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Attention residential builders in NSW – big changes ahead from 1 March 2021 you will be able to use the Building and Construction Industry Security of Payment Act to recover money owed by homeowners

On 1 September 2020, the NSW Government released the Building and Construction Industry Security of Payment Regulation 2020 (2020 Regulation) which radically changes the way residential builders and homeowners resolve disputes in relation to outstanding progress claims after 1 March 2021.

Currently, section 7(5) of the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act) and section 4(1) of the Act provide that the Act does not apply to owner occupier construction contracts, that is, contracts where the homeowners intend to live in the premises.  In these instances, residential builders cannot use the Act to recover outstanding progress claims due from homeowners.

This will all change on 1 March 2021 when the 2020 Regulation commences which will remove owner occupier construction contracts as a prescribed class to which the Act does not apply.

This means come 1 March 2021, residential builders will have a statutory right to payment and be able to serve payment claims on homeowners under the Act and apply for adjudication in relation to any outstanding progress claims.

This is a big game changer for residential builders as it will improve cash flow and mean that residential builders will be able to claim outstanding progress claims from homeowners without having to get involved in expensive and lengthy Tribunal and Court proceedings in order to get paid.

Whilst homeowners will still be entitled to bring a building claim in the Tribunal or Court for defective work and the like, such a claim will not defeat or delay residential builder’s entitlements under the Act.  This means that homeowners will be required to pay any amount awarded pursuant to an Adjudication Determination prior to the determination of any Tribunal or Court proceedings which will (in most cases) reduce in the issues in dispute in any Tribunal or Court proceedings.

What residential builders need to know now

The NSW Government has given residential builders and homeowners a transition period to adjust to these major reforms.  We suggest during this period residential builders should familiarise themselves with the Act and their contracts in relation to:

  • the requirements of valid payment claims including serving supporting statements with all payment claims where builders contract directly with homeowners;
  • the dates from and methods of service of valid payment claims;
  • identification of a valid payment schedules by homeowners;
  • review of your standard contracts to ensure that they comply with the minimum contracting requirements and minimum variation requirements under the Home Building Act 1989 NSW (HBA), as this may effect how an adjudicator assesses amounts payable under the contract so your paperwork has to be in order;
  • review your practices and procedures to ensure that you have the necessary resources to utilise the adjudication process and respond within the strict time frames. The benefit of this is that it will reduce the time and cost (in most cases) of litigation as an Adjudication Determination will usually be received within 21 days of lodging the Adjudication Application; and
  • get legal advice to set yourself up so you can utilise the Act and put yourself in the best position to get paid.

When are settlement agreements concerning payment claims void under SOPA?

If a respondent fails to issue a payment schedule in time, but the parties then reach a settlement agreement in relation to the payment claim and construction contract, can the claimant still pursue summary judgment for the full claimed amount due to s.34 of the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOPA)?

Facts

In Reward Interiors Pty Ltd v Master Fabrication (NSW AU) Pty Ltd [2020] NSWSC 1251, the claimant served a payment claim and the respondent did not respond within 10 business days as required by the SOPA.  The parties attended a meeting three weeks after the payment claim was issued and agreed to a reduced amount to be paid on the payment claim.[1]  The respondent paid the settlement amount the following day.[2]

The respondent then commenced proceedings against the claimant for damages arising from work performed by the claimant.

The claimant cross-claimed and sought summary judgment on the full payment claim amount. The claimant argued that s.34, which prohibits parties from contracting out of the SOPA, rendered the settlement agreement void.[3]

Decision

The claimant offered no authority for the argument that s.34 of the SOPA renders void settlement agreements which compromise a dispute concerning an amount claimed in a payment claim or the construction contract between the parties generally.[4]  The claimant had agreed not to move for summary judgment on the full claimed amount by accepting the reduced settlement amount.[5]

Stevenson J held that it was at least arguable that the settlement agreement was not rendered void because it acknowledged the operation of the SOPA, yet recorded the parties’ intention that in the particular circumstances their rights would instead be governed by their agreement.[6]  This did not constitute an ‘attempt to deter a person from taking action under’ the SOPA.[7]

Tips for binding settlement agreements on payment claims

The answer to the question posed in the introduction is no.  Assuming the settlement agreement seeks to properly compromise existing entitlements, it will not be voided by s.34 of the SOPA.

