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A wake up call for contractors who receive a payment claim under SOPA

Construction Law News | August 2013

The Building and Construction Industry Security of Payment Act (SOPA) is designed to safeguard the rights of builders and subcontractors [the Builder] to be paid for stages of work completed during a job to maintain cash-flow on the job. Under the SOPA if a Payment Claim is made in the required form, the Recipient of that Payment Claim is required to provide the Builder with a Payment Schedule in response to the Payment Claim within 10 business days unless stipulated otherwise under the Contract.

The NSW Supreme Court has recently re-visited this regime in the case of State Asphalt Services Pty Ltd v Leighton Contractors Pty Limited [2013] NSWSC 528. In that case the Court reinforced the fact that liability for the full amount of the Payment Claim is extremely difficult to avoid, even in circumstances where a subsequent Payment Claim for the same amount has been made. In this case State Asphalt had essentially issued 2 Payment Claims against Leighton which were identical. Leighton had failed to respond to the first within time, and had provided a Payment Schedule to the second Payment Claim.

The terms of the Payment Schedule essentially reduced the claim made by State Asphalt to $nil through various cross claims. Armed with this knowledge and in the absence of a response [Payment Schedule]  to the first Payment Claim State Asphalt filed an application for summary judgment in respect of the first Payment Claim. Leighton attempted to have the judgment overturned on the following grounds:

  1. Statutory Construction: on this ground the court found that each Payment Claim is to be treated as distinct from any earlier Payment Claims, regardless of the repetition of amounts contained in the Payment Claims.
  2. Misleading and Deceptive Conduct: Leighton argued that the making of the second Payment Claim implied that first Payment Claim had been withdrawn, and Leightons claimed that it had relied on this implied representation in responding to the second Payment Claim. The court rejected this assertion and held that it was more likely that Leighton responded to the second payment claim because of the consequences of not doing so rather than any representation or due to misleading or deceptive conduct.
  3. Abuse of Process: Leightons claimed that the commencement of proceedings by State Asphalt was an abuse of process. The court held that the circumstances of the case were not sufficient to allow it to make such finding, however, it did state that the conduct of State Asphalt in commencing proceedings could be construed as improper purpose which may be grounds for a stay of the judgment.

What does it all mean?

The outcome of the case is a clear statement by the Supreme Court of the strict interpretation of the SOPA and the perils of failing to respond to a Payment Claim. According to the law as it stands the liability for a Payment Claim is final, and the existence of a subsequent and identical claim should not be treated as a “second chance” to respond to the initial claim.

If you wish to discuss the SOPA or any legal aspects of building and construction contracts give us a call at Forum Law on 02 9560 3388.

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