibiting external AI in award drafting. • Prepare enforcement-ready records to counter challenges under the New York Convention.

Ad hoc and Institutional Arbitration

Arbitration is an increasingly preferred alternative to traditional litigation, particularly in commercial and international disputes. For businesses engaged in cross-border transactions, especially within the Asia-Pacific region, choosing between institutional and ad hoc arbitration can significantly influence the efficiency, cost and enforceability of dispute resolution. This article outlines key differences and practical considerations to help parties make informed decisions. Institutional Arbitration Institutional arbitration is conducted under the rules of a recognized arbitral institution, such as the Singapore International Arbitration Centre (SIAC), Hong Kong International Arbitration Centre (HKIAC) or the Australian Centre for International Commercial Arbitration (ACICA). These bodies offer a structured procedural framework and dedicated administrative support. The benefits of institutional arbitration include clearly defined rules that reduce procedural uncertainty, experienced panels of arbitrators and stronger international recognition of awards. Importantly, parties do not need to negotiate fees directly with arbitrators, as institutional rules often prescribe a fee schedule or allow the institution to manage these arrangements. The presence of a secretariat or case management team ensures that timelines are monitored and adhered to, minimizing procedural delays. Institutions also handle logistical and ancillary services such as transcription, interpretation, and hearing room bookings, relieving parties of the administrative burden. While institutional arbitration is often associated with higher administrative costs and reduced procedural flexibility, many institutions now offer streamlined rules and expedited processes to balance efficiency with oversight. Some institutions even extend their facilities, such as venues and financial administration services, to support ad hoc arbitrations, providing a hybrid option that blends autonomy with professional support. Ad hoc Arbitration Ad hoc arbitration does not involve an administering institution. Instead, the parties themselves agree on procedural rules, nominate arbitrators and manage the process independently. This approach offers greater flexibility and can be more cost-effective in the right circumstances. The appeal of ad hoc arbitration lies in its autonomy and adaptability. Parties can customise procedures to suit their commercial needs, potentially achieving faster outcomes with reduced expense. However, without institutional support, parties must arrange all aspects of the process, including arbitrator appointments, fee negotiations and ancillary services. This lack of infrastructure can lead to delays, especially when parties are uncooperative or disputes arise about procedure. Additionally, enforcement of awards may be more difficult if procedural irregularities affect the arbitration’s perceived legitimacy. Strategic Considerations for PartiesFor businesses operating in the Asia-Pacific, selecting the right arbitration model depends on factors such as dispute complexity, anticipated costs, international enforceability and the likelihood of party cooperation. Institutional arbitration is generally better suited to large-scale, cross-border disputes where predictability, enforceability and reputational assurance are important. The procedural structure and secretariat support offered by institutions can be critical in managing complex cases and ensuring compliance with deadlines. In contrast, ad hoc arbitration may be appropriate for smaller claims or domestic matters where parties are aligned on process and cost considerations and may still benefit from certain institutional services when needed. Ultimately, well-drafted arbitration clauses are essential. Legal advice at the contract negotiation stage can ensure that the chosen arbitration method aligns with a company’s broader commercial objectives and mitigates legal risk. As arbitration continues to expand across the region, businesses would do well to engage counsel experienced in both institutional and ad hoc frameworks to guide their approach. ConclusionWhile both institutional and ad hoc arbitration have their respective merits, the growing preference for institutional arbitration, reflected in a 2015 survey where 79 per cent of users opted for institutional mechanisms, underscores its practical advantages in the context of international commercial disputes. Institutions offer procedural certainty, administrative support, and enhanced credibility of awards, which are crucial when dealing with complex, cross-border matters. Additionally, the elimination of direct fee negotiations with arbitrators and the availability of ancillary services contribute to a smoother and more reliable process. Although institutional arbitration can be more costly and less flexible, its structured framework often proves more dependable, particularly where cooperation between parties is limited. Ultimately, the decision between institutional and ad hoc arbitration should be informed by the specific needs of the parties, the complexity of the dispute, and the importance of enforceability and procedural support.

How Can International Arbitration Be Made Cost Effective?

