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Construction Law News October 2011

Establish effective procedures for payment claims and schedules

Builders and contractors need to ensure that effective procedures are adopted in their organisations for identifying and dealing with payment claims and payment schedules in a timely manner, particularly where claims are served on branch offices or head offices not directly connected with the project or contract in question

The decision of the New South Wales Court of Appeal in Downer EDI Works Pty Ltd v Parsons Brincknerhoff Australia Pty Ltd [2011] is highly instructive to the building and construction industry.

The relevant contract here concerned the upgrade of a “passenger rolling stock production facility” in Glendale, New South Wales. Downer managed the project out of an office located in Glendale. The project involved a construction Contract with Parsons.Parsons served a” payment claim” on Downer which was addressed to Downer’s Glendale office, but which was faxed instead to both Downer’s national head office in Melbourne and to another Downer office in Broadmeadow NSW, which was used exclusively for projects unrelated to the project at Glendale. Downer failed to issue a” payment schedule” within the timeframe required by the Building and Construction Industry Security for Payments Act 1999 [the Act].  Parsons sought to rely on the payment claim, pursuing Downer for the full amount of the claim. The case centred on the efficacy of Parsons’ service of the payment claim on Downer.

Section 31(c) of the Act allows payment claims to be served by fax addressed to the respondent’s “ordinary place of business”.  In seeking to rely on the payment claim and Downer’s failure to issue a payment schedule, Parsons argued that Downer’s head-office and Broadmeadow office both fell within the phrase “ordinary place of business”. Downer, on the other hand, contended that its “ordinary place of business” in this case was the Glendale office from which the relevant construction contract and project was administered.Since a “not insignificant” portion of the business usually conducted by Downer was performed from their Melbourne head office, the trial judge found at first instance that the payment claim had been validly served on Downer’s “ordinary place of business” and that Parsons could therefore rely on the claim. The trial judge held that the same was true of Downer’s Broadmeadow office.

On appeal, Downer claimed that the payment claim had not been validly served on Downer’s “ordinary place of business”, arguing that the Act requires service on the place of business most connected to or associated with the construction contract and works that give rise to or is the subject to the payment claim in question. The Court of Appeal rejected Downer’s arguments, upholding the decision of the trial judge and confirming the validity of Parsons’ service. The lesson to be learnt here is that contracts between contractors must be clear about the address for service of notices.

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