The final blow to premature payment claims in Victoria
The Building and Construction Industry Security of Payment Act 2002 gives significant rights to people who carry out construction work or provide related goods and services.
The Building and Construction Industry Security of Payment Act 2002 (Vic) (BCISPA) gives significant rights to people who carry out construction work or provide related goods and services. Those rights arise from the issuing of a ‘payment claim’ which complies with certain statutory requirements.
A person who is entitled to issue a payment claim may do so ‘on and from each reference date’.The reference date is, typically, the time prescribed in the underlying construction contract for the making of statutory payment claims. A respondent has 10 business days in which it may issue a payment schedule in response. If it fails to do so, it will be liable to pay the full amount of the claim.
Because of the serious consequences provided by the BCISPA for a respondent who fails to deliver a timely payment schedule, it is critical that there is certainty as to when time starts to run for the delivery of a payment schedule.
In its 2010 decision in Metacorp Australia Pty Ltd v Andeco Construction Group Pty Ltd & Ors, the Supreme Court of Victoria held that in the case of the premature service of a payment claim, rights under the BCISPA only become enlivened upon ‘the arrival of the relevant reference date’ and not ‘upon delivery of the relevant payment claim’. The respondent would then have 10 business days from the relevant reference date in which to issue a payment schedule, or face the severe consequences imposed by the BCISPA.
But in the 2016 decision of the High Court in Southern Han Breakfast Point Pty Ltd (in liq) v Lewence Construction Pty Ltd (Southern Han), the High Court of Australia determined — in the context of the analogous provisions of the NSW Act— that the existence of a valid reference date is a ‘precondition’ to the making of a valid payment claim. That decision was followed by All Seasons Air Pty Ltd v Regal Consulting Services Pty Ltd(All Seasons) in which the majority of the NSW Court of Appeal — applying Southern Han — held that:
- a statutory payment claim served before the relevant reference date is not served ‘on or from’ that reference date for the purposes of the NSW Act; the effect being that the phrase ‘on or from’, when properly construed, is to be understood as meaning ‘on or after’ the relevant reference date; and
- a term of a construction contract which purports to deem a premature statutory payment claim valid upon the arrival of the relevant reference date cannot operate to cure the premature service of the payment claim for the purposes of the NSW Act.
After All Seasons, there was a clear inconsistency between the way courts treated premature payment claims in New South Wales and Victoria.
But in the recent case of MKA Bowen v Carelli Constructions(MKA Bowen), the Supreme Court of Victoria confirmed that:
- premature statutory payment claims are not valid for the purposes of the BCISPA, and do not become valid upon the arrival of the relevant reference date; and
- a term of a construction contract which purports to deem a premature payment claim valid upon the arrival of the relevant reference date, does not render that payment claim valid for the purposes of the BCISPA.
While this development is not surprising, it provides welcome clarity for claimants, respondents, adjudicators and lawyers in Victoria.
MKA Bowen v Carelli
MKA Bowen engaged Carelli, a contractor, under a design and construct contract for 17 apartments in Melbourne. The contract included the following provisions relating to payment:
- a clause in which the parties nominated ‘the 25th day of each month’ as the reference date for making payment claims under the BCISPA; and
- a clause which provided that a payment claim issued before the relevant reference date would be deemed to have been made on that reference date.
Carelli served 2 payment claims on MKA Bowen in late 2018. The first was issued on 26 November 2018 for the amount of $39,087.48 including GST (November Payment Claim). The second was issued on 21 December 2016 for $411,358.86 including GST (December Payment Claim).
The November Payment Claim was issued a day after the reference date of 25 November 2018. The December Payment Claim was issued 4 calendar days before the next reference date of 25 December 2018.
MKA Bowen responded to the December Payment Claim with a payment schedule on 11 January 2019, in which it scheduled a payment of only $7,182 in favour of Carelli. Carelli applied for adjudication under the BCISPA. Philip Martin was appointed as adjudicator. He determined that Carelli was entitled to a progress payment of $209,470.04 including GST with respect to the December Payment Claim.
MKA Bowen applied to the Supreme Court of Victoria for orders quashing the adjudicator’s determination. It argued, among other things, the December Payment Claim was void because it had been issued before the 25 December 2018 reference date.
The case was heard by His Honour Justice Digby in the TEC List of the Supreme Court of Victoria.
His Honour considered that he was bound by the decisions of the High Court in Southern Han and the majority in All Seasons. He held that on the proper construction of s 9(1) of the BCISPA, the December Payment Claim was an invalid payment claim because it was served before the relevant reference date of 25 December 2018. He held that the adjudication lacked a necessary requirement – a valid payment claim – and as such, the determination should be quashed.
His Honour also considered that the word on in the phrase on and from each reference date in s 9(1) of the BCISPA clearly related to a particular date (the relevant reference date), and that there is no justification to import the words with effect into that phrase. His Honour also held that deeming provisions used in construction contracts to render an early statutory payment claim valid contradict the intent and purpose of the BCISPA:
In my view…it is sufficiently clear in light of Southern Han and All Seasons that s 9 and s 14 of [the BCISPA] do not operate so as to permit the valid service of a payment claim prior to the relevant reference date which itself establishes a valid foundation for that payment claim to be made under [the BCISPA].
Key points to note
The decision in MKA Bowen confirms:
- statutory payment claims served before the relevant reference date in Victoria will not become valid statutory payment claims upon the arrival of the relevant reference date; and
- contractual deeming provisions which attempt to engineer that outcome will not be effective to cure the premature service of a statutory payment claim.
A claimant who wants its payment claim to have the full force of the BCISPA must ensure that it is served on or after the relevant reference date, and not before.
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