21 Dec 2016

No reference date, no valid payment claim under NSW Security of Payment Act, says High Court

Today the High Court of Australia unanimously held that the existence of a "reference date" is a precondition to making a valid payment claim under the Building and Construction Industry Security of Payment Act NSW 1991 (SOP Act).  Any purported adjudication determination consequent upon an invalid payment claim would be void and of no effect.  

The decision in Southern Han Breakfast Point Pty Ltd (in Liq.) v Lewence Construction Pty Ltd [2016] HCA 52 highlights the importance of including express provisions in contracts dealing with critical issues such as when reference dates will arise, whether reference dates will continue to arise following the termination of the contract, and when rights to payments under the contract may be suspended. 

While the Lewence decision resolves the question of whether the existence of a "reference date" is a jurisdictional fact, the High Court has not taken this opportunity (this being the first decision of the High Court in relation to security of payments legislation) to provide guidance on whether or not adjudication determinations are amenable to review for non-jurisdictional errors of law on the face of the record.

The payment claim in Lewence

The case concerned a payment claim purportedly made by Southern Han on 4 December 2014.  The key issue before the High Court was whether that payment claim was a valid payment claim. 

The case before the High Court (as was the case in the lower courts) was argued on two alternative hypotheses: 

  • the contract had been either terminated by Lewence on 28 October 2014; or
  • Lewence's right to progress payments under the contract had been suspended on 27 October 2014. 

On either hypothesis, Southern Han argued that no reference date arose after 8 October 2014 (being the last reference date) and therefore the 4 December payment claim was not a valid payment because there was no reference date available to support the payment claim.

Lewence argued that the existence of a reference date is not a precondition to there being a valid payment claim.  Lewence's argument was based on the premise that section 13(1) of the SOP Act permits any person who has undertaken to carry out construction work under the contract, or who has undertaken to supply related goods and services under the contract, to make a claim. 

The High Court's reasons in Lewence

This argument was rejected by the High Court, who agreed with Southern Han's argument that only a person who, by operation of section 8(1), is entitled to a progress claim could make a claim (ie. a person who has undertaken to supply related goods and services under a construction contract in respect of which a reference date has arisen).

The High Court also held that:

  • if a contract makes express provisions for fixing the date for making claims, then section 8(2)(b) could have no application;
  • clause 39 of the Contract (which provided Southern Han with the right to suspend payment) also suspended Lewence's right to make a progress claim under clause 37, and therefore prevented any reference date from arising until the conclusion of the suspension; and
  • clause 37 of the Contract (which provided Lewence with the right to make progress claims) would not survive termination, and therefore following termination Lewence's rights under the Contract were limited to those which had already accrued.

What the Lewence decision will mean for construction contracts

The decision in Lewence suggests that parties to construction contracts may agree on the dates for making contractual claims for payment under the contract, and the effect of section 8(1) of the SOP Act is that such agreements will regulate when a reference date will arise (and consequently, the availability of adjudication). 

However, it remains unclear how section 8(1) might interact with the "no contracting out" provision in section 34, and to what extent other clauses which regulate entitlement to payment typically found in construction contracts (including for example clauses which prescribe conditions precedents to payment) might regulate the existence of reference dates.  

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.