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Construction payment claim fails without reference date

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By Sofia Lozanova, Lawyer, MST Lawyers

The importance of getting a payment claim right the first time is paramount as the High Court of Australia has illustrated in the case of Southern Han Breakfast Point Pty Ltd (In Liquidation) v Lewence Constructions Pty Ltd & Ors [2016] HCA 52

Facts

Southern Han and Lewence were parties to a contract for the construction of an apartment block.  The contract made provision for Lewence to claim payment progressively from Southern Han by making a progress claim each month for work completed under the contract. 

On 4 December 2014, Lewence served Southern Han a document which purported to be a payment claim for work carried out under the Contract.  The document complied with the formal requirements of the Building and Construction Industry Security of Payment Act 1999 (NSW) (Act) but did not nominate a reference date. 

Procedural history

Lewence purported to make an adjudication application for the payment claim which was subsequently determined in its favour.

Southern Han then made an application to the Supreme Court of New South Wales seeking an order that the Court quash the purported termination on the basis that the document Lewence served on Southern Han was not a payment claim under the Act for want of a reference date.

The primary judge made the declaration sought by Southern Han by construing the relevant provisions in the Act as requiring a reference date to have arisen under the construction contract as a precondition to the making of a valid payment claim, and in turn as a precondition to the making of a valid adjudication application and determination.

Lewence successfully appealed to the Court of Appeal and Southern Han then appealed the Court of Appeals decision to the High Court.

Issue

The High Court of Australia considered whether the existence of a reference date under a construction contract was a precondition to the making of a valid payment claim.

Rule

Section 8(1) of the Act states that ”on and from each reference date under a construction contract, a person who has undertaken to carry out construction work under the contract or who has undertaken to supply related goods and services under the contract is entitled to a progress payment.”

Section 8(2) of the Act states that a reference date means:

  • 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 under the contract; or
  • 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 under the contract and the last day of each subsequent named month.

 Analysis

The High Court undertook a thorough analysis of the Act, its history and its intention. It concluded that section 8(1) of the Act makes a person who has undertaken to carry out construction work or supply related goods and services under a construction contract entitled to a progress payment only on and from each reference date under the construction contract. 

The High Court also referred to section 13(5) of the Act which states that a person cannot serve more than one payment claim in respect of each reference date under the construction contract.  The High Court held that this section was harmonious with the operation and construction of section 13(1) of the Act to require that each payment claim be supported by a reference date.

In that way, the Court held that the existence of a reference date under a construction contract was a precondition to the making of a valid payment claim.  

By virtue of the High Court’s decision, Lewence was not entitled to payment following service of its purported but invalid payment claim.

Conclusion

There can be no doubt that the importance of an accurate payment claim, especially in regards to the reference date under a construction contract, is paramount to a claimants ability to get paid and make a successful application for adjudication in the event of a dispute.

If you are unsure of your ability to make a valid payment claim or require assistance in adjudication, our Dispute Resolution and Litigation team by email at litigation@mst.com.au or by telephone on Ph:+61 8540 0200.