Invoices and progress claims in Queensland will no longer need to state they are a payment claim to be one

When the security of payment provisions of the Building Industry Fairness (Security of Payment) Act 2017 (QLD) (BIF Act) commence, which is expected to be in July 2018, it will no longer be necessary to specifically state on a progress claim or invoice that it is a payment claim as has always been the case under the Building and Construction Industry Payments Act (BCIPA).

This has caused quite some confusion in the industry, leaving many to believe that every single invoice they send or receive once the new provisions come in, will be a payment claim, requiring a payment schedule if the invoice is not paid in full.

That is not correct. To be a payment claim under the BIF Act the progress claim or invoice will still have to relate to a valid reference date. That has been the case since at least the High Court decision in Southern Han Breakfast Point Pty Ltd (in liq) v Lewence Construction Pty Ltd 1 and that will not change when the new security of payment provisions come in.

The importance of reference dates

Most contracts which we see allow for:

  • one reference date each month;
  • one reference date upon the issuing of the practical completion; and
  • one reference date at the end of the defects liability period.

In order to ensure that only one payment claim is made in the period between the issuing of the practical completion and the end of the defects liability period, it is standard practice to include a clause which prevents monthly reference dates accruing during the defects liability period.

A recent decision of the New South Wales Court of Appeal in Abergeldie Contractors Pty Ltd v Fairfield City Council 2 serves as a timely reminder of the pitfalls which may be suffered if the clause in question is not properly drafted; the result effect is all parties to the contract do not clearly understand what it means.

The clause and some facts

The contract was based on AS4000-1997. This is a standard contract in the construction industry. The accompanying subcontract (which is in effectively the same terms) is AS4901-1998. The contract was amended to include the following clause:

Final Reference Date

For the purpose of section 8(2) of SOP Act, there are only two reference dates after practical completion being:

  1. i) the first date for a progress claim arising immediately after practical completion (as determined by subclause 37.1); and
  2. ii) the date provided in subclause 37.4 for the Contractor to give its final payment claim.

Abergeldie issued a payment claim after 16 September 2016 (Earlier Claims). Abergeldie then issued a payment claim on 25 November 2016 (November Payment Claim). These were both before the Superintendent issued a certificate of practical completion, which stated that part of the works achieved practical completion on 1 July 2016, with the remainder achieving practical completion on 16 September 2016.

An Adjudicator subsequently determined that, in relation to the November Payment Claim, the Council should pay $1,286,603.96 (incl. GST).

The Adjudicator’s decision was challenged in court.

The first instance decision

The Council argued that “practical completion” was, based on clause 1 of the contract, a defined stage of the work, and that, because the Earlier Claims had been issued after the date upon which practical completion had been achieved, no further reference date accrued until the end of the defects liability period. In effect, this rendered the November Payment Claim void and unenforceable.

Ball J agreed, granting a declaration that the November Payment Claim was void and unenforceable.

The appeal

The New South Wales Court of Appeal disagreed with Ball J. The Court determined that the reference date in question did not accrue until the certificate of practical completion had been issued by the Superintendent. As such, the November Payment Claim was valid and enforceable. We think the Court of Appeal decision is questionable but the case nevertheless serves to show that to be a valid payment claim, there needs to be a relevant reference date.

Why does it matter?

In circumstances where, based on the terms of an individual contract, reference dates may not accrue between the issuing of the certificate of practical completion and the expiry of the defects liability period (which could be 12 months later), a contractor needs to ensure that they do not accidentally “burn” the “practical completion” reference date.

In circumstances where the new security of payment legislation in Queenland will not require a progress claim or invoice to state that it is a payment claim for it to be a payment claim, the need for contractors to be able to readily ascertain when their reference dates occur becomes even more critical.

That is one of the many reasons why we recommend that you obtain detailed legal advice in relation to any contract which you propose to sign and why you should ensure that your own contracts are professionally drafted by competent building and construction lawyers.

For help with any contract or payment issues please give one of our building and construction lawyers a call.

1 [2016] HCA 52; 91 ALJR 233
2 [2017] NSWCA 113

Disclaimer
This article is general commentary on a topical issue and does not constitute legal advice. If you are concerned about any topics covered in this article, we recommend that you seek legal advice.

Queries
For further information please contact the authors – Ian Heathwood, Partner – Building & Construction, or any member of our Building & Construction team.

The Author

Ian Heathwood

PARTNER, BRISBANE