Making International Arbitration More Cost Effective International arbitration remains a preferred method for resolving cross-border disputes, especially in the Asia-Pacific. However, the process can be costly and protracted, often attracting criticism from commercial parties who seek timely and efficient outcomes. As arbitration continues to evolve in the region, cost effectiveness requires coordinated efforts from parties, arbitrators, institutions and legislators alike. Enhancing Efficiency Through Strategic PlanningMuch of the responsibility for controlling arbitration costs lies with the parties and their legal representatives. Early case assessment and a clear procedural strategy can significantly reduce inefficiencies. By developing a well-defined case theory from the outset, parties can better assess settlement options and avoid unnecessary procedural steps. Importantly, parties should give more thought to dispute resolution clauses before a dispute arises. Too often, these clauses are treated as boilerplate without due consideration of their strategic impact. This is the moment to agree to mechanisms that can streamline future proceedings, such as adopting the IBA Rules on the Taking of Evidence in International Arbitration, which typically provide for more limited disclosure than common law approaches. Likewise, agreeing on the preparation of core document bundles and the use of admissions, even where these may be unfamiliar in civil law jurisdictions, can help narrow the factual issues in dispute and avoid unnecessary fact-finding. Choosing the right arbitrator is equally critical. Opting for a sole arbitrator, particularly one with availability and relevant industry experience, can eliminate the risk of scheduling conflicts and streamline decision-making. This is especially important in the Asia-Pacific region, where access to experienced arbitrators is competitive. Technology also plays a key role in reducing costs. Remote hearings now offer a practical alternative to in-person appearances, eliminating travel expenses and enabling greater flexibility in scheduling. Additionally, focusing on essential evidence and narrowing the scope of issues helps prevent the arbitration process from becoming unnecessarily prolonged. Arbitrators as Drivers of Procedural Efficiency Arbitrators play a pivotal role in setting the tone for an efficient process. Active case management, through clear timelines, procedural orders and firm expectations, helps ensure alignment throughout the arbitration. A key efficiency measure is for arbitrators to clarify the live issues early on, either by preparing their own list for party comment or asking the parties to jointly define them. This can dramatically reduce the time spent arguing peripheral matters. While arbitration is, to some degree, the parties' process, arbitrators should not be overly deferential. Effective case management may require firm intervention. Arbitrators should feel confident using procedural tools such as bifurcation, summary dismissal, or early partial awards, and they should not be deterred by concerns that being prescriptive might affect future appointments or trigger challenges to the award. The tribunal has a responsibility not only to the parties but also to the integrity of the arbitral process. Limiting the volume of submissions and requiring parties to justify the relevance of their evidence are further levers that tribunals can use to ensure the arbitration stays focused and proportionate. Arbitrators should also remain alert to opportunities for early settlement. In jurisdictions such as Singapore and Hong Kong, where mediation is well integrated, they can encourage or facilitate early resort to alternative dispute resolution (ADR) mechanisms. Institutional Support and Legislative Reform Arbitral institutions in the region, including the Singapore International Arbitration Centre (SIAC) and the Hong Kong International Arbitration Centre (HKIAC), have taken steps to improve procedural efficiency. Many now offer expedited procedures that compress timeframes and reduce unnecessary steps, making them ideal for less complex or lower-value disputes. Institutions can go further by actively managing arbitrator availability, enforcing award delivery timelines, and promoting the use of ADR within the arbitration process. In countries such as Australia and New Zealand, where mediation is common, institutions could empower tribunals to stay proceedings to allow for meaningful settlement discussions. Legislation also plays a role. Clear statutory endorsement of summary procedures and expedited mechanisms can remove uncertainties about their enforceability and encourage broader adoption. Recent reforms in arbitration laws across the Asia-Pacific reflect a growing appetite for speed and economy in international arbitration. Practical Steps to Consider To maximise cost efficiency, parties and legal representatives should: • Carefully negotiate dispute resolution clauses during contract formation, considering procedural rules (e.g. IBA Rules) that limit scope and disclosure. • Include pre-arbitration settlement or ADR clauses in contracts. • Agree early on procedural matters such as timelines, core bundles and potential admissions. • Engage experienced arbitration counsel familiar with regional practices. • Limit evidence and witnesses to those strictly necessary. • Consider remote hearings wherever appropriate. Conclusion Cost effective arbitration is not achieved through isolated efforts. Instead, it requires a coordinated approach involving proactive parties, decisive arbitrators, supportive institutions and forward-looking legislation. By embracing efficient case management, agreeing procedural rules and issues upfront, leveraging technology and adopting expedited procedures, international arbitration can continue to serve as a reliable and commercially viable dispute resolution mechanism, particularly for businesses operating across the Asia-Pacific.

