Australia: No Exceptions To Procedural Requirements Under Australia's Security Of Payments Legislation

In Short

The Situation: For over a decade, all Australian jurisdictions have had in place security of payment ("SOP") legislation—statutory regimes providing for the submission and payment of progress claims, and resolution of payment disputes, in relation to construction work. Each regime grants rights to persons carrying out construction work to submit progress claims and to have any dispute in respect of those claims resolved by statutory adjudication.

The Result: In a recent decision, Equa Building Services Pty Ltd v A&H Floor 2 Doors Australia Pty Ltd [2022] NSWSC 152, the Supreme Court of New South Wales ruled that the adjudication process begins only with the proper service of the progress claim. If service is not in compliance with the strict requirements of the relevant legislation, any ensuing adjudication determination will be quashed.

Looking Ahead: The Supreme Court's decision provides contractors and subcontractors with a timely reminder of the importance of strict compliance with the requirements of the relevant SOP legislation, especially those relating to the submission of progress claims and the statutory adjudication process. It also demonstrates that it is best practice to have a formal written contract in place rather than having construction work performed pursuant to an oral agreement.

In Equa Building Services Pty Ltd v A&H Floor 2 Doors Australia Pty Ltd, the Supreme Court ruled that, because no progress claim had been validly served, the adjudicator's determination had been made without proper jurisdiction. Accordingly, the determination—awarding a sum of more than $70,000—was quashed.

The case involved Equa Building Services Pty Ltd ("Developer"), a company of the Arden Group, who had engaged Rockinghorse Construction Pty Ltd ("Construction Manager") to provide construction management services—including engaging contractors to design and build a multi-unit development. In turn, the Construction Manager engaged A&H Floor 2 Doors Australia Pty Ltd ("Subcontractor") to perform flooring work.

A dispute arose between the Developer and Construction Manager, a result of which the contract between the two parties was terminated. However, the Subcontractor continued to perform further work directly for the Developer. There was no formal contract between the Developer and Subcontractor.

In June 2021, the Subcontractor attempted to serve a progress claim upon the Developer by email to Lindsay Gregory at the email address lindsay@ardengroup.com.au. In the email, the Subcontractor advised that they had also sent the progress claim by post to 56 Crosby Road (the Developer's principal place of business). The Supreme Court found problems with both forms of service. Noncontroversial was the posted progress claim, which had incorrectly been sent to 54 (rather than 56) Crosby Road and therefore was never received by the Developer.

The core issue with the email was that it did not occur in accordance with any of the methods of service permitted by the relevant legislation—namely, the Building and Construction Industry Security of Payment Act 1999 (NSW). Specifically, with respect to service by emails, s 31(1)(d) requires that an email be sent "to an email address specified by the person for the service of documents of that kind". Here, as the work had been carried out in accordance with a series of oral arrangements (rather than a formal written contract), the Subcontractor was unable to show that they had been provided with any email address for service of progress claims as specified by the Developer.

The Court also pointed out several factors that did not rectify the Subcontractor's failure to serve the claim in compliance with requirements of the legislation:

• The fact that the Subcontractor believed that Lindsay Gregory was the Developer's representative for the purpose of serving the progress claim (having previously sent him tax invoices and copied him into various emails) did not make him a representative in circumstances where the Developer did not specify that fact.
• The fact that the Subcontractor subsequently dealt with Arden Group employees using the email address "@ardengroup.com.au" with respect to the progress claim did not shed light as to whether Lindsay Gregory was the appropriate contact for progress claims.
• There appeared to be a relationship between the Developer and Arden Group where it seemed likely that: (i) the Developer was under the control of Arden; (ii) the Developer was related to Arden; and (iii) the companies were operating from the same address and under the same controlling minds. However, similar to above, the Court found that these factors alone did little in the way of establishing that Lindsay Gregory was the proper person to which the progress claim should have been served.

Given no email address was specified for service, and indeed no evidence demonstrated that the claim had come to the attention of Lindsay Gregory or the Developer, the Court found that service had not been effected by email. As proper service is a prerequisite to the adjudication process, the adjudicator had no jurisdiction and the determination was quashed.

A Reminder: Procedural Requirements Demand Strict Compliance

This case serves as a stark reminder of the importance of always ensuring strict compliance with the procedural requirements set out in the SOP legislation governing a particular construction arrangement. Although there are similarities among the SOPs of each Australian jurisdiction, they differ in key procedural aspects, and it is therefore important that businesses be up to date with the regimes in each jurisdiction (especially where they operate in multiple jurisdictions).

With respect to service, Equa Building Services confirms that, where parties are operating under informal arrangements, the concept of reasonable belief as to the proper recipient of documents will not come to the rescue of parties that have omitted certain procedural steps. Furthermore, the Court will not imply a proper recipient by reference to a course of dealing or correspondence (the fact that an email address has been used previously means little when it comes to the service of formal court documents). Finally, any purported relationship of agency will not factor into the Court's process of identifying a proper recipient.

Ultimately, there is no substitute for formal, written documents drafted with a keen eye on the requirements of the relevant SOP legislation. Parties should not expect flexibility in the Court's approach if they have decided to record their agreement informally and subsequently encounter issues relating to the service of documents—even if an arbitral award has already been made.

Three Key Takeaways

1. Contractors and subcontractors should ensure that their work is always performed under a formal construction contract and that such contract specifies an email address for the service of progress claims (and similar documents).
2. When preparing to serve a progress claim by email, it is important to refer to the relevant construction contract to ensure that the claim is emailed to the correct person. It should never be assumed that any particular individual is the appropriate representative for this purpose.
3. If no email address is specified for the service of progress claims (or other documents of that kind), the party sending the progress claim will need to prove that the document was actually brought to the attention of an authorised recipient.