A payment claim may not be valid (for the purposes of the Security of Payment Act (“SOP Act”) in NSW) if it is issued after termination of a construction contract. Whether or not a payment claim is valid will depend on whether the contract provides for a ‘reference date’ to make payment claims and, if so, whether those provisions of the contract survive termination.
In the Supreme Court decision in Patrick Stevedores Operations No. 2 Pty Ltd v McConnell Dowell Constructors (Aust) Pty Ltd, his Honour Justice Ball considered the effect of termination of a contract on a contractor’s entitlement to make a payment claim.
Here, the contract expressly provided for a ‘reference date’ under the SOP Act, meaning the default reference date under the SOP Act (which applies if a reference date is not nominated in the contract) was excluded. His Honour said whether or not reference dates arise after termination of the contract is a matter for interpretation of the contract – in this case, one subclause in the payment clause (which granted a right of setoff to the principal) expressly survived termination. Conversely, the contract was silent as to whether any other payment subclauses, including the subclause establishing ‘reference dates’ for payment claims, survived termination. Accordingly, his Honour determined that these subclauses did not survive termination.
Therefore, there was no reference date after the termination of the contract and the payment claim, which was made after the contract had been terminated and not in respect of a reference date under the contract, was not a valid payment claim in accordance with the SOP Act.
Contractors should be conscious of this decision when entering into contracts, particularly contracts that allow the principal to terminate for convenience. By ensuring that all payment terms expressly survive the termination of the contract, a contractor can preserve their entitlements under the SOP Act if the contract is terminated.