East End Projects Pty Ltd v GJ Building and Contracting Pty Ltd [2020] NSWSC 819
Some construction contracts require the Contractor to submit a draft payment claim before making a final claim. This process was examined by the Court in East End Projects Pty Ltd v GJ Building and Contracting Pty Ltd [2020] NSWSC 819.
Background
A dispute arose between East End Projects Pty Ltd (Principal) and GJ Building & Contracting Pty Ltd (Contractor) over a construction contract. The contract provided that the Contractor must submit a draft progress claim to the superintendent on or before the 25th day of the month, and it could only submit a formal progress claim not earlier than 7 business days after submission of the draft progress claim.
The Contractor did not follow the procedures set out in the contract. Instead, it skipped the draft progress claim and served a formal payment claim on the superintendent directly. The Principal sought an injunction that the payment claim was void and of no effect.
The Parties’ Contentions
The Contractor contended that the provisions in the Contract regarding the submission of a draft payment claim have no significant utility in terms of facilitating the payment of a progress claim and amounts to unnecessary constraint on the right to claim for payment under the Building and Construction Industry Security of Payment Act 1999 (NSW) (Act). Therefore, these provisions were invalid under section 34 of the Act, which provides that any contract provision attempting to exclude, modify or restrict the operation of the Act is void.
The Principal argued that the draft payment claim mechanism was to facilitate the payment claim process and the Contractor’s exercising of its rights under the Act rather than to restrict them.
Decision
Unsurprisingly, the Court rejected the Principal’s argument because the effect of the draft payment claim mechanism in the contract was that if the Contractor missed the deadline to serve the draft payment claim, they would lose the right to claim a progress payment for that month entirely. This was seen as a serious limitation on their rights under the Act, with no purpose other than to restrict those rights.
The Court ruled that the draft payment claim mechanism restricted the operation of the Act and was therefore void under section 34.
While this case was decided before the Act was amended to abolish the reference date, the decision regarding the provision of draft payment claims in contracts is still relevant.
Key Takeaway
A contract provision that requires a contractor to submit a draft payment claim before a final claim may not be enforceable. Such clause is likely to be considered restricting the operation of the Act and rendered void.
If you would like to discuss this article with us, please contact Simon Mok, partner, or Elena Ristevski, paralegal on (02) 9261 5900.