The terms should be clearly expressed and specific.  It should state that the claimant has agreed to accept the settlement amount in “full and final satisfaction” of the payment claim and claims made in the payment claim. The terms should provide that once the respondent pays the settlement amount, the claimant “releases” the respondent from any claims or proceedings in respect of the payment claim and claims made in the payment claim.

Where settlement agreement may be rendered void under s 34 is where it seeks to exclude or restrict rights or entitlements arising in the future.  For example, where the parties simply agree (without more) that the claimant will have no entitlement to submit further payment claims.

Of course, the respondent should always serve a proper payment schedule (scheduling nil or a reduced amount and giving reasons) in response to a payment claim, even if confident in securing a settlement, in order to avoid the type of argument raised in Reward Interiors.

[1] At [11].

[2] At [14].

[3] At [15].

[4] At [19].

[5] At [23].

[6] At [24] and [26].

[7] At [25], re s.34(2)(b).

Contractors – don’t use Dropbox if you want to get paid!

In Wärtsilä Australia Pty Ltd (ACN 003 736 892) v Primero Group Ltd (ACN 139 964 045) & Ors [2020] SASC 162, a contractor has failed to recoup $15M because it tried to submit completion reports via Dropbox link.  This is adds to the line of authorities which caution reliance on cloud-based technologies for issuing documents, whether under contract or statute.

Facts

Primero Group Ltd (Primero) contracted with Wärtsilä Australia Pty Ltd (Wärtsilä) to perform civil, mechanical and electrical works and supply tanks for the construction of the Barker Inlet power station on Torrens Island in South Australia.

The contract provided the following requirements for ‘SW Completion’:

(2) the tests, inspections and communications required by this subcontract (including Schedule 3) to have been carried out before SW Completion have been carried out, passed and the results of the tests, inspections and commissioning provided to [Wärtsilä]

(8) the completed quality assurance documentation … is available for inspection by [Wärtsilä] at the Facility Land’ (emphasis added)

Primero emailed Wärtsilä on 28 February 2020 a Dropbox link to the documents.  Yet Wärtsilä was unable to access the documents via the link until 2 March 2020.

On 2 March 2020, Primero served a payment claim under s 13 of the Building and Construction Industry Security of Payment Act 2009 (SA) in the amount of $85,751,118 (excluding GST).  On 10 March 2020, Wärtsilä responded with a payment schedule which scheduled “nil” but also stated that the payment claim was invalid as it was not supported by a reference date.

Primero proceeded to adjudication and the adjudicator determined Primero’s payment claim was valid, awarding $15,269,674.30 (excluding GST).  Key to the adjudicator’s determination was that the payment claim was supported by a reference date of 28 February 2020.  Wärtsilä made an application to the Supreme Court for an order quashing the adjudication determination.

The parties agreed that if SW Completion under the contract had not occurred on 28 February 2020 the adjudicator’s determination was invalid.[1]

Primero argued that it had provided the documents and made them available for inspection by sending the email.

Primero also contended that the Electronic Communications Act 2000 (SA) (ECA) permitted the contractual obligation for the provision of the documents to be satisfied by electronic communication.  Under s 8 of the ECA, the time of receipt of an electronic communication was when it is ‘capable of being retrieved by the addressee’.

Decision

Sending a Dropbox link to the documents was not sufficient for SW Completion.  On 28 February 2020, Primero had emailed the link to Wärtsilä, but Wärtsilä was unable to completely download the documents.[2]

Accordingly, the adjudication determination was quashed because it was not made with reference to a valid payment claim.[3]  The $15M award to Primero was nullified.

Stanley J held[4]:

  1. in relation to SW Completion item (2), ‘the provision of the hyperlink merely provided a means by which Wärtsilä was permitted to download the documents stored in the cloud. Until it did so, those documents had not been provided.

