Executive summary
A payment schedule issued under security of payment legislation may be found to be invalid if it does not adequately describe and address each component in the relevant payment claim. Specifically, respondents cannot simply seek to defer any assessment of variations to a later date.
In Witron Australia Pty Ltd v Turnkey Innovative Engineering Pty Ltd,1 the Supreme Court of NSW held that the Principal’s failure to address a distinct component of the Payment Claim made the entire payment schedule invalid. Further, it was stated that whilst the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act) is “undemanding”, there is a minimum level detail required to make a payment schedule valid and that
“vague, generalised objections to payment will not suffice“.
In this case, the payment schedule was issued via short email that might otherwise be valid were it not for a failure to adequately address a particular component of the Payment Claim (being, claimed variations). As such, the appeal was rejected.
This case concerned the Act specifically. In considering this case we have compared the requirements in equivalent legislation in other jurisdictions.
HWL Ebsworth Lawyers has expertise in Security of Payment disputes in all jurisdictions. Please contact Leighton Moon of our Construction and Infrastructure team to discuss any aspects of the above.
What happened?
In Witron Australia Pty Ltd v Turnkey Innovative Engineering Pty Ltd,2 the New South Wales Court of Appeal upheld the primary decision that the purported payment schedule was invalid under s14 of the Act.
The decision turned on two key issues:
- the requirements under the Act for a payment schedule to detail its response to a Payment Claim; and
- whether the email in question purporting to be a payment schedule, met these requirements.
Ultimately, owing to the failure of the principal to respond to a key element of the payment claim (being, the claimed variations), it was held that the purported payment schedule was invalid.
Facts
Witron Australia Pty Ltd (Witron), contracted with Turnkey Innovative Engineering Pty Ltd (Turnkey) for the installation of a series of “group controls” (GCs) at an automated distribution centre. The contract was for a “flat fixed amount” of $11.4 million, subject to any increase or decrease for variations as mutually agreed between the parties. Ultimately, the works were delayed, and the parties fell into dispute regarding variations and the revised contract sum.
On 1 May 2023, Turnkey issued Progress Claim number 9 for the sum of $804,154.63 (Payment Claim). The Payment Claim was divided into two components (being, $499,924.63 for “base contract works” and $304,230.00 for “contract variation works”).
On 3 May 2023, Witron responded to the payment claim via a short (and vague) email. Whether or not this email constituted a valid payment schedule for the purpose of the Act was then considered by the Court.
Issues in Dispute/Arguments
As noted by the Court of Appeal, the statutory context is important with respect of this issue. Pursuant to s14(4) of the Act, if the respondent to a Payment Claim fails to respond to the Payment Claim within the requisite time, then they will be liable to pay the claimed amount. As such, there is an onus on respondents to ensure that their response is clear and valid (particularly when seeking to reject a significant portion of the claimed amount).
To be a “valid” payment schedule, the Court of Appeal identified that the following requirements must be met:
- that it identifies the payment claim to which it relates;
- that it indicates the amount of the payment (if any) that the respondent proposes to make; and
- that it indicates why the payment that the respondent proposes to make is less than the amount claimed, that is, the reason or reasons for the amount claimed not being payable in whole or in part.
Firstly (and importantly), the Court considered the email itself was relatively clear in specifying that Witron did not propose to pay either the amount claimed or any other particular amount in response to the progress claim (and was therefore at least partially valid on that basis). As such, the Court dismissed any suggestion that it was necessary for a payment schedule to identify a particular numeric figure to be valid – and confirmed that the primary judge was correct to construe that the email at least partially satisfied the requirements of s14(2)(b) of the Act.
However, it was found that the email was still defective as it failed to address a substantial portion of the claim. In determining this, the Court referenced the Queensland Supreme Court case of Minimax Fire Fighting Systems Pty Ltd v Bremore Engineering (WA) Pty Ltd3 (Minimax). In Minimax, the QLDSC considered a response to a payment claim that took issue to part of a claim – but was silent as to what was proposed in respect of the balance of the payment claim. In that instance, the QLDSC held that this failure to deal with the balance of the items meant that the response did not constitute a valid payment schedule.
In this case, Witron argued that it did in fact reject the entire payment claim through their email, rather than only rejecting one such part of the payment claim. The Court did not agree with this contention as the only reference in the response to the variations was “we will review your variations … after we see real progress on the handing over of GCs“. The Court found that Witron did not give any reasons which reasonably answered the relevant part of the claim relating to variations. On this issue, the Court commented that:
“To say “we are not going to consider paying this until you do X” is, of itself, to refuse to grapple with the claim made. It is not saying that the claim is not payable. It is simply declining to consider whether or not that is so, let alone giving reasons for rejecting the claim, until some other condition it met.“
For these reasons, the Court found that the email did not constitute a valid payment schedule for the purposes of s14 of the Act and dismissed the appeal.
Why is this important?
This case presents an important lesson in all jurisdictions as to the requirements of a payment schedule. The use of the word “indicate” within s14 of the Act is also reflected in its legislative counterparts in South Australia, Tasmania, Victoria and Western Australia. This raises questions with respect to the required detail within a payment scheduled in these jurisdictions, and namely that:
- the payment schedule must be sufficiently detailed to enable the claimant to consider their options;
- this level of detail is set out in the relevant provision (as complemented by the relevant Construction Contract), and will differ by jurisdiction;
- relevantly, whilst the Act in NSW (and its counterparts in South Australia, Tasmania, Victoria and Western Australia) require that the payment schedule “indicate” the amount the respondent proposes to pay and “indicate” why the scheduled amount is less than the claimed amount, the other jurisdictions require that this information be “stated”; and
- that “state” (as in other jurisdictions), a degree of certainty and specificity is required to make the Payment Claim valid.
This present case can serve as a lesson in all jurisdictions given their legislative similarities, providing that best practice in replying to any payment or progress claims is that:
- you must ensure that the response is sufficiently detailed so as to allow the other party to consider what has been assessed and why; and
- you must respond to all aspects of a claim.
It is not sufficient to merely say that a component of the claim will be assessed at another time. For example, once further evidence is provided, or the works are progressed.
This article was written by Leighton Moon, Partner, Patricia Oman, Senior Associate, Rob Gilchrist, Solicitor, and Alex Hughan, Law Graduate.
1[2023] NSWCA 305.
2[2023] NSWCA 305.
3[2007] QSC 333.
