Australia: Queensland Court of Appeal redefines payment schedule requirements for owners and contractors

Recently the Queensland Court of Appeal handed down a decision¹ that has major consequences nationwide for owners and contractors in responding to payment claims served under Security of Payment legislation. The Court held that, in the circumstances of this case, a document served in response to a payment claim that failed to respond to the major item of the claim was not a "payment schedule".

The consequences of not serving a "payment schedule" within 10 business days of receiving a payment claim are dire. In those circumstances the claimant serving the payment claim will be entitled to the entire amount claimed whether or not that claim is due under the contract; the respondent cannot raise merits defences. There are presently no monetary caps on payment claims.²

The decision is also authority for the proposition that the first document served within the 10 business days in response to the payment claim will not necessarily be the payment schedule if it provides that it is a preliminary document for a later document to be the "payment schedule".

The Court also confirmed that an adjudicator's error in adopting the wrong document as the payment schedule is a jurisdictional error. Whether an error is jurisdictional is critical as only a jurisdictional error may permit a challenge to an adjudicator's decision.

Although decided on discretionary grounds, having found jurisdictional error, the Court declined to remit the matter back to the adjudicator given the purpose of the legislation to provide for the quick, cheap and simple resolution of construction payment disputes. There are also procedural difficulties in remitting a decision back to an adjudicator to re-adjudicate according to law.

This case involved a $26 million payment claim submitted by Heavy Plant Leasing Pty Ltd (administrators appointed) (receivers and manager appointed) (HPL) on McConnell Dowell Constructors (Aust) Pty Ltd (MacDow) in relation to a subcontract as part of GLNG's coal seam gas project in Southern Queensland.

On 6 March 2013, MacDow served a three page response that included a rejection of HPL's claim for $18 million of variation claims. The three page document was described as a "Progress Certificate" and the only reference given for rejecting the $18 million of variation claims was the statement "refer to variations register". The variations register was not attached. Two days later on 8 March 2013 (within the 10 business days for serving a payment schedule) MacDow served its payment schedule described as a "payment schedule".

That document included the variations register. The adjudicator decided that the 6 March document was the payment schedule and disregarded the 8 March document in its entirety. The adjudicator then awarded the entire claimed amount for variations by default.

MacDow successfully applied to the Supreme Court and obtained orders declaring the adjudicator's decision void because the adjudicator failed to have regard to the 8 March document (found to be the payment schedule), which unlike the earlier 6 March document, fully responded to the major part of HPL's payment claim. That decision was upheld on appeal.

Generally it is the respondent seeking to argue that a document is a payment schedule. In this case, the respondent was arguing the opposite, which is unusual. This case highlights the importance of responding to all the major parts of a payment claim when preparing a payment schedule.

Footnotes

¹Heavy Plant Leasing Pty Ltd v McConnell Dowell Constructors (Aust) Pty Ltd & Ors [2013] QCA 386
²There are limitations in Victoria on claiming disputed variations for contracts over certain values, however this is not a monetary cap on claims.

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