Australia: Standard Form Contracts And Issuing Payment Claims

A recent decision demonstrates that contractual modifications, if correctly drafted, can impact significantly on the operation of Security of Payment legislation.

A properly drafted contract including modification of Australian standard form contracts may supplant the operation of Security of Payment legislation by either improving or restricting a claimant's entitlement to submit payment claims or imposing shorter time frames for giving payment schedules.

Judicial Consideration

In the matter of Thiess Pty Ltd v Lane Cove Tunnel Nominee Company Pty Ltd [2009] NSWCA 53, the Court held that contractual modifications reducing the time frame for service of a payment schedule will not be effective unless it is clear on the words of the contract that the contractual time frames are to supplant the time stipulations stated in the Security of Payment Act.

The recent Supreme Court of Queensland's decision in Tailored Projects Pty Ltd v Jedfire Pty Ltd [2009] QSC 32 reinforces this requirement and further highlights the need for parties to a contract to be aware of whether their entitlement to make a payment claim or give a payment schedule has been amended by the contract.

A failure to be fully aware of the interrelation of the contractual payment regime and the relevant Security of Payment Act (in Queensland, the Building and Construction Industry Payments Act 2004 (Qld) (BCIPA)) may limit a party's ability to make payment claims after practical completion or to utilise other relief under the BCIPA.

Facts in Jedfire

Tailored Projects Pty Ltd (TP) agreed to carry out renovations and extensions to the Park Ridge Tavern at Mt Lindsay Highway, Park Ridge, Queensland for Jedfire Pty Ltd (Jedfire). The contract was a Queensland Master Builders Association LSC2 August 2006 standard form contract (QMBA LSC2).

Practical completion under the contract was achieved on 12 May 2008. A dispute then developed over payment for alleged variations and other amounts.

TP submitted a payment claim on 26 May 2008, and then another payment claim on 31 July 2008. The payment claims were made both under the contract and the BCIPA. Under the contract, Jedfire was required to provide a notice disputing payment within five days. Jedfire disputed the claim dated 31 July 2008 but did not serve a payment schedule within five days.

TP sought summary judgment on the 31 July 2008 payment claim on the basis that a payment schedule was not provided in the time allowed under the BCIPA. Jedfire's submission was that TP made two payment claims in relation to the same reference date.

More Than One Payment Claim

To understand the arguments on this issue it is necessary to set out the terms of the contract and the competing terms of the BCIPA. Clause 14 of the contract states:

The contract provided for the submission of monthly progress claims on the last day of the month.

Section 17(4) of the BCIPA states:

A 'reference date' is defined in Schedule 2 of the BCIPA as:

1. 'A date stated in, or worked out under, the contract as the date on which a claim for a progress payment may be made for construction work carried out or undertaken to be carried out, or related goods and services supplied or undertaken to be supplied, under the contract; or
2. If the contract does not provide for the matter —
3. 1. The last day of the named month in which the construction work was first carried out, or the related goods and services were first supplied, under the contract; and
   2. The last day of each later named month.'

TP argued that the payment claims of 26 May 2008 and 31 July 2008 were claims made for different reference dates under the BCIPA . In addition, TP argued section 17(4) of the BCIPA allowed payment claims to be served within 12 months after the construction work was last carried out.

Justice Douglas rejected those arguments and held that, while section 17(4) of the BCIPA permits service of a claim within the periods described under section 17(4)(a) and (b), these sections of the BCIPA did not change the fact that the only relevant reference date in this situation was the date for practical completion. Therefore, Justice Douglas concluded that TP had made two payment claims for the same reference date (the 'practical completion' reference date under the contract) and dismissed TP's application for summary judgment.

Impact On Standard Form Contracts

The contract at issue in the Jedfire case was a Queensland Master Builders Association (QMBA) standard form contract. A review of other Australian standard forms against the drafting in the QMBA contract and any effects on submitting progress claims is set out below.

AS2124-1992, AS2545-1993 And AS4300-1995

The relevant payment clause in these standards is:

While not worded identical to Clause 14 in the Jedfire case contract (which expressly divides payment claims into the times stated in the schedule and on the works reaching practical completion), there are similarities in the above standard form clause.

This clause divides times for payment claims to those stated in the annexure and upon issue of a certificate of practical completion.

Accordingly, if the decision of Justice Douglas in the Jedfire case is followed, it is arguable that the AS standard form contracts listed above only provide for a payment claim to be submitted up to and at practical completion. No further payment claims within 12 months of completion would be valid, other than the final payment claim submitted at the expiration of the defects liability period.

AS4000-1997, AS4901-1998, AS4902-2000, AS4903-2000 And AS4901-2002

The relevant payment clause in these standards is:

This standard form clause is materially different from clause 14 in the Jedfire case, in particular there is no reference to practical completion. Therefore absent a reference to practical completion, those standard form contracts would not prevent the issuing of more than one payment claim after the date of practical completion.

Accordingly, contractors are able to issue monthly payment claims and refer such claims to adjudications following practical completion up to the end of the defects liability period and under the final claim.

ABIC Major Works 2003 And Simple Works 2002

The relevant payment clause in these standards is:

The ABIC clause is similar to the second group of AS standard form clauses referred to above and does not contain any reference to the date for practical completion as a reference date.

Accordingly, contractors are able to issue monthly payment claims and refer such claims to adjudications following practical completion up to the end of the defects liability period and under the final claim.

Conclusion

The decision in the Jedfire case provides guidance for both principals and contractors when drafting or reviewing payment clauses in contract documents. Principals and contractors should be aware of how such clauses operate in regards to an entitlement to submit payment claims under the BCIPA after reaching practical completion.

© DLA Phillips Fox

DLA Phillips Fox is one of the largest legal firms in Australasia and a member of DLA Piper Group, an alliance of independent legal practices. It is a separate and distinct legal entity. For more information visit www.dlaphillipsfox.com

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances.