Serving payment claims electronically – A practical guide

Contract Administration

In a world where “zooming” into meetings is now more normal than sitting across from people, our reliance on technology to facilitate business transactions is more prominent than ever.

In the construction industry, technological and electronic communication has become an integral part of project delivery. This is particularly the case when it comes to contract administration, where directions, notices, claims and responses are being exchanged electronically as a matter of course.

But while electronic service documents brings efficiency and speed, it can come with risks and uncertainties not at play in the context of personal or postal service.

So let’s say you’re serving a payment claim by email. Does it count as “served” when you sent it, or when the recipient received it? Did they receive it when it hit their inbox, or when they read it? What if it goes to a junk folder? What if you send documents by a link and that link is not clicked? All of this, of course, has a major impact on when any response is due.

Similar considerations were at play in the case of Demex Pty Ltd v John Holland Pty Ltd [2022] QSC 259.

The dominant question to address was when a notice sent by email was considered to have been “served”.

Given the timing of a response under most security of payment legislation is a crucial factor in the subsequent adjudication (if you’re late, then you’re usually stuffed) the outcome of the case rested on that simple question.

While covering the issues in Demex, this article will provide you with a practical guide to ensure your electronically served payment claims are delivered on time, and avoid nasty surprises when serving your payment schedules/responses.

Electronic service in Demex

The essential background of the Demex case is that:

  • Demex sent John Holland a payment claim by email at around 2:00pm on Saturday 25 September 2021;
  • The John Holland recipient opened the email the following Monday (the next business day);
  • John Holland responded to the payment claim by issuing a payment schedule on 12 October 2021;
  • in accordance with the construction contract, Demex issued a Tax Invoice for the amount scheduled by John Holland;
  • John Holland paid the amount stated in the Tax Invoice in full to Demex; and
  • in February 2022 Demex sought to contend that the payment schedule provided by John Holland in October 2021 was invalid as it was not served within the requisite 10 business day timeframe. This is the question that drove the dispute.

As you can probably see from the timing and the issue, if the date of sending the email was the date of service, then John Holland was late. If the date of opening the email was the date of service, the John Holland was within time.

So the question for the Court was whether payment claim was served on the Saturday, when the email was sent, or on the following business day (i.e. the following Monday) when the email was actually opened and read by John Holland.

What is the Court Considering?

To determine this question, the court had regard to:

  • the applicable Security of Payment Legislation – here it was the NSW Security of Payment Act (SOP Act);
  • legislation governing electronic transactions – i.e. the relevant Electronic Transactions Act (ETA); and
  • the terms of the construction contract itself.

The Electronic Transactions Act

In relation to the ETA, the court pointed out:

  • the time of receipt of an email under the ETA can determine the time of ‘service’ of a payment claim for the purposes of the relevant SOP Act;
  • an email is received when it becomes capable of being retrieved from the addressee’s designated email address;
  • email is not necessarily an instantaneous form of communication – the time the email is sent is not necessarily the time it is received;
  • the party attempting to prove time of receipt must produce evidence which shows when the email became capable of being retrieved;
  • the email does not have to be open and read in order for it to be deemed ‘received’; and
  • parties can contract out of the ETA, but an intention to do so must be clear from the terms of the contract.

There was nothing in the construction contract that indicated an intention to contract out of the ETA or to suggest payment claims can/will be only received on business days.

Given the above, it did not matter that John Holland did not discover or read the email until the following Monday, the email containing the payment claim was received at the time it became capable of being retrieved from John Holland’s email address.

It’s Like an Envelope

In many ways, this reasoning treats emails no different from personal service of documents contained in an envelope.

If you are served with documents contained in an envelope, then provided there is evidence that you were in fact given the envelope you will have been effectively served.

It doesn’t matter if you didn’t open the envelope for 3 days, or even if you tossed the envelope in the bin later. What matters is the ability to prove you received the documents and could have opened them.

But, importantly, both that question and the one about email turns on a crucial factor: evidence.

