10 Dec 2020

Major projects & construction 5 Minute Fix 67

By THE MAJOR PROJECTS & CONSTRUCTION TEAM

Get your 5 Minute Fix of major projects and construction news. This issue: reference date confusion persists in NSW; NSW Court of Appeal considers the role of "market rates" when valuing a quantum meruit claim, and another example of how Victoria's "excluded amounts" regime restrains both principals and contractors from agitating claims for time-related compensation adjudications.

Confusion lingers over SOP "reference dates"

Before the 2019 security of payment reforms in NSW, the impact of "reference dates" under the Building and Construction Industry Security of Payment Act 1999 (SOP Act) generated considerable confusion. The 2019 reforms removed the concept of "reference date", used to determine the date on and from which a party could claim a progress payment.

For contracts signed post-21 October 2019, recovering a progress payment is more straightforward because the progress payment entitlement is no longer activated by a "reference date". Instead, the statutory entitlement to receive a progress payment is now triggered by the performance of construction work, or the supply of related goods and services, under a construction contract. Claimants can make monthly payment claims (or more frequently if the contract allows) as regulated by the SOP Act.

However, we still see pre-21 October 2019 contracts for which the thorny issue of reference dates arises. A recent example is WACO Kwikform Ltd v Complete Access Scaffolding (NSW) Pty Ltd [2020] NSWSC 1702.

At issue; whether the contract made "express provision" for fixing the date on which a payment claim may be made. The relevant contractual clause provided:

"Claims submitted by the 20th day of the month will, if approved by Waco Kwikform, be paid by the end of the following month. If any part of a claim is not approved then such part will not be paid and the Subcontractor will be provided with the reasons for the non-payment."

Justice Stevenson found that such a term "must be one where a date can be identified from the terms of the contract itself". Here, the clause was not such a term because:

  • the clause did not "require [the claimant] to make any claim";
  • the date for such a claim was also at the claimant's discretion. The claimant could make any number of claims up to the 20th day of the month. Stevenson J observed that "multiple claims in one day" were possible.

This finding meant that there was no reference date determined under the contract so that the default timing for reference dates in s 8(2)(b) applied. As a result, WACO was unsuccessful in challenging the adjudication determination.

Quantum meruit case: evidence of "market rates" not always required

In a recent home building case, the New South Wales Court of Appeal confirmed that evidence of an objective standard or "market rate" is not necessarily required when determining a fair and reasonable quantum meruit amount.

Roude v Helwani [2020] NSWCA 310 concerned a claim by a builder for payment for work done on a residential building project. The builder carried out plumbing and electrical works on a "do and charge basis" over five years. The owner failed to pay the invoiced amounts claimed by the builder. Since the builder had not complied with the requirements under the Home Building Act 1989 (NSW), it could not enforce the contract. However, in Lower Court proceedings, the builder was successful in its recovery on a quantum meruit basis.

In the Court of Appeal, the appellant owners argued that a quantum meruit assessment needs to be based on establishing a "market rate" for the work. In particular:

  • the builder needed to provide objective evidence; against which the reasonableness of the invoiced amounts could be assessed;
  • the invoices alone (without reference to an objective standard; such as market value) were not capable of establishing the reasonable value of the work done.

The Court of Appeal rejected the appellant's submission that the Court must look to evidence of objective or "market value" when valuing a quantum meruit entitlement. The Court observed:

"The authorities establish that although a quantum meruit claim may be proved by such evidence, a judge is not precluded in the absence of same, on the particular circumstances of each case, from making an assessment as to whether the evidence adduced established the reasonableness of the charges".

The Court of Appeal noted several factors supporting the trial judge's finding that evidence of reasonable remuneration existed, including:

  • the owners' earlier failure to object to the invoices supplied;
  • the owners' earlier promises to make some payment; and
  • the absence of any expert evidence led by the owners to contradict the reasonableness of the invoiced amounts.

Supreme Court confirms breadth of Victoria's security of payment "excluded amounts" regime

In VCON Pty Ltd v Oliver Hume & Anor [2020] VSC 767, the Victorian Supreme Court has provided another example of how Victoria's "excluded amounts" regime, which is unique amongst Australia's security of payment legislation, operates to restrain both principals and contractors from agitating claims for time-related compensation adjudications.

The first defendant principal made a demand on bank guarantees for liquidated damages that it asserted were payable by the plaintiff contractor. In turn, the contractor included the amount of the principal's call on the bank guarantees in a payment claim (PC 26), arguing that the principal's recourse to that sum was unlawful on the basis of s10B of the Building and Construction Industry Security of Payment Act 2002 (Vic) (SOP Act). In the adjudication that followed, the adjudicator determined that the liquidated damages component of the claim could not be taken into account by reason that it constituted an "excluded amount" under the SOP Act.

Following the earlier decision of Justice Digby in Shape Australia Pty Ltd v Nuance Group (Aust) Pty Ltd [2018] VSC 808, Justice Stynes noted that "any attempt by a party to recoup liquidated damages levied in a previous accounting period is a claim for an excluded amount that must not be taken into account in calculating the amount of a progress payment."

The contractor contended that the effect of the drawdown on the bank guarantees was to reduce the payment to the contractor in a manner proscribed by the SOP Act. Her Honour rejected that submission, noting that both the provision of and entitlement to call on security were matters arising under the relevant contract.

The contractor pursued two further submissions: first, it sought to characterise the liquidated damages element of its claim as a claim for work performed under the contract, rather than an "excluded amount". Secondly, the contractor sought to raise an issue estoppel based on the treatment of preceding payment claims and an earlier adjudication.

Her Honour made short shrift of the first of those submissions, stating there was "no way to characterise the LD claim other than as an attempt to recoup monies converted on account of liquidated damages".

The issue estoppel submission was premised on the following:

  • liquidated damages certified by the Superintendent under the contract had been deducted in accounting periods preceding PC 26, namely in payment claims 23 and 24;
  • a subsequent payment schedule responding to payment claim 25 did not seek to account for any of the liquidated damages certified by the Superintendent in those earlier payment periods; and
  • similarly, an adjudication determination in respect of payment claim 25 - made on 8 January 2020 - did not take account of any liquidated damages.

The principal called on the bank guarantees on 12 and 22 January 2020. The contractor argued that the fact the 8 January 2020 determination made no allowance for liquidated damages precluded the principal from thereafter seeking to claim or recover liquidated damages.

Again her Honour rejected that argument, relevantly noting that the first adjudication determination neither addressed nor made a decision about "the parties’ contractual entitlements to assert or resist a claim for liquidated damages or to have recourse to the Bank Guarantees". Hence, no issue estoppel could be said to have been created in respect of those matters.

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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.