 

  1. in relation to SW Completion item (8), ‘the hyperlink did not amount to making the documents available for inspection… because until all the documents were downloaded, they were not capable of being inspected at the facility land.’

His Honour stated:

a common sense and businesslike construction of the contractual requirements that the documents be provided and are available for inspection necessarily requires that the documents were capable of being downloaded on 28 February 2020. I find they were not.[5]

Stanley J applied a Queensland case Conveyor & General Engineering v Basetec Services & Anor [2015] 1 Qd R 265 (Conveyor) and a Federal Court case Clarke v Australian Computer Society Inc [2019] FCA 2175 (Clarke), which went to the point that a document could not itself be considered to be “left at” or “sent” to an intended recipient if an email containing a link to the document was sent to that recipient.[6]  To summarise, it is only the email itself which is sent or transmitted, not the document housed on the cloud server.

The ECA did not apply to the communication to solve the problem for Primero because[7]:

Both s 8 and s 10 prescribe circumstances that condition the operation of those provisions. Those circumstances include: first, that at the time the information is given by means of electronic communication, it was reasonable to expect that the information would be readily accessible so as to be useable for subsequent reference; and second, that the person to whom the information is required to be given consents to the information being given by means of an electronic communication.

His Honour held that Conveyor and Clarke stood as authority for the proposition that the provision of the documents by hyperlink did not constitute an “electronic communication” for the purposes for the ECA.

This point is highly relevant to because the relevant legislation governing electronic transmissions and communications are modelled off uniform Commonwealth legislation (Electronic Transactions Act 1999 (Cth)) and have largely consistent provisions.

Take Home Tips

It is important to consider closely whether the terms of your contract allow you to submit completion documents (or other documents) via a Dropbox link.  If the contract uses words like “provide”, “send”, “make available”, etc, it is unlikely that merely providing a link to those documents will satisfy the obligation unless and until the documents are actually downloaded or accessed in full by the intended recipient.  This can be difficult to prove.

It is unlikely that you will be able to fall back on the relevant electronic communications or transactions legislation in your jurisdiction because the provision of the link will not be considered an “electronic communication” of the document itself.  Strict compliance with the contract and statute (particularly in the realm of security of payment) is always required.

[1] At [12].

[2] At [93].

[3] At [128].

[4] At [94].

[5] At [105].

[6] At [98] to [101].

[7] At [117].

Suspension of relief: take out notices, jurisdictional error and Security of Payment Act

In Parrwood Pty Ltd v Trinity Constructions (Aust) Pty Ltd, the Court confirmed that, for the purposes of the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOPA), taking the work out of the hands of a contractor will not remove reference dates accrued before the take out notice is served, even if they are not actually used until after the take out notice is issued.

Although the facts were unusual and complicated, in the unique world of the SOPA they are not unheard of. This note is useful for parties considering whether:

  1. to issue a take out notice instead of a termination notice (particularly for NSW construction contracts entered into before 21 October 2019); or
  2. to withdraw an adjudication application in the event of jurisdictional error by an adjudicator on the first determination, to re-lodge before a new adjudicator.

The facts

The contractor was working under the principal in a residential building project. The contractor accrued reference dates on the 25th day of each month. The contract contained an AS standard clause where the contractor fails to show reasonable cause for its default:

“the Principal may by written notice to the Contractor:

(a) take out of the Contractor’s hands the whole or part of the work remaining to be completed and suspend payment until it becomes due and payable pursuant to subclause 39.6; or

(b) terminate the Contract.”

The parties fell into dispute and the principal asked the contractor to show cause.

Then:

  • on 25 August 2019, the monthly reference date for a SOPA claim came about;
  • on 3 September 2019, the principal issued a notice that took out of the contractor’s hands all of the work remaining to be completed, instead of terminating the contract; and
  • on 6 September 2019, the contractor issued a payment claim in the amount of $2,023,645.76. This payment claim was said to use the 25 August 2019 reference date.

In response, the principal scheduled “$Nil”.

The contractor applied for adjudication under the SOPA. The adjudicator declined to determine an amount that the contractor was owed (if any), finding the payment claim was invalid.

