The Courts shaping Security of Payments

Nick Kallipolitis

Recent judicial development

Is a reference date a precondition to the making of a valid payment claim? The recent High Court decisions for Southern Han Breakfast Point Pty Ltd (in Liquidation) v Lewence Construction Pty Ltd [2016] 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 precondition to the making of a valid payment claim.

The facts

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 Lewence’s hands.

Court proceedings

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.

Insights

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.

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