Security of Payment NSW - Know your right to receive progress payments for construction works and related goods and services

As a direct or indirect result of the COVID-19 pandemic and uncertainty in a global economy, various issues have been adversely impacting the construction industry, such as an increase in raw material price and supply chain disruption. Particularly, contractors and subcontractors are struggling with their cash flow due to their outstanding payments for the works carried out. Accordingly, security of payment legislation in each state has played a role in ensuring that anyone carrying out construction work, and supplying related goods and services under a construction contract gets paid promptly. This article discusses and explains your rights under the NSW Security of Payment Act, and each state has its own security of payment legislation, which may differ from each other in detail. Know Your Rights In New South Wales, the relevant security of payment legislation is the Building and Construction Industry Security of Payment Act 1999 (NSW) (“SOPA”). The significance of the SOPA is that it grants contractors rights to receive progress payment even if there is no formal written contract or even if a contract says that you are only allowed to receive a payment at the end of works, i.e., after the completion of works. Fundamentally, the SOPA entitles a person or a company, who carried out construction work or supplied construction related goods and services, to receive progress payment. A progress payment means a partial payment for works as the project progresses even if the assigned works are not completed. Therefore, the progress payment facilitates cash flow for contractors and suppliers in the construction industry. Under SOPA, the following rights are granted to you: A right to receive a progress payment at least on a monthly basis; Maximum time limits to respond to claims for progress payments; Maximum payment terms; A right to suspend work in the event of non-payment; No ‘pay when paid’ clause: No need to wait until a contractor you worked for gets paid by a head contractor or principal; and Interest rates applicable on unpaid progress payment. Who is entitled to receive a progress payment? A person or company who, under a construction contract or any other construction arrangement, has undertaken to carry out construction work or supply construction related goods or services in New South Wales is eligible to receive a progress payment under the SOPA.[1] The “construction work” is broadly defined, including construction, alteration, repair, maintenance or demolition of buildings or structures forming part of land.[2] The “related goods and services” also include various related goods and services such as materials for construction or plant for use in construction work, labour service, design or engineering service.[3] While the SOPA is drafted to cover contractors, subcontractors, suppliers and service providers as broadly as possible, it should be noted that there are also exceptions such as those engaged in the extraction of oil, natural gas or minerals. Payment Claims The procedure for receiving a progress payment is triggered by a person entitled under the SOPA (Claimant) making a Payment Claim in writing to the other person who is responsible to make a payment under a construction contract (Respondent) In making a Payment Claim, Claimants must ensure that the following requirements are met:[4] 1) The construction work related to the progress payment must be identified; 2) The amount of the progress payment must be indicated; 3) A statement that a Payment Claim is made under this SOPA must be inserted; 4) A Payment Claim must be served on the Respondent within 12 months after the construction work was last carried out; and 5) A Payment Claim is only made one (1) time in a month on and from the last day of each month in which the construction work was carried out. How to respond to a Payment Claim? The Respondent is required to respond to the Payment Claim by providing a Payment Schedule to the Claimant within 10 business days after receipt of the Payment Claim. By failing to do so, the amount claimed in the Payment Claim is fixed and Respondents are liable for such amount on the due date. In issuing a Payment Schedule, Respondents also are required to comply with the following requirements:[5] 1) A Payment Claim related to a Payment Schedule must be identified; 2) The amount of the payment the Respondents propose to make must be indicated; and 3) If applicable, reasons why the amount in the Payment Schedule is less than that in the Payment Claim and reasons for withholding payment must be identified. Maximum payment terms One of the most important benefits available under the SOPA is that there are statutory deadlines for a progress payment to be made.[6] If the Respondents fail to pay the progress payment by the deadline in the diagram below, such amount is deemed due and payable, and interest on the unpaid amount is also payable at the prescribed rate. Your rights to suspend works A Claimant also has a right to suspend construction work or supply of related goods and services if a Respondent fails to pay the amount by the due date for payment as described above.