The Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act) provides a fast track procedure for construction contractors and suppliers to be paid progress payments provided that certain preconditions are satisfied.  It was generally accepted that one of those preconditions included the existence of a “reference date” as defined by s8 of the SOP Act.  In the decision of Lewance Construction Pty Ltd v Southern Han Breakfast Point Pty Ltd [2014] NSWSC 1726, the NSW Court of Appeal interrupted that view, holding that the existence of a reference date was not a precondition to the making of a valid payment claim under the SOP Act.  The High Court has taken a diametrically opposed view, as set out in the recent High Court judgment of Southern Han Breakfast Point Pty Ltd (In Liquidation) v Lewence Construction Pty Ltd & Ors [2016] HCA 52.

Background

The Builder carried out construction work for the Principal in connection with a mixed use residential apartment block at Breakfast Point.  A dispute arose, resulting in the Principal taking work from the Builder.  The Builder, in turn, asserted that the contract had been repudiated by the Principal, which the Principal ultimately accepted, bringing to end the contract.  Thereafter the Builder made a payment claim purportedly under the contract which subsequently went to adjudication.  The Adjudicator ultimately determined the Builder’s claim in the sum of $1,221,051.08.

Southern Han Breakfast Point Pty Ltd v Lewence Construction Pty Ltd [2015] NSWSC 502

The Principal commenced proceedings in the Supreme Court of NSW, seeking a declaration that the adjudication determination was void.  The Principal’s primary ground of appeal was that the Adjudicator made a jurisdictional error because he wrongly determined that a ‘reference date’ (being the date on which a claim for a progress payment can be made) within the meaning of s8 of the SOP Act had arisen in respect of the work that was the subject of the payment claim, when in fact no such reference date had arisen.

The Supreme Court formed the view that, whether the Principal validly took over the work and suspended payment under the contract, leading to repudiation of the contract, or whether the Builder validly terminated the contract, the inevitable result was that the right to make payment claims was permanently suspended or the contract was at an end.  It mattered not.  On either scenario, the Court found that there was no available reference date that could support the impugned payment claim.

[45] “Reference date” is relevantly defined in s 8(2) of the Act to mean “a date determined by or in accordance with the terms of the contract as the date on which a claim for a progress payment may be made in relation to work carried out or undertaken to be carried out … under the contract”.  However, if the contract says that all payments are suspended there can be no date under the contract on which a claim for a progress payment may be made and consequently no reference date.

Lewence Construction Pty Ltd v Southern Han Breakfast Point Pty Ltd [2015] NSWCA 288

The Court of Appeal reached a different conclusion, overturning the decision at first instance.  It found, in summary, that the existence of a reference date to support a payment claim was not a jurisdictional fact; it was not an essential pre-condition for the making of a valid payment claim.

The Court of Appeal relied upon a construction of s8(1) read with s13 of the SOP Act, finding that the words “or who claims to be entitled to a progress payment” in s13(1) make clear that the existence of a dispute as to the entitlement of a person to a progress claim does not preclude the making of a valid payment claim.

[61] … I therefore respectfully differ from the primary judge in that I read the words “a person referred to in s 8(1)” in s 13(1) as referring in their ordinary meaning simply to a person falling within either s 8(1)(a) or s 8(1)(b). I do not consider that such a construction is weakened by the fact that neither of the sub-paragraphs of s 8(1) is referred to expressly in s 13(1). The claim of such a person to be entitled to a progress payment may be disputed (whether on the basis that a relevant reference date has not arisen or for other reasons) but what the words “or who claims to be entitled to a progress payment” in s 13(1) make clear is that the existence of a dispute as to the entitlement does not preclude the making of a valid payment claim.

Southern Han Breakfast Point Pty Ltd (In Liquidation) v Lewence Construction Pty Ltd & Ors [2016] HCA 52

On appeal, the High Court held that the reference in s13(1) to a person referred to in s8(1) of the SOP Act “who is or who claims to be entitled to a progress payment” was to be construed as referring to a person who has undertaken to carry out construction work or supply related goods and services under a construction contract, and who therefore is entitled to a progress payment only on and from each reference date.

The existence of a reference date under a construction contract within the meaning of s8(1) was therefore a precondition to the making of a valid payment claim under s13(1). There was nothing in the contract between the parties to indicate an intention that the Builder’s right to make progress claims was to survive termination, thus preventing a future reference date from arising. The High Court allowed the appeal, set aside the orders made by the Court of Appeal and in their place ordered that the appeal to the Court of Appeal be dismissed.

Observations

In the final death throes of any construction-related contractual dispute – before threats of termination or repudiation are acted upon – regard should be had by the builder to the effect of termination or repudiation on the builder’s entitlement to make a further or final payment claim under the SOP Act.  Delay in such circumstances may ultimately result in the loss of any available reference date and, consequently, any valid progress claim under the SOP Act.  Of course, the loss of any reference date would not defeat a builder’s entitlement to pursue its claim against a principal or developer at law, as would be available under s32 of the SOP Act, but it would deprive the builder of any “interim payment” that may have been available under the SOP Act.