Security of payment legislation in each State across Australia [1] creates a special statutory right for a person who undertakes to carry out construction work (the claimant) to receive progress payments from the person it contracted with (the respondent) for work carried out by the claimant under a construction contract.
The purpose of the legislation is to provide a claimant a swift and cheap means to enforce its right to progress payments throughout the duration of the project. To benefit from these special rights, the claimant must strictly comply with the processes prescribed in the legislation. Likewise, for respondents who are required to respond to statutory payment claims by the issue of a payment schedule, it may not be as simple as sending an email refusing to make payment.
This article explores tips on what a respondent needs to include in its payment schedule to avoid an application for judgment and set itself up to defend an adjudication application.
Consequences of an invalid payment schedule
The consequences for failing to provide a valid payment schedule are severe. The respondent is liable to pay the full amount of the payment claim (regardless of the merits of the claim). If the respondent fails to pay, the claimant can lodge an adjudication application or apply to the court for judgment, and the respondent is not entitled to raise any defence or cross-claim. The claimant is also entitled to suspend work.
What is required for a valid payment schedule?
A payment schedule responding to a payment claim:[2]
- must identify the payment claim to which it relates;[3] and
- must indicate the amount of the payment (if any) that the respondent proposes to make (the scheduled amount);[4] and
- if the scheduled amount is less than the claimed amount, the schedule must indicate why the scheduled amount is less and (if it less because the respondent is withholding payment for any reason) the respondent’s reasons for withholding payment [5].
It might seem like a simple task to meet the above criteria, but there are several cautionary tales where the payment schedule failed to satisfy the third element, and the respondent was left fighting with both hands tied behind its back.
Minimax Fire Fighting Systems Pty Ltd v Bremore Engineering (WA) Pty Ltd [2007] QSC 333
In this case, the Queensland Supreme Court held that an email sent by the respondent was not a valid payment schedule because it addressed only 1 out of 3 claimed items in the payment claim. To be a valid payment schedule, it must respond to all of the claimed items.
Style Timber Floor Pty Ltd v Krivosudsky [2019] NSWCA 171
A dispute arose between the parties regarding defective workmanship, delay and wasted materials on various properties. The head contractor was served with a payment claim, and in response, invited the subcontractor to come to the head contractor’s office with this email:
“I will show you the working agreement …, many emails, photos, videos, back charges from builders and other trades, complains from my clients. You will understand why I can’t pay you. The damages you done is more than what you claimed. Then, it’s up to you want you want to do next.”
The subcontractor applied for judgment of the claimed amount on the basis that the head contractor’s email was not a valid payment schedule. The Court of Appeal stated:
“The payment schedule serves two important functions under the Act. The first is to inform the claimant as to the metes and bounds of its dispute with the respondent, so that it can make an informed choice as to whether to engage the expedited adjudication procedures. The second is to articulate the respondent’s case which will then be determined by the adjudicator.” (emphasis added).
The generality of the matters raised in the above email (including the failure to give any information about the actual costs said to have been incurred by reason of the defective work or the properties referred to) meant it was impossible for the subcontractor to understand the precise reasons why payment was being withheld, so the email was not a valid payment schedule.
Joye Group Pty Ltd v Cemco Projects Pty Ltd [2021] NSWCA 211
The subcontractor (Joye) was engaged by the head contractor (Cemco) to carry out flooring works. Joye submitted a payment claim and in response Cemco sent an email attaching the invoices Joye had submitted, stating:
“Please be advised that no payment for above Invoices, until all works been completed.”
The head contractor succeeded in the NSW District Court in having the email upheld as a payment schedule, but that decision was overturned in the Supreme Court.
The trial judge accepted that the words ‘we do not intend to pay your claim’ identified the work (the work claimed in the attached invoices) and how much the head contractor proposed to pay (nothing). The trial judge determined Joye would have understood Cemco’s reasons for withholding payment based on the background of the communications between the parties (even though those emails were not included in the payment schedule).
In overturning the trial judge’s decision:
- The Court of Appeal did not accept that ‘we do not intend to pay your claim’ stated why the head contractor would not be making payment. The explanation ‘until all works been completed’ was not a statement that all, part, or none of the claim would be paid, only when it would be paid. It left open the possibility that some of the work had already been completed but did not give a reason why those works had not been paid.
- The Court of Appeal determined that the other communications between the parties could not be relied upon as reasons for withholding payment. There was no attempt by Cemco, either expressly or implicitly, to make refence to any of the supporting documents or prior correspondence in the 8 May 2020 email.