After it received the first adjudicator’s decision, the contractor “withdrew” its application, and made a second adjudication application. The contractor argued that the first adjudicator had failed to exercise his statutory function in declining to determine the amount owing. The second adjudicator considered the application and awarded over $400,000 to the contractor. The principal applied to the Supreme Court to set aside the second adjudication determination.

There were two broad issues that the Court was required to consider.

Suspension and payment claims

The first issue was what effect the take out notice had on the ability to issue payment claims.

The Court found that even though the payment claim was served after a take out notice, it was saved by the fact that it was served for a reference date occurring before the take out notice was made.

The outcome would have been different if the take out notice was served before the reference date. In this case, the contractor’s rights are suspended by the take out notice, and it cannot make a payment claim under the fast-track SOPA. It can, however, still make a claim under general law.

A take out notice cannot extinguish a right to make a payment claim that already exists.

Second Adjudication

Jurisdictional error

The second issue concerned the unusual circumstances in which a claimant may effectively redo its application.

The Court found that the first adjudicator had not made a ruling that, for example, the contractor was entitled to “$Nil”. Rather, the adjudicator had decided that, no matter what he thought about the facts, he could not determine any adjudicated amount (“I must decline therefore from determining …”).

The first adjudicator had failed to determine the amount of the progress payment (if any) to be paid, as required under section 22(1) of the SOPA. Therefore, the first purported determination was void.

Making a second application

Section 26(3) of the SOPA allows for a claimant to withdraw an application and make a new adjudication application, if the adjudicator accepts the application but then “fails to determine the application within the time allowed”. The claimant must withdraw and make the new application within five business days after it is entitled to withdraw the previous adjudication application.

This may occur where the adjudicator has made a jurisdictional error in failing to determine the application.

If the original decision is decided by a court to be valid (because there was no jurisdictional error), then the second application is wasted. However, if the original decision is declared void, then the second application may still be valid.

Conclusion

It pays to be aware of when reference dates arise, and when take out notices can and should be served. Principals concerned to issue effective take out notices should be mindful of existing reference dates which have or may accrue before that notice.

Claimants should be keenly aware of the existence of any jurisdictional error on the part of adjudicators. Such error may allow them to re-lodge an adjudication application.

 

 

The West Gate Tunnel leads to arbitration

The D&C JV contractors on the West Gate Tunnel (Project), CPB Contractors and John Holland (Subcontractors), have won the first round in their dispute against Transurban (Project Co) over the presence of contaminated “PFAS” soil in the tunnel area and subsequent purported termination of their contract due to force majeure.

In Transurban WGT Co v CPB Contractors Pty Ltd [2020] VSC 476, Victorian Supreme Court (VSC) refused applications designed to prevent the disputes from proceeding through arbitration.

Facts

The Subcontractors purported to terminate their contract with Project Co on 28 January 2020 due to the discovery and persistence of “PFAS” contamination, which it claimed was a “Force Majeure Termination Event” under the contract.[1] Since this time, the Subcontractors and Project Co have been engaged in disputes on the validity of the termination and various related matters.

By notice dated 2 March 2020, the Subcontractors sought to initiate a “downstream” arbitration with Project Co in relation to various claims.[2] Some 3 months later, Project Co initiated its own “upstream” arbitration in relation to various claims which it had passed upstream via its head contract with the State of Victoria.[3]

Project Co claimed the disputes were “Linked Disputes” under the contract with the Subcontractors. Project Co argued that clause 44A.3(a)(ii) operated to suspend the downstream arbitration while the upstream arbitration progressed (suspension clause).[4]

The Subcontractors sought to refer their various disputes with Project Co to arbitration. Project Co made an application for:

  1. a declaration that the suspension clause was enforceable; and

 

  1. an interlocutory injunction to restrain the Subcontractors from taking steps to progress the downstream arbitration until such time as the upstream arbitration was determined.[5]

The Subcontractor argued that the arbitral tribunal should decide whether to grant such relief to Project Co, not the court. The Subcontractor pointed to ss 5, 8, 9 and 17J of the CAAs which provide only limited powers for court intervention.[6]

