By Vlad Vishney, Senior Associate, Scott Higgins, Partner and Ziv Ben-Arie, Partner
The High Court’s judgment today in Southern Han Breakfast Point Pty Ltd (in Liquidation) v Lewence Constructions Pty Ltd  HCA 52 marks the final chapter in the judicial process dealing with an adjudicator’s determination of a builder’s claim under the Building and Construction Industry Security of Payment Act 1999 (NSW) (Act), against its client developer in a contract that had been terminated.
The case has been followed with interest by the construction industry as it progressed through various levels of appeal, primarily because it deals with the question of whether a builder (or subcontractor), can validly claim under the Act, following a purported termination of the Contract by the respondent.
In this case, the builder (Lewence) had the balance of the work under its contract with the developer (Southern Han), taken out of its hands pursuant to the ‘show cause/termination’ machinery of that contract (Termination). Lewence then served a substantial payment claim under the Act for work up to the date of Termination and the claim proceeded to adjudication.
Southern Han relevantly submitted in it adjudication response, that the adjudicator had no jurisdiction to determine the claim because it was invalid as a consequence of there being no reference date available, to which the payment claim could attach. The last reference date before the Termination had been used up by an earlier payment claim from Lewence and the Termination preceded the next available reference date under the Contract.
In its judgment, the High Court dealt with the following two questions.
- Whether the existence of a reference date is a precondition to the making of a valid payment claim under the Act; and
- How a reference date is to be determined?
In brief, the answer to the first question was firmly in the affirmative. There must be an available reference date to which the payment claim relates.
As to the second question, the Court said that the reference date must be determined in accordance with the Contract. Importantly, the Court noted that if the Contract does not have an express term providing for the accrual of reference dates to survive termination, then the reference dates in fact cease to accrue beyond the date of termination.
The question of the accrual of reference dates beyond termination has been unclear for some time, particularly in New South Wales where the general view has been that a claimant could make a payment claim under the Act, even after termination of the contract, regardless of whether the relevant contract dealt with this or not.
This decision of the High Court may now harmonise the position with Queensland, where the Courts of that state had held for some time that a termination of a contract essentially removes the ability of the parties to access the Act (although it should be noted that this High Court decision is not inconsistent with claims being made under a ‘vacant’ reference date which preceded the Termination).
Importantly, it was not within the ambit of the appeal for the High Court to deal with the question of whether the validity of any purported termination of the Contract was in any way relevant to the question of whether reference dates may continue to accrue. Presumably therefore, it is may be argued that all that is necessary for an adjudicator to lose jurisdiction to determine a payment claim under the Act, is that the respondent had ‘purported’ to terminate the contract.
Potential claimants who wish to ensure they can utilise the adjudication and Security of Payment system after a termination, must now ensure that contracts they enter into expressly provide for the accrual of reference dates (for the purposes of the Act), beyond any purported termination of the contract.
If this is not dealt with in the contract, then there is a risk that in certain circumstances, all that a recalcitrant respondent needs to do to remove the claimant’s access to the Act is to purport to terminate the contract.
It also serves as a reminder to all claimants (and adjudicators) that getting the reference date question right is something that goes to the heart of the validity of the claim. This is a common area of confusion for claimants (and sometimes adjudicators), particularly where multiple claims and demands for payment are being made within a particular time period that the contract prescribes for progress claims.
Mills Oakley can assist you to navigate these issues to ensure claims are correctly formulated and served. Please contact the authors should you have any queries or require any assistance.