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A Deeming Provision and a Contractual Fiction

DAVID GLINATSIS

Case Note All Seasons Air Pty Ltd v Regal Consulting Services Pty Ltd [2017] NSWCA 289

Earlier this year, we wrote about the decision of the Supreme Court of NSW in the matter of Regal Consulting Services Pty Ltd v All Seasons Air Pty Ltd, in which the Court found in favour of the plaintiff. You can read our earlier article: What Is The Reference Date?

All Seasons Air appealed the decision and on 10 November 2017 the Court of Appeal published its judgment. The appeal was dismissed and the findings of the Supreme Court were upheld.

The Facts

Regal and All Seasons entered into a Contract and 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. a) 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. b) All Seasons had issued a payment claim under the Act in respect of the reference date 20 June 2016; and
3. c) 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 Supreme Court Decision

The Supreme Court, per McDougall J, made the following points and reached the following conclusions:

• the existence of a reference date is a jurisdictional requirement for the making of a valid payment claim;
• there are two mechanisms to make and receive a progress claim: the contractual mechanism and the mechanism under the Act;
• the claim of 12 July was effective as a progress claim pursuant to the contract, because it was “deemed” by the contract to have been made on the proper date;
• the word “deemed” in cl 37.1 of the contract was used to create a contractual fiction, that is, something that did not happen on a particular date was deemed, for the purposes of the contract, to have happened on a later date;
• despite the contractual “deeming” provision, it cannot be said that a progress claim served ahead of time is served “on and from” the reference date for the purposes of the Act; and
• therefore, there was no available reference date to support the progress claim, the adjudicator lacked jurisdiction to hear and determine the adjudication application and the purported adjudication determination was not valid or enforceable.

The Arguments on Appeal

In the Court of Appeal, All Seasons made the following arguments:

• the effect of s 8(2)(a) and s13(1) of the Act when read together is that the progress claim made on 12 July 2016 should be taken by reason of cl 37.1 of the Contract to have been “served” on 20 July 2016 (on which date s13(1) of the Act was satisfied) and therefore engaged the provisions of the Act;
• the question of when a claim may be served is specifically addressed by s 13(4) of the Act and s13(1) of the Act says nothing as to when a claim may be “served”;
• it is not correct to say that the progress claim was served ahead of time – it was “provided or served” in accordance with the Contract such that it was “made” on a reference date;
• rather than cl 37 having the impermissible effect of treating the reference date to be a date earlier in time, instead cl 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; and
• although the invoice dated and received on 12 July 2016 said on its face that it was a payment claim, it was not in fact a payment claim such as to engage the provisions of the Act until 20 July 2016 arrived.

The Findings of the Court of Appeal

The Court of Appeal per Leeming and Payne JJA (with whom White JA, in a separate judgment, agreed), made the following points and reached the following conclusions:

• section 8(1) of the Act is clear and it was authoritatively determined in Southern Han that the entitlement of a person to a progress payment only arises “on and from each reference date”;
• as between the parties, the claim dated 12 July 2016 was “deemed” to have been made on 20 July 2016 for the purposes of the Contract;
• the position agreed to by the parties and binding as between themselves as a matter of contract does not mean that the 12 July 2016 payment claim was taken to have been served on 20 July 2016 for the purposes of the Act;
• at the time that the applicant’s 12 July 2016 claim was sent to the respondent, it had no entitlement to a progress payment for the purposes of the Act;
• the service of a payment claim under s13(1) of the Act is an essential precondition to taking subsequent steps in the procedure set out in Part 3 of the Act (per the High Court in Southern Han); and
• there is sound reason, given the consequences for both parties of engaging the regime established by the Act, for there to be certainty as to precisely when a payment claim has been served – it is easy to see the scope for confusion that could arise if the construction of the Act for which the appellant contends were to be accepted.

The Court of Appeal upheld the decision of the Supreme Court and All Seasons’ appeal was dismissed with costs.

Summary and Conclusion

This judgment reiterates the importance of ensuring 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.

This communication is sent by Kreisson Legal Pty Limited (ACN 113 986 824). This communication has been prepared for the general information of clients and professional associates of Kreisson Legal. You should not rely on the contents. It is not legal advice and should not be regarded as a substitute for legal advice. The contents may contain copyright.