A Survival CourseOn the new

Building and Construction Industry Security of Payment Act 2009 (SA)

Robert Fenwick Elliott

Wake up Call

• Subcontractor – ignores an invoice from a subbie

• Head Contractor – Payment Schedule but no reasons

• Developer - certificate

UK Construction taxed costs statistics by Professor Hazel Genn

Purpose of adjudication

Resolving disputes effectively

Or shifting a politico-commercial balance?

UK v NSW

• All disputes• Adjudication to

ascertain facts• Free to agree on

adjudicator• Oral hearings OK• “Pay now argue later”

• Just payment claims• Adjudicator limited to

default material• Forbidden to agree

adjudicator• Very limited scope for

conferences• Loser could provide

security instead of paying

Cole Report - 2003

WA + NT go with evaluative

In

• Construction contracts• Subcontracts• Suppliers• Related services (architectural, QS etc)

Out

• Oil & Gas• Mining• Banks• Domestic• Interstate• Quantum meruit cases

When?

• Commencement date – mid-2010?• Contracts entered into from then

Act creates a new statutory right

• Contractual right to payment• Price payable under Worker’s Liens Act 1893 –

triggered by WLA s10(2)(A) notice• Progress payment – new statutory right

created by this Act

The new statutory right

• No contracting out, or restriction• Arises on each “reference date”• Overreaches any certification provisions• Carries interest at at least 10% p.a.• ? Limited rights of set-off• Sum claimed is effectively deemed due if no

payment schedule in 15 days: no other defences allowed

The new statutory right

8—Rights to progress payments On and from each reference date under a

construction contract, a person— (a) who has undertaken to carry out

construction work under the contract; or (b) who has undertaken to supply

related goods and services under the contract,is entitled to a progress payment.

Reference date

reference date , in relation to a construction contract, means— (a) a date determined by or in accordance with the

terms of the contract as the date on which a claim for a progress payment may be made in relation to work carried out or undertaken to be carried out (or related goods and services supplied or undertaken to be supplied) under the contract; or

(b) if the contract makes no express provision with respect to the matter—the last day of the named month in which the construction work was first carried out (or the related goods and services were first supplied) under the contract and the last day of each subsequent named month;

Circular?

The reference to a progress payment here is not to a progress payment as defined in the Act, but to a progress payment provided for by the contract; Quasar Constructions NSW Pty Ltd v Demtech Pty Ltd [2004] NSWSC 116; (2004) 20 BCL 27 at [19]-[21]; Thiess Pty Ltd & Anor v Lane Cove Tunnel Nominee Company Pty Ltd & Anor [2009] NSWCA 53 at paragraph 44.

Set-off

• In law – a defence• Three main types

– Contractual– Common law (abatenment)– Equitable

• Also statutory (insolvency)

Perform (NSW) Pty Ltd v MEV-AUS Pty Ltd & Anor [2009] NSWCA 157

• 140 It is most doubtful whether adjudicators have the right to consider any equitable rights and titles. I adhere to what I said in Wooding v Estoe [2006] NSWSC 277 that adjudicators cannot recognize equitable assignments of contracts.

• 141 I do not wish to make any definite ruling as to whether adjudicators can take account of equitable set-off. I will content myself with saying: (1) it is doubtful whether they can do so; (2) if they can do so, it is doubtful whether the appellant’s claims in the instant case would qualify for equitable set-off.

Section 13(2) – Payment claim

(2) A payment claim— (a) must identify the construction work (or related goods and services) to which the progress payment relates; And (b) must indicate the amount of the progress payment that the claimant claims to be due (the "claimed amount"); and (c) must state that it is made under this Act.

Take note that if you fail to serve a payment schedule in the required form within 15 days, then you are going to have to pay up what we are claiming

regardless of whether the money is really due or not. This 15 day period cannot be

extended, even for good reason.

Protectavale Pty Ltd v K2K Pty Ltd [2008] FCA 1248

... a payment claim must be sufficiently detailed to enable the principal to understand the basis of the claim. If a reasonable principal is unable to ascertain with sufficient certainty the work to which the claim relates, he will not be able to provide a meaningful payment schedule. That is to say, a payment claim must put the principal in a position where he is able to decide whether to accept or reject the claim and, if the principal opts for the latter, to respond appropriately in a payment schedule. ... That is not an unreasonable price to pay to obtain the benefits of the statute.

