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Courts provide guidance on serving a valid payment claim

Construction Law News | May 2016

The recent decision from the NSW Supreme Court in Kyle Bay Removals Pty vs Dynabuild Project Services Pty Ltd [2016] NSWSC 334 highlights some of the important elements of a legitimate Payment Claim being served under the Building and Constructions Industry Security of Payment Act 1999 (NSW) [“SOP Act”].

These elements for a valid Payment Claim include, but are not limited to, the following:

  1. Under s.13(5) of the SOP Act you are only permitted to serve 1 Payment Claim in relation to each “Reference Date” [which is the date for payment of claims], as defined in the relevant building contract.
  2. S.13 of the SOP Act requires Payment Claims to be accompanied by a supporting statement, including a declaration that all subcontractors (if any) have been paid.
  3. The supporting statement required under s.13 must not knowingly contain any information which is false or misleading.

The Plaintiff in this case sought to set aside the adjudicator’s determination obtained by the Defendant in relation to a dispute over two Payment Claims – one in September 2015 and another in November 2015.

The Plaintiff claimed that the Defendant had failed to serve a valid “Payment Claim” in November 2015. The Plaintiff raised three arguments to support their claim, including that:

  1. The Defendant had “elected” under s.15(2)(a)(i) of the SOP Act to recover the amount in the September Payment Claim by commencing proceedings in the District Court [and not proceeding to adjudication] and that those proceedings were discontinued by consent because the Defendant conceded that the September Payment Claim was not accompanied by a supporting statement [as required by s.13(7) of the SOP Act];
  2. The November Payment Claim was for a different amount of money for different goods and services but contained the same Reference Date as the September Payment Claim. S.13(5) of the SOP Act prohibits more than one Payment Claim from being served in respect of each particular “Reference Date” under the relevant building contract; and
  3. The November Payment Claim was also served on the Plaintiff with a supporting statement containing false information which it was alleged that the Defendant knew about. S.13(8) of the SOP Act prohibits serving a Payment Claim that is accompanied by supporting statement containing false or misleading information and having knowledge that the false or misleading information was contained in the supporting statement.

The Plaintiff’s first argument regarding the use of the same Reference Date for the September and November Payments Claims, was rejected on the basis that the Defendant had effectively set aside the September Payment Claim and therefore was entitled to make a valid further claim for November under the contract using the same Reference Date as previously used for the set aside September claim.

The Court also rejected the Plaintiff’s third argument that the Defendant had knowingly submitted a supporting statement containing false information and had therefore contravened s. 13(8) of the SOP Act. This argument was rejected based on the evidence from the Defendant’s subcontractors and the Defendant’s claim that it believed that no money was owed to subcontractors at the time of submitting the November Payment Claim and the accompanying supporting statement to the Plaintiff, it was an honest mistake on the part of the Defendant.

In these proceedings, the Court’s decision focused on how the drafting of the building contract affected the Defendant’s rights to serve Payment Claims. The Court held that the contract did not include any requirement restricting the Defendant to only make Payment Claims if work was completed in the preceding month. This meant the Defendant’s November Payment Claim [which was served on 23 November 2015] was valid as the contract entitled them to make Payment Claims for work carried out to 22nd of the month.

Conclusions

The Court’s decision to uphold the Adjudicator’s decision in favour of the defendant contractor in these proceedings are a reminder that:

  1. If a Payment Claim is made by a Head Contractor without attaching a valid supporting statement confirming that all subcontractors have been paid, the Payment Claim will be deemed to be invalid as it was not served in accordance with requirements of the SOP Act, although in this case evidence of an “honest mistake” was allowed to be considered to rule in favour of the Defendant contractor; and
  2. Particular attention must be given in contracts, to the time frames within which Payment Claims can be served; and
  3. Particular attention must be given to the wording contracts to ensure that a contractor/sub-contractor does is not able to submit numerous ‘final’ Payment Claims.
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