High Court settles argument about when a Payment Claim can be validly issued
In a decision of great relevance to members of the building and construction industry, the High Court has provided some certainty in relation to when a valid Payment Claim may be issued under a construction contract and put to rest a debate that has gone on for some time in light of various legislative amendments and Judgments of lower Courts.
In Southern Han Breakfast Point Pty Ltd (in Liquidation) v Lewence Construction Pty Ltd & Ors  HCA 52, the High Court confirmed that the existence of a reference date under a construction contract is a precondition to the making of a valid Payment Claim under the Building and Construction Industry Security of Payment Act 1999 (NSW) (“the Act“).
The case essentially turned on interpretation of Section 8 of the Act, which is in the following terms:
- On and from each reference date under a construction contract, a person:
(a) who has undertaken to carry out construction work under the contract, or
(b) who has undertaken to supply related goods and services under the contract,
is entitled to a progress payment.
2. In this section, reference date, in relation to a construction contract, means:
(a) a date determined by or in accordance with the terms of the contract as the date on which a claim for a progress payment may be made in relation to work carried out or undertaken to be carried out (or related goods and services supplied or undertaken to be supplied) under the Contract, or
(b) if the Contract makes no express provision with respect to the matter the last day of the named month in which the construction work was first carried out (or the related goods and services were first supplied) under the contract and the last day of each subsequent named month.
Also of significance to the decision was Section 13 of the Act, which sets out the way in which a person who claims to be entitled to a progress payment may serve a Payment Claim and states, relevantly, that
- A person who is entitled to a progress payment under a construction contract (the claimant) may serve a Payment Claim on the person who under the contract is liable to make the payment.
2. A claimant cannot serve more than one Payment Claim in respect of each reference date under the construction contract.
Southern Han and Lewence were the parties to a Construction Contract whereby Lewence had agreed to construct an apartment block. The contract contained a provision that stated that Lewence could “claim payment progressively” by making a “progress claim” on the 8th day of each calendar month for work under the contract done to the 7th day of that month.
On 27 October 2014, Southern Han gave Lewence a notice seeking to exercise a right under the contract to take the whole of the work out of Lewence’s hands.
Upon receipt of that notice, Lewence sought to treat it as a repudiation of the contract on the part of Southern Han, which it purported to accept in an attempt to terminate the Contract.
On 4 December 2014, Lewence served on Southern Han a purported Payment Claim under the Act in which it sought payment for work carried out by Lewence up to 27 October 2014.
That claim did not nominate a reference date.
Southern Han provided a Payment Schedule in response to Lewence’s Payment Claim that indicated that the amount that it proposed to pay Lewence was “nil“.
It argued that the document could not be a valid Payment Claim under the Act because no reference date for the making of a progress payment had arisen under the Construction Contract after 8 October 2014.
Findings of the High Court
The High Court held that the reference in Section 13(1) of the Act to a “person referred to in Section 8(1) who is or who claims to be entitled to a progress payment” should be construed as referring to a person who has undertaken to carry out construction work (or to supply related goods and services) under a construction contract, and who is, therefore, entitled to a progress payment only on and from each reference date.
It follows, the Court held, that the existence of a reference date under a Construction Contract within the meaning of Section 8 of the Act is a precondition to the making of a valid Payment Claim under Section 13.
Because Southern Han had exercised a right under the contract on 27 October 2014 to take the work remaining to be completed out of Lewence’s hands, and because Lewence purported to accept that action as a repudiation on the part of Southern Han and terminate the contract, there was no reference date after 8 October 2014 which was available to Lewence in order to support the issue of a valid Payment Claim.
Indeed the Court noted that there was nothing in the contract to indicate that the parties had intended that Lewence’s right to make a progress claims was intended to survive termination of the contract, which meant that Lewence’s Payment Claim was invalid.
The case highlights the importance of all contractors seeking to rely upon the benefits afforded under the Act taking special care to ensure that Payment Claims comply strictly and precisely with its terms and that there is an available reference date.
It is also clear from the decision that, while the definition of “progress payment” in the Act is such as to allow a Payment Claim under the Act to comprise of a payment occurring during the currency of a construction contract or after the Contract has expired, the Act cannot be used as a means of recovering damages for a breach of a construction contract, or for seeking restitution for work carried out (or goods or services supplied) in the event that the Construction Contract is terminated because of the acceptance of a repudiation.
The decision also highlighted the importance that parties in the construction industry ensure that the terms and conditions of any contract entered into properly reflect the position that they wish to adopt in their dealings, and provides an appropriate mechanism for the making of claims under the Act even if the contract is terminated. This is particularly so when those parties utilise “standard form” contracts that may be out of date or which have not been drafted with their specific needs and requirements in mind.
A failure to do so, as evidenced by the High Court’s decision, could be extremely costly.
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