Principal Contractors Beware – Is Your Payment Schedule Suffice to Defend a Payment Claim?

In the case of Sand Excavation Pty Ltd v Nahas Constructions Pty Ltd [2011] NSWSC 184, various issues arose as to what may be sufficient to defend against a Payment Claim and whether proper service of a Payment Schedule had been performed.

By way of background, Sand Excavation Pty Ltd (Sands) was subcontracted by Nahas Constructions Pty Ltd (Nahas) to perform excavation works. During the performance of the contract, Sands issued Nahas a Payment Claim by fax pursuant to the Building and Construction Industry Payment Act (the Act) for an amount in excess of one million dollars.

In accordance with the Act, Nahas had 10 business days from the date of the Payment Claim to serve a Payment Schedule on Sands. Nahas alleged that it had placed the Payment Schedule halfway under the door of Sands’ former place of business and the Payment Schedule contained various valid defences for not making payment to Sands. The primary issues which arose in this case were whether:

• proper service of the Payment Schedule occurred by sliding the same halfway under the door of Sands’ former office; and
• failure to submit an appropriate subcontractor declaration was a valid defence to payment.

It was held that service of a Payment Schedule which is not wholly within the office, is not appropriate service as a passing stranger could have taken it from the outside of the office. Accordingly, service had not been properly achieved as the Payment Schedule was held not to be within the control and possession of Sands. Consequently, it was foreshadowed by the Court in its judgment that Sands would succeed in its Payment Claim.

Notwithstanding the above, the Court considered whether the failure to submit a subcontractor declaration pursuant to the Industrial Relations Act 1996 (IR Act) prescribed form was a sufficient defence to making payment. Unfortunately for Nahas, the construction contract had a standard form annexure which, although was not pursuant to the IR Act, was what the parties had agreed to and therefore it was held that the parties had contracted out of the prescribed form requirements.

Tips

• Principal Contractors should have proper procedures implemented to accept and record Payment Claims;
• Principal Contractors should have proper procedures implemented to prepare and serve Payment Schedules within 10 business days from service of the Payment Claim; and
• Subcontractors should comply with the terms of a construction contract prior to issuing a Payment Claim to avoid costly litigation.

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This article is not legal advice and should not be relied upon as legal advice. All articles found on this website are intended to provide informative information, nevertheless, in many instances legislation and case law has been simplified and/or paraphrased. If you would like personal legal advice based on your current circumstances, you should contact MurdockCheng Legal Practice for a free consultation.