Turnkey Innovative Engineering Pty Ltd v Witron Australia Pty Ltd [2023] NSWSC 981
In the recent Supreme Court case of Turnkey Innovative Engineering Pty Ltd v Witron Australia Pty Ltd [2023] NSWSC 981, the Court emphasised how a respondent’s payment schedule must provide the amount and any reasons for withholding. The respondent’s failure to address the entire payment claim may result in the purported payment schedule being considered invalid under section 14 of the Building Construction Industry Security of Payment Act 1999 (NSW) (SOPA).
Background
Witron Australia Pty Ltd (Witron) contracted with Turnkey Innovative Engineering Pty Ltd (Turnkey) to perform electrical installation works at an automated distribution centre in Kemps Creek for $11.4 million (Contract).
During the works, Turnkey sought to re-price the Contract as certain works had been excluded. Subsequently, the parties agreed to increase the Contract price from $11.4 million to $14.1 million.
Payment Claim
On 1 May 2023, the Claimant issued a payment claim (Payment Claim) claiming the sum of $884,570.10 (Claimed Amount). The Payment Claim had two components; the first component was for contract works in the sum of $499,924.63 based on the increased Contract price, and the second component was for variations in the sum of $304,230.00.
Purported Payment Schedule
On 3 May 2023, the Respondent sent the following email, which it contended was a valid payment schedule for the purposes of SOPA s 14 (Email):
We will review your variations and your new pricing after we see real progress on the handing over of [Areas under the Contract] Based on this you can claim progress for April based on the original contract price minus the deducted [Areas under the Contract]. Please adjust your claim accordingly and resubmit for approval.
Issue
The issue before the Court was whether the Email met the criteria of a valid payment schedule. Under section 14 of SOPA, a valid payment schedule must:
- identify the payment claim to which it relates; and
- indicate the amount of the payment the respondent proposes to make (Scheduled Amount).
Importantly, if Scheduled Amount is lesser than the claimed amount, the respondent must provide reasons for withholding payment.
Decision
The Court held that the Email was not a valid payment schedule under the SOPA because it failed to address a significant component of the Payment Claim.
Witron had only scheduled for a nil payment and a reason for withholding payment in relation to the first component of the Payment Claim and did not address the second component with respect to the variations. The Court considered the second component (accounting for 40% of the Payment Claim) was significant in rendering the payment schedule invalid.
Key Takeaways
The decision creates some serious issues, namely if a respondent purports to serve a payment schedule without providing quantum and reasoning for each element of a payment claim, a claimant will be in a dilemma as to whether they have a valid payment schedule. Additionally, the decision provides no clarity as to what proportion of the payment claim needs to be addressed before the payment schedule can be considered valid.
However, we note that the Court’s decision does not appear to accord with SOPA’s legislative intent as the respondent’s failure to provide reasons essentially deprives a claimant of the opportunity to adjudicate.
In any case, pending further guidance from a superior court:
- Claimants should treat the payment schedule as valid, to ensure they make an adjudication application within the statutory time limit; and
- Respondents should ensure that their payment schedules comply with SOPA s 14 to avoid any unfavourable outcomes in subsequent adjudications and court proceedings.
If you would like to discuss this article with us further, please Brett Vincent, Partner, or Sarah Kanjanakorn, Paralegal on (02) 9261 5900.