Merry Christmas Mr Debtor…The Value of ‘Skeleton Staff’ to Monitor Security of Payment Claims
By Justin Cotton, Partner and Head of Practitioner Advocacy at Lovegrove Smith & Cotton
This week I am exploring two case decisions under the NSW Security of Payment laws, both of which in different fact situations hammer home the importance of responding under the Act within the time deadlines, if you received a payment claim under the Act.
The law in question is the Building and Construction Industry Security of Payment Act 1999 (NSW). It is the first security of payment legislation in the country, and although similar laws are found now in most states and territories, the NSW laws are reputedly the most utilised in Australia.
There is also anecdotal evidence and indeed case law concerning the “Christmas special”. This being the service of payment claims under the Act on the very eve of the festive season, replete with voluminous material in some cases that will take time to wade through while one digests the Christmas turkey.
However, if at least one knows about it, you can do something about it, unpalatable as the prospect seems. In the case of Kingston Building (Australia) Pty Ltd v Dial D  NSWSC 173 (“Kingston”), the proprietor as recipient of the progress claim had no such luxury.
When the construction contract was entered into, one of the addresses listed in the contract for service of payment claims included an obscure PO Box belonging to the contract Superintendent. A payment claim under the SOP Act for $1,170,000 was delivered to that PO Box on 24 December 2012.
In circumstances where the contract said that payment claims could only be made on the 25th day of every month, the Judge in Kingston decided that the claim was deemed to be received on the following day, being Christmas Day the 25th of December. The Proprietor argued in turn that there should have been direct delivery to itself, not service on the Superintendent as a separate entity.
As to whether delivery to the Superintendent’s PO Box was valid service, Justice Stevenson said that this WAS valid delivery given that it was one of the addresses stated in the contract for which payment claims could be delivered to the Proprietor.
The upshot of this was that receipt of the payment claim under the SOP Act did not necessarily require actual physical receipt by the Proprietor on the applicable date, nor did it matter that the Proprietor only became aware of the claim much later. The question was whether the claim was delivered to the relevant address, and the Court found that it was, so the time to deliver a payment certificate (or schedule) in response commenced to run from 25 December.
Under the deeming provisions (or guillotine date, if you will) found in the Act (and reinforced by the contract), the Proprietor had just 14 days from deemed receipt of the payment claim to issue a progress certificate in response to the claim. This was not done, no doubt due to the lack of knowledge of the payment claim to the Superintendent PO Box and the circumstances of the Christmas holiday season.
Time then expired on 9 January 2013 and by operation of the Act, the payment claim by the Contractor was then deemed to be the relevant progress certificate, meaning that the full sum claimed of $1,170,695 fell due for payment by 11 January 2013. Clearly, a significant financial consequence for “Dial D”.
The Superintendent in turn issued a progress certificate on 31 January 2013 but instead certified a sum of $1,067,571 owing in the other direction, back to the Proprietor. The Contractor’s original claim remained unpaid, but based on the Proprietor’s apparent cross claim under the contract (perhaps based on defects, time delay or similar), the Superintendent certified that the Contractor owed in excess of $1 million, contrary to the payment claim.
Justice Stevenson disagreed and held that it was not possible to over-ride an accrued right of the Contractor in this way. The subsequent progress certificate from the Superintendent could not supersede the valid payment claim from the Contractor under the Act. The counterclaim was rejected by the Court and it was said the Proprietor would need to bring a separate action for any alleged contractual entitlements.
Lessons to be learned (and they can be very expensive lessons) include that:
- A party should carefully check all addresses listed in a contract as potential addresses for service of payment claims;
- Make sure any such addresses are monitored over holiday periods in case payment claims are received there;
- If necessary ensure that the contract ‘reference dates’ for when payment claims are made, give you a proviso that such payment claims cannot be made during such a holiday period. Otherwise deadlines in the Act can continue to apply during such periods.
In another 2013 case decision (NSW Supreme Court) there were similar findings reinforcing that, even where it is arguable that the claimant may have no right to make a payment claim under the Act at the specific time, a payment schedule should still be served in time to preserve the respondent’s rights.
That case is Ampcontrol SWG Pty Ltd v Gurarat NRE Wonga Pty Ltd  NSWSC 707. The facts involved a contract to design, supply and commission high voltage infrastructure at a NSW mining site, with progress payment claims only to be served once milestones were reached, eg delivery of equipment to site. As in the case previous, the Contractor issued a payment claim under the Act and the Principal failed to send a payment schedule in response within the time allowed in the SOP Act.
Whilst some payments from the claim had been made by the Principal, it was unclear how they matched the claim, but the Contractor sued for the unpaid balance ($562,390), given that the Principal was seeking to argue that the time for making the said payment claim had not arisen under the Contract.
Unlike the Kingston case, here there was a permutation that perhaps the milestone date or event enabling the making of the relevant progress claim had not yet arisen. Also the Principal argued that the invoice forming the payment claim did not disclose an obvious relationship between the payment sought and any milestone in the Contract.
However, the Court again held that section 15 of the Act was paramount, even though section 13 provides that a payment claim must be valid in accordance with the terms of that section.
The Court held that the Principal had not taken the option, as it should, of serving a payment schedule under the Act raising any contractual objections to payment, with the unfortunate result that it was now precluded from doing so based on the time provisions in section 15(4)(b) of the Act.
As a result, the Principal was required to make the payment in accordance with the Act, and then if it so chose could later launch proceedings under contract so that the claim and any cross-claim could be considered on its merits. It was noted in the decision that “the statutory scheme does not permit the respondent to refrain, upon some contractual basis, from providing a payment schedule, but to retain the right in subsequent proceedings to rely upon whatever the contractual issue was.”
This of course is very similar reasoning and outcomes as would occur in other jurisdictions, such as Victoria with its similar Security of Payment legislation. The intent behind the laws being to facilitate swift processing of payment claims but retaining the ability to have a later argument under contract on the merits.
A lesson to be learned here is that even where you consider that a contractual entitlement to make a payment claim has not arisen under the SOP Act, it is still very very important to protect yourself by issuing a payment schedule within the statutory timeframe
By Justin Cotton, Partner, Lovegrove Smith & Cotton
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© Lovegrove Solicitors 2014