Identifying construction work in payment claims – correctly identify, or pay the price

To be able to access the adjudication process under the various Security of Payment schemes in Australia, claimants are required by legislation to “identify” the construction works in a payment claim for which they seek payment.

The word “identify” does not arise frequently in security of payment legislation, but where it does, claimants seeking the benefit of statutory adjudication must pay close attention.

Following Western Australia enacting the highly anticipated Building and Construction Industry (Security of Payment) Act 2021 (WA), a new standard of “identifying” construction work in payment claims may cause lawyers on the Eastern side of Australia to take note.

Under the East Coast model: Identifying work carried out

Section 13(2) of the Building and Construction Industry Security of Payment Act 1999 (NSW SOP Act_ states:

(2)          A payment claim—

(a)  must identify the construction work (or related goods and services) to which the progress payment relates,

A comparable clause is included in the Security of Payment legislation of the majority of Australian states: Queensland[1], Victoria[2], South Australia[3], and Tasmania[4].

The standard of information to be provided by the claimant in the payment claim to satisfy the requirement of “identifying” construction work has been the subject of jurisprudence over many years.

NSW Courts have held that requirements of “identifying” the goods and services may not be overly strict – so long as what is claimed can be “reasonably” understood by the intended recipient of the payment claim (for the purpose of issuing a payment schedule).

NSW case law

In Coordinated Construction Co Pty Ltd v Climatech (Canberra) Pty Ltd & Ors [2005] NSWCA 229, Hodgson JA held:

In my opinion, the relevant construction work or related goods and services must be identified sufficiently to enable the respondent to understand the basis of the claim …[5]

And in Walter Construction Group Ltd v CPL (Surry Hills) Pty Ltd [2003] NSWSC 266, Nicholas J held:

Doubtless it is a purpose of the requirement that a respondent served with a payment claim is provided with adequate information to enable it to provide a payment schedule under s 14[6]

In Hawkins Construction (Australia) Pty Ltd v Mac’s Industrial Pipework Pty Ltd [2002] NSWCA 136, Davies AJA held:

… the Act should not be approached in an unduly technical manner … The terms used by subs (2) of s 13 are well understood words of the English language. They should be given their normal and natural meaning. As the words are used in relation to events occurring in the construction industry, they should be applied in a common sense practical manner.[7]

Useful observations can also be found in Protectavale Pty Ltd v K2K Pty Ltd [2008] FCA 1248, in which Finkelstein J noted:

Payment claims are usually given and received by parties experienced in the building industry who are familiar with the particular construction contract, the history of the project and any issues which may have arisen between them regarding payment.[8]

Victorian case law

The Victorian decision in Gantley Pty Ltd v Phoenix International Group Pty Ltd [2010] VSC 106 is also worthy of consideration, in which Vickery J held:

What is necessary is an identification of the work which is sufficient to enable a respondent to understand the basis of the claim and provide a considered response to it. The test of identification is not an overly exacting exercise. It is to be tempered by what is reasonably necessary to be comprehensible to the recipient party when considered objectively, that is from the perspective of a reasonable party who is in the position of the recipient. In evaluating the sufficiency of the identification of the work, it is appropriate to take into account the background knowledge of the parties derived from their past dealings and exchanges of information.[9]

The question of whether evidence of context or actual knowledge can be admitted to answer the question of whether a payment claim was sufficient to identify work performed was answered in the negative in Façade Designs International Pty Ltd v Yuanda Vic Pty Ltd [2020] VSC 570. Riordan J held, making reference to NSW precedents:

[35]  The case before me brings into sharp focus the extent to which evidence may be admitted about ‘the background knowledge of the parties from their past dealings and prior exchanges of information including correspondence passing between them before and at the time of the payment claim’. On the basis that it related to background knowledge, each party adduced extensive evidence relating to the subjective knowledge of employees, including whether employees understood or were able to calculate various Claim Items, communications between employees of the respective parties …

[36] In my opinion, in determining whether a payment claim complies with s 14(2)(c) of the Act, the Court should not have regard to extrinsic evidence of surrounding circumstances …

A difference in the Tasmanian act

Section 17 of the Building and Construction Industry Security of Payment Act 2009 (TAS) (Tasmanian SOP Act) provides:

  1. Claims for payment may be made

(2)  A payment claim must –

(d) identify the building work or construction work, or building or construction-related goods and services, to which the progress payment relates, in sufficient detail to enable the person on whom it is served to assess the claim; … [Emphasis added]

The Tasmanian SOP Act clarifies, in explicit language, that the standard of identification of work in a payment claim is to be measured by reference to the ability of a respondent to assess that information. This may result in a higher bar applicable in that jurisdiction.

