Security Of Payment Act: Court of Appeal Decision Settles Law Regarding Supporting Statements
Casenote: TFM Epping Land Pty Ltd v Decon Australia Pty Ltd  NSWCA 93
On 14 May 2020 the Court of Appeal delivered its decision in the matter of TFM Epping Land Pty Ltd v Decon Australia Pty Ltd  NSWCA 93 in respect of the Building and Construction Industry Security of Payment Act 1999 (NSW) (as amended) (SOP Act).
The appeal was in respect of the summary judgment entered for a builder’s claim of some $6.4 million where no payment schedule was issued in time by the principal.
The decision Basten JA, with whom Meagher JA agreed, included a detailed analysis of the law relating to supporting statements and clarified the various conflicting case law to date in this space. Emmett AJA agreed with the orders of Basten JA but with separate reasons.
The appeal was dismissed and reinforces the importance of responding with a timely payment schedule and the severe risks of failing to do so.
Facts and Background
TFM Epping Land Pty Ltd and Katoomba Residence Investments Pty Ltd (the principals) engaged Decon Australia Pty Ltd (the builder) to construct a residential development on land at Hazlewood Place, Epping in Sydney.
On 3 June 2019 the builder served progress claim 10 on the principal seeking payment of $6.4 million pursuant to the SOP Act (the claim).
No payment schedule was issued within the 10 business days after service of the payment claim by the principals.
Pursuant to section 14(4) of the Act if a claimant serves a payment claim on a respondent and the respondent does not provide a payment schedule to the Claimant within the time specified, the respondent becomes liable to pay the claimed amount to the Claimant on the due date of the progress payment to which the payment claim relates.
Under section 15 of the SOP Act, where the respondent becomes liable to pay the claimed amount to the claimant under section 14(4), the Claimant may recover the unpaid portion of the claimed amount from the respondent as a debt due to the Claimant in any court of competent jurisdiction.
On 3 July 2019 the builder applied for judgment by a summons filed in the Equity Division, Technology and Construction List of the Supreme Court.
The principals filed a response asserting as follows:
i) valid service of the payment claim had not been affected; and
ii) the payment claim itself was “invalid”, on four grounds.
On 11 October 2019, the primary judge, Henry J, dismissed each of the grounds in the principals’ response and entered judgment for the builder for the full amount of the claim.
The Principal sought leave to appeal. The application for leave and the appeal itself were heard concurrently.
Leave to appeal
Basten JA (with whom Meagher JA agreed) granted the principals conditional leave on the basis:-
i) it was not opposed;
ii) the judgment is in substance and effect a final judgment;
iii) the amount in issue is substantially greater than the floor fixed by section 101(2)(r)ᶟ of $100,000; and
iv) there are issues of principle raised by the notice of appeal which need to be resolved.
Emmett JA, however, noted an inclination to refuse leave as there is no substance in any of the grounds.
Ultimately, however, His Honour Emmett JA chose to agree with the orders proposed by Basten JA which granted leave.
Issue on appeal
The issues raised on the appeal were as follows:
(1) the payment claim was invalid because it was a claim for payment in respect of variations to the contract which were not claims under the construction contract, but were quantum meruit claims (variation issue);
(2) the payment claim was invalid because it was not made in respect of an available reference date (reference date issue); and
(3) the payment claim was not validly served because it was not accompanied by a supporting statement in accordance with s 13(7) of the Security of Payment Act (supporting statement issue).
Issue 1: Variation issue
The Progress Claim included a breakdown of the amount claimed between the “contract sum” for $28,215,000 and “variations” for $1,375,024.
The Principal argued that the word “variation” can be understood as relating to extra work recoverable to a quantum meruit claim and that a quantum meruit claim is not recoverable under the Payment Act.
The Court of Appeal found that had the Principal filed a payment schedule, which it failed to do, it would have been a matter for an adjudicator to determine whether the amounts claimed were payable under the Contract.
