Payment Schedules Must Contain Proper Reasons to Withhold Payment

It is tempting to respond in a Payment Schedule with the words “pending”, “insufficient information“ or  “we will not pay your claim until all works are finished”. However, these types of unsubstantiated reasons will not work.

In the NSW Supreme Court of Appeal case, Joye Group Pty Ltd v Cemco Projects Pty Ltd [2021] NSWCA 211, their Honours Justices Basten, Macfarlan and Emmett provide further guidance on how to make a valid payment schedule in accordance with the requirements of s 14(3) of the Building and Construction Industry Security of Payment Act 1999 (NSW) (Act) where the amount scheduled is less than the amount claimed.

Facts

On 30 July 2019, Cemco Projects Pty Limited, the respondent (contractor), and Joye Group Pty Limited, the appellant (subcontractor), entered two subcontracts for works at a development in Alexandria. One subcontract was for the supply and installation of timber flooring and the other for tiling.

On 27 April 2020, the subcontractor served payment claim 7 for $112,043.11, under the timber flooring subcontract and another on 28 April 2020, for $54,517.65, under the tiling subcontract.

On 8 May 2020, the contractor sent an email in reply attaching both invoices under the subject “Claim 7 for Alexandria job” stating simply:

“Dear Joye Group, Please be advised that no payment for above Invoices, until all works been completed.” (May Email)

District Court

The subcontractor commenced proceedings in the District Court in relation to some of the payment claims to recover the monies under a statutory debt under the Act. At first instance, the contractor admitted liability for two (2) payment claims: where a certified amount was not paid in one and a payment schedule was not provided in the other. In relation to the remaining two (2) payment claims, the District Court Judge found that the May Email was sufficiently particularised when read in the context of the dealings between the parties.

Supreme Court of Appeal

The subcontractor appealed this latter part of the decision to the NSW Supreme Court of Appeal arguing that the May Email did not constitute a “payment schedule” with sufficient reasons.

The Court found for the subcontractor and held that the May Email did not constitute a valid payment schedule under s 14 of the Act. The subcontractor recovered the unpaid amounts of the two payment claims plus its costs in the District Court proceedings to recover the statutory debt owed under the Act.

Considerations by the Supreme Court

At paragraphs 18 to 19, the Court of Appeal Judgement makes it clear that withholding payment for incomplete work is not itself a sufficiently clear or complete reason, especially if it remains unclear why any completed works would not be entitled to a progress payment under s 8 of the Act.

At paragraph 24, Justice Basten warned that the use of surrounding communications to understand a payment schedule must be limited:

“A payment schedule is not to be reconstructed by reference to external materials, so as to give it a degree of particularity which it simply did not enjoy.”

Drafting Tips

Remember a payment schedule:

  1. must indicate (with sufficient particularity) why the amount scheduled is less than the amount claimed, and clearly identify:
    • the issues in dispute in relation to complete and incomplete work;
    • the issues not in dispute in relation to complete and incomplete work; and
    • in each case whether payment will be made or the reasons why payment will still be withheld.
  2. must include all the reasons that will be relied on in a subsequent adjudication response (as no new reasons can be introduced in the adjudication response unless they have been provided in the payment schedule). The nature and extent of the dispute must be clearly set out to allow the claimant to make an informed decision on whether to make a subsequent adjudication application.
  3. must clearly and expressly refer to the documents / communications used to provide particulars or meaning.

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