By Ziv Ben-Arie, Partner and Natasha Joukhdar, Law Graduate/Paralegal
Until the recent decision of All Seasons Air Pty Ltd v Regal Consulting Services Pty Ltd  NSWCA 289 (All Seasons Air v Regal), it may have been unclear to contractors whether serving a progress claim earlier than the reference date engaged the provisions of the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act).
Following the Court of Appeals decision in All Seasons Air v Regal it now seems clear that the legislative regime turns upon two things:
- The reference date, only “on and from” which date a person may have an entitlement to a progress payment; and
- The service of a payment claim by a person so entitled.
This essentially means that both the entitlement for a contractor to make a progress claim pursuant to section 8(1) of the Act and for the contractor to serve this payment claim pursuant to section 13(1) of the Act can only occur on or from each reference date. The reference date is “a date determined by or in accordance with the terms of the contract as the date on which a claim for a progress payment may be made…” and if no express provision is made in the contract, the reference date is the last day of the named month.
- All Seasons Air Pty Ltd (All Seasons Air) contracted with Regal Consulting Services (Regal) to perform mechanical ventilation and air-conditioning work.
- Pursuant to clause 37.1 of the contract, All Seasons Air was to claim payment progressively in accordance with Item 37 (which provided that progress claims were to be made on the 20th day of the month).
- All Seasons Air made its tenth progress claim on 20 June 2016. However, it issued a further claim on 12 July 2016 in the amount of $43,216.96 exclusive of GST, following what was claimed to be completion of the entire project.
- Regal asserted that it was not required to pay All Seasons Air any money as a result of the early progress claim. Importantly, it asserted that the purported payment claim dated 12 July 2016 was the second payment claim in respect of the 20 June 2016 reference date, and for that reason All Seasons Air was in contravention of section 13(5) of the Act and invalid.
- The parties proceeded to Adjudication, where the Adjudicator determined that the payment claim by All Seasons Air was valid.
- Regal commenced proceedings in the Supreme Court challenging the validity of this determination. The primary Judge, his Honour McDougall J, held that the Adjudicator’s determination was void. All Seasons Air appealed.
Issue before the Court
The primary question on appeal was whether the 12 July 2016 progress claim engaged the statutory regime in Part 2 of the Act. This required consideration of sections 8, 13 and 31 of the Act in accordance with the principles of statutory interpretation. That is, was there an available reference date for the 12 July 2016 payment claim, where the 20 June 2016 used the respective reference date having regard to the terms of the Contract.
In dismissing the appeal, their Honours Leeming and Payne JJA deemed:
- Section 13(4) of the Act specifies the time within which a payment claim may be served, which is either 12 months or such longer period as determined by or in accordance with the terms of the construction contract. That subsection is directed to the time after which a progress claim may not be served and does not validate the early service of a purported payment claim.
- Section 31(1)(e) of the Act specifies the manner in which a notice, including a payment claim, may be served, and confirms that the parties may agree to that occurring as provided under the construction contract. This provision is irrelevant to the timing at which service is to be effected.
- The fact that the Act expressly picks up the parties’ agreement as to the last day on which a payment claim may be served, and as to the manner by which it may be served, but says nothing about the consequences of agreement as to the early service of a purported payment claim, tells against the Applicant’s construction which suggested that clause 37 has the effect of deeming the service of an early progress claim to be later in time, when the reference date has been reached.
- Subsection 13(5) of the Act imposes a prohibition upon the service of more than one payment claim in respect of each reference date. On 12 July 2016, the applicant had already served a payment claim in respect of 20 June 2016, and it was not entitled to a progress payment in respect of the 20 July 2016 reference date. Prima facie, it was in contravention of subsection 13(5).
While the Applicant attempted to rely on the decision of the Court in Abergeldie Contractors Pty Ltd v Fairfield City Council  NSWCA 113, which suggested that a payment claim made before a reference date was taken to have been made on the reference date, the Court held that no argument was directed in that appeal to the present point.
This decision ought to act as a reminder to contractors not to “jump the gun” and serve payment claims under the Act before a right to do so accrues under a construction contract. There may be alternatives to the way this may be approached in an adjudication application and the consequences of invalidation, avoided. For contractors, at least three points should be considered:
- Deeming provisions are ineffective for the purposes of the Act. Parties making payment claims should ensure that a reference date has arisen prior to submitting a progress claim, regardless of any deeming provisions included in the construction contract.
- The existence of a reference date under a construction contract is a necessary pre-condition to the making of a valid payment claim.
- Parties making payment claims should ensure that only one payment claim is submitted for each reference date in compliance with the Act, so as to avoid breaching section 13(5) of the Act and of “waste” reference dates.