Basten JA notes in his reasons as follows:
“23. The principals acknowledged that the payments claimed for variations may have arisen under the contract, but asserted that there was “a triable issue” as to whether they were in fact claims for quantum meruit payments. On the face of the claim, the payments were sought under the contract. If they were not available under the contract, it might have been open to an adjudicator to reject those elements of the claimed amount. It was not open to the principals to resist judgment for the full amount of the payment claim on this basis. The trial judge was correct to reject this contention.”
Issue 2: No available Reference dates.
The Principal argued that a part of the Progress Claim was not in respect of an available reference date.
It was common ground that the relevant reference date was 20 May 2019. The Claim included interest up to 23 May 2019. The Principal asserted that this caused the whole of the Progress Claim to be ineffective.
Basten JA (with whom Meagher JA agreed) stated that this argument by the Principal “is patently untenable”. The court said :
“In any event, it would not matter if some construction work had been undertaken after the reference date, so long as the payment claim was referrable to that reference date. The principals did not dispute that, apart from 3 days interest, the large amount claimed related to work done before the reference date of 20 May 2019. The claim might have failed in relation to that aspect of interest, if the matter had gone to adjudication, but it did not. The ground of appeal alleging the absence of a relevant reference date must be rejected.”
Emmett AJA came to a similar conclusion and stated as follows:
“94. Had the Principal served a payment schedule, the question of whether interest was payable and how much was payable would have been the subject of adjudication. The Principal chose not to serve a payment schedule. The mere claim for interest in respect of the period on and after the relevant reference date does not invalidate the Progress Claim.
The interest was payable in respect of monies that were due and owing in respect of work that was carried out well before the reference date. Whether or not the contractor was entitled to recover interest for those three days, the claim did not invalidate the Progress Claim
95. The scheme of the Payment Act contemplates that disputes be determined by an adjudicator. The Principal failed to take advantage of the procedure afforded to it.”
These issues and findings reinforce the importance of a timely Payment Schedule.
Issue 3: Claim not validly served because not accompanied by supporting statement
The Principal argued that the payment claim was not validly served because it was not accompanied by a supporting statement in accordance with s 13(7) of the SOP Act.
A “supporting statement” means a statement which includes a declaration to the effect that all subcontractors, if any, have been paid all amounts that have become due and payable in relation to the construction work concerned.
Section 13(7) provides a penalty for failure to comply with its requirements with respect to supporting statements.
There was a supporting statement attached to the Payment Claim and it was in the form required by the relevant Regulations. The principal however complained that one sentence in the supporting statement was not compliant.
Basten JA went into a detailed analysis of this issue because of the various conflicting decisions that have previously been made in the Equity Division where supporting statements did not comply with the statutory requirements.
This included a review of the legislative intent and concluded that noncompliance with section 13(7) was not intended to invalidate a payment claim or service of an otherwise valid claim.
In conclusion Basten JA finds at  that:
“despite the limited coverage of the declaration identified by the principals, the supporting statement in the present case did not cease to be a supporting statement and there was, therefore, no offence committed under subs (7), nor presumably was the service of the payment claim ineffective.”
Emmett AJA came to the same conclusion and stated at :
“… In any event, s 13(7) does not purport to invalidate a payment claim that is given in contravention of s 13(7). Section 13(7) is … a law that forbids something to be done and, if something is done in contravention, does not annul the thing done but imposes a penalty on the person who has acted contrary to the law.”
This Court of Appeal decision has settled the previously contradictory law in relation to supporting statements.
This case is another example of the dire consequences of failing to serve a payment schedule in respect of a claim under the SOP Act.
This decision has also cleared up any confusion in respect of supporting statements and concludes that an invalid supporting statement does not invalidate an otherwise valid payment claim.
All parties to a construction contract should be proactive about their rights and risks under the Security of Payment legislation at all times.
For more information, please contact our lawyer David Glinatsis (Director) at firstname.lastname@example.org or on 02 8239 6500.
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