Australia: A Proprietor’s Duty to Provide Payment Schedules to Contractors

Baulderstone Hornibrook Pty Limited v Queensland Investment Corporation [2006] NSWSC 522.

A recent case in the Supreme Court of New South Wales considered a claim by Baulderstone (contractor) that a payment schedule had not been provided by the proprietor, Queensland Investment Corporation (QIC) in accordance with the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act).

Justice Einstein rejected Baulderstone’s claim that QIC had failed to provide a payment schedule in accordance with the Act, and in doing so, refused Baulderstone judgment in the sum of $105.4 million. This update discusses the key facts and outcomes of the case.

The issue before the Court was whether, in the circumstances, it was QIC (or someone else) who had provided Baulderstone with the document which purported to be a payment schedule.

The relevant facts were:

• The document had been signed for and on behalf of QIC by its lawyer.

• The document appeared as the first document in a package of 8 folders of material, which also included the payment certificate and payment recommendation. These documents were prepared in response to the claim under the contract by QIC’s representative under the contract.

• The folders were physically assembled and delivered to Baulderstone by QIC’s representative under cover of a letter on QIC’s representative letterhead. The letter referred to the payment certificate, but made no specific reference to the purported payment schedule.

The Court concluded that a payment schedule had been properly provided by QIC under the Act, and made it clear that:

• The Act does not require that a payment schedule be signed in a particular manner or by a particular person, or indeed that it be signed at all. All that is required is that it be provided by the respondent to the claim, which based on the facts, the Court said it clearly had.

• There was no suggestion, nor could there be, that Baulderstone was misled by the contents of the covering letter. Indeed, from reading the documents as a complete package, no reasonable person could conclude that the documents did not include a payment schedule within the meaning of the Act.

• The"purely mechanical/secretarial acts", such as copying the payment schedule and including it within the folders fell entirely outside the functions prescribed for QIC’s representative under the contract. Therefore QIC’s representative could not be regarded as in breach of any duty to act honestly, reasonably and independently (which duties it did have in relation to certification).

In addition to the Court’s finding on this issue, of particular interest was the detail of the claim history of the project which preceded the application for judgment made in this proceeding.

In summary:

• The contract was executed in June 2003, with a contract sum in excess of $224 million.

• In December 2004, Baulderstone commenced making payment claims under the Act. QIC responded to each with payment schedules under the Act.

• In respect of all but 2 out of 14 claims made under the Act, Baulderstone had applied for adjudication.

• In each of the 3 most recent adjudications, Baulderstone had claimed payment for more than $80 million and the adjudicator had determined that the amount payable to Baulderstone was less than $2 million, and in one case, that it was nil.

• The payment claim relevant to this proceeding claimed payment of more than $105 million, and was accompanied by more than 70 folders of material. That claim was responded to with 8 folders of material, the first document of which was clearly marked ‘payment schedule’, within the time limit stipulated by the Act.

An important part of the Act is the system of rapid payment it implements. Rapid and timely progress payments are considered to be critical to cash flow, and accordingly of benefit to both contractors and subcontractors in the construction industry.

However, the benefit parties can actually derive from the Act’s tight timeframes when applied to the facts in this proceeding must be queried. For example:

• 10 business days is unlikely to be an adequate time for a respondent to properly assess and respond to a payment claim for $105.4 million and comprising 70 folders of material, particularly as in any subsequent adjudication, the respondent will be limited to the reasons given in its initial response to the claim.

• 10 business days (assuming no further period is agreed) is unlikely to be an adequate time for a third party adjudicator to properly assess and determine such a payment claim.

It is questionable whether the tightly regulated ‘pay now, argue later’ regime set up by the Act, which allows (at best) for the merits of the claim to be addressed in a cursory ‘fast track’ way should have a part to play in such a large and complex dispute.

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this publication.