Home Owner Successfully defends a Builder’s Payment Claim under Building and Construction Industry Security of Payment Act 1999 (NSW)

13/01/2023

In November 2022 Watson & Watson received instructions from an Owner of a residential property in one of the southern suburbs of Sydney.

In 2021 the Owner signed a Contract with the Builder for alterations and additions to the rear of an existing dwelling. The Contract was a standard form Master Builders Association “Small Residential Renovations & Additions” Contract (“Contract”).

In September 2022, the Builder made a final Payment Claim in excess of $60,000 for Prime Cost Sum adjustments and claimed variation works.

In October 2022 after the Builder issued to the Owner a Notice under section 17(2) of the Building and Construction Industry Security of Payment Act 1999 (NSW) (“Security of Payment Act”), the Owner provided a letter rejecting the validity and legitimacy of the Payment Claim on technical grounds, form and substance.

In November 2022, the Builder applied for adjudication of the Payment Claim made in September 2022 under the Security of Payment Act (SOP Act) (‘Builder’s Adjudication Application”).  There were two main disputes between the Owner and the Builder in relation to the claim.

(a)      Whether the Owner’s letter was a valid Payment Schedule as required by the SOP Act to enable the Owner to defend the Builder’s Application.

(b)      What amount was the Owner liable to pay in response to the Builder’s Payment Claim?

The Payment Schedule pursuant to Security of Payment Act

The Payment Schedule plays a critical role in the defence to a Builder’s Payment Claim.  Section 20(2A) of the SOP Act provides:

“The respondent (the Owner in this case) may lodge an adjudication response only if the respondent has provided a payment schedule to the claimant within the time specified in section 14(4) or 17(2)(b)”.

Without a valid Payment Schedule, the Owner is not entitled to lodge a defence to the Builder’s Adjudication Application relating to the quantum of the claim. A direct consequence is that the Adjudicator’s Determination will be made primarily based on the Builder’s Adjudication Application.  The only issue that could arise is whether the Builder has complied with the Adjudication process.

Relevant to the question whether there is a valid Payment Schedule is the Owner’s Response.  Section 14(2) of the Security of Payment Act provides the Payment Schedule:

“(a)     must identify the payment claim to which it relates, and

(b)      must indicate the amount of the payment (if any) that the respondent proposes to make (the scheduled amount)”.

It was not in dispute that the Owner identified the Builder’s Payment Claim in the Owner’s Response. The Builder contended that the Owner failed to indicate the amount of the payment that the Owner proposed to make pursuant to section 14(2)(b) of the SOP Act.

The Court has held “nothing” or “nil” or “zero” is an amount for the purpose of section 14(2)(b),[i] and the response to the payment claim, read as a whole, must clearly indicate an intention to pay nothing in respect of the payment claim[ii]. 

The Owner’s Payment Schedule did not expressly state that “nothing” or “nil” or “zero” was the amount that the Owner proposed to pay.

Watson & Watson, in the Adjudication Response, successfully argued that the Owner’s letter in Reply contained a valid Payment Schedule and accepted that the Owner indicated that he proposed to pay “nothing”.

Disputed amount of Prime Cost Items and variations

The Builder sought payment for “PC sums and variations”.

Watson & Watson successfully argued that the Builder must claim for “PC sums” and separately for “Variations”.

Clause 5 of the Contract is titled “PC items or provisional sums (allowances)”.

Watson & Watson argued and the Adjudicator agreed that Clause 5 of the Contract related to PC items and all provisional sum allowances, and required the Builder to reconcile the total amount spent on the provisional sum items etc. The Builder had not provided a reconciled total amount spent in relation to the prime cost items.

As a result, the Builder was unsuccessful in the claim for the balance for PC items.

Deductions to be applied for works previously paid for

The Owner sought adjustment for “overpayment” of earlier claims.

The Builder contended that the Owner could not raise matters in relation to payment of earlier claims.

Watson & Watson successfully argued that all payments of earlier invoices were on account of the payment of the Contract Sum.

Watson & Watson further argued as to the method of valuation of the work subject to the claim required, relying on section 10(1) of the SOP Act. This argument was accepted by the Adjudicator who agreed that the Owner was entitled to a deduction of earlier overpayments against the claimed amount.

Final result

The Adjudication Response was targeted and was based on the relevant facts and issues including the provisions of the Security of Payment Act and the contractual terms of the Contract.

Watson & Watson successfully reduced the amount payable by the Owner in excess of 65% of the claimed amount. It was a very satisfying result for the Owner.

It was also satisfying that the legal team at Watson & Watson prepared and submitted the Adjudication Response within 2 (two) business days of receiving instructions from the Owner. We delivered as we promised.

If you are in dispute with the Builder in relation a Payment Claim or any related building matter, at Watson & Watson our highly experienced Lawyers can assist you and provide advice in relation to all aspects of building and constructions matters or disputes.  Please contact Richard Watson, Accredited Specialist Commercial Litigation specialising in Building and Construction or his Personal Assistant Shereen Da Gloria to discuss your matter and seek appropriate timely advice.