Reference dates post termination: a recent review by the Supreme Court

October, 2014

Patrick Stevedores Operations No 2 Pty Ltd (Patrick) v McConnell Dowell Constructors (Aust) Pty Ltd (MacDow)

Supreme Court of NSW
Ball J
16 October 2014

A recent decision of the NSW Supreme Court has provided guidance on the question of what constitutes “construction work or the supply of related goods or services” under the Building and Construction Industry Security of Payment Act 1999 (NSW), s 8 (the Act). Does ordering plant and equipment in preparation for works, and the removal of such equipment post termination satisfy the definition of “construction work or the supply of related goods or services”?

The Court also considered the circumstances in which a claim for a progress payment under the Act would be invalid by reason of the absence of an applicable reference date. Does the termination of a contract before the next contractual reference date mean that work performed prior to the termination has no reference date, either under the contract or pursuant to s 8(2)(b) of the Act?

Facts

MacDow had entered into a contract for the construction of civil works as part of the Port Botany Redevelopment. Patrick terminated the contract for convenience on 24 April 2014.

Following termination MacDow served a payment claim on 30 June 2014 (Payment Claim 13) which was expressed to be made under the Building and Construction Industry Security of Payment Act 1999 (NSW). By Payment Claim 13 MacDow claimed payment pursuant to cl 39A.2 of the contract which provided for payment to it following a termination for convenience by Patrick. Patrick responded with a payment schedule on 14 July 2014. MacDow made its first adjudication application in respect of Payment Claim 13 on 28 July 2014 to which Patrick responded on 6 August 2014.

The first adjudicator notified the parties on 18 August 2014 that he had determined the first adjudication. In his determination the first adjudicator determined a number of MacDow’s claims as zero on the basis that he had insufficient time to deal with them and the parties had not agreed on an extension of the 10 business day period.

As a consequence of the determination of the first adjudicator, MacDow withdrew its first adjudication application relying on s 26 of the Act and made its second adjudication application in respect of Payment Claim 13.

The second adjudicator was nominated on 27 August 2014 and Patrick served its response to the second adjudication application on 1 September 2014, taking issue with the appointment of the second adjudicator. The second adjudicator’s determination was released to the parties on 11 September 2014. Patrick commenced the proceedings on 17 September 2014.

Issues

Ball J identified three issues for determination:

  1. Was MacDow entitled to serve a payment claim in respect of the amount payable to it under cl 39A.2 of the contract?
  2. Was MacDow entitled to withdraw the first adjudication application and make the second adjudication application in respect of Payment Claim 13?
  3. Did the second adjudicator err in his determination thereby entitling Patrick to the relief it sought in the proceedings?

This note deals only with issues 1 and 2.

Was MacDow entitled to serve Payment Claim 13?

Patrick asserted that Payment Claim 13 was not a valid payment claim under the Act because there was no reference date applicable to it. Further, it was not a claim for a ‘progress payment’ under the Act.

Before dealing in detail with the submissions made by the parties, his Honour made some observations concerning s 8 of the Act, in particular as to reference dates for the making of payment claims. Specifically, his Honour noted that s 8(2)(b) only applies if the contract does not provide reference dates.

Ball J then turned to consider Payment Claim 13, which consisted of two broad components:

In relation to the first point, the last contractually provided reference date would have been applicable to a payment claim for this work made by MacDow prior to the date of termination. However, MacDow did not make such a payment claim.

His Honour observed that because a claim under cl 39A.2 of the contract involves a one-off payment it does not fit easily within the Act. The starting point for such a claim is the calculation prescribed by the clause whereas the starting point for a payment claim under the Act is s 8 which requires the identification of construction work or related goods or services supplied under the contract.

Construction work performed or goods or services supplied after the last reference date under the contract occurring prior to termination and the date of termination is construction work performed or goods or services supplied under the contract. However, in his Honour’s view both plant and equipment which MacDow had ordered to comply with its contractual obligations and costs incurred in removing equipment from the site (which are payable under cl 39A.2) were not construction work or goods or services supplied within the meaning of the Act.

His Honour said that because the plant and equipment had been ordered by MacDow to enable it to comply with its contractual obligations it was not of itself construction work or the supply of related goods or services. Similarly, the removal of equipment from site was not construction work but, rather, an activity which follows the conclusion of the construction work because of termination of the contract.

His Honour then considered the following issues:

As to the first point, his Honour noted that whether contractual provisions continue post termination is a matter of construction of the contract. After reviewing the contract, particularly cll 37.6 and 39A, his Honour concluded that the payment provisions in the contract did not continue beyond termination.

In relation to the second point, his Honour considered that work performed during the period referred to had been, up until the termination of the contract, the subject of a reference date pursuant to the contract and, because of this, s 8(2)(b) of the Act would not be applicable.

Importantly, in his Honour’s view this position was not altered because of the termination of the contract before the next reference date under the contract arose. Consequently, there was no reference date applicable to Payment Claim 13. Therefore, no part of Payment Claim 13 was a claim for a progress payment within the meaning of the Act either because:

Was MacDow entitled to withdraw the first adjudication application and then make the second adjudication application?

In failing to make a determination in respect of some of the component claims forming part of Payment Claim 13 the first adjudicator failed to comply with his statutory duty to determine the amount of Payment Claim 13 within the period prescribed by s 21(3) of the Act.

On first view, this fact would entitle MacDow to withdraw the first adjudication application pursuant to s 26. However, in the present case his Honour held that this option was not open to MacDow because, for the reasons highlighted above, Payment Claim 13 was not valid.

His Honour stated that If Payment Claim 13 had been valid MacDow would have been entitled to exercise the rights available to it under s 26 of the Act.

Consequently, MacDow was not entitled to make the second adjudication application.

Judgment

Ball J declared that the determinations in both adjudications were void and ordered that money paid into court by Patrick be released to it and that MacDow pay Patrick’s costs.

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