PAYMENT CLAIMS DOs & DON’Ts: CONSTRUCTION AND BUILDING LAW CASE REVIEW
On 5 March 2019, Justice Lyons of the Supreme Court of Victoria handed down judgment in John Beever (Aust) Pty Limited v Paper Australia Pty Ltd  VSC 126, which has confirmed the law relating to payment claims under the Building and Construction Industry Security of Payment Act 2002 (Vic) (the Act).
The Plaintiff sought judgment against the Defendant for the sum of $435,000 pursuant to Sections 16(2) and 17(2) of the Building and Construction Industry Security of Payment Act 2002.
The dispute related to whether payment claims complied with the requirements of the Act.
The Victorian Supreme Court confirmed that the court may go beyond the face of the document itself, referring to information such as the background knowledge of the parties from their past dealings and prior correspondence, to determine whether a payment claim sufficiently identifies the construction work to which the claim relates.
The Plaintiff was engaged by the Defendant to perform mechanical and associated works pursuant to two contracts with the Defendant. One contract was entered into whereby the Plaintiff was engaged to perform mechanical installation works in relation to the Defendant’s de-inking plant (Contract 1). Prior to this contract, the Plaintiff was engaged to install mechanical equipment, piping and structural steel in the pulper area and bale building for the de-inking plant (Contract 2).
The Plaintiff sought judgment pursuant to amounts owed, as follows:
- $166,229.01 for works done in May 2014 with respect to Contract 2 (May Claim);
- $185,467.20 for works done in June 2014 with respect to Contract 1 (June Claim); and
- $406,197.46 for works done in July 2014 with respect to Contract 2 (July Claim).
In substance, the May and June Claims were tax invoices and only referenced limited information regarding the construction works to which they related – namely, the relevant contract/project, period of work and the amount claimed.
The Defendant submitted that the May Claim and June Claim did not meet the identification requirement pursuant to Section 14(2)(c) of the Act in that they failed to “identify the construction work or related goods and services to which the progress payment relates”, notwithstanding that supporting documentation for all claims describing the work in detail was issued separately in earlier email correspondence.
The July Claim included an email attached to the claim but was challenged by the Defendant on the basis that it did not expressly state that it was a payment claim “made under the Act” as stipulated in Section 14(2)(e).
May and June Claim
Justice Lyons considered various authorities and stated the following core principles:
- The test of whether a claim is a payment claim for the purpose of the Act is objective;
- The manner in which compliance is tested is not overly demanding and should not be approached in an unduly technical manner or from an unduly critical point of view;
- For the purposes of the identification requirement, it is necessary that the payment claim reasonably identifies the construction work to which it relates such that the basis of the claim is reasonably comprehensible to the recipient party when considered objectively i.e: from the perspective of a reasonable party who is in the position of the recipient;
- In evaluating the sufficiency of the identification of the work, it is appropriate to take into account the background knowledge of the parties from their past dealings and prior exchanges of information including correspondence passing between them before and at the time of the payment claim. To that extent, the court may go beyond the face of the document itself.
Justice Lyons found that while the May Claim and June Claim were not of themselves sufficient to identify the construction work to which the progress payment claims related, there was sufficient information contained in the emails exchanged between the parties to objectively make clear the nature of the works that were the subject of the claims and the amount ultimately claimed by the Plaintiff for those works.
Justice Lyons’s position with respect to the July Claim was different. The Act’s statement requirement in Section 14(2)(e) is clear: it requires that the payment claim “must state that it is made under this Act”. This is because the recipient of a claim must be aware that it is a payment claim for the purposes of the Act so that they can comply with the strict time requirements imposed on them in respect of serving a payment schedule.
The July Claim did not state that it was a claim made pursuant to the Act. While Justice Lyons noted that a purposive and non-technical construction of the statement requirement would authorise a court to look at covering correspondence to ascertain whether the statement requirement was met; in the current circumstances, the email serving the July Claim also failed to state that it was made under the Act.
The May and June Claims were in the format of invoices and included the statement that, “This is a payment claim under the Building and Construction Industry Security of Payment Act 2002 (Vic)”. However, neither the July Claim, nor its covering email, referenced the Act’s statement requirement. This was largely due to the fact that the July Claim, unlike the May Claim and June Claim, was not an invoice but merely a document entitled “Progress Payment Claim Form”.
It is important to note the court’s strict consideration of the statement requirement despite evidence that the Defendant treated the July Claim as a payment claim pursuant to the Act by providing the Plaintiff with a payment schedule.
The judgment suggests that while a court may look at other material to ascertain whether a payment claim contains sufficient information for it to be valid, contractors should correctly ensure that they satisfy the requirement that each claim satisfies the formality requirements expressed under the Act.
In addition, this case serves as a useful reminder that the requirement for a payment claim to expressly state that it is a “payment claim made under the Act” will be strictly enforced.
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