NSW Supreme Court reviews Reference Date for Post Termination Security of Payment Act (SOPA) claims and the meaning of “Construction Work”

The facts

Patrick Stevedores and McConnell Dowell entered into a construction contract on 13 March 2014, which was terminated for convenience by Patrick Stevedores on 24 April 2014.

On 30 June 2014, McConnell Dowell served a payment claim on Patrick Stevedores. There was an arithmetic correction provided on 1 July 2014 for the sum of $55,268,634.81 (plus GST).

Patrick Stevedores served a Payment Schedule and the matter was then the subject of an Adjudication Application made by McConnell Dowell (the First Adjudication).

Patrick Stevedores and McConnell Dowell failed to reach an agreement to extend the time for determination at the Adjudicators request, and consequently the Adjudicator determined that the sum of $7,786,770.98 inclusive of GST was payable to McConnell Dowell, having valued a number of the claims made by McConnell Dowell at $0 because of time constraints.

After receipt of the First Adjudication determination, and pursuant to section 26 of SOPA, McConnell Dowell withdrew the First Adjudication, and made a new application for the appointment of a Second Adjudicator (the Second Adjudication), who ultimately determined the Second Adjudication in the sum of $23,147,562.86 excluding GST.

The questions considered by Justice Ball

  1. Was there a valid payment claim?

Were the claims made by McConnell Dowell for plant and materials required to perform work under the contract, and/or demobilisation costs and a fixed termination fee, valid claims?

  1. Were there valid reference dates?

In circumstances where a construction contract specifies reference dates, but is silent as to whether or not a reference date will survive termination of the contract, can a payment claim be made under the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOPA) where work was performed after the most recent reference date but before termination of the contract?

No valid Payment Claim so no jurisdiction for Adjudicators

Ultimately, Ball J held that there was no jurisdiction for the First or Second Adjudicators to determine the Payment Claim served by McConnell Dowell because the Payment Claim was invalid for the following reasons:

  • there was no claim made for construction work performed under the contract or related goods or services; and
  • even if there was a valid claim for construction work or related goods and/or services, there was no valid reference date for McConnell Dowell to serve the Payment Claim.

No valid claim for construction work under the contract, or related goods or services

The Payment Claim consisted of claims made pursuant to clause 39A.2 of the contract for work performed and plant and materials ordered before Patrick Stevedores terminated the contract, for demobilisation costs and for a fixed termination fee (the 39A.2 claims).

Ball J held that the 39A.2 claims were invalid because he did not agree that the plant and materials ordered by McConnell Dowell or the demobilisation costs could be described as “construction work” under the contract, or the supply of related goods and services. Ball J stated:

“If plant and materials were ordered by McConnell Dowell, then that was done to put McConnell Dowell in a position where it could comply with its contractual obligations. It was not itself construction work or the supply of related goods or services… Similarly, the removal of equipment from the site is not construction work under the contract. It is an activity that follows that construction work coming to an end as a result of termination of the contract ….”

In relation to the termination fee claimed by McConnell Dowell, Ball J held that the lump sum allowance at termination was minimal and bore no relationship to construction work (being the sum of $10, prescribed by clause 31A of the contract).

No valid reference date

Ball J held that:

  • where reference dates are provided in a construction contract, and if there is no clause in that contract that stipulates that the reference dates will survive termination of the contract, then termination of the contract will extinguish all future reference dates;
  • Section 8(2)(b) of the SOPA, which provides a statutory mechanism for determining reference dates in the absence of contractual reference dates, did not apply because the contract had specified the reference dates;
  • McConnell Dowell did not serve a Payment Claim on the last valid reference date (prior to termination) for reasons unexplained, and had therefore missed the opportunity to serve a Payment Claim under the contract and/or the SOPA.

Did the First Adjudicator issue a valid determination?

Ball J also considered whether or not McConnell Dowell would have been entitled to withdraw the First Adjudication because of the failure of the First Adjudicator to issue a valid determination within the statutory time frames under the SOPA.

Ultimately, Ball J found that by failing to determine a number of the McConnell Dowell claims in the Payment Claim (which the First Adjudicator had valued at $0 because he had run out of time), the First Adjudication had not been determined and McConnell Dowell would have been entitled to withdraw the Adjudication Application and apply for the Second Adjudication.

However, in this particular case, that finding was not relevant to the final outcome for the parties, because Ball J had found that there was no valid Payment Claim to be determined.

What does this decision mean for construction companies and subcontractors?

This decision has caused some controversy. However, until such time as an appeal is heard and decided, it is the most recent authority on the validity of contractual claims for construction work, and post termination reference dates in New South Wales.

Given that, it is important that construction companies and subcontractors alike take particular care when negotiating contracts to ensure:

  • the reference dates provided for in the contract survive the termination of the contract;
  • the term “construction work” clearly and specifically includes all preparatory and demobilisation works.

If a company finds itself in a position where the contract has been terminated and it faces losses because the contract does not specify that the reference dates will survive termination or the contract does not adequately define any preparatory or demobilisation costs then legal advice should be sought as to the benefit of making a claim for damages instead of bringing a payment claim under the contract or the SOPA.

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