The Subcontractor made a referral application to the VSC relying on s 5 and / or 8 of the Commercial Arbitration Act 2011 (Vic) (CAA), requesting the court refer Project Co’s query in relation to the operation of the suspension clause to the arbitral tribunal.[7]

Decision

Lyons J:

  1. found that the court had no power to make a declaration of the kind sought by Project Co;

 

  1. refused Project Co’s application for interlocutory injunctions; and

 

  1. granted the Subcontractor’s application to refer to the arbitral tribunal the question of whether the suspension clause was inoperative.[8]

Lyons J considered in detail the relevant law on the nature of arbitration and the limited ambit given to the court under the CAA. Some of His Honour’s key conclusions included that:

  1. the question whether the suspension clause is valid and enforceable was a matter ‘arising in connection with’ the contract between the parties and, therefore, it was a type of dispute the parties had agreed under their contract would be arbitrable;[9]

 

  1. the arbitral tribunal had the power to make orders relating to the validity, enforceability and/or applicability of the suspension clause of the kind sought by Project Co in court;[10]

 

  1. under the CAA the court’s power to grant interlocutory relief to matters which the CAAs apply derives from s 17J[11]. Accordingly, the court’s power to intervene is limited; and

 

  1. Project Co had failed to establish that the circumstances of the case were exceptional or objectively urgent such that court intervention was required.[12]

As a result, the Subcontractor’s claims in relation to the contract will be heard and determined by an arbitrator. The arbitrator will need to determine whether the suspension clause is enforceable and, if so, operates in the circumstances to pause the downstream arbitration.

Take Home Tip

Parties who agree to arbitration as their preferred dispute resolution forum should note that the courts are increasingly minded to allow arbitral tribunals to rule on their own jurisdiction or “competence” under the CAA. A party should closely consider whether their set of circumstances are truly urgent or exceptional to warrant intervention by the court. If not, it would be better to apply its resources in ventilating preliminary issues in the arbitration first, then challenging the arbitrator’s determination on those issues if necessary and as permitted by the CAA.

Importantly, Lyons J considered that he was bound by Hancock v Rhodes[13], being ‘a decision of an intermediate appellate court in circumstances applying sections of a uniform commercial arbitration act in force in each state in Australia.[14] This reinforces the relevance of the current decision of the VSC to parties in all States and Territories in Australia.

[1] At [10(1)].

[2] At [12].

[3] At [12].

[4] At [14].

[5] At [23].

[6] At [115] and [128].

[7] At [20].

[8] At [208].

[9] At [170].

[10] At [174].

[11] At [147] and [191].

[12] At [192] to [203].

[13] Hancock Prospecting Pty Ltd v DFD Rhodes Pty Ltd [2020] WASCA 77.

[14] At [147].

Is the arbitration agreement “not applicable”?

In Gemcan Constructions Pty Ltd v Westbourne Grammar School [2020] VSC 429, Lyons J of the Victorian Supreme Court (VSC) was required to consider whether the terms of the contract contained a valid arbitration agreement within the meaning of s 7 of the Commercial Arbitration Act 2011 (Vic) (CAA). His Honour found that inserting the words “Not Applicable” or “N/A” into corresponding items of Annexure Part A in an otherwise unamended Australian Standard (AS) contract may not evince the necessary intention that relevant clauses do not otherwise apply.

The case not only provides insight into when the court will find that a binding arbitration agreement exists, but also suggests that caution is required at the time of drafting an AS contract.

The case is relevant Australia-wide concerning the application of the CAA because uniform legislation has been enacted in all Australian states and territories.

Facts

On or about 25 July 2016, Gemcan Constructions Pty Ltd (Gemcan) entered into a contract for works to take place at Westbourne Grammar School’s (WGS) Williamstown Campus in Victoria. The contract was a standard form AS 4000-1997 which included the usual:

  • AS 4000 -1997 General Conditions of Contract;
  • particulars at Annexure Part A; and
  • deletions, amendments and additions at Annexure Part B.

A dispute arose between the parties via the exchange of a payment claim and payment certificate issued under their contract. The value of the dispute was circa $1.4 million and included contract works claims, variations, other heads of additional cost, extensions of time, liquidated damages, interest and retention.

