County Court Security of Payment determination – payment schedule time barred however application for summary judgement dismissed

County Court Security of Payment determination – payment schedule time barred however application for summary judgement dismissed

8 Dec 2016

“We acted for a defendant in the recent County Court case of Fulconstruction Pty Ltd -v- ABP Consultants Pty Ltd [2016] VCC 1732 (the Act). In this case the plaintiff initiated action under section 16(4) of the Building and Construction Industry Security of Payment Act 2002 because the defendant did not serve a payment schedule in time. However, the Court’s reasons for judgment show that irrespective of the payment schedule being out of time, it was found that the arrangement and calculation of the payment claim did not fall within the Act, nor could it be claimed before the completion of the project and failed to identify the services to which it related.”

The Security of Payment regimes enacted in each State and Territory in Australia is legislation which is dealt with in an expeditious fashion with strict statutory timeframes.

In almost all cases, not serving a Payment Schedule in response to a Payment Claim served under the Building and Construction Industry Security of Payment Act 2002 (Vic) (“the SOPA”) or State/Territory equivalents is fatal for the respondent.

A failure to get a Payment Schedule in on time leaves the respondent without a right of reply and any further say in the matter if the Claimant progresses the Payment Claim to adjudication with an adjudicator or via summons and originating motion in the County Court seeking summary judgment pursuant to section 16(4) of the SOPA.

Lovegrove & Cotton and the writer acted for the respondent in the recent Victorian County Court case Fulconstruction Pty Ltd -v- ABP Consultants Pty Ltd [2016] VCC 1732 (“the decision”) before His Honour Judge Anderson.

Fulconstruction Pty Ltd (“Fulcon”) had submitted a Payment Claim under the SOPA for the sum of $272,639.75 from ABP Consultants Pty Ltd (“ABP”) with a Payment Schedule prepared by served outside the strict 10 business day timeframe. “The form guide” would generally leave the respondent without any recourse as the purpose behind the Security of Payment regime is “pay first, argue later” and to facilitate cash flow to sub-contractors and the like. It is classic guillotine legislation, if the Payment Schedule doesn’t get served within 10 business days, the ability to challenge the claim is aborted.

ABP did not pay the claim and Fulcon then initiated action by way of summons and originating motion pursuant to section 16(4) of the SOPA.

To provide a brief background on the matter, ABP had entered into two domestic building contracts with developers/owners. In tandem with these building contracts was a verbal joint venture agreement entered into between ABP and Fulcon whereby Fulcon would “carry out the project management responsibilities on the project”. In the judgment at paragraph 15 His Honour Judge Anderson found that both parties agreed that upon the completion of the project, ABP and Fulcon would “either share ‘any savings we make to the construction costs’ (Fulcon) or the profit from the project (ABP).

The County Court of Victoria almost always hears such matters issued under section 16(4) of the SOPA on a summary basis. However, in this case and at paragraphs 10 of the decision the Court considered three options for which option was to be followed for this hearing, but stopped short of making an “authoritative decision” as “these are issues for another day”. Whilst the Court did not determine whether it was final hearing/trial or heard summarily, it is clear that the Court heard and considered the contested facts of the parties hearing oral evidence from both side.

Not a “construction contract”

The Court found that the arrangement that was entered into between the parties was not one that can be defined as a “construction contract” under the SOPA.

One of the arguments that was put by the ABP before the Court was the method of calculation of the services being deficient under section 7(2) of the SOPA.

The Court found that the “arrangement for the bonus payment, in the terms of [Fulcon’s] evidence, has the degree of certainty, as to the method of calculation or the timing of any payment, that would take Mr Fulfaro’s project management services outside the exclusion from the definition of construction work contained in section 7(2)(c).” His Honour Judge Anderson referred to the decision in Eldelbrand Pty Ltd v H M Australia Holdings Pty Ltd [2012] NSWCA 31 (“Eldelbrand”) of which His Honour noted to be bound by “hierarchical precedent” and also in agreement with the reasoning.

The take out

The reason why we won the case and the reason why His Honour was persuaded that our arguments were on song was that:

1. Section 16 provides the claimant with a number of consequences of not paying a claimant where no payment schedule is issued.
2. However in this case the claimant sought summary judgment but failed on account of the Act not applying:

a. the arrangement was not a “construction contract” under the Act;
b. the calculation was made other than to the value of the services provided (i.e. the construction costs);
c. the payment claim did not sufficiently identify the service; and
d. payment was not due until completion of the works.

Lovegrove & Cotton have acted in numerous complex Security of Payment matters for Claimants and Respondents. If you have a Security of Payment query that you need legal advice on you should act quickly and if in doubt engage a construction lawyer as time is of the essence. The case mentioned in this article is a rarity given the arrangement. More often than not the defendant/respondent is on the “back foot” so sound advice must be obtained as soon as you are aware of such a claim under the Act.

By James O’Donnell, Associate, Lovegrove & Cotton