How Courts Consider Descriptions of Work in Payment Claims & Reasons for Withholding Payment in Payment Schedules
Ensuring that you can rely on a Payment Claim or a Payment Schedule to invoke or resist the considerable force of the Building and Construction Industry Security of Payment Act 1999 (NSW) to recover payment (or resist the obligation to pay) is critical for any business in the building and construction industry. In this article we consider how the Courts consider the adequacy of describing works or reasons for withholding payment in assessing the validity and reliability of Payment Claims and Payment Schedules.
Section 13 of the Act sets out the requirements for a valid Payment Claim and relevantly provides that a Payment Claim:
- must identify the construction work or related goods and services to which the progress payment relates;
- must indicate the amount of the progress payment that the claimant claims to be due (“the Claimed Amount”); and
- must state that it is made under the Act.
When considering the level of detail required by the Act for identifying construction work (or related goods or services) to which a Payment Claim relates the Courts have held that:
- This is an objective test. It must be asked whether a reasonable person in the position of the recipient of the Payment Claim would be left with any doubt as to its meaning;
- It is sufficient if the Payment Claim identifies the work in terms of the contract and location with respect to which it was undertaken; and
- While it is not necessary for a Payment Claim to be as precise and as particularised as a Court pleading, there is a need for “precision and particularity… to a degree reasonably sufficient to apprise the parties of the real issues in the dispute”.
Essentially, a Payment Claim must sufficiently identify the construction work (or related goods or services) to which the claim relates to enable the Respondent to understand its basis.
A party receiving a Payment Claim who wishes to dispute the Claimed Amount and avoid a statutory debt arising must provide a Payment Schedule within the allowed time.
Section 14 of the Act relevantly provides that a Payment Schedule:
- must identify the Payment Claim to which it relates;
- must indicate the amount of the payment (if any) that the recipient of the claim proposes to make (“the Scheduled Amount”); and
- if the Scheduled Amount is less than the Claimed Amount, the schedule must indicate why the Scheduled Amount is less, and must provide the Respondent’s reasons for withholding payment.
In the case of a Respondent withholding payment, the Courts have held that:
- The issues in dispute need to be apparent.
- The Respondent needs to make it clear to the Claimant their reasons for withholding payment.
- The reasons given for withholding payment should enable the Claimant to make a decision whether or not to accept the Scheduled Amount, and to understand the nature of the case the Claimant will have to meet in an Adjudication.
The provision of adequate reasons for withholding payment in a Payment Schedule is critical, as Section 20(2B) of the Act precludes a Respondent from including in an Adjudication Response any reasons for withholding payment that are not included in the Payment Schedule provided to the Claimant.
By way of example, if, in an Adjudication, a Respondent wants to make a jurisdictional objection on the basis the Payment Claim is not a valid claim, the Respondent must have included this challenge in the Payment Schedule originally provided in response to the Payment Claim.
Parties seeking to rely on the Act to recover payment or resist a Payment Claim should be careful to ensure that the works are adequately described or reasons for withholding payment sufficient articulated in their Payment Claims and Payment Schedules, as the case may be, to enable the other party to understand and evaluate the clams and defences that are being made.
Where a dispute is anticipated such that a subsequent Adjudication Application and Determination is likely to follow, parties should, noting that strict time limits apply, immediately seek the assistance of an experienced Building & Construction Lawyer before serving their Payment Claim or Payment Schedule to ensure that they will be able to most effectively press their claims/defences in a subsequent Adjudication Application.