A recent decision in the High Court of Australia gives valuable guidance as to the importance of a reference date in regard to payment claims and the operation of post termination payment arrangements.
On 21 December 2016, the High Court issued its decision in Southern Han Breakfast Point Pty Ltd (In Liquidation) v Lewence Construction Pty Ltd 2016 HCA 52, overturning the previous decision of the Supreme Court of New South Wales Court of Appeal and making void an earlier Adjudicator’s Determination.
The Facts:
The Principal claimed the Contractor had substantially breached the Contract and, as a consequence, chose to operate the contractual provision to take the remaining work away from the Contractor and to suspend any further payment until a later date. The Contractor disagreed and claimed the Principal had repudiated the Contract entitling him to terminate.
Whichever, either the primary obligations of the parties had been ended by operation of the termination provisions of the Contract or the Contract itself was terminated.
Shortly afterwards, the Contractor issued a Payment Claim under the Building Construction Industry Security of Payment Act 1999 (NSW) (‘the Act’) and the Principal responded with a Payment Schedule and a response to the Payment Claim.
The issue that arose is whether there was a reference date (the date under the from which a party is entitled, under the Act, to a progress payment) in respect of the Payment Claim.
The Adjudication:
The Contractor brought the proceedings, which were defended by the Principal on the basis that the payment claim was not a Payment Claim under the Act. On that basis, the Principal argued, the Adjudicator lack jurisdiction to determine the matter.
The Adjudicator disagreed and issued his Determination that the Principal pays the Contractor the amount of $1,221,051.08.
The Proceedings:
The Principal immediately commenced proceedings in the NSW courts to have the Adjudicator’s Determination declared as void on the basis that, absent a reference date, the Payment Claim was invalid and the Adjudicator lacked jurisdiction to determine the payment.
The Principal argued that, if it had correctly operated the termination procedures in the Contract then, as per the terms, payment is suspended until a later date. Alternatively, if it had not operated the procedures correctly, was in repudiatory breach, the Contract had been terminated and so no right to further payment under the Contract existed, save for any rights accrued before termination. The next date by which a right to make an interim claim arose was on 8 November 2014, after the contract was terminated.
In either case, no right to make a Payment Claim at the time it was made existed.
In contrast, the Contractor argued that as subsection 13(1) of the Act states that a Payment Claim can be made by a person who claims to be entitled to a progress payment and not just a person who is entitled to a progress payment, any Payment Claim served by the Contractor can be considered by the Adjudicator who can not only Determine the amount payable but also Determine the reference date. On that basis, the Adjudicator has jurisdiction and his Determination is valid.
The Supreme Court of New South Wales found in favour of the Principal. On appeal, the Court of Appeal found in favour of the Contractor.
The High Court of Australia:
The High Court found in favour of the Principal determining that the existence of the reference date is a condition precedent to the right to serve a Payment Claim. Absent a reference date, a claim is not a Payment Claim under the Act and does not trigger the Payment Claim or Adjudication procedures. On that basis, the Adjudicator did not have jurisdiction, and his Determination was void.
The High Court considered the meaning of the words ‘claims to be entitled’ at subsection 13(1) and determined that the words exist to recognise that an amount payable may be found to be less than that claimed or nothing at all. The Court refused to attribute a broader meaning to those words that would remove the requirement for a reference date.
Commentary:
The High Court’s decision reinforces the importance of payment provisions in contractual procedures post termination and confirms that a valid Payment Claim can only be made in respect of a reference date.
Links:
The Judgement http://eresources.hcourt.gov.au/downloadPdf/2016/HCA/52
The Act http://www.legislation.nsw.gov.au/#/view/act/1999/46/full
Written by Steven Evans.
This article is for general information purposes only and should not be relied upon in any specific situation without appropriate legal advice. If you require that advice or wish to discuss any of the issues raised in this article, please contact us.
