Recent High Court decision underlines need for care in conducting Security of Payments claims – Reference Date provision

30/06/2017

A recent High Court decision issued on 21 December 2016 has underlined the need for Builders and their lawyers to take care in conducting cases involving Security of Payments claims. That case was the decision of Southern Han Breakfast Point Pty Limited and Lewence Construction Pty Limited.

The case concerned a security of payments claim case which was originally heard by the NSW Supreme Court and involved a dispute over the “reference date” under a construction Contract.

A Reference Date is defined in the relevant Building & Construction Industry Security of Payment Act (Security of Payment Act) as the date on which a claim for a progress payment may be made under a Contract; or if the Building Contract does not specify a particular date for payment, then the Reference Date is the last day of the named month in which building work was first carried out and the last day of each named month after that.

In order to make a claim under the Security of Payment Act one must first make a Payment Claim in accordance with the Security of Payment Act.  This is a trigger for the procedure as set out in the Security of Payment Act.  Eventually in accordance with the process provided for in the Security of Payment Act the dispute is heard by an Adjudicator, who must make his or her decision in a short period of time.

An Adjudicator’s decision can result in the issue of a certificate which may be registered as a Judgment in Court.

In this case Lewence Construction was the Builder who entered into an agreement to carry out building work for Southern Han Breakfast Point. 

Pursuant to the terms of the Contract Southern Han gave Lewence a notice taking out the balance of the remaining work from the Scope of Works under the Contract.  Lewence as it was entitled (in accordance with the terms of the Contract) treated the giving of that further notice as repudiation of the Contract by Southern Han.  On
28 October 2014 Lewence purported to accept the repudiation and terminated the Contract.

On 4 December 2014 Lewence served on Southern Han a document which purported to be a Payment Claim for work carried out under the Contract.

The parties went through the process provided for under the Security of Payment Act by way of a Payment Schedule, and thereafter an Application for Adjudication including an Adjudication Response.

One of the basis asserted by Southern Han was that the Adjudication should fail due to the Adjudicator not having jurisdiction to deal with the Adjudication Application and the Application should fail as the claimed Payment Claim was not a Payment Claim under the Act for want of a reference date.

The Adjudication was carried out by Mr Hillman, who made a Determination in favour of Lewence Construction.  Southern Han filed an Application in the NSW Supreme Court for an order that Mr Hillman’s Determination was “void” and of no effect on the basis that there was no Reference Date.

The NSW Supreme Court heard the case and agreed with Southern Han, saying that the absence of a Reference Date was fatal to the progress claim.  The Court then held that the Adjudication was void, with the result that Lewence could not obtain an award for its money.

Lewence then appealed to the New South Wales Court of Appeal, who held that there was not a need for a Reference Date.  The Court of Appeal overturned the decision of the Supreme Court.  Southern Han then appealed to the High Court.

The High Court found for Southern Han and held that the existence of a Reference Date in a construction Contract is a precondition to the making of a valid payment claim. Since there was no Reference Date in this case as the Contract had been repudiated and the repudiation was accepted which brought the Contract to an end, Lewence failed in its claim. Accordingly Lewence could not succeed in its claim to the Adjudicator.

In the result, the case is a reminder of the need to draft Building Contracts in accordance with the law and to take care in Security of Payment claims. Adjudications can be quick, cost effective ways for contractors to recover moneys owed in building disputes. However, the procedures must be correctly applied for success to be achieved.

One needs to very carefully consider the options available when the building relationship has broken down and how the action that is taken will affect the parties’ rights in particular the sub-contractor’s rights against the Builder or the Builder’s rights against the Proprietor.

There are also many other issues and facts in relation to taking the wrong action.

Watson & Watson are Accredited Specialists building and constructions lawyers who can assist in advising you on building issues, contracts and disputes.  Please feel free to contact Richard Watson or his assistant Shereen if you have any enquiries or concerns regarding your rights in relation to Security of Payment claims.

This is only a preliminary view and is not to be taken as legal advice without first contacting Watson & Watson Solicitors on 02 9221 6011.