Theory Meets Reality

Theoretically then, it was possible that the payment claim was validly served by Demex on Saturday the 25th of September, making Saturday “day zero” for the purpose of calculating the 10 business-day time period.

The main problem for Demex here was actually proving that. 

While it was possible, or even probable, that the email and payment claim reached and was capable of being retrieved from John Holland’s designated email address on Saturday, Demex did not have evidence of this at the hearing.

It seems that, unfortunately, Demex believed this was not an issue in contention and so did not attempt to put on evidence of receipt by John Holland. Unfortunately, John Holland did not concede the point, which Demex only found out in the course of the hearing.

As a result, Demex was only able to produce evidence which showed when it sent the email to John Holland, but this was not enough. While Demex asked the Judge to accept that email communication should be inferred to be received immediately (or close to it) the Judge was not prepared to make such a finding.

Critically, there was also nothing in the relevant construction contract which deemed when service was effected by email, so as to override the starting position under the ETA.

In the end, Demex was unsuccessful in proving that the payment schedule was served out of time because it had no proof that the email containing the payment claim was received before it was opened and read by John Holland on the following business day.

In the real world, getting proof from another organisation’s email servers that it had received and made available for retrieval the email that you sent is, at best, expensive. At worst you simply can’t get it.

As a result, relying on the theoretical service provisions of the ETA in order to support the delivery and timing of a payment claim (or a payment schedule) is a not likely to get you across the line.

The implications

So, what does Demex mean for Contractors? Well, the good part is that these problems can be readily avoided if you give the topic some early thought.

The short answer is this: make the parameters of service by email clear in your contract.

Unfortunately, many commercial negotiations tend to swiftly gloss over the miscellaneous provisions in a contract like the notice provisions. If you want to solve this dilemma for your business, you need to spend a few minutes reviewing those sections and modifying them to suit your needs.

To assist with this, we set out below some tips to avoid common traps like those encountered in Demex.

Tips to avoid common electronic service mistakes

The main tip is that you should think carefully and decide in advance how you want to serve (and receive) documents.  For example, consider:

The method:

Do you want documents served via email or via an online service platform such as Aconex etc.?

If so, then you need to spell that out in the contract.

But don’t just “set and forget” during contract negotiations. As we set out below it’s also important you adjust to change throughout project delivery.

The timing:

As Demex has shown us, we cannot assume that email service is instantaneous. Therefore, it is often a good idea to include a deeming provision in your contract to set out exactly when an email containing a payment claim will be taken to be received/served. The easiest for the sender to prove is to simply have a clause to the effect that “if you send something to the correct email address it’s deemed to have been served when you sent it”.

Beyond receipt, there’s also the business day problem. In a world of the demanding timeframes for responses under security of payment legislation, losing time because somebody “served” something at 11:30pm on a Friday night might not be something you are prepared to deal with.

So, if you want documents served outside hours or on the weekends to be deemed to have been served the following business day, then you need to provide for that in the contract too.

Managing receipt:

What measures are you going to have in place to ensure you are immediately alerted to any payment claims?

Do you require the recipient to do anything further to confirm the document’s arrival? What are the consequences if they fail to do so?

Ongoing management:

Part of managing electronic service, and one of the most common traps contractors fall into is not being live to how certain practices evolve as the project goes on.

For example, while the contract may stipulate that payment claims must be served on Monday morning via email, as the project evolves, you may implement Aconex project management and use that instead.  

It is of course perfectly fine to change the way you do things to suit the needs of the project, but you should also be sure to vary the terms of your contract accordingly. This can often simply be done by issuing a minor variation to reflect the new norm. If you do this, hopefully you will avoid future issues of the kind that arose in Demex.

The Takeaway

Electronic service can be efficient so long as all parties are on the same page and comply with the conditions set out in the relevant contract.

And remember, if you find yourself adapting your process of service, make sure you update your contract to suit the evolving needs of the project and your team.

As always, the key to avoiding timing problems is clarity – don’t make assumptions, make things clear and contractually binding.

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