‘When was the payment claim served?’ - An expensive lesson in properly serving documents

Key Points:

  • The application of the Building and Construction Industry Security of Payments Act 1999 was recently expanded to include construction contracts with owner occupiers. However, many mum and dad owner occupiers will not be aware of the requirements of the Act, particularly what to do when a payment claim is received.
  • The time limits contained in the Act are strict and non-compliance can have disastrous results, including the full amount of payment claims becoming due and payable despite being disputed.
  • A key element to determining when time runs under the Act is establishing when documents are properly served. The concept of service under the Act is broader than Court rules for service or service under the Corporations Act 2001.
The Building and Construction Industry Security of Payments Act 1999 (The Act) is a relatively short Act that has created more than its fair share of litigation since its introduction.

Recently, the operation of the Act has been extended for the first time to apply to individual owner occupiers who engage building contractors. These owner occupiers are unlikely to be experienced with the Act, its strict timeframes and the harsh consequences of not complying with the proper procedures for making and responding to payment claims, including becoming liable for payments that might not yet be due or suspension of works.

Even those experienced in the operation of the Act can often come unstuck, and just the passage of one extra day can make a significant difference to what a contractor is entitled to claim.

The recent case of MGW Engineering Pty Ltd ta Forefront Services v CMOC Mining Pty Ltd [2021] NSWSC 514 (Forefront) provides a timely reminder of the importance of properly calculating the date of service of documents under the Act, and how documents are properly served.
The Act (very briefly)
The Act provides a statutory regime for progress payments for construction work that is in addition to any regime set out in a construction contract, and they might be very different. It is therefore essential that homeowners are familiar with both the contractual process for payments and the process under the Act.

Under the Act, once every month a builder can serve what is known as a payment claim for work performed up to that time. The homeowner then only has 10 business days to provide a payment schedule, setting out what the owner agrees to pay and the reasons why. If the homeowner doesn’t provide a payment schedule within that time, the whole of the amount of the claim can become due and payable, even if that amount is not due under the actual contract.

The builder may also suspend works until the amount is paid or even seek judgement for the amount due in a Court.

If an owner gives a payment schedule that the builder disagrees with, the builder can take the matter to adjudication, again with very tight timeframes for service of evidence. There are only very limited reasons to appeal from an adjudication determination.
The Case
The central issue in the Forefront Case was whether certain payment claims totalling over $6,160,000 were served the Plaintiff on 3 February 2021 or 4 February 2021. If the claims were validly served on 3 February 2021, the payment schedules served by the defendant on 18 February 2021 were out of time and the Plaintiff would be entitled to payment in full. If the claims were served on 4 February 2021, the payment schedules were served within time and that Plaintiff would only be entitled to $180,912.05.

Section 31 of the Act provides that documents may be served in a number of ways including:
(a)  By delivering it personally;
(b)  By lodging it during normal office hours at the person’s ordinary place of business;
(c)   By sending it by post to the person’s ordinary place of business;
(d)  By sending it to an email address specified for service of documents of that kind; or
(e)  In the manner provided for under the construction contract.

In this case, the payment claims were allegedly served by the Plaintiff on 3 February 2021 by providing them to a person at the principal’s ordinary place of business, but at approximately 5:15pm. They were also addressed to different people than the person that accepted the documents from the Plaintiff.

The Court considered section 31 of the Act and the construction contract and determined that the documents were properly served on 4 February 2021 for reasons including the following:​
  • For personal service, even on a corporation, the document must come to the attention of the addressee or relevant person;
  • In order to lodge a document under the Act, more must be done that simply leaving the document with an employee. Some further step which would bring the document to the attention of the proper person is required;
  • What “normal business hours” means will depend on the customary working hours of the clerical staff of the recipient. In this case, these customary working hours were between 7:00am and 7:30am to between 4:00pm and 4:30pm; and
  • The contract provided that documents delivered after 4:00pm will be taken to have been delivered at the commencement of business on the next business day.
In the end, it was an expensive lesson for the Plaintiff. Not only was it not entitled to be paid over $6,000,000, its entitlement was reduced to only $180,000. Further, the Plaintiff had sought to suspend works based on the failure of the Defendant to pay the full amount of the claims and it was ordered to recommence works. Although the Court did not make any orders as to costs, there is a reasonably likelihood that the Plaintiff will also be ordered to pay the costs of the Defendant.

This case highlights why it is so very important to be aware of the strict timeframes and how documents are properly served under the Act.

Hicksons’ construction team are experts in their field, and experienced with dealing with all construction law related matters including contact drafting, interpretation, project management, disputes and the Act.

Given the strict timeframes under the Act and often serious consequences for failing to meet them, it is vital that parties to construction contracts get legal advice at the earliest possible stage.

Post by Hicksons Partner, Lachlan Wilson.

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