9 Lorne Bay served a revised invoice on 2 May 2008. In terms it purports to be a payment claim for the purposes of the Payment Act. The invoice identifies the construction contract between the parties and contains a revised claim of $635,448.06. The invoice states that the "construction work in respect of which this Payment Claim is made and the amount claimed ... is listed below in the table (and attached Schedule[s])". The table reads:

Contract Sum $6,295,000.00Variations (See the attached Schedule 1) $232,772.45Prolongation claim (See the attached Schedule 2) $129,058.00Adjusted Contract Sum $6,656,830.05LessRetentions (0.125% of the Contract Sum - $6,300,000 ...) $78,750.00Payments Received $6,000,400.00Subtotal $6,079,150.00Claimed amount ... (Adjusted Contract Sum – Subtotal) $577,680.05GST $57,768.01Claimed amount (incl GST) $635,448.06The two schedules give details of the variations and prolongation claims.

Neumann Contractors P/L v Peet Beachton Syndicate Limited [2009]

QSC 376.

• Same point• No sufficient identification of what was being

claimed, as a part of the total sum due

Contract SummaryAmountOriginal Contract Sum $ 4,250,601Add – VARIATIONS $ 715,660Adjusted Contract Sum (to date) (excluding GST) $ 4,966,261Plus 10% GST $ 496,626Adjusted Contract Sum (including GST) $ 5,462,887Payment Claim SummaryAmountValue of Work Completed to Date $5,320,019.94Less Retention Nil. Less Previous Claim (ex. GST) $5,239,710.58Payment Claim No. 12 Sub-Total $ 80,309.36Add previously claimed & unpaid $ 467,775.37AMOUNT NOW DUE (excluding GST) $ 548,084.73Plus 10% GST $ 54,808.47TOTAL AMOUNT THIS PAYMENT CLAIM (including GST) $ 602,893.20This is a payment claim made under the Building and Construction Industry

Payments Act 2004 (QLD) ”

The invoice under consideration in that case indicated the amount claimed to be due by taking the contract sum and making a number of adjustments. Whilst certain items were set out in sufficient detail, his Honour concluded that what was noticeably absent was:

“... any identification of the work previously completely and paid for and the work (apart from the variations) to which the invoice relates. ... The only information provided is that the amount is referable to the “Contract Sum” and “Payments Received””.[26]

Mr Beacham argues, however, that the basis of the claim is evident on the face of the document, that is, it is a claim for all work for which Neumann has previously claimed save for the work for which it has been paid. In order for Peet to decide whether it should respond it would need to engage in a careful analysis of the schedules exhibited to the summary set out the work which was undertaken under the contract over some 25 pages and marry the work with the amounts paid on the progress certificates and arrive at the outstanding items. Requiring a respondent to a payment claim to undertake that kind of research which would be subject to error and within the time constraint of 10 days under the Payments Act[30] leads me to conclude that the payment claim does not identify the construction work to which that claim relates and does not fulfil the requirements of s 17(2) of the Payments Act.

The Protectavale Issue

Jan Feb Mar April Work done in April?Breakdown of April claim

unpaid and claimed

Claimed:

Foundations 5 10 12 13 1 5

Frame 0 2 8 8 0 0

Walls 0 0 3 7 4 3

External 0 2 3 4 1 0

Roof 5 5 8 12 4 2

Painting 0 0 0 5 5 0

Electrics 0 0 1 6 5 0

Total 10 19 35 55 20 10

Less paid 0 7 14 24 21

Balance claimed 10 12 21 31 -1

Paid: Paid for re April

Foundations 4 7 8 8 0

Frame 0 2 3 8 5

Walls 0 0 3 4 1

External 0 2 3 4 1

Roof 3 3 6 10 4

Painting 0 0 0 5 5

Electrics 0 0 1 6 5

Total 7 14 24 45 21

Less previously paid 0 7 14 24

Balance paid 7 7 10 21

But consider alternative payment strategy: Paid for re April

Monthly payment (no breakdown) 6.5 7.7 9.6 20.9 ?

Total paid 6.5 14.2 23.8 44.7

Section 14 – Payment Schedules

(1) A person on whom a payment claim is served (the "respondent") may reply to the claim by providing a payment schedule to the claimant.

