Payment claims can be made by a person entitled to a progress payment under a construction contract: Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act) s 13(1).
However, payment claims are subject to conditions listed in SOP Act s 13.
SOP Act s 13(7) states that ‘a head contractor must not serve a payment claim on the principal unless the claim is accompanied by a supporting statement that indicates that it relates to that payment claim’. Failure to provide a supporting statement results in a maximum penalty of 1,000 penalty units in the case of a corporation or 200 penalty units in the case of an individual: SOP Act s 13(7).
A ‘supporting statement’ is ‘a statement that is in the form prescribed by the regulations and (without limitation) that includes a declaration to the effect that all subcontractors, if any, have been paid all amounts that have become due and payable in relation to the construction work concerned’: SOP Act s 13(9).
In the past, SOP Act s 13(7) was generally understood as preventing a head contractor from validly serving a payment claim without a supporting statement.
However, the NSW Court of Appeal held in TFM Epping Land Pty Ltd v Decon Australia Pty Ltd [2020] NSWCA 93 that this general understanding was incorrect.
In the case, Decon Australia Pty Ltd (the Builder) served a progress claim on TFM Epping Land Pty Ltd and Katoomba Residence Investments Pty Ltd (the Principals) of around $6.4 million.
The NSW Court of Appeal held that leave to appeal was required given that the original judgment was the result of an application for summary judgment pursuant to Uniform Civil Procedure Rules 2005 (NSW) r 13.1: Supreme Court Act 1970 (NSW) s 101(2)(l). Leave was granted (Basten JA, Meagher JA agreeing) as it was not opposed, the judgment is in substance and effect a final judgment, the value of the claim was high and there were issues of principle which needed to be resolved on appeal. Emmett AJA (dissenting on this issue) believed that leave to appeal should be refused if it was required as the first-instance proceedings were summary proceedings and two of the three grounds of appeal were not raised by the Principals at first instance.
The NSW Court of Appeal unanimously dismissed all three grounds of appeal.
The Court rejected the Principals’ submission that the payment claim was invalid as it claimed payment for variations to the contract which were not claims under the construction contract, but were quantum meruit claims. While the Court acknowledged that variations claimed may not properly arise under the contract, such as when relevant procedural steps were not followed, this does not invalidate the payment claim and the Principals could have challenged the variations claimed by providing a payment schedule to the Builder and through adjudication proceedings under SOP Act s 17. SOP Act s 14(4) states that a payment schedule must be provided within 10 business days to the Builder if the Principals sought to challenge the claimed amount. At first instance, the primary judge held that no valid payment schedule was filed by the Principals to the Builder, and this finding was not challenged on appeal. The Court held that, in failing to provide a payment schedule, the Builder cannot invoke the now-disputed variations as a ‘triable issue’ to resist summary judgment.
The Court rejected the Principals’ submission that the payment claim was invalid because it was not made in respect of an available reference date and, in doing so, rejected the proposition that a payment claim cannot be made if it includes any amount which accrued after a reference date. The Principals claimed the payment claim was invalid as the reference date was 20 May 2019 and the payment claim claims for interest accruing up to 23 May 2019. The Court held that this misconstrued the High Court of Australia’s decision in Southern Han Breakfast Point Pty Ltd (In liq) v Lewence Construction Pty Ltd (2016) 260 CLR 340, a case which arose in very different circumstances. In the present case, the Court held that the entitlement to interest is a matter to be determined by an adjudicator and even if the adjudicator made an error, the payment claim itself cannot be challenged on this ground. In any event, the work to which the payment claim was made was completed well in advance of the reference date and it is unclear why an interest payment which accrued after the reference date but before the payment claim was lodged was not recoverable in that payment claim.
The Court also rejected the proposition that a payment claim is not validly served if it was not accompanied by a supporting statement per SOP Act s 13(7). The issue arose because the Principals believed that the ‘supporting statement’ served by the Builder did not meet the requirements of SOP Act s 13. For example, it merely listed a single subcontractor who completed work a year before the payment claim had been served and it was unclear as to whether this was the only subcontractor which undertook work which is now the subject of the payment claim.
The Court held that even if these submissions were to be accepted, the failure to submit a valid supporting statement does not invalidate a payment claim. SOP Act s 13 does not expressly state this as a consequence of contravening SOP Act s 13(7) and the Court held that an implied consequence was unnecessary where the statute provides an express remedy for contravention.
The Court believed that it was the payment claim itself that is the ‘critical document giving rise to a legal right to recover a progress payment’. SOP s 13(7) does not qualify the nature or content of the payment claim but its purpose was to merely encourage the payment of subcontractors before a progress claim is made which includes work done by those subcontractors. Further, the extrinsic material does not support the proposition that a valid supporting statement was a precondition to the making of a payment claim.
In the alternative, it may be argued that the document that was filed by the Builder remained a ‘supporting document’ despite it failing to meet certain requirements. Because the document did not cease to be a ‘supporting document’, no breach of SOP Act s 13(7) was committed.
A copy of the full judgment can be found here.
If you require any advice on security of payment, including if you require any advice on progress payments, payment claims, or adjudication, please do not hesitate to contact us at admin@valorumlaw.com.au or voregan@valorumlaw.com.au. Our expert construction lawyers will be on hand to assist you.
The information contained in this article is general information only and not legal advice. The currency, accuracy and completeness of this article (and its contents) should be checked by obtaining independent legal advice before you take any action or otherwise rely upon its contents in any way.
Contributors: Harry Chen, Valentina O’Regan