In R v Steven Macdessi; ex parte Walton [2014] TASSC 64, a payment claim contained 19 pages of supporting information. The plaintiff sought to quash an adjudication application in relation to the payment claim. One argument put forward by the plaintiff was that the information in the payment claim was insufficient to enable proper assessment of the claim. Blow J stated in obiter (deciding the case on other grounds, however):

Without information that is not to be found in those 19 pages, it would be impossible to assess the reasonableness of the sums claimed therein.”

A new standard – the Western Australian approach

In response to recommendations made by barrister and Adjunct Associate Professor of Law John Fiocco in his report to the Government titled – Final Report to the Minister for Commerce: Security of Payment Reform in the WA Building and Construction Industry (October 2018), the Western Australian parliament recently enacted the Building and Construction Industry (Security of Payment) Act 2021 (WA) (WA Act), replacing the earlier Construction Contracts Act 2004 (WA).

The purpose of the new Act is to introduce security of payment laws that are more consistent with those in other Australian states and territories, including some of the best practice recommendations from the Commonwealth Governments’ national review in 2017 – Review of Security of Payment Laws: Building Trust and Harmony (December 2017).[10]

This Act clarifies an additional requirement for payment claims as compared with existing security of payment laws. Section 24 of the Act provides:

  1. Content of payment claims

(1) A payment claim must —

(c) describe the items and quantities of construction work, or related goods and services, to which the progress payment relates … [Emphasis added]

This requirement to describe individual “items” and “quantities” of construction work may seem to raise the bar even further for specifying construction work. How much so will depend on the question being considered by Western Australian courts.

The explanatory memorandum for the Building and Construction Industry (Security of Payment) Bill 2020 (WA) has suggested, in relation to Clause 24:

“Payment claims do not need to be detailed documents, but should provide enough information to allow a respondent to identify the basis of the claim. The sufficiency of a payment claim is a matter for an adjudicator to decide if later raised in determining an adjudication application.”[11]

According to the explanatory memorandum, a pragmatic and purposive approach (as adopted by East Coast jurisdictions) is also intended to be adopted in Western Australia.

Given that the WA Act is worded in a slightly different way to other states, Western Australian courts may decide that the standard of identification intended by their legislature is more demanding than in other states, and that the inclusion of the words “items and quantities” were not redundant.

Conclusion

Despite minor variations between statutory schemes in each Australian state, Security of Payment claimants in all jurisdictions should avoid being overly vague or brief where possible, when identifying construction work in a statutory payment claim.

Article by Stefan Fenk, Partner and James Gilronan, Graduate Associate

This publication is for general information purposes only and does not constitute legal advice. You should seek legal advice regarding your particular circumstances.

[1] Building Industry Fairness (Security of Payment) Act 2017 (QLD) s 68(1)(a)

[2] Building and Construction Industry Security of Payment Act 2002 (VIC) s 14(2)(c)

[3] Building and Construction Industry Security of Payment Act 2009 (SA) s 13(2)(a)

[4] Building and Construction Industry Security of Payment Act 2009 (TAS) s 17(2)(d)

[5] [2005] NSWCA 229, Paragraph 25.

[6] [2003] NSWSC 266, Paragraph 65.

[7] [2002] NSWCA 136, Paragraph 20

[8] [2008] FCA 1248, Paragraph 12

[9] [2010] VSC 106, Paragraph 51

[10] See the Explanatory Memorandum presented to the Legislative Assembly, which can be found at https://www.parliament.wa.gov.au/parliament/bills.nsf/BillProgressPopup?openForm&ParentUNID=DD9B69E7C706DD2C482585EB0030BA2B current as on 17 May 2021.

[11] As found above, on page 14.