Payment claim served a day late leaves the claimant out of pocket by $6 million

In the recent decision of MGW Engineering Pty Ltd t/a Forefront Services v CMOC Mining Pty Ltd [2021] NSWSC 51, the NSW Supreme Court provides guidance on what constitutes valid service of a payment claim under the Security of Payment Act 1999 (NSW) (the Act). The decision serves as a cautionary tale for all construction industry stakeholders of the brutal consequences of taking actions based on a miscalculated date of service.

Background

On 3 February 2021, at 5:15 pm, an employee of MGW Engineering Pty Ltd, trading as Forefront Services (Forefront), handed four payment claims (payment claims) to an employee of CMOC Mining Services Pty Ltd (CMOC) at the Access Control Room of the Mine.

On 4 February 2021, Forefront delivered the payment claims to CMOC using a software platform known as “Aconex”.

The all-important question for the Court was whether Forefront had served the payment claims on CMOC on the 3rd or 4th of February 2021.

Suppose the payment claims were held to have been served on 3 February. In that case, Forefront could have bypassed a fight over the claim’s merits and filed an application for judgment for the $6,161,020.35 claimed. CMOC would not have been entitled to raise a defence or cross-claim because CMOC served its payment schedule out of time.

If the payment claims were held to have been served on 4 February 2021, Forefront would be entitled to no more than $180,912 because CMOC’s payment schedule was served within time. Forefront would also be found to have invalidly suspended works.

Section 31 of the Act sets out the ways in which documents under the Act (including payment claims) must be served. Forefront advanced three arguments in support of the payment claim being validly served on 3 February 2021 under section 31 of the Act.

  1. The payment claim was served “personally” on CMOC because the payment claims were given to an employee of CMOC: section 31(a).
  2. The payment claim was lodged at CMOC’s ordinary place of business during CMOC’s normal office hours: section 31(b).
  3. The payment claim was served in a manner provided under Forefront and CMOC’s contract (Contract): section 31(e).

Payment Claims were not delivered “personally” on 3 February

The Court found that the payment claims were not “personally” served on CMOC until 4 February 2021 because the payment claims were not delivered to CMOC’s registered office in accordance with section 109X of the Corporations Act 2001 (Cth) and the CMOC employee that received the claims was not a director of the company.

Payment Claims were not “lodged” with CMOC “ordinary place of business during normal office hours”

The Court held that the payment claims were not genuinely “lodged” with CMOC because they were not brought “to the attention of the relevantly responsible person” It was not enough for the employee of Forefront to leave the documents with an employee of CMOC.

The Court held that service on 3 February did not occur during CMOC’s normal office hours. The Court interpreted “normal office hours” to mean “the hours that the administrative or clerical staff of the corporation normally keep”, which in this case was 7 am to 4:30 pm.

Payment claims were not served in a manner under the Contract

Clause 47.2 of the Contract provided that that notices delivered after 4 pm are taken to be delivered on the next business day. As the payment claims were served after 4pm on 3 February 2021, the Court held that they were therefore given to CMOC on 4 February 2021, pursuant to the Contract.

The Court found that the clause did not modify section 31 of the Act but was facultative. If Forefront had satisfied the requirements of section 31(a), (b), (c) or (d), then service would have been effective despite the fact despite non-compliance with clause 47.2.

What does this mean for you?

Claimants should aim to serve payment claims via multiple means and ensure strict compliance with section 31 of the SOP Act, the relevant construction contract, and, if applicable, the Corporations Act 2001 (Cth). The decision supports the drafting in contracts that service outside of ordinary business hours is effective the following day.

Had Forefront served its payment claims on 3 February 2021 in accordance with section 109X of the Corporations Act 2001 (Cth), or delivered the payment claims 1 hour and 16 minutes earlier, the Court’s decision may have been dramatically different.

Key contacts:

Stephen Pyman- Director

 

 

David Cheel- Associate

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