The NSW Supreme Court has handed down three decisions which confirm that a common sense approach will be applied when deciding issues concerning payment claims and payment schedules.
These decisions also send a clear message that purely technical arguments about payment claims or payment schedules will not succeed.
Tell them why you are not paying or lose the right: John Holland Pty Ltd v RTA
In this case, the NSW Court of Appeal set out the importance of getting the payment schedule right from the very first opportunity and putting forward in the payment schedule all the reasons for not paying. The time critical nature of the procedures under the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act) means that even valid reasons for not paying are effectively barred unless they are raised in the payment schedule.
The Roads & Traffic Authority of New South Wales (RTA) entered into a contract with John Holland Pty Ltd (John Holland) for the construction of a dual carriageway and associated bridges in an area north of Kiama.
John Holland served on the RTA a payment claim under the SOP Act claiming $8 million. The RTA responded with a payment schedule proposing to pay $732, 003.42.
John Holland then served an adjudication application and the RTA responded saying that the adjudicator had no right to determine the adjudication application as he was being asked to perform a dispute resolution role under the contract and not a valuation role in relation to an amount of a progress payment. The RTA also argued that the adjudication of the claim was beyond the scope of the Act as the claim had already been determined and referred to expert determination under the contract.
The adjudicator rejected the RTA’s submissions on the grounds that they were not included in the payment schedule and determined that the RTA must pay $5.5 million.
The Court of Appeal decided that since the RTA had not included all of its reason for not paying in the payment schedule, the adjudicator could not consider them and the court could likewise not consider them.
Implications
- For principals, any grounds for non-payment such as ‘reasons relating to non-performance of work, bad work, set offs or cross claim of any kind, contractual provisions, the claimant’s right to payment or statutory provisions limiting the claimant’s right to payments or indeed any other suggested justification’ should be included as part of the payment schedule.
- In addition, if you think the payment claim is ‘invalid’ you should include this in the payment schedule. This will allow the principal to later raise this argument in both subsequent adjudication or litigation.
- For contractors this again shows the effectiveness of the SOP Act as a means of collecting on progress claims.
If it looks like a payment schedule, it probably is: Baulderstone Hornibrook Pty Ltd v Queensland Investment Corporation
In this case, the NSW Court of Appeal found that a document that was called a payment schedule and looked like a payment schedule was, in fact, a payment schedule. The court also said that even though a payment schedule was signed by another person on behalf of the principal, this did not make the payment schedule invalid.
On 11 April 2006 Baulderstone Hornibrook Pty Ltd (BHPL) served ‘payment claim 42’ on Queensland Investment Corporation (QIC). On the 28 April QIC delivered to BHPL a box containing eight volumes of documents including:
- A letter referring to the Progress Payment Certificate (the accompanying letter).
- A Progress Payment Certificate.
- A document entitled ‘Payment Schedule under the Building and Construction Industry Security of Payment Act 1999 (NSW)’ which was attached to the top of eight folders of documentation.
BHPL suspended work under the contract on the basis that these documents did not amount to a payment schedule because only the cover letter constituted the payment schedule.
BHPL then applied to the Supreme Court asking the Court to confirm BHPL’s view that the boxes did not constitute a payment schedule and that QIC’s solicitor had no authority to sign the payment schedule on behalf of QIC.
A single judge of the Supreme Court found the documents were in fact a payment schedule because they meet all the elements prescribed under the SOP Act. Also, the judge found that the solicitor could in fact act on behalf of QIC and sign the payment schedule.
BHPL appealed. In a unanimous decision the Court of Appeal found that:
- The boxes of documents provided to BHPL by QIC did constitute a payment schedule for the purposes of the SOP Act.
- The documents did not need to be signed by QIC because QIC’s solicitor had authority to prepare a payments schedule on its behalf.
Implications
- A court will take a common sense approach in deciding whether a payment schedule is in fact a payment schedule.
- If a principal provides a number of documents relating to a contract concurrently with a payment schedule which look like they form part of the payment schedule, this of itself will not render that payment schedule invalid. However, it is recommended that such documents be clearly identifiable asforming part of the payment schedule.
- The Court of Appeal has sent a clear warning against contractors seeking to rely upon technical arguments relating to the validity of a payment schedule, that the scope of such arguments will be very limited.
Look to the substance not the form of the claim: Fernandes Constructions v Tahmoor Coal t/a Centennial Coal
Fernandes undertook construction work for Centennial. Fernandes sent a tax invoice containing the words:
‘This invoice is prepared under the Building and Construction Industry security [sic] of payments [sic] Act 1999’.
The document described as ‘tax invoice 05’, claiming payment of $919, 427.52. There was a schedule attached to that tax invoice identifying the construction work, which was the subject of the claim.
The tax invoice was faxed to Centennial. Centennial raised the technical argument regarding the failure to strictly comply with the name of the SOP Act and errors in the form of claim. Centennial refused to issue a payment schedule.
The Supreme Court said you should look at the tax invoice objectively and in context. The context may include all the terms of the documents, the terms of any covering letter or fax. The court looked at the technical requirements of the SOP Act and found that a reasonable reader would know that:
- The tax invoice was a claim made by Fernandes to Centennial.
- Fernandes carried out work for Centennial under the contract.
- Fernandes was entitled to be paid in accordance with the terms of the contract.
The Court held common sense should prevail and that the tax invoice, ‘read fairly and not pedantically’, would convey to a reasonable reader that Fernandes was seeking by issuing the document to rely upon the operation of the SOP Act. Therefore the tax invoice sufficiently complied with the requirements of SOP Act.
Implications
- Contractors who meet the requirements in the SOP Act for a payment claim will find that this is sufficient to constitute a valid payment claim.
- If contractors have met the minimum requirement for a payment claim then the principal should treat it as a valid payment claim.