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'Reference date' is an essential requirement for a valid payment claim

Newsletter 01 September 2015

Southern Han Breakfast Point Pty Limited v Lewence Construction Pty Limited [2015] NSWSC 502

The decision of Ball J in Southern Han Breakfast Point Pty Limited v Lewence Construction Pty Limited [2015] NSWSC 502 confirms that a ‘reference date’ is an essential requirement for a valid payment claim under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act).

This decision reminds those in the building and construction industry that the drafting of their contracts must be done in an insightful and interconnected manner, giving mind to the relevant legislation. Failure to understand the impact of the legislation on your contractual position can be costly. Further, industry participants are reminded that the Act is being interpreted strictly and with natural meaning by the Court, such as in relation to the essential and protective nature of a ‘reference date’ when making a payment claim.

Facts

  • On or about 18 January 2013, Southern Han and Lewence entered into a construction contract (in the form of the AS 4000-1997) for the construction of a 60 unit apartment block, for the contract price of $14,226,244.00 excluding GST (the Contract).
  • The Contract requires Lewence to claim payment progressively, on the 8th day of each month, for work done to the 7th day of that month.
  • On 10 October 2014, Southern Han issued a show-cause notice under the Contract. On 27 October 2014, Southern Han sought to exercise its contractual rights to take the remaining work to be completed out of the hands of Lewence. Lewence considered this to be a repudiation and terminated the Contract. Southern Han did not accept this termination.
  • On 4 December 2014, Lewence purported to serve a payment claim for $3,229,202.50 (Payment Claim No. 18) for work done up to 27 October 2014.
  • On 18 December 2014, Southern Han issued a payment schedule in response to the effect that Lewence had been overpaid by the sum of $64,909.67.
  • On 9 January 2015, Lewence lodged an adjudication application. Southern Han in its adjudication response submitted that the Adjudicator did not have jurisdiction as the payment claim was not valid under the Act. The Adjudicator rejected that submission and determined Lewence’s claim in the sum of $1,221,051.08 including GST.
  • On 2 April 2015, by summons filed in the New South Wales Supreme Court, Southern Han sought a declaration that the adjudication determination made under Section 22 of the Act is void.

Issues

The primary issue put forward by Southern Han was that the adjudication determination was void on the basis that the Adjudicator made a jurisdictional error as no reference date had arisen within the meaning of s 8 of the Act. Other issues also arose in relation to natural justice however these are not discussed in this article.

The Law

Section 8 of the Act states as follows:

8 Rights to progress payments

  1. On and from each reference date under a construction contract, a person:
    1. who has undertaken to carry out construction work under the contract, or
    2. who has undertaken to supply related goods and services under the contract,

is entitled to a progress payment.

  1. In this section, reference date, in relation to a construction contract, means:
    1. 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
    2. 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.

Section 13 of the Act sets out in length the requirements of a valid Payment Claim under the Act, including that:

13(1), “A person referred to in section 8 (1) who is or who claims to be entitled to a progress payment (the “claimant” ) may serve a payment claim on the person who, under the construction contract concerned, is or may be liable to make the payment”;

and

13(5), “A claimant cannot serve more than one payment claim in respect of each reference date under the construction contract.”

The Decision

In determining if there was a jurisdictional error, Ball J considered the correct construction of 8 and 13 of the Act and said [39] that:

“It is apparent from the Second Reading Speech for the Bill that the requirement of a reference date and the requirement that only one claim can be made in respect of each reference date was intended to be an important mechanism by which abuses of the right to make a payment claim are to be prevented”. 

On his Honour’s interpretation, the question of whether a reference date has arisen under a contract is a jurisdictional fact and whilst this may give rise to complex factual questions that need to be resolved, the adjudicator’s jurisdiction cannot be triggered without the existence of a reference date being confirmed.

Under the Contract a reference date had arisen on 8 October 2014, however Lewence had already served a payment claim for that period. If the Contract had been validly terminated on 27 October 2014, no further reference date could have arisen unless the Contract provided for reference dates to continue or unless Section 8(2)(b) of the Act applies. Alternatively, if the Contract had not been validly terminated, but Southern Han had validly taken over completion of the works and suspended payments under the Contract, then the right to progressive payments had ceased to accrue.

Ultimately, his Honour found that the Contract permitted claims to be made progressively, but did not expressly provide for that provision to continue following termination of the Contract, or where the obligation to perform work under the Contract had come to an end. Rather, clause 39.10 of the Contract provided for damages to be sought in that case as follows:

If the Contract is terminated … the parties’ remedies, rights and liabilities shall be the same as they would have been under the law governing the Contract had the defaulting party repudiated the Contract and the other party elected to treat the Contract as at an end and recover damages.

As such, his Honour found that no further reference date had arisen under the Contract, and as a consequence the Adjudicator did not have jurisdiction to make his determination. On this basis, and the success of other issues raised by Southern Han, Southern Han was successful in receiving the declaration that the adjudication determination was void.

An appeal has been lodged and the NSW Court of Appeal has granted a stay over preserving funds paid into Court for the amount of the challenged adjudication determination. The appeal is to be expedited.

The debate concerning whether or not a reference date may accrue after termination remains pending the outcome of the appeal. See also Broadview Windows Pty Ltd v Architectural Projects Specialists Pty Ltd [2015] NSWSC 955.

Key Lessons

  1. Contractors need to fully understand how payments are to be received under their contracts, including in the event that there is a dispute, as the drafting of the contract may assist in protecting any payments due, or alternatively may make receiving money due more difficult; and
  2. The Courts continue to take a strong position in relation to the requirement of a reference date and the intended protective nature of this mechanism. Contractors should ensure to maintain accurate accounts systems in order to not miss out on receiving the correct amount under each reference date.

Brian Ambler, Partner
Sydney

Katherine Ashbolt, Solicitor
Sydney

Newsletter 01 September 2015
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