27 February 2018

Is an early payment claim valid under security of payment?

An early payment claim made in NSW or Queensland will have no effect under the security of payment legislation. In Victoria however, the position may be different.


The position in NSW

In NSW, the question was considered in 2017 by the NSW Court of Appeal in a dispute between a head contractor (Regal Consulting) and a subcontractor (All Seasons Air). The Court found that an early payment claim would not be valid for the purposes of the legislation.

The facts in this case were as follows:

  • the contract allowed payment claims to be made on the 20th day of each month, and this was the 'reference date' for the purposes of the Act;
  • the subcontractor had made a payment claim in respect of the reference date falling on 20 June; 
  • the subcontractor issued a further payment claim on 12 July; and
  • the subcontractor applied for adjudication of its claim on 12 July following the head contractor's assessment.

The head contractor argued that the adjudicator did not have jurisdiction to make a determination because the payment claim did not have a valid reference date.

Specifically, the head contractor argued that:

  • the subcontractor already made a payment claim in respect of the 20 June reference date;
  • the payment claim of 12 July was invalid because a claimant cannot serve more than one payment claim in respect of a reference date (see section 13 of the Act);
  • the next available reference date was available on 20 July; and
  • the claim of 12 July was of no effect because, at the time it was made, there was no reference date to which it could relate.

In response, the subcontractor argued that the contract expressly allowed for early progress claims. As is often the case, the contract contained a clause to the effect that an early progress claim would be deemed to have been made on the date for making that claim.

The Court agreed with the head contractor and found that, despite the clause in the contract, the early claim was invalid.

The position in Queensland

In Queensland, the Supreme Court of Queensland considered the question in 2006 in litigation between Dimin (the principal) and FK Gardener (a contractor). The court reached the same conclusion as the NSW Supreme Court in the Regal Consulting case.

In this case:

  • the reference date under the contract was the 28th of each month;
  • the superintendent received the Contractor's payment claim on 22 June; and 
  • the Principal argued that the payment claim was not valid because the Contractor had no entitlement to make a payment claim prior to the relevant reference date.

The Court agreed with the principal, stating that there must be a valid entitlement to a progress payment before a payment claim can be made. In this case the contractor had no entitlement to a progress claim because the right to make a claim only accrues on and from the reference date.

The position in Victoria

In Victoria, the position is different - or at least it was, prior to the NSW Court of Appeal handing down the decision in the Regal Consulting case. 

The main authority in Victoria involved a dispute between Metacorp (the principal) and Andeco (a contractor).

In this case:

  • the reference date under the contract was the 25th of each month; and
  • the payment claim was sent by email to the Superintendent on 24 October, which was a Saturday.

The principal argued that the contractor was not entitled to serve the payment claim because there was no entitlement to pay the progress claim as at 24 October.

The Court disagreed, observing:

In the case of premature delivery of a payment claim prior to the reference date...rights under the Act only become enlivened upon the arrival of the relevant reference date.

The Court called an early claim a 'prospective claim for payment', finding that an early payment claim under the Act will become valid once the reference date has arrived. 

Key takeaways

The NSW Court of Appeal decision is significant because the court made it clear that a deeming clause will not save an early payment claim.

It is also significant because it is a departure from the position in Victoria. Whether the Victorian courts follow the position taken by the NSW Court of Appeal remains to be seen. Until the Victorian Court of Appeal determines the matter, the position will be uncertain.

The case emphasises the importance of ensuring there is a valid reference date before making a claim (or at least applying for adjudication).While a contract can deem an early progress claim to be made at a later time under the contract, this type of clause will have no effect for the purpose of security of payment legislation.

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About the Author

Andrew Hernandez | Law Graduate

Andrew is a law graduate who, in his time with Turtons, has been involved in a range of contentious and non-contentious work (particularly in the construction space).


andrew.hernandez@turtons.com | (02) 9229 2918

About Turtons

Turtons is a commercial law firm in Sydney with specialist expertise in privately owned construction and technology businesses.

Andrew Hernandez | Law Graduate

Author

Andrew Hernandez | Law Graduate

andrew.hernandez@turtons.com

Andrew is a law graduate who, in his time with Turtons, has been involved in a range of contentious and non-contentious work (particularly in the construction space).


andrew.hernandez@turtons.com | (02) 9229 2918

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