Major Projects & Construction 5 Minute Fix 112: payment schedule timeframes, the Design and Building Practitioners Act duty of care

08 Mar 2023
5 minutes

Make every day count: align your contractual progress claim process with the statutory process

There is no obligation to align contractual timeframes for giving payment certificates and the statutory time frame for giving payment schedules under security of payment (SOP) legislation but, if they are not aligned, the recent Queensland Court of Appeal decision of Allencon Pty Ltd v Palmgrove Holdings Pty Ltd trading as Carruthers Contracting [2023] QCA 6 highlights what can go wrong for a contracting party.

In Queensland, a payment claim recipient (who doesn't intend to pay the full claimed amount by the due date) must give the claimant a payment schedule by the earlier of:

  • 15 business days after receipt of payment claim; and
  • the time stated under the contract.

A failure to meet the deadline results in the recipient becoming liable to pay the whole of the claimed amount. Similar provisions exist in the SOP legislation in other Australian jurisdictions, though the number of days specified in the first dot point and what constitutes a "business day" differ. In Queensland (and Western Australia), the definition of business day contains a "blackout period" which excludes the period 22 December to 10 January from being counted.

In the Allencon case, the subcontract between Allencon and Carruthers required Carruthers' representative to give a contractual progress certificate within 21 calendar days after receipt of a claim for payment. The subcontract also authorised Carruthers' representative to issue statutory payment schedules on Carruthers' behalf. Finally, it provided that a payment certificate issued by Carruthers' representative should be taken as the payment schedule for the SOP legislation.

When Allencon lodged a payment claim shortly before Christmas, Carruthers used the legislation definition of a business day to count when a payment schedule was due and so excluded the blackout period. As a result, it delivered its payment schedule on 28 January 2022. The court held that the payment schedule was late because the due date was the earlier date of 14 January 2022 arrived at by counting using calendar days. Consequently, Carruthers became liable to pay the claimed amount in full.

Parties must be mindful that the statutory entitlement to progress payments is additional to, and works in parallel with, contractual entitlements to progress payments. Contracts may often contain a definition of "business day" or "days" that doesn't match the definition of "business day" in the SOP legislation, such as the extended "blackout period". As this decision illustrates, the contract term used can have significant implications with the SOP legislation timeframes. If the contract hadn't created a shorter period for responding to a payment claim, Carruthers would have had until 28 January 2022 to give a payment schedule.

Certificate of Practical Completion no passing matter

An appeal of an adjudication determination under the Building and Construction Industry Security of Payment Act 2002 (Vic), J Hutchinson Pty Ltd v Transcend Plumbing and Gasfitting Pty Ltd [2023] VSC 39 examines the importance of a Certificate of Practical Completion and its significance when determining reference dates for payment claims.

The subcontract between J Hutchinson, as head contractor, and Transcend Plumbing, as subcontractor, was based on an amended AS4902, and provided a reference date for payment claims, "within 7 business days after the certificate of practical completion", at final completion and on a monthly basis "prior to practical completion".

Relying on email correspondence that made informal reference to completion and maintenance schedules, the head contractor argued in the adjudication that the subcontractor's payment claims were not made in relation to a valid reference date and, as such, were not valid payment claims under the Act.

Upon a challenge to the adjudication decision, Justice Stynes found that the period "prior to practical completion" is to be determined by the date of practical completion evidenced by a certificate of practical completion. It was held that the email correspondence relied upon by the head contractor did not amount to a certificate of practical completion, on the basis that it was informal and lacked certainty about completion dates. Importantly, it was noted that certification should be clear and unambiguous so that the parties are left in no doubt about completion.

The case stands as a reminder to parties to ensure that key contractual documents are issued in clear and formal terms. Informal language and long email chains are not recommended.

Hopelessly insolvent? There is hope

In Kennedy Civil Contracting Pty Ltd (Administrators Appointed) v Richard Crookes Constructing Pty Ltd v Richard Crookes Construction Pty Ltd; In the matter of Kennedy Civil Contracting Pty Ltd [2023] NSWSC 99, the NSW Supreme Court considered whether a company on the brink of liquidation can take action to enforce a payment claim under the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act).

Kennedy Civil Contracting Pty Ltd (Administrators Appointed) (KCC) commenced proceedings against Richard Crookes Constructions Pty Ltd (Richard Crookes) for amounts it claimed were owed to it pursuant to sections 15(2)(a)(i) and 16(2)(a)(i) of the SOP Act (the T&C Proceeding).

Around the time that the T&C Proceeding was commenced, administrators had been appointed to KCC, who determined that KCC was "hopelessly insolvent" and would inevitably be placed into liquidation. However, on the recommendation of the administrators, KCC entered into a "holding" deed of company arrangement (DOCA). The purpose of the DOCA was to avoid the operation of section 32B of the SOP Act (which precludes a corporation in liquidation from taking action to enforce a payment claim) and preserve the T&C Proceeding. Importantly, the DOCA provided for any moneys recovered under the T&C Proceeding to be held in trust, preserving Richard Crookes' right to recover the amounts upon a final resolution.

Richard Crookes resisted the T&C Proceedings on the basis that the public policy underpinning section 32B was to ensure that the SOP regime was only available to promote cashflow, and was not available where the claimant was in liquidation. On that basis, permitting KCC to "temporarily" avoid liquidation by executing a DOCA would be contrary to that public policy. Richard Crookes also argued that the T&C Proceeding was an abuse of process.

The Court rejected Richard Crookes' submissions, finding that the DOCA did not circumvent the SOP Act but allowed KCC to take advantage of the limited operation of section 32B. The Court also noted that the terms of the DOCA were such that they preserved Richard Crookes’ right to final relief in much the same way as section 34 of the SOP Act.

The Court also found that it would be incorrect to categorise the T&C Proceeding as an abuse of process, because KCC was exercising a right that was conferred by the SOP Act to obtain judgment, not a repetitious use of the processes of the Court.

This case confirms that section 32B of the SOP Act is limited to its express wording, making it possible for construction companies who enter administration to pursue their debtors through the mechanisms available under the SOP Act, giving some hope to the "hopelessly insolvent".

No buildings exempt from a Statutory Duty of Care

The New South Wales Court of Appeal's decision in Roberts v Goodwin Street Developments Pty Ltd [2023] NSWCA 5, illustrates the broad extent to which a Statutory Duty of Care can be imposed upon those who carry out construction work by operation of the Design and Building Practitioners Act 2020 (NSW) (DBP Act).

It was found at trial that Roberts, the builder engaged by Goodwin Street Developments Pty Ltd (Goodwin) to construct student accommodation in Newcastle breached the duty of care under the section 36 of the DBP Act (Statutory Duty of Care), by failing to properly manage and supervise the work.

On appeal, Roberts argued that the Statutory Duty of Care under section 36 of the DBP Act did not apply to him as it only applied to "building work" of class 2 buildings and the student accommodation was a class 1b building.

The Court of Appeal rejected Roberts' argument. It held that parliament's intent when creating the Statutory Duty of Care under the DBP Act was for it to expand to all buildings, regardless of the specific class. It found that Roberts owed a Statutory Duty of Care and upheld the trial judge's decision.

Building practitioners and insurers should be mindful that this decision expands the applicability of the Statutory Duty of Care to all building classes, increasing the accountability of all persons involved in the construction industry in New South Wales. Read more about this latest development and the broad reach of the Statutory Duty of care in Insights.

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