Respondents despondent as the Court of Appeal further narrows scope for judicial review

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In an important decision for adjudications in New South Wales, the Court of Appeal has determined that the existence of a reference date is not a “jurisdictional fact” that warrants intervention by the Courts.  The decision of Lewence Constructions Pty Ltd v Southern Han Breakfast Point Pty Ltd [2015] NSWCA 288 marks an about turn from previous Supreme Court decisions where adjudication determinations have been quashed for lack of a reference date1.  In a unanimous decision, the Court of Appeal has determined that the existence of a reference date is a matter to be determined by the adjudicator, not the Court.

Relevant sections of the Security of Payment Act

Essentially, the Court considered the effect of sections 8 and 13 of the Act.

The Court of Appeal considered the extent to which “On and from each reference date” in section 8(1) of the Act was an essential pre-condition for making a payment claim.  The Court found that it was not.

The Court placed emphasis on the words “or claims to be” in section 13(1) of the Act to support the finding that a dispute as to a person’s entitlement to a progress payment (including whether or not a reference date existed) does not preclude the making of a valid payment claim.

The role of the adjudicator

It is a matter for the adjudicator to determine when a reference date arises under a contract or the Act.  Unless it can be established that the payment claim is the second payment claim in respect of the same reference date (in which case the second payment claim cannot be validly served), the adjudicator’s determination as to the existence of a reference date cannot be subject of judicial review.

In theory, respondents now have one less reason to apply to the Supreme Court if they are dissatisfied with the adjudicator’s determination.

Having said that, practically speaking, a typical reason for a respondent to assert that there is no reference date for a payment claim is because the payment claim is alleged to be the second payment claim in respect of the same reference date, in breach of section 13(5) of the Act.  The Court of Appeal has confirmed that section 13(5) of the Security of Payment Act prevents more than one payment claim being served in respect of the same reference date and therefore is a jurisdictional fact capable of judicial review.  It is likely that dissatisfied respondents will now alter the approach adopted when applying for judicial review to assert a breach of section 13(5) of the Act, rather than asserting that no reference date existed to make the payment claim.

The construction contract

As previously discussed in our article entitled “Contractors beware: risk of no reference dates after termination”, whether reference dates accrue after termination of a contract depends on the words of the contract.

If the contract makes no provision for reference dates, statutory reference dates under the Security of Payment Act apply and continue to apply after termination of the contract (see our article entitled “The importance of unequivocal termination of construction contracts in the eyes of Security of Payment legislation”).

If the contract makes provision for reference dates, whether reference dates continue to accrue after termination will require an interpretation of the contract by an adjudicator.  To avoid ambiguity, construction contracts should clearly state whether the accrual of reference dates survives termination of the contract.

Far reaching consequences for the validity of payment claims?

The Court of Appeal’s reasoning (at paragraph 93, Ward JA (and similarly at paragraph 120, Emmett JA)) is likely to have even more far reaching consequences than set out above because the Court said:

“The appellant was a person who claimed entitlement under the construction contract to progress payments in the general sense contemplated by the Act.  It satisfied the description in s 8(1)(a) and (b).  Whether that claim was valid (including whether it was valid because it was supported by a reference date) is not a jurisdictional fact.”

On its face, the word “claim” in the above paragraph may be interpreted as a reference to a payment claim and therefore a finding that an invalid payment claim (for whatever reason) does not warrant judicial intervention.  Further, in paragraph 136, Sackville AJA said:

“If s 13(1) of the Act is construed as I think it should be, it permits a claimant to serve a valid payment claim if the following conditions are satisfied:

  • the claimant has undertaken to carry out construction work under a construction contract (or has undertaken to supply goods and services under the contract);
  • the claimant is or claims to be entitled to a progress claim under the construction contract; and
  • the claim is served on the person who, under the construction contract concerned, is or may be liable to make the payment.”

A question remains whether a payment claim must comply with section 13(2) of the Act for it to be a valid payment claim and therefore invoke the jurisdiction of the Act.  For example, a payment claim that does not sufficiently identify the construction work claimed or does not claim a particular amount was previously considered to be invalid and a jurisdictional fact capable of judicial review2.

On the face of the Court of Appeal’s judgment, it appears that compliance with section 13(2) of the Act is not a jurisdictional fact and, therefore, whether or not a payment claim complies with section 13(2) of the Act is a matter for the adjudicator that cannot be subject of judicial review.  It is likely that this issue will be the subject of further litigation before the Supreme Court.

Payment claims

It follows from the Court of Appeal’s judgment that, to avoid falling foul of a jurisdictional fact, a payment claim under the Security of Payment Act must, at a minimum, be:

  1. made by a person who has entered into a construction contract (as that term is broadly defined in the Security of Payment Act);
  2. made by a person who has undertaken to carry out construction work or related goods and services;
  3. made by a person who is or, who claims to be, entitled to a progress payment (irrespective of whether or not there exists a reference date or the person, in fact, has any entitlement); and
  4. validly served on the person who is liable to make payment, which includes that:
    – the payment claim must be served in accordance with the requirements of the construction contract or the Act;
    – the payment claim must not be the second payment claim in respect of the same reference date; and
    – if the payment claim is made by a head contractor to a principal, the payment claim attaches a supporting statement in the form prescribed by the Security of Payment Act and that supporting statement cannot be false or misleading in a material particular.

1 Including the recent decisions in Patrick Stevedores Operations No 2 Pty Ltd v McConnell Dowell Constructors (Aust) Pty Ltd [2014] NSWSC 1413 and Omega House Pty Ltd v Khouzame [2014] NSWSC 1837

2 As summarised by Palmer J in Brookhollow Pty Ltd v R & R Consultants Pty Ltd [2006] NSWSC 1