Payment Claims and Reference Dates - back to the future

Thursday, 11 February 2010

Courtesy of DLA Phillips Fox, Brisbane

The recent decision of Tenix Alliance Pty Ltd v Magaldi Power Pty Ltd [2010] Qsc 7 has seen a return to the reasoning that payment claims under the Building and Construction Industry Payments Act 2004 (Qld) can be made any time ‘on’ and ‘after’ the entitlement to claim arises.

In our November 2009 Construction Update, we reported on the implications of the Supreme Court of Queensland’s decision in Reed Constructions (Qld) Pty Ltd v Martinek Holdings Pty Ltd [2009] QSC 345. In that decision the Court held that claimants under the Building and Construction Industry Payments Act 2004 (Qld) (BCIP Act) were entitled to issue a payment claim only ‘on’ the reference date.

The view of the Court in Reed Constructions (Qld) Pty Ltd v Martinek Holdings Pty Ltd was contrary to previous decisions of courts in other jurisdictions, particularly New South Wales, that payment claims can be made ‘from’ each reference date even where the construction contract requires that payment claims are to be made ‘on’ a particular day or date.

In this update we look at the subsequent decision of the Supreme Court of Queensland in Tenix Alliance Pty Ltd v Magaldi Power Pty Ltd [2010] QSC 7 (Tenix v Magaldi) which takes a different tack to Reed Constructions (Qld) Pty Ltd v Martinek Holdings Pty Ltd in regard to when a payment claim can be made.

The decision also clarifies other important issues concerning the operation of the BCIP Act.

Calculation of a Reference Date

The BCIP Act provides that a ‘reference date’ under a construction contract, means— ‘(a) a date stated in, or worked out under, the contract as the date on which a claim for a progress payment may be made for construction work carried out or undertaken to be carried out, or related goods and services supplied or undertaken to be supplied, under the contract; or (b) if the contract does not provide for the matter—

(I) the last day of the named month in which the construction work was first carried out, or the related goods and services were first supplied, under the contract; and

(ii) the last day of each later named month.’ Other relevant provisions of the BCIP Act that concern ‘reference dates’ provide: Section 12, Rights to progress payments, which provides that ‘from’ each reference date under a construction contract, a person is entitled to a progress payment a claimant cannot serve more than one payment claim for each reference date under the construction contract.

It was in consideration of these provisions and in particular that two payment claims cannot be made in respect of the one reference date that led the court in Reed Constructions (Qld) Pty Ltd v Martinek Holdings Pty Ltd to hold that a payment claim must be given ‘on’ the reference date.

In Tenix v Magaldi, the Court agreed that the BCIP Act does not permit two claims to be made in respect of the one reference date but held that this does not mean the BCIP Act does not permit a payment claim to be made ‘after’ the relevant reference date. The Court then held that under section 12 of the BCIP Act, a payment claim can be made ‘on or after’ the reference date.

What Does this mean?

There are now two Supreme Court of Queensland decisions with differing views on whether a payment claim can be given after a reference date.

Given the previous court decisions in New South Wales, although not binding in Queensland, and the express words of section 12 of the BCIP Act that a payment claim can be given ‘from’ each reference date, the better view is that a payment claim can be given after the reference date.

However, until a further decision of the Court is made on this issue, a prudent claimant should, whenever possible and particularly when the contract requires a payment claim to be given ‘on’ a reference date, ensure the payment claim is given on that date.

Other Issues of Interest

The Court in Tenix v Magaldi was also asked to determine a number of other issues associated with the operation of the BCIP Act of interest to both claimants and respondents:

What constitutes stating an amount proposed to be paid in the payment schedule.

Whether a payment claim can include a claim for delay costs.

Whether a payment claim can include claims for amounts to be incurred after the date of the payment claim.

Whether the inclusion of a claim for an amount without any entitlement in the payment claim is sufficient to invalidate the whole claim.

Amount proposed to be paid The respondent in Tenix v Magaldi stated in its payment schedule that certain amounts would be paid provided the claimant agreed to certain conditions.

The respondent submitted that the amount stated was an amount that it was willing to negotiate but not what they were prepared to pay and therefore, by imposing conditions, the payment schedule effectively stated nothing would be paid.

However, the Court stated that it could equally be read that the amount stated would be paid if the conditions were satisfied and therefore the payment schedule could not be read as either a statement that nothing will be paid or as a statement that an amount will be paid.

In those circumstances, the Court held that the payment schedule did not comply with the requirements of section 18(2)(b) of the BCIP Act and was invalid.

Delay costs

The payment claim included a claim for delay costs. The respondent argued that such costs were not a valid claim.

Under the BCIP Act, a payment claim is defined as a payment ‘for’ construction work. Generally the word ‘for’ is to be given a wide meaning. In Tenix v Magaldi the Court held that the meaning of ‘for’ is wide enough to include a claim for delay costs as construction work.

Claims for delays for periods after the date of the claim The payment claim also included a claim for delay for periods subsequent to the date of the payment claim.

The Court held that such a claim was not in reality a claim ‘for’ construction work and given that the claim for delay included costs to be incurred in the future, that portion after the date of the claim, was too remote to be a claim ‘for’ construction work carried out.

That part of the delay claim for periods after the date of the payment claim was excised by the Court from the claim.

Part of the payment claim incorrect The effect of the issues discussed above meant that the Court found that:

The payment claim was valid.

The payment schedule was invalid.

The claimant was entitled to judgment for the amount of the claim, including delay costs up to the date of the payment claim.

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this publication.

The claim for delay costs which at the time of the claim had not occurred was not within the meaning of ‘construction work’ under the BCIP Act and that part of the payment claim was invalid.

Implications

The Court’s decision in Tenix v Magaldi provides some strong guidance for both claimants and respondents wishing to either take advantage of the payment regime in the BCIP Act or protect themselves from exposure to unwarranted payments, including: To be very aware of the provisions of the contract as to when payment claims can be made.

Claimants should still prudently ensure, if required under the construction contract, that payment claims are submitted ‘on’ the reference date.

Respondents should not rely on a payment claim submitted after the reference date being invalid but should ensure a payment schedule is provided.

Respondents should not place any conditions on the amount that they propose to pay in the payment schedule. If payment is disputed, to ensure a valid payment schedule is provided, it is better to say the scheduled amount is nil and provide reasons for withholding payment.

Negotiations to pay some amounts on conditions can be held separate from the BCIP Act process if required.

Claimants can include delay costs in a payment claim but only if there is a relevant provision in the contract entitling payment for delay but not for delay costs after the date of the payment claim.

A court may be prepared to separate parts of a payment claim that are not valid and calculate the valid amount that is to be paid.

Note: This article is a general commentary on a recent case.  It is not legal advice.  If you want legal advice on your particular matter, please contact DLA Phillips Fox.

If you want to know more about the operation of the BCIPA and security of payment or want to apply for an adjudication, please contact AIQSANA.