Security of payments claim after contract termination

October, 2013

McConnell Dowell Constructors (Aust) Pty Ltd v Heavy Plant Leasing Pty Ltd [2013] QSC 269

Can a contractor submit a claim under a State security of payment act, after the contract under which the work was done is terminated by the principal? In Queensland the answer is likely to be “no” whilst in New South Wales, it still appears uncertain.

QUEENSLAND

In the McConnell judgment delivered earlier this month, the Queensland Supreme Court explored the distinction between the Queensland and New South Wales Security of Payment regimes by looking at the reasoning of Lyon J in Walton Constructions (QLD) Pty Ltd v Corrosion Control Technology Pty Ltd [2012] 2 Qd R 90 which was more recently supported by De Jersey CJ, in his decision in McNab NQ Pty Ltd v Walkrete Pty Ltd & Ors [2013] QSC 128.

Explaining the distinction between the two jurisdictions, Applegarth J said [at 22]:

“..Justice Peter Lyons held that generally terms of a contract do not operate after termination and that after termination there is no longer a contract under which a reference date could occur.[5] His Honour identified significant differences between the Queensland definition of “reference date” and the New South Wales provision. His Honour stated, the Queensland definition “gives greater primacy to the provisions of the contract dealing with the making of a claim for a progress payment than does the language of the New South Wales Act”.[6]  The conclusion that a reference date does not arise after termination of the contract was held to be consistent with the “general nature of the payments for which provision is made by the BCIP Act”.[7]”

Arguably the McConnell decision goes further than Walton and McNab (albeit in obiter). In Walton and McNab the views expressed by the Court were, that a reference date could still arise post-termination, providing there was an express provision in the contract to that affect. In McConnell there appeared to be such a provision in the form of clause 26.5 of the contract which allowed for a final, post-termination evaluation of the account and payment to the contractor.

However, his Honour reasoned that the effect of clause 26.5 was in fact to create a new contract between the parties, apart from the original construction contract. Further, this new contract would no longer be considered a ‘construction’ contract for the purposes of the Act.

This approach appears to adopt to some extent and then extend, the reasoning in the recent New South Wales Supreme Court decision of Romeo v TQM Design and Construct Pty Ltd [2013] NSWCA 72, where the Court held that a final deed of settlement and release signed by the parties to finalise a construction contract, was not covered under the ambit of the Security of Payments regime as it was a separate contract which was not a “construction contract” for the purposes of the Act.

NEW SOUTH WALES

Although it is generally accepted that in New South Wales reference dates continue to accrue to a claimant, even after a contract is terminated (see Brodyn Pty Ltd t/as Time Cost and Quality v Davenport [2004] NSWCA 394 at 62-65), recent decisions again appear to make that position less certain.

In addition to the Romeo decision, in another recent New South Wales decision of Hill v Halo Architectural Design Services [2013] NSWCA 865, Stevenson J said:

“Where a contract makes no provision for reference dates to continue after work has ceased, no further reference dates will accrue to a claimant for the purposes of the Act: See The Trustees of the Roman Catholic Church for the Diocese of Lismore v TF Woollam and Son [2012] NSWSC 1559.”

IMPLICATIONS

Both potential claimants and respondents should be aware, that when a contract is terminated, the terms of the contract may affect the parties’ rights under the relevant Security of Payment regime of the State in which the work is done, and that the impacts may vary between different State jurisdictions. Advice should be sought at the time of negotiating contract terms and prior to entering into contracts, and also during the court of administering contracts, and prior to termination.

Also, because a contract termination may extinguish a claimant’s right to submit a statutory payment claim, claimants should take action early and exercise their rights under the relevant Acts if they perceive a risk of contract termination, for instance if served with a show cause notice.

QUESTIONS

If you have any questions regarding this article or any other building, construction or infrastructure matter, please contact:

Ziv Ben-Arie
Partner
T: (02) 8289 5854
E: zbenarie@millsoakley.com.au

Vlad Vishney
Lawyer
T: (02) 8289 5868
E: vvishney@millsoakley.com.au
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SYDNEY BUILDING, CONSTRUCTION AND INFRASTRUCTURE

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