[7] At least two (2) business days prior to the suspension, the Claimant must serve on the Respondent a Notice of Intention to Suspend Work in writing. As the date on which the Notice is given is not counted, the Claimant is eligible to suspend work on and from the fourth day of the Notice. Please see the above diagram. Once the work is suspended under SOPA, the Claimant is not liable for any loss or damage suffered by the Respondent as a result of such suspension. However, once the whole outstanding amount is paid, the Claimant must resume the work within three (3) business days from the payment date. Don’t wait until a head contractor gets paid The SOPA expressly prohibits and invalidates any clause in a construction contract that the payment of money is contingent on a milestone or an event in other contracts including a head contract.[8] A common example of these clauses is that a payment under a subcontract is made upon the payment by a principal under a head contract or upon the practical completion of a head contract. Such clauses are deemed unenforceable under the SOPA, and you have a right to claim the progress payment regardless of the operation of other contracts. Adjudication A person eligible under the SOPA also can start an adjudication process for unpaid or disputed progress payments. Adjudication is an informal and independent process which an issue or issues are determined by an independent adjudicator regarding the payment claims. The adjudicator’s determination can be enforced as if it is a judgment rendered in a Court. However, the Claimant must file an adjudication application in writing by the following deadlines:[9] Type Deadline When: 1) Respondent issues a Payment Schedule, and 2) the amount in a Payment Schedule is less than the amount in a Payment Claim Within 10 business days after a Payment Schedule is issued When: 1) Respondent issues a Payment Schedule; and 2) Respondent fails to pay the amount in the Payment Schedule by the due date Within 20 business days after a Payment Schedule is issued When 1) Respondent fails to issue a Payment Schedule; 2) Respondent fails to pay the amount in a Payment Claim by the due date; 3) Claimant serves written notice of intention to apply for adjudication of the payment claim on Respondent within 20 business days from the due date; and 4) Respondent has been given an opportunity to provide a Payment Schedule within 5 business days after receiving notice of intention to apply for adjudication of the payment claim Within 10 business days after the end of the 5 business days for Respondent to provide a Payment Schedule after receiving notice of intention to apply for adjudication of the payment claim Detailed procedures, requirements for adjudication and enforcing the adjudicator’s determination will be discussed in future articles. Payment Withholding A subcontractor who has made an adjudication application for a progress payment is also entitled to request a principal contractor to retain money owed to a head contractor to cover the claimed amount.[10] This is called a ‘payment withholding request’. Upon receipt of the payment withholding request, the principal must retain the amount of money to which the payment claim relates.[11] When a successful outcome is given in the adjudication process, a subcontractor is able to recover the withheld money from the principal through the procedures set out in the Contractors Debts Act 1997 (NSW). How can we assist If you are involved in construction work in New South Wales, the SOPA entitles you to claim the progress payment and have protections accordingly. However, your rights under SOPA may vary depending on your satisfactory fulfilment of requirements and on whether you took proper actions in a timely manner. Although the SOPA sets out a statutory regime for prompt payment for construction work, there are still a number of disputes arising from unpaid progress payments in a construction contract, which ends up with unsatisfactory outcomes for unpaid contractors and suppliers. If you are unsure what rights you have in your construction payment issues, H & H Lawyers will be happy to review your case to check whether it might fall within a case protected under the Security of Payment Act or other relevant laws. We can further assist in finding a way to enforce your rights. Disclaimer: The contents of this publication are general in nature and do not constitute legal advice. The information may have been obtained from external sources and we do not guarantee the accuracy or currency of the information at the date of publication or in the future. Please obtain legal advice specific to your circumstances before taking any action on matters discussed in this publication. [1] SOPA ss4 and 8. [2] SOPA s5 [3] SOPA s5 [4] SOPA s13 [5] SOPA s14 [6] SOPA s11 [7] SOPA s27 [8] SOPA s12 [9] SOPA s17 [10] SOPA s26A [11] SOPA s26B

Considering buying off-the-plan? Purchasers beware.

