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The Court of Appeal has now in TFM Epping Land Pty Ltd v Decon Australia Pty Ltd  NSWCA 93 clarified that a non-compliant supporting statement by a head contractor under s13(7) of the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOPA) will not invalidate a payment claim or render ineffective service of a payment claim under the SOPA. Prior to this there were conflicting decisions of Justice Ball in Central Projects (that there was no invalidation) and Justice McDougal in Kitchen Xchange (that the payment claim was invalidated). The decision of Justice McDougal was subsequently followed in Kyle Bay and Duffy Kennedy.
Relevantly, section 13(7) of the SOPA provides:
(7) A head contractor must not serve a payment claim on the principal unless the claim is accompanied by a supporting statement that indicates that it relates to that payment claim.
Maximum penalty: 200 penalty units.
The Court of Appeal upheld the reasoning of Justice Ball in Central Projects that section 13(7) of the SOPA does not in terms invalidate a payment claim served without a supporting statement, nor does it invalidate the act of serving such a claim. This conclusion was essentially supported by the reasoning that section 13(7) provided for a penalty for failure to comply with its requirements with respect to supporting statements and so there was no basis to imply a legislative intention that further consequences ought to apply for non-compliance such as invalidating a payment claim or service of an otherwise valid claim.
What does this mean for you?
If you are a principal in receipt of a payment claim without a supporting statement or a supporting statement that does not comply with the prescribed form, you should ensure that a payment schedule is provided within the prescribed 10-business day period (not that ignoring anything purporting to be a payment claim is ever good practice).
Head contractors who serve a payment claim in respect of an available reference date without a supporting statement or a non-compliant statement, (regardless of whether they receive a payment schedule asserting that the payment claim is invalid by reason of the non-compliance) should not issue another payment claim in respect of the same reference date as to do so would risk the head contractor falling foul of the prohibition in section 13(5) of the SOPA of the service of two payment claims with respect to the same reference date.
The principal and the builder were parties to a contract for the construction of a residential development in Epping. The builder issued payment claim 10 under the SOPA for approximately $6.4 million together with a supporting statement. The supporting statement referred to a subcontract and stated that it applied for work between 27 June 2018 and 3 July 2018 inclusive which was the subject of the payment claim. The principal did not serve a payment schedule within the time required by the SOPA and so potentially became liable to pay the claimed amount.
The builder proceeded to file a summons and a notice of motion in the Supreme Court of NSW seeking summary judgment for the claimed amount. The principal challenged the validity of the progress claim and its service. The primary judge gave judgment in favour of the builder finding that the principal did not raise any triable issues.
The principal sought leave to appeal the decision on three grounds:
The appeal was dismissed with the primary judgment given by Basten JA (with whom Meagher JA and Emmett AJA agreed).
Was the claim validly served because it was not accompanied by a complaint supporting statement?
The principal contended that:
Basten JA held that a failure of a head contractor to serve a valid supporting statement under section 13(7) of the SOPA did not invalidate a payment claim. His Honour reasoned as follows:
(a) the language of s13 did not readily accommodate an additional consequence;
(b) s13(7) was to be contrasted with s13(5) in that the language of the latter subsection was entirely consistent with the notion that any subsequent document purporting to be a payment claim could not be characterised as one because only one could be served and that subsection provided no other consequence; and
(c) given the consequence of not validly serving a payment claim was significant (i.e. it would deprive an adjudicator of jurisdiction), it was to be expected that if that were an intended consequence of the legislature, there would have been some reference to it in the Inquiry’s Final Report or in the Second Reading Speech;
Was the payment claim valid where it claimed payment in respect of variations which were not claims under the contract but were quantum meruit claims?
The principal contended it was arguable that, as a matter of construction of the payment claim, the amounts claimed for variations were not available under the contract and therefore the payment claim was arguably invalid.
Basten JA rejected that submission. His Honour held that the payment claim on its face was a claim for works completed under the contract. Whilst it was possible that the amounts claimed for variations did not properly arise under the contract (because, for example, relevant procedural steps had not been followed), for that issue to be pursued, it would involve raising a defence in relation to matters arising under the contract which was prohibited by s15(4) of the SOPA.
A challenge on that basis was, however, available to the principal in a payment schedule which, in this case, the principal had elected to not provide.
Was the payment claim invalid by reason of it not being made in respect of an available reference date?
At the relevant time, the right to a progress payment conferred by s 8(1) of the SOPA operated “[o]n and from each reference date”. The parties had accepted that a reference date arose on the 20th day of each month. The principal argued that the payment claim could not be in respect of the 20 May 2019 reference date because it claimed interest accruing up to and including 23 May 2019. It relied on the proposition, said to be derived from the High Court’s decision in Southern Han, that a payment claim which included any amount which accrued after a reference date precluded the payment claim being made with respect to that reference date.
Basten JA rejected that submission. His Honour distinguished Southern Han and held that:
 Central Projects Pty Ltd v Davidson  NSWSC 523.
 Kitchen Xchange v Formacon Building Services  NSWSC 1602.
 Kyle Bay Removals Pty Ltd v Dynabuild Project Services Pty Ltd  NSWSC 334.
 Duffy Kennedy Pty Ltd v Lainson Holdings Pty Ltd  NSWSC 371.
 The Trustees of the Roman Catholic Church for Diocese of Lismore v T F Woolam & Son  NSWSC 1559.
 Southern Han Breakfast Point Pty Ltd (In liq) v Lewence Construction Pty Ltd (2016) 260 CLR 340;  HCA 52.
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