Draft progress claims as preconditions to payment: is your clause void under SOP?

Many construction contracts make the right to lodge progress claims contingent on certain conditions being met. However, those conditions may be void for the purposes of claiming payment under the relevant SOP Act if they unduly restrict the operation of that Act. Our earlier update ‘Can you still have preconditions on the right to lodge a payment claim or when reference dates arise?’ considered in detail the validity of such preconditions as to a reference date under, and the right to claim under the SOP Act.

In the recent decision of East End Projects Pty Ltd v GJ Building and Contracting Pty Ltd [2020] NSWSC 819, Ball J considered the validity of a clause, under which:

  • the Contractor was required to serve on the Superintendent a draft progress claim on or before the 25th day of each month “for WUC done to the last day of that month”;
  • the Superintendent was to issue a preliminary assessment of the amount due within 5 business days of receiving the draft progress claim; and
  • the Contractor was to then serve the actual progress claim no earlier than 7 business days after serving the draft progress claim (which was also specified as being the reference date for the purposes of the Building and Construction Industry Payments Act 1999 (NSW) (NSW Act)).

In summary, Justice Ball held this clause to be void because it made the occurrence of the reference date under SOPA contingent on the Contractor serving a draft payment claim on or before a specified date (i.e. the 25th of each month).

Background

On 1 June 2018, East End Projects Pty Ltd (East End) engaged GJ Building & Contracting Pty Ltd (GJBC) to carry out certain construction works.

On 28 May 2020, GJBC issued a payment claim under the NSW Act, for work completed up until 30 April 2020 but had not issued a draft progress claim on or before 25 April 2020 as per the contract.

GJBC contended that the draft progress claim preconditions in the contract were void, with the result that reference dates arose on the last day of each month (in accordance with section 8(2) of the NSW Act).

GJBC sought to rely on the Queensland decision in Lean Field Developments Pty Ltd v E & I Global Solutions (Aust) Pty Ltd [2014] QSC 293 (Lean Field), where the draft progress claim precondition was held to be void because it amounted to “an unnecessary and impermissible constraint on the right to claim for payment under the Act”.

The draft progress claim precondition in Lean Field:

  • required the contractor to serve a draft payment claim on a specified date in each month in respect of work done “to that time”;
  • required the Superintendent to issue a preliminary assessment of the draft claim within 14 days; and
  • provided that the contractor was entitled to serve a final payment claim covering “all work carried out… to that time” no earlier than 14 days after serving the draft payment claim.

Importantly, the Court in Lean Field said that:

  • the above requirements have the effect that the work claimed in the final payment claim would relate to different work to that identified in the draft payment claim because each claim relates to work done “to that time”; and
  • the precondition might be valid if the draft payment claim and the final payment claim related to the same work and the same period. That is because this could potentially be seen as a as a mechanism designed to facilitate the prompt payment of progress claims by “allowing the contractor to refine and correct its draft payment claim in the light of the preliminary assessment”.

Relying on the above observations in Lean Field, the Principal argued that:

  • the draft and final payment claims in this case related to the same work and the same period because the draft claim was to be in respect of “WUC done to the last day of that month”; and
  • therefore, the contractual mechanism in this case was facilitative of the processes under the NSW Act.

Decision

Justice Ball observed that the draft and final payment claims in this case will or are likely to cover the same work and period and that this was an important distinction from the facts in Lean Field.

However, his Honour held that the precondition was still void because:

  • the requirement to serve a draft payment claim “on the 25th day of a month or before”, meant that GJBC would lose its entitlement to serve a payment claim at all for that month if it failed to serve the draft by the 25th; and
  • therefore, the effect of the clause restricts the operation of the NSW Act.

Is your draft progress claim precondition valid or void?

Justice Ball left open the question of whether a clause could still be valid where the occurrence of a reference date arising is not contingent on serving the draft payment claim on or before a specific date.

That is, a clause which makes the occurrence of a reference date arising contingent on first serving a draft progress claim, may be valid if:

  1. it does not specify a date by which the draft progress claim must be served (for example, it requires the contractor to serve the draft payment claim “on and from” a specified date); and
  2. the draft and final payment claims are in respect of the same work carried out over the same period, meaning that the clause could be said to facilitate the purposes of the relevant SOP Act (for example, because it allows the contractor to refine and correct its draft payment claim in the light of a preliminary assessment by the Superintendent).

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader’s specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed. 

Key contacts:

Stephen Pyman – Principal & Director

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