(2) A payment schedule— (a) must identify the payment claim to which it relates; and (b) must indicate the amount of the payment (if any) that the respondent proposes to make (the "scheduled amount").

(3) If the scheduled amount is less than the claimed amount, the schedule must indicate why the scheduled amount is less and (if it is less because the respondent is withholding payment for any reason) the respondent's reasons for withholding payment.

•If the quantities claimed by the claimant is wrong, that needs to be set out•If the rates claimed by the claimant is wrong, that needs to be set out•If there are any defects in the claimant’s work, they need to be set out•If there are any other extents to which the claimant’s work is incomplete, they need to be set out

•If the claimants claim is premature, that needs to be set out•If the claimant has failed to give proper credit for attention money, that needs to be set out•If the claimant has failed to give notice or follow any other contractual procedure, that needs to be set out•If the paying party has any sort of cross claim against the claimant, for example because the paying party has failed to complete his work in time, that needs to be set out.

•There is no concluded contract between the parties•The claimant is not properly licensed as required by the Building Work Contractors Act•The claim is not for construction work or related goods and services as defined by the Act•One of the other exclusions applies•The payment claim was not properly served

Queensland ANAs

Adjudicate TodayPty Ltd (1057877)

IAMA (1057859)

LEADR (1058005)

Queensland LawSociety (1061878)

RICS AustralasiaPty Ltd (1064504)

No fee for appointmentBut 40% of the adjudicator’s fee goes back to Adjudicate Today

Adjudicate Today – Bob Gaussen and Phillip Davenport

$ Balance

012345678

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The Professional ANAs

Section 22 – the Decision

22—Adjudicator's determination(1) An adjudicator is to determine—(a) the amount of the progress payment (if any)

to be paid by the respondent to the claimant (the "adjudicated amount"); and

(b) the date on which any such amount became or becomes payable; and

(c) the rate of interest payable on any such amount.

Timing

Weeks

0 20 40 60 80 100 120

Litigation

West Coast

East Coast

Suspend work

• Where paying party does not pay schedule amount, or no payment schedule

• Claimant imunue from complaint• Right rarely exercised

Section 11(2) - Interest

• 10% (Supreme Court Act rate)• Or contract rate(whichever is the greater)

Section 12 - Pay when paid

• Pay when paid banned under section 12• Pay if paid banned under section 12• Pay when certified irrelevant to statutory

claims

Section 33 – No contracting out(1) The provisions of this Act have effect despite any provision to the

contrary in any contract.

(2) A provision of an agreement, whether in writing or not—

(a) under which the operation of this Act is, or is purported to be, excluded, modified or restricted, or that has the effect of excluding, modifying or restricting the operation of this Act; or

(b) that may reasonably be construed as an attempt to deter a person from taking action under this Act,

is void.

UK Experience

Take up rates

Amounts awarded

NSW 1st Half 2006

0

50

100

150

200

250

0 - 19% 20 - 39% 40 - 59% 60 - 79% 80 - 100%

%age awarded

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Number s of cases

Queensland stats

Example 1 – Walter v CPL(Surry Hills)

• The parties entered into an AS4300 contract, with provision for certification of payments by the Superintendent (#2)

• The claimant put in a payment claim for $14.9 million (#4)

• The Superintendent certified $952k (#5), which was paid

• There was no payment schedule which complied with the Act (#8)

• The claimant sued for the balance of his claim of $13.9m (#9)

• The defendant failed in 5 arguments why he should not have to pay:– That the claim was premature (#26 and 52)– That there was no certificate, not even due time for

certificate (#22 and 55)– That The claim included claims for delay and disruption

which were not construction work (#33 and 61)– That lump sum contracts are excluded (#42 and 70)– That the claimant conduct was deceptive and misleading

(#45 and 80)• The defendant was ordered to pay the $13.9 million,

plus interest

Example 2 – Pullar v Harrop

• A payment schedule case• NB importance of detail in payment schedule• No deduction allowed for LADs

QuestionsUSB

Fenwick Elliot Grace adjudication toolkit on a 2GB USB Flash drive, containing an annotated copy of the Act, flowchart and list of drop dead dates, and all of the legal authorities. $25.00 plus GST each; email office@feg.com.au to order.

Construction Law UpdateAbout once a month. No charge; email office@feg.com.au to get aded to the list.