High Court eats SOPA for breakfast

The High Court of Australia has unanimously affirmed that the existence of a reference date is a precondition to the making of a valid payment claim under s 13(1) of the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act). The case of Southern Han Breakfast Point Pty Ltd (in Liquidation) v Lewence Construction Pty Ltd [2016] HCA 52 (Southern Han) overturns the New South Wales Court of Appeal's decision that the existence of a reference date is not a "jurisdictional fact" and highlights the importance of identifying a reference date when making a payment claim.

Background

  • Southern Han Breakfast Point Pty Ltd (Southern Han) and Lewence Construction Pty Ltd (Lewence) were parties to a Contract (the Contract) for the construction, by Lewence, of an apartment block at Breakfast Point, New South Wales.
  • On 27 October 2014, Southern Han issued Lewence a notice purporting to take out of Lewence's hands the remaining work to be completed under the Contract. Lewence treated this notice as a repudiation of the Contract by Southern Han and on 28 October 2014, purported to accept that repudiation and terminate the Contract.
  • On 4 December 2014, Lewence served on Southern Han a payment claim under the Act. The payment claim complied with the requirements of s 13(2) of the Act, but did not nominate a reference date.
  • The payment claim claimed payment for works under the Contract up to 27 October 2014. The Contract provided for payment claims to be served on the 8th day of the month for work performed to the 7th day of the month.
  • Southern Han served a payment schedule to Lewence, indicating a scheduled amount of zero. Lewence subsequently applied for adjudication.

Adjudication Determination

  • The Adjudicator determined that Lewence was entitled to a progress payment in the amount of $1,221,051.08 (inc GST), despite Southern Han's argument that the Adjudicator was lacking in jurisdiction due to the lack of a reference date attaching to the payment claim.

New South Wales Supreme Court Proceedings

  • Southern Han commenced proceedings in the Supreme Court seeking a declaration that the Adjudicator's determination was void, or alternatively an order of certiorari to quash the determination.
  • Southern Han argued that the document served on 4 December 2014 was not a payment claim under the Act because the provisions entitling Lewence to make payment claims on the 8th of the month (thereby creating reference dates) did not survive beyond termination of the Contract. As a payment claim had been made in respect of the last reference date to accrue under the Contract, the payment claim was not validly made.
  • Ball J agreed with Southern Han's reasoning and construed the Act as requiring a reference date to have arisen under the Contract as a precondition to a valid payment claim. Lewence subsequently appealed.

New South Wales Court of Appeal Proceedings

  • The Court of Appeal allowed the appeal and unanimously held that the existence of a reference date was not a precondition to the making of a valid payment claim under the Act.
  • Southern Han appealed to the High Court.

Decision and Reasons of the High Court

  • The High Court overturned the decision of the Court of Appeal and unanimously held that the existence of a reference date is a requirement for a valid payment claim.
  • In a joint judgment, the Court held that "the description in s 13(1) of a person referred to in s 8(1) is of a person whom s 8(1) makes entitled to a progress payment", and noted that "section 8(1) makes a person who has undertaken to carry out construction work or supply related goods and services under a construction contract entitled to a progress payment only on and from each reference date under the construction contract".1
  • By extension, the Court held that the existence of a reference date under a construction contract within the meaning of s 8(1) is a precondition to the making of a valid payment claim under s 13(1).
  • Once the Court had determined the importance of the existence of a reference date, the Court proceeded to examine how any such reference date was to be determined in this case.
  • The Court tested two alternative hypotheses, that:
  1. Southern Han validly exercised its rights under the Contract to take the work out of Lewence's hands on 27 October 2014. Lewence's rights to progress payments under the contract had therefore been suspended on 27 October 2014; or
  2. the contract was validly terminated on 28 October 2014 and both parties were discharged from further performance of the Contract.
  • The Court held that in both hypotheses, no reference date arose under the Contract. There was no intention in the Contract for the right to progress claims to survive termination. This therefore prevented a future reference date from arising.
  • The High Court allowed the appeal and set aside the orders made by the Court of Appeal.

Significance

The Southern Han decision confirms that the existence of the reference date is a precondition to the making of a valid payment claim under s 13(1) of the Act. An Adjudicator will be without jurisdiction should he or she purport to determine an adjudication application where the relevant payment claim was not made in respect of reference date duly accruing under the relevant construction contract and without offending the prohibition in s 13(5) of the Act against submitting more than one payment claim in respect of the same reference date.

1 Per Kiefel, Bell, Gageler, Keane and Gordon JJ at [61].

 

Alex Whiteside

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Alex Whiteside Partner

Alex acts for construction contractors, equipment suppliers and government entities and has extensive experience in drafting and negotiating project documentation, ranging from the Australian Standard suite of contracts through to project specific and PPP documentation.

Alex has a particular focus on disputes, including expert determination, adjudications, arbitration and Court proceedings. Alex has acted for clients in a broad range of construction and mining disputes including scope and variation claims, design, defect and delay/prolongation claims, injunctions and security of payment adjudications and appeals. Alex has significant expertise in Supreme Court actions in the Technology and Construction List.

Alex has completed secondments in the legal teams of Lendlease, Transport Infrastructure & Services and Sydney Trains.

Alex commenced his career advising insurers in relation to professional indemnity insurance policy coverage and claims.

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