Payment claims and termination of a contract

In a recent decision, the New South Wales Court of Appeal held that termination of a contract did not preclude a contractor’s right to make a payment claim under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act).

The decision departs in some respects from recent decisions of the New South Wales and Queensland Supreme Court and is a reminder of the importance of properly drafting termination clauses under construction contracts.

The case

On 25 September 2015, the New South Wales Court of Appeal handed down its decision in Lewence Construction Pty Ltd v Southern Han Breakfast Point Pty Ltd [2015] NSWCA 288 (Lewence Construction).

One of the grounds of appeal in Lewence Construction was that the NSW Supreme Court erred in holding that termination of the contract for repudiation prevented any further reference dates from arising under the contract.

Following the Principal suspending payment and taking the remaining work out of the Contractor’s hands, on 28 October 2014, the Contractor gave notice that it had elected to terminate the contract for repudiation.

The contract provided that progress claims were to be made on the 8th day of each month for work done to the 7th day of that month. An earlier payment claim had been made on 8 October 2014. On 4 December 2014, the Contractor served a payment claim under the Act.

The Court of Appeal held that once the contract was terminated, the contractual right to make further progress payments “under the contract” came to an end because the NSW Act refers to reference dates “in relation to a contract”. However, the Court drew a distinction with the statutory rights to issue a payment claim under the Act and held that termination ‘does not alter the fact that under the contract a reference date arises on the 8th of each month for work done under the contract up to the 7th of that month’.

The Court of Appeal distinguished the recent decisions of the New South Supreme Court of Patrick Stevedores Operations No 2 Pty Ltd v McConnell Dowell Constructors (Aust) Pty Ltd [2014] NSWSC 1413 and Omega House Pty Ltd v Khouzame [2014] NSWSC 1837 on the basis that, in both cases, the relevant termination clauses (both termination for convenience clauses) made specific provision for what should happen following termination for convenience, with the consequence being that the neither contract continued to provide reference dates following termination.

 

What this means for you

Following the decision in Lewence Construction, both Principals and Contractors should be aware that termination of a contract may not, itself, prevent further reference dates arising after the date of termination under the Act. It will be a matter for whether the contract in question makes specific provision for what is to happen following termination.

The case is also a reminder that proper consideration be taken in the reflect the parties’ intentions of their rights following termination.

Principals may wish to consider amending the Australian Standard drafting of termination clauses to make specific provision for what is to happen following termination if it is intended that reference dates cease on the date of termination.

Similarly, contractors should consider the effect that any such amendments may have on a statutory right to make a payment claim following termination of a contract.

The position in Queensland may be different because the Act refers to reference dates “under a contract”.

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