The High Court yesterday confirmed that the existence of a reference date is a precondition to the making of a valid payment claim pursuant to security of payment legislation.¹
The decision means that where an adjudicator incorrectly decides that a reference date exists, this will provide a basis for the adjudication decision to be set aside by the court.
The High Court also confirmed that reference dates will not automatically continue after a construction contract has been validly terminated. However, reference dates may accrue post- termination if a contract so provides.
The facts
Southern Han Breakfast Point Pty Ltd (Southern Han), as principal, and Lewence Construction Pty Ltd (Lewence), as contractor, entered into a contract for the construction of an apartment complex in New South Wales (the Contract).
During the course of the works, Southern Han issued a notice under the Contract to take work out of Lewence’s hands.
Lewence contended that Southern Han was not entitled to take work out of its hands, and that by attempting to do so, it had repudiated the Contract. Lewence then terminated the Contract.
Lewence subsequently served a payment claim on Southern Han, and lodged an adjudication application pursuant to the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act).
Southern Han argued that the adjudicator did not have jurisdiction to determine the adjudication application because Lewence’s payment claim was invalid as it was not made in respect of a reference date.
Southern Han’s argument had three limbs:
- There were no unused reference dates that had arisen prior to Southern Han taking work out of Lewence’s hands.
- As Southern Han had taken work out of Lewence’s hands, Lewence’s contractual right to payment was suspended, dates did not continue to arise under the Contract.
- Even if Southern Han was not entitled to take work out of Lewence’s hands, then Lewence had terminated the Contract, and no reference dates arose after termination.
The Adjudicator determined that a reference date did exist, and made a determination in favour of Lewence.
Southern Han successfully applied to the Supreme Court of NSW to have the adjudicator’s determination set aside.²
However, Lewence successfully appealed against that decision to the Court of Appeal.³
The key issue: Is a reference date a precondition to a payment claim?
The key issue before the courts was whether the existence of a reference date is a precondition to a claimant making a valid payment claim.
If it was found that a reference date is not a precondition to making a valid payment claim, then Southern Han could not challenge the adjudicator’s decision that a reference date existed. However, if it was a precondition, then the adjudicator’s decision was open to review by the courts. There were differing decisions in other states on this point.
The High Court unanimously held that the existence of a reference date is a precondition to making a valid payment claim.
The Court’s decision was based on its interpretation of section 8(1) of the Act, which creates an entitlement to a progress payment, and section 13(1), which creates an entitlement make a payment claim.
The Court held that the description in section 13(1) of ‘a person referred to in s 8(1)’ refers to a person who has undertaken to carry out construction work, or supply related goods and services, under a construction contract, and who is entitled to a progress payment on and from a reference date under that contract.
Did a reference date exist?
After deciding that the adjudicator’s decision was open to review, the Court considered whether the adjudicator was correct in his conclusion that a reference date existed to support Lewence’s payment claim.
Pursuant to the Contract, upon work being taken out of Lewence’s hands, Lewence’s right to payment was suspended. Payment was governed by clause 37 of the Contract, which also provided for reference dates.
The High Court held that the suspension which occurred upon work being taken out of Lewence’s hands was a suspension of ‘the totality of the rights conferred and obligations imposed in relation to payment by cl 37’. This included Lewence’s right to make a progress claim for work carried out up to the time that work was taken out of its hands.
Therefore, the High Court held that no reference dates arose under the Contract after work was taken out of Lewence’s hands.
Additionally, the High Court held that if Southern Han was not entitled to take work out of Lewence’s hands, and Lewence had validly terminated the Contract, then reference dates did not arise after termination. This was because the Contract did not provide that reference dates would accrue after termination.
The High Court concluded that there was no reference date which supported Lewence’s purported payment claim, and therefore the purported claim was invalid. It followed that the adjudicator had no jurisdiction to determine Lewence’s adjudication application.
What this means for you
The High Court’s decision does not represent any material change to the security of payment regime in Queensland, the Australia Capital Territory, South Australia or Tasmania.
Given the similarities between the statutory provisions in all states and territories (except the Northern Territory and Western Australia), the High Court’s decision means that a consistent approach will be taken to the issues addressed by the Court across those jurisdictions.
The decision also highlights the importance of principals and contractors carefully reviewing their contracts so they are fully aware of their rights and liabilities under security of payment legislation, particularly following termination or work being taken out of the hands of the contractor.
1 Southern Han Breakfast Point Pty Ltd (in liquidation) v Lewence Construction Pty Ltd & Ors [2016] HCA 52.
2 Southern Han Breakfast Point Pty Ltd v Lewence Construction Pty Ltd [2015] NSWSC 502.
3 Lewence Construction Pty Ltd v Southern Han Breakfast Point Pty Ltd [2015] NSWCA 288.