H & H Lawyers successfully defends a vendor developer against claims brought by the purchaser of an off-the-plan property in the Supreme Court of NSW. While the benefits of buying an off-the-plan property are often highlighted to a purchaser, the decision in Xu v Lindsay Bennelong Developments Pty Limited & Ors [2020] NSWSC 1692 confirmed the importance of having any terms that are “non-negotiable” for the purchaser to be clearly expressed in writing in the contract for sale of land. Facts In this case, the plaintiff was a purchaser of an off-the-plan property. During the handover inspection of the completed property, the purchaser discovered that there was only one car space attached to her property despite the representation being made prior to entering the contract for sale of land that there would be two car spaces. Subsequently, the purchaser brought a claim against the former vendors of the subject property and the substituted vendor, to whom the contract for sale was novated to, after exchange of contracts. Other relevant facts include: 1. prior to purchasing the property, the agent made representations to the purchaser that there would be two car spaces attached to the property; 2. prior to purchasing the property, the purchaser’s solicitor inquired and the former developer confirmed in writing that the property had two car spaces; 3. the front page of the contract of sale of land did not specify how many car spaces were attached to or formed part of the property; 4. the draft floor plan and draft strata plan of the property which were attached to the contract of sale marked that there are two car spaces allocated to the property; 5. there was no other mention of there being two car spaces attached to the property in the special conditions to the contract or anywhere else in the contract; and 6. it was a special condition to the contract for sale that the purchaser acknowledges and agrees that the vender may make alterations, from time to time, and vary the building floor plan or the draft strata plan, as it sees necessary or desirable. The plaintiff claimed that the defendants breached the fundamental term and purposes, or alternatively, an implied term of the contract, by only transferring one car space with the property instead of two car spaces. The plaintiff also claimed that, in doing so, the defendants engaged in misleading and deceptive conduct or false representation under sections 18 and 30(1)(e) of the Australian Consumer Law (“ACL”) and sought specific performance for the defendants to transfer one more car park under sections 237 and 243 of the ACL. The then Chief Judge in Equity, Ward CJ dismissed the plaintiff’s arguments and held that: 1. the contract was for the sale of a unit with a single tandem car space. However transferring two car spaces was neither a fundamental term nor an essential implied term of the contract; and 2. the representations that the plan would include a space for two cars were clearly made. Nonetheless, such representation does not amount to misleading or deceptive conduct in circumstances where the developer had reasonable grounds to make such representation at the time and the plaintiff suffered no loss by relying on the promise. Key takeaways While this case is not to be generally applied to all circumstances in relation to off-the-plan purchases, a purchaser of an off-the-plan property should be mindful of standard special conditions attached to contracts for sale of off-the-plan properties which are designed to allow a vendor developer to make changes (to a degree) to a draft floor plan or draft strata plan. As in this case, even if the court finds that the draft plan which formed part of the contract was varied, such variation may not constitute a breach of a fundamental or essential term of contract. Thus, a purchaser of an off-the-plan property must scrutinise the terms and conditions before entering into the contract for sale. Further, if the purchaser seeks to rely on any representations made by an agent or vendor prior to entering into the contract, such representation should be expressly and unequivocally included in writing in the contract to make sure the vendor makes good on the promise. The purchaser should also be mindful that the contract would generally provide a limited time to seek rescission. A vendor should also consider the litigation risks associated with the sale of off-the-plan properties. Even if the vendor is successful such as in this case, being involved in court proceedings is costly and time-consuming, and may impact its reputation as a developer as well as open the gate for other purchasers to bring a similar claim against the developer. Disclaimer: The contents of this publication are general in nature and do not constitute legal advice. The information may have been obtained from external sources and we do not guarantee the accuracy or currency of the information at the date of publication or in the future. Please obtain legal advice specific to your circumstances before taking any action on matters discussed in this publication.

Freedom of Contract: Can parties contract out a statutory limitation period? The High Court says yes.