Clause 42 of the contract was the dispute resolution clause. Clause 42.2 provided that (inter alia):

If the dispute has not been resolved within 28 days of service of the notice of dispute, that dispute shall be and is hereby referred to arbitration.

Clause 42.3 then went on to provide:

If within a further 14 days the parties have not agreed upon an arbitrator, the arbitrator shall be nominated by the person in Item 32(a). The arbitration shall be conducted in accordance with the rules in Item 32(b).

However, Items 32(a) and 32(b) respectively in Annexure Part A were completed with the words “Not Applicable”.

As the dispute had not been resolved in the time specified in clause 42.2, Gemcan sought to refer the dispute to arbitration and put WGS on notice of its preferred arbitrator.

WGS responded disputing that there was an arbitration agreement in existence because by the parties completing Annexure Part A items with “Not Applicable”, the parties had evinced an intention that its disputes would not be referred to arbitration. If there was no valid arbitration agreement within the meaning of the CAAs, the CAA would not apply and WGS could not be forced to arbitrate.

WGS also disputed Gemcan’s choice of arbitrator, chiefly because he was around twice as expensive as WGS’s selection – a more junior barrister. Gemcan’s view was that its arbitrator was much more experienced in arbitrations generally and had greater legal expertise, as he was senior counsel.

Decision

Lyons J determined:

  • clause 42.2 of the contract constituted a valid agreement to refer the dispute to arbitration, so that the CAA applied; and
  • Gemcan’s arbitrator should be appointed pursuant to s 11 of the CAA.

Whether or not there has been a valid arbitration agreement is a precondition to the application of the CAA. Section 7 of the CAA provides the requirements for a valid arbitration agreement.

Lyons J held that an agreement to arbitrate was evident on the terms of the contract because:

  1. clause 42.2 is ‘clear and unambiguous in its terms’.[1] The last sentence of the standard-form clause evince a clear and objective intention that disputes arising under the clause are to be referred to arbitration if they are not resolved within 28 days of the notice of dispute issuing;
  2. the use of the words “Not Applicable” in Items 32(a) and (b) of Annexure Part A do not evince an intention to negate the referral to arbitration because they only refer back to clause 42.3, not clause 42.2. Clause 42.3 only provides for the procedural aspects of the arbitration, not the agreement to arbitrate itself. In the absence of an agreement regarding procedural aspects (including the arbitrator to be appointed and applicable rules, ss 11(3) and 19(2) of the CAA steps in to provide a mechanism for decisions to be made on those issues). Those procedural mechanisms ‘are not essential characteristics of an enforceable arbitration agreement[2];
  3. the parties could have used Annexure B to make necessary amendments to delete the offending words from clause 42.2, but they did not do so.

Further, Lyons J accepted Gemcan’s proposed arbitrator on the basis that the arbitration was:

  1. likely to be both factually and legally complex;
  2. significant in quantum (and thus the importance to the parties);
  3. likely to require clear and precise written reasons.

The arbitrator proposed by Gemcan was more expensive, however he had more experience in contested and complex arbitration decisions such that the choice was ‘likely to result in the arbitration being conducted in the most efficient way’.[3]

Take Home Tip

If you do not want your standard-form contract to refer you to arbitration, you must do more than insert “Not Applicable” into relevant Items in Annexure Part A. You must ensure that the General Conditions of Contract are correctly amended so that you are not forced into arbitration.

Subcontractor Supporting Statements in the SoPA

It is commonly understood by participants within the building and construction industry that payment claims made by a head contractor under the Building and Construction Industry Security of Payment Act 1999 (NSW) (SoPA), are to be served with a supporting statement in respect of subcontractors.

The purpose of imposing this obligation on head contractors is clear and simple: to ensure payment of subcontractors is a priority. Ideally, the inherent insolvency risks will be passed ‘up the chain’ to head contractors and ultimately, to the developers who are often better placed to weather the consequences.

But, what happens when the Head Contractor does not comply with their supporting statement requirements under the SoPA? Does the developer still need to pay it?

