Can payment claims be made under Security of Payments Legislation when a Contract has been terminated?
Introduction
Performing functions without which the multi-billion dollar building and construction industry would not be able to function, the surveying profession, like many other providers in the industry, often encounters issues with non-payment of invoices from principals, for one reason or another.
We have previously written articles in ACSIS news about the Security for Payments legislation which is in place throughout Australia, and the importance of issuing payment claims strictly in accordance with its provisions.
This article examines a discrete part of the Security for Payments legislation, being the ‘Reference Date’ in light of the decision of the High Court in Southern Han Breakfast Point Pty Ltd (in Liquidation) v Lewence Construction Pty Ltd [2016] HCA 52, and outlines some issues which may arise in relation to seeking protection under the Security of Payment legislation when a dispute with a principal occurs.
Relevant Legislation
The relevant legislation in respect of reference dates is uniform throughout Australia (with the exception of Northern Territory and Western Australia). For ease of reference and because of the jurisdiction of case the Lewence outlined below, this article is drafted by reference to the New South Wales legislation.
Section 8(1) of the Building and Construction Industry Security of Payment Act 1999 (NSW) (the SoP Act) provides that ‘[o]n and from each reference date under a construction contract, a person… who has undertaken to carry out the work or supply related goods and services… is entitled to a progress payment.’
Section 13(1), relating to payment claims, provides that ‘[a] person referred to in s 8(1) who is or who claims to be entitled to a progress payment may serve a payment claim on the person who, under the construction contract concerned, is or may be liable to make the payment.’
In the absence of any reported cases to the contrary, it seems to be generally accepted that surveying services in respect of the proposed or approved construction development constitute construction work to which the SoP Act applies.
The accepted process revolves around a person who claims to be entitled to a progress payment under a construction contract (the claimant) making a payment claim against the person liable to pay under the contract which they must either pay or dispute within a specified timeframe. If the payment claim is not challenged within the period prescribed under the legislation, the amount becomes immediately due and payable and a claimant can either recover the unpaid amount as a debt in court or serve Notice of the claimant’s intention to suspend its services under the construction contract.
If the claimant opted to commence recovery action in court, the person liable to make the payment is precluded from defending the recovery action on the basis of a set-off.
The statutory right to issue payment claims under the SoP Act, however, is contingent upon them being issued on or after a reference date which is expressed in the construction contract (or under legislation if not provided in the contract), which is usually once per month. Typically, the legislation also provides that a claimant can only make one payment claim for each reference date.
The Facts and the Judgment
In 2013 Southern Han contracted with Lewence in relation to the construction of a large commercial development in Breakfast Point, NSW.
On 7 October 2014 Lewence issued a payment claim. It was issued on a reference date which was monthly.
On 27 October 2014, Southern Han took all remaining work away from Lewence on the basis that Lewence had allegedly breached its contract.
Lewence contended that Southern Han’s conduct was a repudiation of the contract and terminated the contract in accordance with its terms.
In early December 2014, Lewence served a final payment claim relating to work it had performed up until Southern Han had allegedly repudiated the contract.
Following an adjudication process under the SoP Act, an adjudicator determined that Southern Han owed Lewence in excess of $1,200,000.
Southern Han prosecuted proceedings in the NSW Supreme Court, seeking to set aside the adjudicator’s decision. It submitted that no further reference date could arise following the termination of the contract 27 October 2014; and on that basis the payment claim served by Lewence in December 2014 was invalid, and no further payment claim could be made following the termination of the contract.
The Supreme Court agreed with that position and overturned the adjudicator’s decision.
Lewence successfully appealed the Court’s decision in the Court of Appeal, which found that while the question whether a reference date had arisen may be considered by an adjudicator, the absence of a reference date is not automatically fatal to the validity of a payment claim.
On appeal to the High Court, Southern Han’s favourable judgment by the trial judge was upheld.
The High Court held that ‘a valid reference date is a precondition to the making of a valid payment claim under [the SoP Act];’ and on that basis, no reference date accrued after termination on 27 October 2014.
Impact on Surveyors
In circumstances where a construction contract has been (or purported to be) terminated and moneys are still alleged to be owed by a principle, the decision in Southern Han is instructive that the protections afforded under the SoP Act may provide little or no comfort, and ordinary fee recovery proceedings may be required to recover moneys owed.
If a contractor wishes to terminate and the date of termination is earlier than the ‘next reference date’, a claim for payment for services between the last reference date and the termination may not be dependant on the litigation protections under the SoP Act. If one wishes to have the protections available under the Act but one does not wish to lose the statutory recovery regime, one needs to consider carefully the date of termination.
In Lewence’s case, the last payment claim could have been protected if issued by the next reference date (after 7 October 2014), and termination postponed accordingly.
Its omission to postpone termination was found to have caused it to lose its statutory recovery rights.