Serving a Payment Claim Post-Termination
Introduction
Section 13(1)(c) of the Building and Construction Industry (Security of Payment) Act 1999 (SOPA) allows contractors to serve one final payment claim after termination of a construction contract.
In Taylor Construction Group Pty Ltd v Adcon Structural Group Pty Ltd [2023] NSWSC 723 (Taylor v Adcon), the Supreme Court refused to allow the Defendant subcontractor, Adcon to rely on its second payment claim issued after termination even where the previous payment claim served post-termination was invalid. This decision underscores the importance of ensuring a final payment claim post-termination is compliant and comprehensive because there are no second chances.
Background
In Taylor v Adcon, the Plaintiff contractor, Taylor sought to permanently injunct Adcon from making adjudication applications under SOPA.
Termination
Taylor and Adcon had two separate contracts in relation the Banksmeadow and Ingleburn projects, respectively. There was some dispute over the exact termination date of the contracts. However, the Court had no difficulty finding that both contracts were terminated, at the latest, by 11 April 2023.
Multiple Payment Claims
Shortly after termination, Adcon served a payment claim on Taylor in respect of the Ingleburn project. On 12 April 2023, Adcon served a payment claim on Taylor in respect of the Banksmeadow project. (Together, First Payment Claims)
On 25 May 2023, Taylor issued a payment schedule in respect of the First Payment Claims in which Taylor challenged the validity of the First Payment Claims for various reasons.
On 31 May 2023, without withdrawing the First Payment Claims, Adcon served further payment claims on Taylor in respect of the Ingleburn and Banksmeadow projects, respectively (Second Payment Claims).
Subsequently, Taylor brought these proceedings arguing that Adcon was only allowed to make one payment claim after termination according to SOPA section 13(1C) which provides –
(1C) In the case of a construction contract that has been terminated, a payment claim may be served on and from the date of termination.
Decision
Ultimately, the Court held that the application of SOPA section 13(1C) does not involve the exercise of discretion. Therefore, in circumstances where the First Payment Claims were not withdrawn, Adcon was precluded from serving further payment claims, that is, the Second Payment Claims.
Further considerations
It should be noted that Adcon may not have been able to withdraw the First Payment Claims even if it had tried. SOPA does not contemplate unilateral withdrawal and resubmission of payment claims. In the Victorian case of Argyle Building Services Pty Ltd v Dalanex Pty Ltd,[1] the Supreme Court of Victoria, considering section 14(8) of the Victorian security of payment act[2] (which parallels section 13(5) of SOPA), clarified that the subcontractor cannot unilaterally withdraw and resubmit its payment claim because the legislation only permits one payment claim in respect of each reference date.[3]
Key takeaways
Once a contract is terminated, contractors and their lawyers should be extremely careful in their preparation of the final payment claim under SOPA section 13(1C). Chances are that this final payment claim is their last shot at adjudication.
If you would like to discuss this article with us, please contact Brett Vincent, partner, or Angie Kim, Lawyer on (02) 9261 5900.
[1] (No 2) [2022] VSC 452.
[2] Building and Construction Industry Security of Payment Act 2002 (Vic) (Victorian Act).
[3] SOPA s 13(5) does not use reference dates but instead provides: “(5) Except as otherwise provided for in the construction contract, a claimant may only serve one payment claim in any particular named month for construction work carried out or undertaken to be carried out (or for related goods and services supplied or undertaken to be supplied) in that month.”