This question has been the subject of some judicial deliberation, and has been answered with some finality in the recent case of TFM Epping Land Pty Ltd v Decon Australia Pty Ltd [2020] NSWCA 93.

The Parties

TFM Epping and Katoomba Residence Investments Pty Ltd (TFM), as the developer, engaged Decon Australia Pty Ltd (Decon) as the builder and head contractor to carry out building and construction works on a residential development located at Epping in Sydney’s North West.

The Facts

On 3 June 2019, Decon served on TFM a Progress Claim under the SoPA, seeking approximately $6.4 million (the Claim). The Claim included works carried out throughout project history, for which Decon had not previously been paid.

The supporting statement accompanying the Claim had referenced only one subcontractor that had completed works about 1 year prior to issuing the Claim and specified that the supporting statement applied for works undertaken between 27 June 2018 and 3 July 2018.

TFM did not, within the 10 days prescribed by SoPA, serve a Payment Schedule on Decon, and as a consequence, became liable to pay the full sum sought in the Claim. Payment was not made.

On 3 July 2019 Decon filed a Summons and Notice of Motion in the Supreme Court of New South Wales, both of which sought summary judgment in their favour, for the full amount of the Claim. Shortly after, TFM filed a response, challenging the validity and service of the Claim.

The Decision at First Instance and Issues on Appeal

It was the decision of the Court at first instance that the response filed by TFM did not raise triable issues and to find in favour of Decon. On appeal, TFB sought to challenge this decision.

TFM sought to challenge the decision at first instance on the following 3 grounds:

  1. The Claim was not valid as it had not been accompanied by a supporting statement as required under s13(7) of the SoPA;
  2. The Claim sought payment in respect of variations, which were not performed under the contract and ought to have been claims in quantum meruit; and
  3. The Claim was invalid as it was not made in respect of an available reference date.

The key argument on appeal was that the supporting statement served by Decon was defective for the following reasons:

  • It had not included a ‘list’ of the subcontractors, it had simply given details of one subcontractor; and
  • The dates for which the supporting statement applied did not align with the dates of the works which were the subject of the Claim.

On this Basis, TFM asserted there was an absence of a compliant supporting statement, which rendered the service of the Claim invalid. In the alternative, TFM asserted the Claim itself was invalid.

The Decision on Appeal

The Court found in favour of Decon on all 3 grounds and dismissed TFM’s appeal for the following reasons.

Supporting Statements

The critical document giving rise to the legal right to recover (and obligation to pay) a progress payment, is the payment claim. Despite the wording of s13(7) of the SoPA, the Court determined that it does not attach a condition to the nature or content of the payment claim itself.

In arriving at this Decision, the Court noted that s13(7) of the SoPA included within itself a penalty for parties that did not comply, in terms of a fine. The Court gave significant weight to the purpose of the SoPA, and noted that in circumstances where Parliament has not stated an intended consequence, the Court would be reluctant to imply one.

Variations

The Court found that it could be possible that the variations had not properly arisen under the contract, for example, if some procedural step had not been taken. However, if TFM were of this view, the Court determined it ought to have been raised in a payment schedule. The Court found that including the variation items in the Claim, even if they were disputed, did not render the Claim invalid.

In the present case, Decon had not formulated the variations as a claim for quantum meruit, but rather had stated them to be a claim for work undertaken under the Contract.

Takeaway

This case highlights the fact that the document giving rise to the right to recover (and obligation to pay) a progress payment is the progress claim itself.

A failure to provide a supporting statement in accordance with the SoPA will not invalidate a progress claim. However, head contractors should take a strong note of the reference to the penalty provisions within the SoPA, and should ensure strict compliance with their obligations when serving payment claims for progress payments.

The case also serves as a reminder to respondents that the Court system cannot be used as a ‘second chance’ forum to respond to payment claims. The Court has shown it will not hear matters which should have been raised by way of a payment schedule, and determined in the adjudication system.

As always, preventing problems with your payment claims and payment schedules is much easier (and cheaper) than fixing them. If you or someone you know wants more information or needs help or advice, please contact us on 02 9248 3450 or email info@bradburylegal.com.au.