It is a unique statutory requirement in Queensland for ‘building contracts’¹ that, where a contracting party holds security or a retention amount, it is required to give written notice to the contracted party prior to using the security or retention amount to obtain an ‘amount owed’ under the contract. This requirement is imposed by s 67J of the Queensland Building and Construction Commission Act 1991 (Qld) (QBCC Act).
Where a party intends to have recourse to security or a retention amount, a failure to give the appropriate notice may have serious consequences.
This update briefly considers the formal requirements of a notice written under s 67J of the QBCC Act, when such notice must be given, and the consequences of a defective notice.
What are the requirements of a notice under s 67J?
By s 67J(1), the contracting party (holding the security) is required to give notice in writing to the contracted party, advising of the proposed use and the amount owed.
Thus, for the contracting party to give a s 67J notice, it must first be aware of the ‘amount owed’. This requirement may have an effect on when the time period in which the notice must be given. Where the claim by the contracting party is one for liquidated damages, this requires knowledge of the period of delay. This interaction is considered below.
In practice, most notices written under s 67J expressly refer to, or state to be written under, s 67J of the QBCC Act.
When must the notice be given?
The QBCC Act imposes a specific period within which written notice must be given. By s 67J(2), the notice ‘must be given within 28 days after the contracting party becomes aware, or ought reasonably to have become aware, of the contracting party’s right to obtain the amount owed’. The key question is when this 28-day period begins to run from for the contracting party. When this period begins to run under s 67J will inevitably depend on the unique factual circumstances of each individual case.
However, three examples are illustrative of the operation of s67J, all which concern a party seeking recourse to security for an amount of liquidated damages that was claimed to be owing.
The first two examples are the cases of Watpac Australia Pty Ltd v Spring Hill Developments (No 1) Ltd [2006] QSC 269 (Watpac) and Vos Construction & Joinery (Qld) Pty Ltd v Sanctuary Properties Pty Ltd [2007] QSC 332 (Vos). Both cases concerned an application for an interlocutory injunction to prevent recourse to security to satisfy a claim for liquidated damages, where the operation of s67J was in issue. Under the relevant contracts in both Waptac and Vos, the claim to liquidated damages was on the basis of a failure to reach practical completion by the date for practical completion. In both cases the Supreme Court² held that the 28-day time period under s 67J did not begin to run until the certificate of practical completion was issued, as being the date the contracting party was aware, or ought reasonably to have become aware, of its right to obtain the amount owed. Such an approach is consistent with comments by the Court of Appeal that the 28-day period ‘does not begin to run until a time after the right of the owner to recover some amount from the builder has actually accrued’.³
Thus, a party holding security should keep in mind the distinction that it is knowledge of the right to obtain the amount owed, and not knowledge of a right in the future to obtain the amount owed.⁴
The third example is the case of Saipem Australia Pty Ltd v GLNG Operations Pty Ltd (No 2) [2015] QSC 173 (Saipem). Consistent with the other two examples, in Saipem the Supreme Court⁵ concluded that the 28-day period does not commence merely on an awareness that something would have to be paid to the contracting party (such as liquidated damages).⁶ Rather, an ‘amount owed’ must have arisen.⁷
Thus, keeping with the example of liquidated damages, the conclusion reached in Watpac, Vos and Saipem is that the 28-day period commences from when the certificate of practical completion is issued (or other analogous stage under a building contract).
The Court in Saipem considered that even if this view was incorrect, the question (in the context of liquidated damages) would be when the certifying party ‘knew or ought to have known that Practical Completion had been achieved, because there could be no awareness of the amount owed without an awareness of the period of delay’.⁸ Under this alternative view, it will be a factual matter to establish when the certifying party either knew or ought to have known that practical completion had been achieved, which may, in a complex construction project, involve an extensive set of requirements.
What is the effect of a failure to give notice in accordance with s67J?
What is the effect, then, if a contracting party fails to give notice within the prescribed time under s 67J? The most recent authority from the Supreme Court is that non-compliance with s67J(2), that is, notice outside of the required 28-day time period would have the effect of invalidating the notice. This is a change from earlier decisions. In two earlier decisions, it was considered (albeit tentatively) that non-compliance with s 67J(2) does not cause or lead to the invalidity of the notice.⁹
However, in Saipem, the Supreme Court, without reaching a final conclusion on the issue, said that ‘the better view seems to be that a noncompliance with s 67J(2) would have the consequence of invalidating the notice’.
This is supported by obiter comments from the Court of Appeal in Monadelphous Engineering Pty Ltd & Anor v Wiggins Island Coal Export Terminal Pty Ltd [2014] QCA 330 in a case where no notice was given by the principal.
Thus, while this point – the consequence of an invalid s 67J notice – has not been conclusively settled, given this most recent view from the Supreme Court, parties seeking to have recourse to security should ensure that they comply with the requirements to avoid any possibility of the recourse to the security being declared by a Court to be invalid.
1 As defined by s 67AAA of the Queensland Building and Construction Commission Act 1991 (Qld).
2 Per Fryberg J (in Watpac) and per Douglas J (in Vos).
3 Multiplex Ltd v Qantas Airways Ltd [2006] QCA 337, [34] (Keane JA).
4 Multiplex Ltd v Qantas Airways Ltd [2006] QCA 337, [34] (Keane JA).
5 Per Philip McMurdo J.
6 Saipem Australia Pty Ltd v GLNG Operations Pty Ltd (No 2) [2015] QSC 173, [41] (Philip McMurdo J).
7 See Saipem Australia Pty Ltd v GLNG Operations Pty Ltd (No 2) [2015] QSC 173, [43] (Philip McMurdo J).
8 Saipem Australia Pty Ltd v GLNG Operations Pty Ltd (No 2) [2015] QSC 173, [43] (Philip McMurdo J).
9 See Watpac Australia Pty Ltd v Spring Hill Developments (No 1) Ltd [2006] QSC 269 (Fryberg J) and Vos Construction & Joinery (Qld) Pty
Ltd v Sanctuary Properties Pty Ltd [2007] QSC 332 (Douglas J).