One of the basic principles of Australian contract law is freedom of contract: parties are free to enter into an agreement on whatever terms they choose. With that principle, a question always arises as to what extent parties can limit or exclude the operation or effect of statutes. In Price v Spoor [2021] HCA 20, the High Court of Australia concluded that a statutory limitation period under the Limitation of Actions Act 1974 (Qld) can be contracted out by an agreement between parties as it is not contrary to public policy. This case made a clear authority in dealing with the boundary of the freedom of contract to the extent of the statutory limitation period. However, caution should be taken in applying it. Background In 1998, Price as a mortgagor and Spoor as a mortgagee entered into two mortgage agreements, but a loan of $320,000 and interest were not repaid to Spoor when due and payable in July 2000. In 2017, Spoor brought proceedings in the Supreme Court of Queensland against Price to recover the principal sum and interest as well as for possession of the land secured under the mortgages. Price by way of defence and counterclaim argued that Spoor was statute-barred from bringing the action pursuant to the Limitation of Actions Act 1974 (Qld) (Limitation Act). In response, Spoor asserted that pursuant to clause 24 of the mortgage agreements, Price agreed not to plea a defence of limitation period. The Limitation Act relevantly provides that an action for breach of contract and that for the recovery of land shall not be brought after the expiration of 6 years and 12 years respectively. In the present case, Spoor brought the proceedings around 17 years after the repayment due date under the mortgages. Clause 24 of the two mortgages provides that: "The Mortgagor covenants with the Mortgage[e] that the provisions of all statutes now or hereafter in force whereby or in consequence whereof any o[r] all of the powers rights and remedies of the Mortgagee and the obligations of the Mortgagor hereunder may be curtailed, suspended, postponed, defeated or extinguished shall not apply hereto and are expressly excluded insofar as this can lawfully be done." Then, the main question before the High Court was, among others, whether the parties can effectively agree in a contract that either party would not rely on the statutory limitation defence. In other words, the question is whether parties can ‘contract out’ the statutory limitation period. The High Court’s Decision Earlier High Court cases already dealt with the effect of statutory limitation, discussed in Price v Spoor. In The Commonwealth v Mewett (1997) 191 CLR 471, Gummow and Kirby JJ said that a statutory bar in the case of a statute of limitations does not go to the jurisdiction of the court to entertain the claim but rather to the remedy available, and therefore to the defences which may be pleaded. In Westfield Management Ltd v AMP Capital Property Nominees Ltd (2012) 247 CLR 129, it was held that a person can waive or renounce its right conferred by a statute unless it would be contrary to the statute to do so. The High Court further went on to say that a contract will be ineffective or void where it operates to defeat or circumvent a statutory purpose or policy according to which statutory rights are conferred in the public interest. Accordingly, the above can be summarised as the following principles: 1. a limitation period is a right conferred on a party seeking to enforce the defence; and 2. a person is allowed to agree to abandon a statutory right conferred on them if that statute does not prohibit them from doing so or if that is not contrary to public policy. The High Court first found that there is no express prohibition against ‘contracting out’ of a statutory defence in the Limitation Act. Then, it went on to decide that while a statutory purpose of imposing a limitation period in the Limitation Act is to promote the finality in litigation, i.e. speedy resolution of disputes, the right conferred is rather an individual benefit which can be elected to utilise as a defence, and it does not intend to remove jurisdiction of the court even if a limitation period has ended. Further, the High Court found that clause 24 of the mortgage agreements effectively gave up the benefit provided by the Limitation Act, on the grounds that the parties intended that clause 24 has wide operation including provisions in the Limitation Act by making reference to its text, context and purpose as well as to the understanding of a reasonable businessperson. Steward J agreed with Kiefel CJ and Edelman J’s reasons but further emphasised that the inclusion of clause 24 is a legitimate adjustment of the private statutory rights by exercising their freedom of contract and noted an important attribute of contract law stated in Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656: “Exceptions from that freedom of contract require good reason to attract judicial intervention to set aside the bargains upon which parties of full capacity have agreed." Implications It is important to note that the High Court in Price v Spoor clearly rendered the decision that the parties can contract out the statutory limitation defence under the Limitation Act as such conduct is not contrary to the public policy. While bearing in mind this precedent, due regard should also be given to applying this to cases arising in different circumstances. The High Court in reaching its conclusion in Price v Spoor indeed considered the interpretation and the purpose of the Limitation of Actions Act 1974 (Qld) as well as the interpretation of a relevant clause in the contract. Each state in Australia has its own legislation governing statutory limitation period, and the policy reasoning behind each legislation may differ from state to state. Further, whether or not the parties effectively agree to contract out the statutory limitation period is ultimately dependent upon the construction of contract clauses. Therefore, it is worthwhile to note that parties intending to contract out or vary the statutory limitation period in their contract must obtain prior legal advice so as to ensure that such intention is effectively incorporated and enforceable against a breaching party. Finally, it should be noted that a term that purports to waive rights under a statute which serves a public purpose will not be enforceable. For example, an employment contract that purports to waive or renounce employee’s rights such as minimum terms and conditions under the Fair Work Act 2009 (Cth) will be unenforceable. Disclaimer: The contents of this publication are general in nature and do not constitute legal advice. The information may have been obtained from external sources and we do not guarantee the accuracy or currency of the information at the date of publication or in the future. Please obtain legal advice specific to your circumstances before taking any action on matters discussed in this publication.