The Court provided a useful insight into how it views the content of a payment schedule:
“In principle, it may be accepted that not only communications but other contextual evidence may be necessary and relevant to allow an adjudicator (or the court) to understand the scope of terms used in a payment schedule (or in a payment claim). That is not this case: there was no term used in the 8 May 2020 email which required interpretation. Rather, what was sought to be achieved by reference to extraneous documents was to create a sufficient degree of particularly in the absence of incorporation. That course is not available. A payment schedule is not to be reconstructed by reference to external materials, so as to give it a degree of particularity which it simply did not enjoy.” (emphasis added)
In other words, a respondent can incorporate other documents in support of its reasons for withholding payment by referencing them in its payment schedule, but it must also identify that the document is intended to be part of the payment schedule to do so.
For those reasons, the Court of Appeal ruled that the email was not a payment schedule within the meaning of section 14 of the NSW Act. As a result, no valid payment schedule had been served, and the subcontractor was entitled to judgment for the full value of its claim.
Summary of the position
These cases emphasise that there are certain fundamental requirements for payment schedules, rooted in the provisions of the security of payment legislation, ultimately serving the purposes of ensuring that:
- the payment claim and payment schedule together fix the scope of the dispute between the parties; and
- the payment schedule places the claimant on notice of the reasons why payment is withheld so that it can make an informed choice as to whether it wants to refer the claim to adjudication.
Takeaways for Claimants and Respondents
Developers and head contractors responding to statutory payment claims must take care to ensure their payment schedules comply with the requirements of the relevant Act and contain enough detail so that the claimant can understand why payments are being withheld. The consequences of failing to provide a valid payment schedule are too severe to risk taking a blasé approach to the task.
Here are some best practice tips we recommend:
- Treat every tax invoice [6] seriously, and if you are not paying the claim in full, ensure that you are responding within the timeframe under the security of payment legislation.
- If there are earlier discussions or correspondence that show why you’re not accepting payment, don’t just refer to them – attach them to the email or document, and identify the relevant part of those documents or emails, so they form part of the payment schedule.
- Make sure that your payment schedule responds to all of the items of work claimed in the payment claim, [7] not just some of them, and include workings showing how the scheduled amount has been calculated.
- Set out all reasons for non-payment for each item of work you object to paying, not just the one big ticket item. This means an explanation for:
-
- alleged defective or incomplete work;
- challenges to pricing or calculation of amounts in the payment claim;
- the legal basis for disputing the payment claim including rights of set off referenced in the construction contract; and
- alleged non-compliance with the requirements of a valid payment claim under the Act. Seek legal advice on whether the payment claim complies with the technical requirements of the Act [8].
5. If the dispute proceeds to adjudication or judgment, you can only rely on those reasons that have already been included in the payment schedule.
*As a disclaimer, the content does not constitute legal advice and should not be relied upon as such. Appropriate legal advice should be obtained in actual situations. Feel free to contact us should you require any assistance in resolving a legal dispute.
[1] Each State and Territory has its own security of payment legislation. Although the legislation in each jurisdiction is similar, there are some important differences to be aware of and the author recommends that you seek legal advice appropriate for your jurisdiction. At the time this article was written, the Northern Territory and Western Australia’s legislation differed from the models adopted in other States and Territories, although this is expected to change in Western Australia with the passing of the Building and Construction industry (Security of Payment) Bill 2021 (WA) on 22 June 2021.
[2] The meaning of payment schedule under the Building Industry Fairness (Security of Payment) Act 2017 (Qld) (Qld Act) and the Building and Construction Industry Security of Payment Act 1999 (NSW) (NSW Act) are materially the same. The author is of the opinion that the NSW authorities will apply to the Qld Act.
[3] NSW Act s14(1), Qld Act s69(a).
[4] NSW Act s14(2), Qld Act s69(b).
[5] NSW Act s14(3), Qld Act s69(c).
[6] Queensland is the only State where a payment claim does not need to be endorsed as being made under the security of payment legislation. Accordingly, a letter, tax invoice or email that describes the work and requests payment of an identified amount, will be a valid payment claim.
[7] Minimax Fire Fighting Systems Pty Ltd v Bremore Engineering (WA) Pty Ltd [2007] QSC 333.
[8] The Court of Appeal in Ausipile Pty Ltd v Bothar Boring and Tunnelling (Australia) Pty Ltd [2021] QCA 223 said in obiter that technical arguments about the validity of the payment claim (referred to as ‘jurisdictional arguments’) should be raised in the payment schedule.
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