Strict compliance required for proper security of payment service

Strict compliance required for proper security of payment service

Service under the Building and Construction Industry (Security of Payment) Act 1999 (NSW) (the Act) is never as simple as it seems.

In Watpac Constructions (NSW) Pty Ltd v Charter Hall Funds Management Limited [2017] NSWSC 865, the Supreme Court of NSW considered the issue of service of payment claims through the use of the ‘Aconex’ system. In doing so, the Court reiterated the necessity for payment claims to be served strictly in accordance with section 31 of the Act.

Background

Watpac claimed it was owed over $13.55 million, based on the fact that Charter Hall failed to respond with a payment schedule in the required time period. Charter Hall argued that because 32 out of 36 payment claims were served via Aconex and it had come to rely on this method entirely, Watpac was prevented from issuing payment claims by hard copy.

The contentious payment claims were disputed based on several factors, but the important one to analyse for the purposes of ensuring your rights to progress payments are always protected is the reliance on what Charter Hall claimed was the assumed, and therefore only correct manner in which to serve a payment claim. Charter Hall argued that it was a mutual decision to only communicate claims based on what it called “the Common Assumption”, “the Defendant’s Assumption” and “the Aconex Convention”.

The Outcome

The Court took a very straightforward approach in its decision regarding the issue of service, focusing on the provisions of the Act and the construction contract executed by both parties.

Section 31 of the Act states the various ways in which a payment claim may be validly served on a party, including “in such other manner as may be provided under the construction contract concerned.” Under clause 14.1 of the construction contract signed by Watpac and Charter Hall, “any notice, consent, offer, demand, request or other document” was to be “given via Aconex, post or hand to the relevant party.”

By reference to the Act and this clause, the Court rejected Charter Hall’s position that the payment claims were only able to be served by Aconex. This decision was handed down despite Watpac’s Design Management Plan and Project Quality Plan documents stating that all communications were to be made exclusively via Aconex, as the exclusive operation of this agreed upon method of communication had never been explicitly reflected in the construction contract.

How this decision will impact the construction industry?

In making its decision, the Court also referenced the substantial practical benefits of using Aconex as a primary method of communication, especially in large projects and when the transfer of large documents and amounts of information is necessary.

The benefits of Aconex communications on large projects are well known throughout the construction industry, and such systems are often heavily relied upon, as such it is important that participants are aware of how contractual provisions actually operate with regard to service and your rights to progress payments.

Regardless of any verbal or written communication or agreement made externally to the construction contract, in the event of confusion or contention regarding a party’s right to serve payment claims, the courts will first look to the express provisions of the contract to determine the parties’ intentions.

As such, it is critical that you do not enter into a written construction contract without ensuring that all the elements upon which you intend to rely are explicitly detailed in the text of the contract. Another practical solution to ensuring your rights to claim progress payments are protected, is to serve all communications and claims through multiple channels of communication.

If you have any questions regarding service of payment claims or payment schedules and your rights to progress payments, or require assistance in drafting effective construction contracts please do not hesitate to contact Morrissey Law & Advisory.

This article was prepared by Michael Morrissey and Patrick Ireland.

Disclaimer: This publication by Morrissey Law & Advisory is for general information and commentary only and should not be considered or relied upon as legal advice. Formal legal advice should be sought in relation to any matters or transactions that may arise in relation with communication.

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