What constitutes a valid Payment Schedule?
Case Note: Style Timber Floor Pty Ltd v Krivosudsky  NSWCA 171
On 16 July 2019, the NSW Court of Appeal delivered its decision in Style Timber Floor Pty Ltd v Krivosudsky  NSWCA 171. 1
This case was in respect of a Payment Claim issued under the Building and Construction Industry Security of Payment Act 1999 (NSW) (Act) and deals with the question of what constitutes a valid payment schedule.
The main background and reasons for the decision in the judgment were by His Honour Leeming JA, including a very thorough analysis of the role of payment schedules within the Act.
Facts and Background
Style Timber Floor Pty Ltd (Style Timber) engaged Mr Krivosudsky trading as RK Grinding as a subcontractor to perform floor grinding and topping work at various sites in Sydney. A dispute arose as to the quality of the work, and Style Timber refused to pay certain invoices.
On 28 November 2017, Mr Krivosudsky served a “payment claim” under section 13 of the Act for $106,166.50 (the Payment Claim).
On 30 November 2017, Style Timber sent an email (the 30 November email) responding to the Payment Claim as follows:
“If you want, make a appointment with me, come to my office. I will show you the working agreement between Style timber and Rk grinding, many emails, photos, videos, back charges from builders and other trades, complains from my clients. You will understand why I can’t pay you. The damages you done is more than what you claimed.” (sic)
Mr Krivosudsky applied to the District Court for summary judgment for the full amount claimed in the Payment Claim on the basis that the 30 November email was invalid for the purposes of the Act.
Style Timber argued that the 30 November email responding to the Payment Claim, when read with the totality of the correspondence referenced in the email, satisfied the requirements of a valid Payment Schedule under the Act.
Mr Krivosudsky succeeded in his application for summary judgment.
Style Timber sought leave to appeal the decision of the District Court to the Court of Appeal.
The substantive issue arising in the appeal was whether Style Timber’s response was a “payment schedule” for the purposes of the Act.
Court of Appeal Decision
The Court of Appeal granted leave to Style Timber to appeal, but ultimately dismissed the appeal on the basis that the 30 November email did not amount to a payment schedule. The Court decided that the generality of the matters raised in the 30 November email rendered it impossible to determine the scope of the dispute.
The Court made the following observations in respect of payment schedules under the Act:
(a) section 14 of the Act is an “important constituent part of a narrowly circumscribed statutory regime in legislation” with a particular purpose, namely to achieve a prompt temporary resolution of payment disputes without prejudice to the parties’ rights at law;
(b) while a payment schedule can be an abbreviated description of the dispute, a payment schedule must sufficiently describe the dispute to explain the case it would have to meet in an adjudication; and
(c) section 14(3) of the Act may be satisfied by serving a document incorporating other documents by reference, provided such documents are identified with sufficient particularity to enable the recipient to know what is being incorporated.
Case Law Regarding Payment Schedules
In the course of the decision, there was an analysis of the existing case law relating to payment schedules where the following propositions and authorities were mentioned:
- a payment schedule need not be attended with the same degree of formality that might be required in other legal contexts, however, this is not a licence for informality or an excuse for vague, generalised objections to payment (see Multiplex Constructions Pty Ltd v Luikens NSWSC 11402 which was endorsed by the Court of Appeal in Clarence Street Pty Ltd v Isis Projects Pty Ltd  NSWCA 3913); and
- even where a respondent proposes to pay no part of a payment claim, it is still required to indicate reasons in accordance with s 14(3) (see Barclay Mowlem v Tesrol Walsh Bay  NSWSC 12324 and Minimax Fire Fighting Systems Pty Ltd v Bremore Engineering (WA) Pty Ltd  QSC 3335).
His Honour Palmer J had said in Multiplex Constructions Pty Ltd v Luikens  NSWSC 1140:
“Section 14(3) requires that reasons for withholding payment of a claim be indicated in the payment schedule with sufficient particularity to enable the claimant to understand, at least in broad outline, what is the issue between it and the respondent. This understanding is necessary so that the claimant may decide whether to pursue the claim and may know what is the nature of the respondent’s case which it will have to meet if it decides to pursue the claim by referring it to adjudication.
Nevertheless, precision and particularity must be required to a degree reasonably sufficient to apprise the parties of the real issues in the dispute.
Section 14(3) of the Act, in requiring a respondent to “indicate” its reasons for withholding payment, does not require that a payment schedule give full particulars of those reasons. The use of the word “indicate” rather than “state”, “specify” or “set out”, conveys an impression that some want of precision and particularity is permissible as long as the essence of “the reason” for withholding payment is made known sufficiently to enable the claimant to make a decision whether or not to pursue the claim and to understand the nature of the case it will have to meet in an adjudication.”
Incorporating Documents into your Payment Schedule
The decision confirms that the requirements of section 14(3) of the Act may be satisfied by including other documents by reference in a payment schedule subject to the following:
- any document or documents to be so incorporated would need to be identified with sufficient particularity so that the recipient of the payment schedule can identify what documents are being referred to;
- the documents themselves would need to have sufficient detail to meet the requirement of section 14(3) of the Act. Obviously, the more detail supplied, the less the prospect that the payment schedule will be subject to an objection; and
- reference in a payment schedule to the documentation that has passed between the parties in the course of the project as a whole will likely not satisfactorily disclose “the respondent’s reasons” for withholding payment.
Invitation to Meet
Leeming AJA also determined that the invitation to come to his office in the 30 November email, so that the writer could then explain his reasons to Mr Krivosudsky also could not be a payment schedule, as section 14(3) of the Act requires an actual disclosure of reasons, not an offer to do so in the future.
This is a warning to respondents to always supply particularised details of any items in dispute and not to rely on an arrangement to meet at a later time to discuss, or any other informal reply that falls short of the requirements to be a valid payment schedule under the Act.
This case is a reminder of the right of a party to utilise the Act to affect swift consequences in the event that a party fails to provide a valid payment schedule.
In order for a payment schedule to be valid, a respondent should ensure that:
- sufficient reasons, details and particulars are given of any dispute; and
- detailed particulars should be given of the relevant documents in support of that dispute (we recommend attaching these to any payment schedule).
This kind of detail is needed in a payment schedule in order to explain to the claimant the case it would have to meet in an adjudication.
Further, pursuant to section 20(2B) of the Act, a respondent is limited to the reasons set out in its payment schedule in any Adjudication Response.
For all of these reasons, respondents should take great care in answering a payment claim which is in dispute, to avoid serious consequences under the Act.
If you need any assistance with the preparation of a payment schedule, advice on enforcement where no valid payment schedule is provided, or training about the Act, please contact us.
For more information, please contact our lawyers David Glinatsis, Matthew Singh or Catherine Lucas at firstname.lastname@example.org or on 02 8239 6500.
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