It is fairly common for a claimant (subcontractor/head contractor) to submit a payment claim under the security of payment legislation, and then a revised claim soon after.
Usually this is because the first payment claim was incomplete or contains errors, and the claimant intends to supersede the payment claim with a revised version.
However, what about where a claimant submits a payment claim and then submits the same payment claim the day after? Is the respondent (head contractor/principal) required to issue two payment schedules or can it merely take the most recent payment claim as the correct copy?
This was recently considered in Artkal Trading Pty Limited v Next Constructions Pty Ltd [2021] NSWDC 819. There, the respondent (the builder) argued that the resubmission of the payment claim carried an implied representation that only the most recent payment claim was to be relied upon.
Practically, the builder’s point was that they should not have to submit a payment schedule for the earlier claim in those circumstances.
The Court found a payment schedule should be issued for every payment claim. It was not convinced that resubmitted payment claims implicitly represent the previous payment claim will not be relied upon.
The details and implications of this case are discussed below. First we briefly discuss the relevant section of the Building and Construction Industry Security of Payment Act 1999 (NSW) (Security of Payment Act).
The strict provisions of the Security of Payment Act in NSW
The Security of Payment Act generally seeks to provide contractors mechanisms to ensure fast payment for works performed. This is done by contractors submitting payment claims and principals/head contractors issuing payment schedules in response.
Importantly, if a principal/head contractor fails to serve a payment schedule within 10 business days of receiving a payment claim the amount claimed in the payment claim becomes a debt owed to the contractor. The timing varies from State to State, so it’s always good to check your specific requirements.
So, if a principal/head contractor then fails to pay a contractor by the due date, the contractor can exercise multiple rights under the Security of Payment Act, including seeking to recover the amount claimed in the payment claim as a debt due and owing in court.
In short: not responding to a payment claim is bad.
Facts in Artkal Trading Pty Limited v Next Constructions Pty Ltd [2021] NSWDC 819
On 13 December 2019, Next Constructions Pty Ltd as builder engaged Artkal Trading Pty Ltd as a subcontractor to supply and install aluminium windows.
On 24 July 2020, the subcontractor sent a payment claim by email to the builder.
On 25 July 2020 (the following day), the same payment claim was resent to the builder.
On 8 August 2020, the builder served a single payment schedule on the subcontractor.
However, if the payment claim submitted on 24 July 2020 was valid then the payment schedule was due on 7 August 2020.
So the question asked is this: was the payment schedule served in time, having regard to the re-submission?
The subcontractor sought to recover the amount claimed in the payment claim as a debt due and owing on the basis that the builder failed to submit a payment schedule within the time required.
The builder argued that the subcontractor should be restrained from seeking judgment because the resubmission of the payment claim on 25 July 2020 constituted misleading conduct. It was argued that the resubmission on 25 July 2020, represented that the 24 July 2020 email containing the payment claim would not be relied upon, and no payment schedule was required for the earlier payment claim.
The court’s findings
- The court was doubtful that the re-submission of the payment claim amounted to a misleading representation, in circumstances where:
- payment claims could be simultaneously served from multiple references dates (e.g. a payment claim claiming from a reference date prior to termination and a payment claim on or from the date of termination);
- the builder who responded to the payment claim was generally unaware of the timing requirements and consequences of failing to issue a payment schedule under the Security of Payment Act (i.e. there was no reliance); and
- there were numerous other explanations (e.g. laziness or ignorance) as to why the payment schedule was not submitted on time.
In light of the above, the court held that the resubmission of the payment claim the next day did not amount to a representation that the earlier payment claim could be disregarded (and, in effect, a payment schedule was only required in relation to the later claim).
What does this mean for you?
It is best practice to issue a payment schedule for every payment claim, even if the claimant (subcontractor/contractor) has submitted multiple payment claims, which may appear to be invalid. Further, the case reinforces the need for representatives of builders/principals to understand the harsh consequences of failing to comply with the timing requirements under the Security of Payment Act.
