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“What is the Reference Date?”

RECENT SECURITY OF PAYMENT DECISION

In the recent decision of Regal Consulting Services Pty Ltd v All Seasons Air Pty Ltd [2017] NSWSC 613, the Supreme Court of NSW again considered the issue of reference dates under the Security of Payment Act in light of the recent High Court decision of Southern Han Breakfast Point Pty Ltd (In Liq) v Lewence Construction Pty Ltd [2016] HCA 52.

The Facts

Regal and All Seasons entered into a Contract whereby All Seasons agreed to perform air conditioning and mechanical works on a residential building project. The Contract was a construction contract for the purposes of the Building and Construction Industry Security of Payment Act 1999 (“the Act”).

Clause 37 of the Contract contained the relevant provision regarding progress claims. That clause stated that “[All Seasons] shall claim payment progressively in accordance with Item 37…[a]n early progress claim shall be deemed to have been made on the date for making that claim (emphasis added). In turn, Item 37 provided that progress claims were to be made “on the 20th day of the month”.

It was common ground that:

  1. for the purposes of sections 8 and 13 the Act, the “reference date” for the making of a payment claim was the 20th day of each month;
  2. All Seasons had issued a payment claim under the Act in respect of the reference date 20 June 2016; and
  3. All Seasons had issued another purported Payment Claim under the Act dated 12 July 2016.

The 12 July payment claim was ultimately submitted by All Seasons for adjudication under section 17 of the Act. At adjudication (and consistently with the payment schedule), Regal argued that the adjudicator did not have jurisdiction to make a determination because the payment claim had no valid reference date.

The adjudication determination was favourable to All Seasons. Regal commenced proceedings in the Supreme Court seeking a declaration that the adjudicator had no jurisdiction to make a determination.

The Arguments

The argument made by Regal was simple:

  1. All Seasons had already made a payment claim in respect of the reference date 20 June 2016;
  2. the next reference date did not accrue until 20 July 2016;
  3. the 12 July payment claim was therefore the second payment claim in relation to the 20 June 2016 reference date; and therefore
  4. the payment claim was invalid pursuant to section 13(5) of the Act (which states that a claimant may not serve more than one payment claim in respect of a reference date).

All Seasons argued that the particular words used in clause 37 of the Contract, that is, that “an early progress claim shall be deemed to have been made on the date for making that claim” had the effect of giving the 12 July payment claim the reference date of 20 July 2016 for the purposes of the Act.

 The Decision

The matter was heard by his Honour McDougall J, with judgment being delivered on 19 May 2017.

His Honour at the outset of the judgment (paragraph 22) affirmed the High Court’s position regarding reference dates arising out of the Southern Han decision:

  1. the existence of a reference date is a jurisdictional requirement for the making of a valid payment claim; and
  2. where the contract provides for the fixing of a reference date, the reference date is that fixed by operation of the terms of the contract, not one fixed independently of those terms but by reference to the way they operate.

His Honour then went on to observe that parties to a construction contract will have rights and liabilities that arise separately but simultaneously under both the contract and the Act. Importantly, his Honour stated at paragraph 28 of the judgment:

“…there may exist, and in this case there did exist, two mechanisms for a contractor…to recover payment. It may do so pursuant to the terms of the contract: by making a progress claim, having that claim certified by the Superintendent, and receiving payment of the amount (if any) certified. Or it may do so by making a payment claim under the Security of Payment Act, and relying on the procedure for recovering progress payments set out in Pt 3. It is clear that the one claim may function both as a progress claim for the purposes of the contract and as a payment claim for the purposes of the Security of Payment Act.”

WHAT WAS THE CRITICAL ISSUE?

The above reasoning leads into the critical issue in the judgment: whether the “deeming” portion of clause 37 of the Contract has any effect for the purposes of the Act. His Honour stated (at paragraph 29):

 In the present case, it is common ground that the claim of 12 July was effective as a progress claim pursuant to cl 37.1 of the contract, because it was deemed to have been made on the proper date. Apart from the question of the date on which that claim was made, it was also capable of operating as a payment claim under the Security of Payment Act. What, then, in terms of the operation of the Security of Payment Act (including the requirement for a reference date if the payment claim is to be valid) is the effect of the second sentence of cl 37.1?

In considering the above question, his Honour said:

 “In my view, the word “deemed” in cl 37.1 of the contract is used to create a contractual fiction. Something that, clearly, did not happen on a particular date (because it happened earlier) is deemed, for the purposes of the contract, to have happened on the later particular date. (paragraph 35)

 In the present case, the contractual purpose of the deeming provision in cl 37.1 is reasonably clear. By setting out a timetable for the making of progress claims, their assessment, and the payment of any amount owing, it enables the parties to plan their work and to manage their cashflow… (paragraph 42)

 Nonetheless, the question remains, should a contractual provision clearly intended to facilitate the administration of the contract have any relevant effect on the operation of the Security of Payment Act? (paragraph 43)

It is one thing to say, for the purposes of the contract, that a progress claim served ahead of time is deemed to have been served on the contractually required date… (paragraph 45)

 It is quite another thing to say that a progress claim served ahead of time is, nonetheless, served “on and from” the contractually required date, which of course is also the reference date for the purposes of the Security of Payment Act. … That does not seem to me to be permissible.” (paragraph 46)

His Honour concluded (paragraph 53) that:

“…there was no available reference date to support the progress claim that All Seasons served on Regal on 12 July 2016. It must follow that the adjudicator lacked jurisdiction to hear and determine the adjudication application based on that progress claim in its purported character as a payment claim under s 13(1) of the Security of Payment Act. It could not have been such a payment claim, because, for the reasons I have sought to explain, All Seasons was not, when it was served, “a person referred to in s 8(1) who is… entitlement to a progress payment”.

The Court determined that there was no valid payment claim and therefore that the adjudicator had no jurisdiction to make a determination under the Act.

 Summary

This judgment again highlights for users of the Security of Payment Act the importance of making sure there is a valid reference date for a payment claim. Contractual regimes for claims and payments exist separately to the claim and payment regime set out in the Act.

The Act is not concerned about whether or not a progress claim made under a contract is “deemed” to have been made on a certain date – the relevant factual enquiries for the purposes of the Act are simply “what is the reference date?” and “on what date was the payment claim served?”. If a purported payment claim is served on a date in respect of which no reference date exists, there is no valid claim and can be no valid subsequent adjudication procedure.

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