Security of Payment Act – Service of claims and misleading or deceptive representations in payment schedules

15 March 2023

Executive summary

The Supreme Court of New South Wales in BCFK Holdings Pty Ltd v Rork Projects Pty Ltd [2022] NSWSC 1706 (BCFK v Rork) recently found that if a payment claim issued pursuant to the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act) was not effectively served on a respondent but subsequently came to the attention of and was read by the respondent, it will be taken to be validly served at the time it actually came to the attention of the respondent.

The Court also considered whether, the representations made in the payment schedule (the respondent subsequently adopted the opposite position), amounted to misleading or deceptive conduct pursuant to section 18 of the Australian Consumer Law (ACL). It was ultimately determined that the claimant did not rely on the representations.

What happened?

The parties BCFK Holdings Pty Ltd (the Principal) and Rork Projects Pty Ltd (the Contractor) entered into a construction contract which was subsequently terminated by the Contractor on 12 May 2022.

On 12 July 2022 the Contractor delivered, by hand, a payment claim under the SOP Act to the superintendent under the then terminated construction contract (First Payment Claim). The superintendent was not authorised under the construction contract to accept service of documents relevant to the construction contract. The superintendent then notified the sole director of the Principal of the delivery of the First Payment Claim.

On 16 July 2022 the Principal requested that the superintendent provide access to the documentation. On 18 July 2022 the superintendent forwarded the Principal a link to the First Payment Claim. The Principal accessed the link on or about that time and read the First Payment Claim.

On 26 July 2022 the Principal issued a payment schedule (First Payment Schedule) which submitted that the First Payment Claim was not valid as it was served incorrectly on the superintendent.

Subsequently, on 20 August 2022, the Contractor served a further payment claim on the Principal (Second Payment Claim) and the Principal served a payment schedule in response. The matter proceeded to adjudication and on 5 October 2022, the adjudicator made an Adjudication Determination in favour of the Contractor in the sum of $685,915.54.

The Principal subsequently sought to appeal the Adjudication Determination and notwithstanding its opposite assertion in the First Payment Schedule, contended that the First Payment Claim was effectively served on 18 July 2022. If the First Payment Claim was effectively served the Second Payment Claim (and subsequent Adjudication Determination) would be invalid under the SOP Act.

Was service effective?

The Court determined that in circumstances where a party actually receives a payment claim, it should not be entitled to assert that it was not legally served due to some technical shortcoming.1

Further the Court noted that ‘an assertion in a payment schedule that service has not been validly effected should be taken to be an acknowledgement that, notwithstanding the initially ineffective service, the payment claim has, ultimately, come to the attention of the authorised recipient; who would then stand as being validly served’.2

Accordingly, the Court concluded that the Principal was served on or about 18 July 2022 at the time the Principal accessed the First Payment Claim material. As a result, the adjudicator had no jurisdiction to deal with the matter and the Principal’s appeal was successful.

Misleading or deceptive conduct

In such circumstances, the Contractor alleged that by the Principal’s conduct it had represented that the First Payment Claim had not been validly served and did not enliven the SOP Act (Payment Claim Representation).

The Contractor alleged that the Payment Claim Representation was made in trade or commerce and was misleading or deceptive because: 3

  1. the Principal considered that the First Payment Claim was properly served on or about 18 July 2022;
  2. the Principal did not inform the Contractor that the First Payment Claim had been validly served on it;
  3. the Principal considered that the First Payment Claim did enliven the operation of the SOP Act and that the Contractor was entitled to make an adjudication application;
  4. the Principal knowingly or recklessly made the Payment Claim Representation with a view to misleading, inducing and/or preventing the Contractor from making an adjudication application in relation to the First Payment Claim; and
  5. the Contractor relied on the Payment Claim Representation and was induced to act to its detriment by electing not to make an adjudication application with respect to the First Payment Claim.

On the evidence before the Court, it was found that the Payment Claim Representation did not play any material role in the decision of the Contractor to not proceed to adjudication of the First Payment Claim. The Court concluded that the Contractor relied on advice from its solicitor to make the tactical decision to serve the Second Payment Claim. Accordingly, there was no misleading or deceptive conduct on the part of the Principal that caused the Contractor to act to its detriment.4

Why is this case important?

This case is important as it re-affirms that the purpose of the SOP Act is to provide a speedy, interim resolution of construction contract disputes and will operate in a realistic fashion to avoid technical disputes such as effective service in circumstances where actual possession of the payment claim has occurred.

Furthermore it highlights the potential consequences of a total change of position made by a party. If the Contractor had not engaged with its solicitor on tactical discussions as to how to approach the First Payment Schedule, the Principal may have fallen foul of the ACL where the Contractor only relied on Payment Claim Representation.

HWL Ebsworth Lawyers has a dedicated team with expertise in all stages of the security of payment processes and legislation. If you would like more information about the services we provide please contact us.

This article was written by Paul Graham, Partner and Fin Neaves, Associate.

1 BCFK Holdings Pty Ltd v Rork Projects Pty Ltd [2022] NSWSC 1706 (BCFK v Rork), [27]-[28].
2 BCFK v Rork, [29].
3 BCFK v Rork, [35]-[36].
4 BCFK v Rork, [55]-[56].

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