brendon - briefing on proposed sop legislation to kpk's in-house staff - 02.04.04

7/30/2019 Brendon - Briefing on Proposed SOP Legislation to KPK's in-House Staff - 02.04.04

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BRIEFING BYEQUITAS CORPORATIONIN

CONJUNCTION WITHACIES LAW CORPORATION

THE PROPOSED SECURITY OF PAYMENT

LEGISLATION:

(1) Parist Holdings Pty Ltd V WT PartnershipAustralia Pty Ltd [2003] NSWSC 365

(2) Walter Construction Group Ltd V CPL (SurryHills) Pty Ltd [2003]NSWSC 266

ByBrendon Choa


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(1) Parist Holdings Pty Ltd V WT Partnership Australia Pty Ltd

Brief facts

This NSW case concerns the ambit of theAdjudicators powersunder the Building and Construction Industry Security of Payment Act1999 (NSW)(theBCISPAct).

WT Partnership had provided consultancy services to ParistHoldings, in relation to construction work undertaken by ParisHoldings.

On 10 January 2003, a Payment Claim for $90,488 was served onParist Holdings.

On 24 January 2003, Parist Holdings served a Payment Schedule on

WT Partnership, who then applied for adjudication in respect of theprogress payment.


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Scope ofAdjudicatorspowers

On 20 February 2003 the Adjudicator made a determination infavour of WT Partnership.

Parist Holdings then applied to set side the determination of theAdjudicator, amongst other things on the ground that it was notopen to the Adjudicator to decide whether or not the contractcontained an implied term and to construe the provisions of thecontract to determine whether Parist Holdings was obliged to payGST.


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Scope ofAdjudicatorspowers(contd)

The Judge, Nicolas J, however disagreed with Parist Holdings sayingthat the proper exercise of power and discharge of function of theAdjudicator would require him, to interpret contractualdocuments and/or evidence as to the existence of an oralcontract or an oral term, and/or to make findings as to theexistence and effect of contractual provisions whether express,

implied, written or oral.. these are likely to be necessary steps tobe taken in the course of deciding a dispute the ambit of which isevidenced by the payment claim and the payment schedule.


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Scope ofAdjudicatorspowers(contd)Summary of this decision

From this case it is clear that it is within the ambit of an Adjudicatorpowers to:

decide whether or not the construction contract contains animplied term and

construe the provisions of the contract to determine whetherGST is payable by either party.


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(2) Walter Construction Group Ltd V CPL (Surry Hills) Pty Ltd

Facts

This case concerns the consequences of the failure by the employerto serve a Payment Schedule.

Walter Construction (Walter) as main contractor agreed to designand construct certain works at Glebe Point Road, New South Wales,

Australia for CPL (Surry Hills)(CPL) as principal. This was a lumpsum contract, which works included the construction of a multi-storey residential building consisting of 46 apartments, basement car

parking, landscaping works, residential gymnasium and a swimmingpool.

The Superintendent for the contract was Greencliff (CPL) Developments.


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Facts (contd)

On 20 December 2002 Walterserved on the SuperintendentProgressClaim No. 20 for the sum of $14,915,255 inclusive of GST pursuantto cl. 42.1 of the contract.

On 20 December 2002, Walterserved on CPLthe documents whichevidence a claim for the same amount as made in Progress ClaimNo. 20.

Walter contends that these documents constitute a PaymentClaimwithin the meaning of s 13 ofthe BCISP Act.

On 23 January 2003, the Superintendent issued payment certificate

No. 20 in accordance with cl 42.1 of the contract which assessed theamount payable under Progress Claim No. 20 to be $952,351.


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Facts (contd)

On 28 January 2003 CPL paid Walter the sum of $953,351 inaccordance with payment certificate No. 20.

On 11 February 2003, Waltersuspended the carrying out of worksunder the contract, apparently in reliance upon ss 15(2)(b) and 27 ofthe Act.

CPLdid notprovide to Waltera Payment Schedule within themeaning of s 14 of the Act within 10 business days after service ofthe payment claim (i.e. by as prescribed, or at all.


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Walter then sued CPL for the unpaid portion of the claim of$13,962,904. Walter argued that as a consequence of failing toprovide a Payment Schedule, CPLbecame liable to pay this unpaid

portion of the claimed amount, pursuant to section 15(1) and (2)(a)of the BCISP Act. Section 15(1) states:

This section applies if the Respondent:

(a) becomes liable to pay the claimed amount to theclaimant under section 14(4) as a consequence ofhaving failed to provide a payment schedule to theclaimantwithin the time allowed by that section, and

(b) fails to pay the whole or any part of the claimedamounton or before the due date for the progress

payment to which the payment claim relates.


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Section 15(2) states:

In those circumstances, the claimant:

(a) may recover the unpaid portion of the claimed amountfrom the respondent, as a debt due to the claimant, in anycourt of competent jurisdiction, and

(b) may serve notice on the respondent of the claimants

intention to suspend carrying out construction work (orto suspend supplying related goods and services) under theconstruction contract.


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In its defence to Walters claim CPL argued, amongst otherthings, that Walterspayment claim (i.e. Progress Claim No. 20)

was not a valid claim within s 13 of the BCISP Act, because thepayment claim did not relate to construction work (orrelated goods and services within the meaning of s 13(2)(a)of the Act.

