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It is a Matter of Construction...

The Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act) is an Act designed to entitle construction contractors to timely payment for their work and materials by way of a statutory “payment claim” and adjudication process faster than Court proceedings.

Section 8(1) of the Act contains a definition that is critical to the purposes of the Act. It defines a “reference date” to be “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 in relation to work carried out or undertaken to be carried out under the contract”. Section 13(1) makes use of definition of “reference date” in setting out the circumstances in which a payment claim may be made.

In Southern Han Breakfast Point Pty Ltd (in Liquidation) v Lewence Construction Pty Ltd [2016] HCA 52, the High Court held that a valid payment claim cannot be made without a “reference date”.

The facts of the case were as follows:

  • Southern Han Breakfast Point Pty Ltd (Southern Han) contracted Lewence Construction Pty Ltd (Lewence) to construct an apartment block at Breakfast Point, New South Wales.

  • On the 27 October 2014, Southern Han notified Lewence that Lewence would not be required to complete the contract work. Lewence accepted the notice the contract was terminated.

  • Lewence subsequently served a payment claim under the Act on Southern Han. The payment claim did not nominate a reference date.

  • The payment claim covered work up to 27 October 2014, the date of the notice.

  • Under the contract, it was a requirement that payment claims be served on the 8th day of the month for work performed to the 7th of that month.

  • Southern Han served a payment schedule on Lewence which indicated that Southern Han intended to pay Lewence $0 in respect of the payment claim.

  • Lewence applied for adjudication under the Act and the adjudicator determined that Southern Han owed $1,221,051.08 to Lewence for work completed under the contract.

  • Southern Han sought an order from the Supreme Court of NSW that the Adjudicator had no jurisdiction to adjudicate because the payment claim was issued after the contract was terminated, so there was no reference date. The matter went up to the High Court on appeal.

The basis of the High Court’s decision can be summarised as follows.

Section 13(1) of the Act sets out the circumstances in which a valid payment claim under the Act may be issued. It provides that a "person referred to in s 8(1) who is or who claims to be entitled to a progress payment" may issue a payment claim.

The High Court held that the cross-reference in s 13(1) to “a person referred to in s 8(1)” means that the existence of a reference date under a construction contract within the meaning of s 8(1) is therefore a precondition to the making of a valid payment claim under s 13(1).

In this case, where the contract did not allow for payment claims to be issued after termination of the construction contract, Lewence’s payment claim was invalid for want of a reference date and the adjudicator’s decision was void for want of jurisdiction.

In the circumstances, Lewence’s option for having its dispute with Southern Han was to sue Southern Han in Court proceedings, rather than utilising the adjudication process set out by the Act.

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