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Are you being served … a valid payment claim?

Construction Law News | October 2016

The Building and Construction Industry Security of Payment Act 1999 (NSW) (“SOP Act”) provides mechanisms for head contractors to claim against an owner (unless excluded under the SOP Act) or for a subcontractor to claim against the head contractor for construction work under a construction contract, as defined in section 4 of the SOP Act.

Three payment claims served invalidly

In the recent case of Duff Kennedy Pty Ltd v Lainson Holdings Pty Ltd [2016] NSWSC 371, Duff Kennedy Pty Ltd (“the Builder”) entered into a contract with Lainson Holdings Pty Ltd (“the Owner”) for the construction of a residential development in Cronulla. During the project, the Builder served the Owner with three payment claims pursuant to section 13 of the SOP Act:

  1. On 17 August 2015 the Builder issued a Payment Claim for $140,256.50, which included a statutory declaration stating that the Builder had paid all subcontractors engaged in works under the Contract (“Payment Claim 1A”). 
  2. On 1 September 2015 the Builder re-issued Payment claim 1A for $411,942.85, without a supporting statement (“Payment Claim 1B”).
  3. On 15 September 2015 the Builder issued Payment Claim 2 for $760,943.41, without a supporting statement.  Payment Claim 2 included the amount claimed for Payment Claim 1B.

Section 13(7) of the SOP Act requires a payment claim to be served with a supporting statement that indicates that it relates to that payment claim. The supporting statement must include a declaration to the effect that all subcontractors (if any) have been paid all amounts which have become due and payable in relation to the construction work concerned.

Because the Builder failed to include the required supplementary statements in all the claims, the Owner did not pay any of them.

The Builder's case

In these proceedings, the Builder sought leave from the Court to apply for summary judgment. The Owner made an admission that the circumstances in section 15(1) of the SOP Act (including that the Owner was ‘liable to pay the claimed amount’) existed in relation to the Builder’s claim for Payment Claim 2. The Owner sought to withdraw this admission, which was allowed by the Court.

The issue for the Court to consider in this case was whether the Builder’s failure to include a supporting statement in the proper form invalidated the service of the Builder’s payment claims and therefore removed the Owner’s liability to pay the claimed amounts pursuant to section 14(4) of the SOP Act.

The Builder submitted that:

  • Payment Claim 1B was a revision of Payment Claim 1B, which had a statutory declaration included that satisfied the supporting statement requirements under section 13(7) of the SOP Act; and
  • Failing to serve a supporting statement under section 13(7) of the SOP Act did not have the effect invalidating the service of the payment claim under section 14(4) of the SOP Act.

Why the Builder's application was unsuccessful

The Builder was unsuccessful in its application to the Court for summary judgement. The Court found that the Owner was not liable to pay the claimed amount in the Builder’s payment claims pursuant to section 14(4) of the SOP Act because they were served contrary to section 13(7) of the SOP Act by having been served without a supporting statement in the form prescribed by the SOP Act. The Builder’s payment claims were found not to comply with section 13(7) of the SOP Act.

The Court also found that the statutory declaration attached to Payment Claim 1A was not in the proper form required by the Building and Construction Industry Security of Payment Regulations 2008 (NSW).  Further, Payment Claim 1A was served earlier than Payment Claim 1B and was for a different amount.

The take-home message: include those supporting statements

A payment claim that is served by a head contractor without a supporting statement will not be validly served under section 14(4) of the SOP Act, and therefore the Respondent will not be liable to pay the claimed amount, even if they have not provided a payment schedule.

Contact us at Forum Law for an obligation-free 30-minute phone chat or personal attendance on (02) 9560 3388.

If you are in the building and construction industry or you engage in contracts with builders and associated contractors then please contact us at Forum Law to discuss your rights and obligations in this area of law. We provide an obligation-free 30-minute phone chat on (02) 9560 3388 or you can visit us in the Italian Forum in the inner west Sydney suburb of Leichhardt.

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