Section 13(2) states that A payment claim:

(a) must identify the construction work (or relatedgoods and services)to which the progress paymentrelates, and

(b) must indicate the amountof the progress payment thatthe claimant claims to be due for the construction workdone (or related goods and services supplied) to whichthe payment relates (the claimed amount), and

(c) must state that it is made under the Act.


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CPLs argument

The items in Walterspayment claim (i.e. Progress Claim No. 20)had included a Schedule described as EOT Consolidated Claim

(EOT, 19A, 25, 26, 26A and 26Bonly)

for the sum of$13,140,022. This was a consolidation of extension of timeclaims previously made byWalter.

CPL argued that as the payment claim by Walter included an

extension of time claim it cannot constitute a payment thatrelates to construction work. According to CPL, the introductorywords to s 5 of the BCISP Act, namely construction workmeans any of the following work shows that physical work

was contemplated as fundamental to an entitlement to a paymentclaim.


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CPLs argument (contd)

Consequential loss occasioned by delay to the progress of the

works under the contract was in a substantially differentcategory, and was thus outside the definition of constructionwork (or related goods and services) thereby rendering it invalidas a claim within the statute.


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What the Court ruled

The Court however ruled that Walters Progress Claim No. 20

was nevertheless still a valid payment claim for the purposes of s13(2) of the BCISP Act. It said that the payment claim of 20December 2002 had adequately identified the work (or relatedgoods and services) to which the progress payment related, andthat was sufficient to meet the requirements of s 13(2)(a).


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What the Court ruled (contd)

The Judge, Nicolas J said [at para. 67]:

To demonstrate compliance with s 13(2)(a) it is irrelevant, in myopinion, that an item which is a component of a paymentclaim may be disputed, albeit on the grounds that such itemcannot be categorized as either work or goods or services withinthe meaning of s 5 or s 6 respectively. Inclusion of a disputeditem does not render a payment claim invalid. Thestatutory requirement for provision of payment schedulesand the scheme for adjudication allow for the ventilationand determination of disputes following service of a

payment claim under s 13. (Emphasis added)


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What the Court ruled (contd)

Therefore Nicolas J ruled that:

the failure ofCPLto provide a Payment Scheduleto WaltersPaymentClaim(i.e. Progress Claim No. 20) for the sum of $14,915,255 within the

time allowed by s 15 of the BCISP Act, and

CPLsfailure to pay the whole or any part of the claimed amount on or

before the due date (having paid only $953,351 on 28 January 2003),

entitles Walter to summary judgment for the balance sum of $13,962,904.


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Implications of this case

Under the NSW BCISP Act, a contractors payment claim, onlyneeds, very simply, to (i) identify the construction work (ii)indicatethe amount claimed and (iii) state that it is made underthe statute, to qualify as a valid claim under the Act.

It is procedural in nature and contractor does NOT have toestablish merits of his payment claim at this stage.

If the employer wishes to dispute or challenge the meritsof thecontractors payment claim, he MUST provide a PaymentSchedule to the contractor within 10 business days after thepayment claim is served (or as provided for in the contract)stating the amount, if any, of the progress claim which will bepaid and the reasonsfor not paying the amount claimed.


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Implications of this case(contd)

By providing a Payment Schedule, it allows the claimant toimmediately commence the adjudication process under the

Act. In other words, the Payment Schedule is a necessaryrequirement to trigger the adjudication process under the Act.

But if employer fails to provide a Payment Schedule, and doesnot pay the full amount claimed under Progress Claim, theunpaid balance automatically becomes a debt due from theemployer to the contractor.

More importantly, the employer loses the right to disputetheunpaid balance of the contractorsPayment Claimat this stage,and loses the right to have the dispute adjudicated under the

Act.


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Implications of this case (contd)

In explaining the rationale of this statutory payment regime,Nicolas J quoted the following speech by the NSW Ministerduring the second reading of the Bill in parliament:

Under part 3, when a payment claim is made, and the otherparty, called the respondent, does not intend to pay the fullamount of the payment claim, it mustissue a payment schedulestating the amount, if any, of the payment claim which will bepaid and the reasons for not paying the amount claimed.

The payment schedule alerts the claimant to the existenceof a dispute over payment and allows the claimant toimmediately commence the adjudication process availableunder the legislation. This is a critical component of the billas it provides a statutory early warning to claimants that therespondent does not propose to pay their claim in full.


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Implications of this case (contd):

My views

The main objective of this statutory payment regime, with itsbuilt-in adjudication process, is to ease the temporarycashflow of the contractors whilst the works are in progressand is not intended to affect the substantive, permanent rights ofany party.

Query: whether upon the completion of the works, theemployer still has the right to arbitrate his dispute over thecontractors payment claims which he was liable to pay only byreason of his failure to provide a payment schedule?

Surely, CPLsright to dispute and arbitrate (at the end of the works) WaltersExtension of Time claim amounting to $13,140,022 cannot be lost forever

just because CPLfailed to serve a Payment Schedule within 10 business days.


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~ end ~

thank you

Brendon ChoaACIES Law Corporation

brendon - briefing on proposed sop legislation to kpk's in-house staff - 02.04.04

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