Is a reference date a precondition to the making of a valid
payment claim? The recent High Court decision for Southern Han
Breakfast Point Pty Ltd (in Liquidation) v Lewence Construction Pty
Ltd  HCA 52 sheds some light. In deciding the case, the
Court found that under s 13(1) of the Building and Construction
Industry Security of Payment Act 1999 (NSW) (the Act), a reference
date is a precondition to the making of a valid payment claim.
Southern Han and Lewence had entered into a contract for the
construction of a unit block by Lewence at Breakfast Point.
In October 2014, Southern Han issued a show cause notice to
Lewence in accordance with the contract and elected to take the
remaining construction works out of Lewence's hands. Lewence
treated Southern Hands' conduct as repudiation of the contract
and proceeded to terminate the contract on 28 October, 2014.
In December 2014, Lewence served a payment claim on Southern Han
for works completed after the last reference date of 8 October,
2014, and the date of termination 28 October, 2014. The payment
claim didn't nominate a reference date but was otherwise valid
under the Act. Southern Han served a payment schedule in reply with
the amount that it intended to pay, nominated as zero.
Lewence lodged an adjudication application and received a
determination in its favour in the amount of $1,221,058.08.
Southern Han argued that the contract expressly provided a
reference date on the eighth day of each month and as that date had
not arisen after the issuing of a payment claim by Lewence on 8
October, 2014, no further reference date had arisen. Further,
Lewence's entitlement to payment had been suspended under the
terms of the contract after it decided to take the work out of
Southern Han commenced proceedings in the Supreme Court of NSW,
seeking to set aside the determination. It argued, amongst other
things, that as the contract had been terminated no new reference
date arose after 8 October 2014, and as a payment claim had already
been made for that reference date, it was invalid. The Supreme
Court agreed and found that the Act required a reference date for
valid payment claim to be made.
Lewence appealed and the Court of Appeal overturned the Supreme
Court decision and found that reference date was not precondition
to the making of a valid payment claim under the Act.
Southern Han appealed to the High Court. The High Court agreed
with the Supreme Court decision, unanimously declaring that a
reference date was precondition to the making of a valid payment
claim within the meaning of the Act.
In its judgment, the High Court said that in both circumstances
no reference date arose. As Southern Han had legally issued the
notice under the contract and took the work out of Lewence hands,
any rights available to Lewence had been suspended by operation of
the contract. Secondly, as the contract had been terminated, no
rights flowed after the date of termination and no payment claim
could be served.
A reference date is indeed a precondition to the making of a
valid payment claim. An adjudicator will fall into error if they
determine a payment claim is valid where no reference date has
arisen. For claimants, it is important to ensure your payment claim
is based on a valid reference date and that any payment claims are
issued prior to the termination of the contract or works being
suspended. For a Respondent, ensure you make any arguments of this
kind in your schedule so as to avoid being precluded from
potentially raising it at some later date.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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