The New South Wales Court of Appeal recently affirmed a trial judge's findings that a contractual provision deeming an early progress claim to have been made on the relevant reference date is ineffective for the purposes of the Building and Construction Industry Security of Payment Act 1999 (NSW) (Act).
The parties in All Seasons Air Pty Ltd v Regal Consulting Services [2017] NSWCA 289 had entered into an amended AS4903-2000 (Contract) that included at clause 37.1 a provision requiring the subcontractor to submit progress claims on the 20th of the month, and that an early progress claim shall be deemed to have been made on the date for making that claim. A dispute arose when the subcontractor (All Seasons) submitted a payment claim to the contractor (Regal) on 12 July 2016, after previously submitting a progress claim on 20 June 2016.
Regal supplied a payment schedule asserting that the 12 July 2016 payment claim was a second payment claim in respect of the 20 June 2016 reference date, and was therefore in contravention of s13(5) of the Act.
The adjudicator found in favour of All Seasons, holding the payment claim to be valid. Regal appealed to the Supreme Court, seeking a declaration that the adjudicator's determination was void.
All Seasons argued that the Contract deemed the 12 July 2016 payment claim to have been made on 20 July 2016, with the effect being that early service of a progress claim would not take effect until the reference date had arisen.
In rejecting All Seasons' argument, the Court of Appeal referred to Southern Han Breakfast Point Pty Ltd (In Liq) v Lewence Construction Pty Ltd [2016] HCA 52 (Southern Han), which determined that the entitlement to a progress payment only arises "on and from each reference date". Therefore, in this case, no reference date had arisen when All Seasons submitted the 12 July 2016 payment claim and it was not entitled to make a claim under the Act. The Court of Appeal concluded that sections 8(1) and 13(1) of the Act operated to restrict not only the entitlement to make a payment claim, but also the service of a payment claim until the reference date had arisen.
Contrary Victorian position
Prior to Southern Han, the Victorian Supreme Court, in considering the efficacy of the deeming provision, reached a contrary conclusion that the rights under the equivalent legislation "only became enlivened upon the arrival of the relevant reference date".1 At the time, the divergent interpretation taken by the Victorian Supreme Court compared to the New South Wales and Queensland authorities was distinguished on the basis that there were differences in the wording of the various security of payment statutes.2
However, in light of the decision in Southern Han, it is probable that the Victorian courts will follow the New South Wales Court of Appeal if this issue was to come before the Victorian courts again.
What next?
The decision of the Court of Appeal further highlights the significance of reference dates to a party's entitlement to make a payment claim. Parties drafting construction contracts should consider the utility of deeming provisions, particularly in light of the fact many standard form construction contracts include terms similar to the one dealt with in this decision. Once the contract is on foot, it will be essential that a contractor seeking to make a payment claim can show that its entitlement to make such a claim has actually accrued and not rely purely on the deeming provision.
Footnotes
1 Metacorp Australia Pty Ltd v Andeco Construction Group Pty Ltd (2010) 30 VR 141; Seabay Properties Pty Ltd v Galvin Construction Pty Ltd [2011] VSC 183.
2 Seabay Properties Pty Ltd v Galvin Construction Pty Ltd [2011] VSC 183 at [97]-[101].
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