“Lovegrove and Cotton acted for a defendant in a County Court case [1] where the plaintiff initiated action under section 16(4) of the Building and Construction Industry Security of Payment Act 2002 (“the SOPA”) 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.”

Payment Schedule

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

In almost all cases, not serving a Payment Schedule in response to a Payment Claim under the SOPA (or it’s State/Territory equivalents) is fatal for the respondent.

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

Case Study

Lovegrove & Cotton acted for the respondent in a Victorian County Court case [1] before His Honour Judge Anderson. The Applicant had submitted a Payment Claim for the sum of $272,639.75 from the Respondent; the Payment Schedule to defend this application was served outside the strict 10 business day timeframe. The Applicant then initiated action by way of summons and an originating motion pursuant to section 16(4) of the SOPA.

This 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.

To provide a brief background on the matter, the Defendant had entered into two domestic building contracts with the developers/owners. In tandem with these building contracts, was a verbal joint venture agreement between the Parties, whereby the Applicant 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 they would “either share ‘any savings we make to the construction costs’ (the Applicant) or the profit from the project (the Defendant).

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 at paragraph 10 of the decision, the Court considered three options possible 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 sides.

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 Respondent 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 [the Applicant’s] evidence, has the degree of certainty, as to the method of calculation or the timing of any payment, that would take the 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” [2], 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 why His Honour was persuaded of our arguments was due to:

1. Section 16 provides the Defendant 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 as:

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

This is a Lovegrove and Cotton publication, authored by former Lovegrove and Cotton lawyer James O’Donnell. Article updated on the 1/5/2023.

Disclaimer

This article is not legal advice and discusses it’s topic in only general terms. Should you be in need of legal advice, please contact a construction law firm. The experienced team at Lovegrove & Cotton can help property owners and building practitioners resolve any type of building dispute.

References:

[1] Fulconstruction Pty Ltd v ABP Consultants Pty Ltd [2016] VCC 1732.

[2] Eldelbrand Pty Ltd v H M Australia Holdings Pty Ltd [2012] NSWCA 31 (“Eldelbrand”)