The Supreme Court of NSW recently dismissed a $6M+ adjudication application after finding that the claimant’s Payment Claims were made a day later than the date they were physically provided to the respondent.
The decision provides important guidance for the interpretation of key terms relating to service under section 31 of the Security of Payment Act (NSW), and shows the potentially serious consequences of taking actions based on a miscalculated date of service.
The Court: Supreme Court of New South Wales
The Case: MGW Engineering Pty Ltd t/a Forefront Services v CMOC Mining Pty Ltd  NSWSC 514
The Act: NSW Building and Construction Industry Security of Payment Act (1999) (SOP Act)
At 5.15pm on 3 February 2021, an employee of MGW Engineering Pty Ltd t/a Forefront Services (Forefront) delivered four Payment Claims to an employee of CMOC Mining Pty Ltd (CMOC). The four Payment Claims related to separate contracts and totalled over $6 million. CMOC served its Payment Schedules in response 11 days later on 18 February 2021
Following service of the Payment Claims, Forefront suspended works under the Contracts and commenced adjudication applications for the full amount of the Payment Claims. CMOC defended the proceeding on the basis that the Payment Claims were invalidly served on 3 February 2021 and were actually served on 4 December 2021. It also cross-claimed against Forefront seeking specific performance on the basis that the suspension was invalid.
The key issue in the proceeding was the date the Payment Claims were served by Forefront.
- If the Payment Claims were served on 3 February 2021 (as contended by Forefront) Forefront would be entitled to the value of the claim. This is because CMOC would have served the Payment Schedule outside the 10-day statutory time limit.
- If the Payment Claims were served on 4 February 2021 (as contended by CMOC) Forefront was only entitled to $180,912.05 and would have invalidly suspended works. This is because CMOC would have served the Payment Schedule within the 10 business days statutory time limit.
The Court found that the Payment Claims were served on 4 February 2021.
In reaching this finding His Honour considered relevant parts of s 31 of the SOP Act, as follows:
- the Payment Claims were not served ‘personally’ on the respondent on 3 February as required by s 31(1)(a) of the SOP Act because they were not delivered to the persons that they were addressed to or in accordance with s 109X of the Corporations Act 2001 (Cth).
- the Payment Claims were not ‘lodged’ in accordance with s 31(1) (b) of the SOP Act until they were brought to the attention of the relevant responsible person (ie the persons they were addressed to). While there was no authority for what constituted ‘lodging’ of a document, the context in which the word ‘lodge’ is used in the SOP Act suggests the ‘primary’ dictionary meaning be used, that being to ‘present formally to proper authorities.’
- The Payment Claims were served at 5.15pm at the Access Control Room, accordingly, they were found to have not been served during ‘normal office hours’ or to the ‘ordinary place of business’ as stipulated in s 31(1) (b) of the SOP Act.
- The Payment Claims were not served ‘in a manner provided by the Contract’ pursuant to s 31(1) (e) of the SOP Act, because the relevant provision required this to occur before 4pm.
Accordingly, CMOC had served the Payment Schedules within time and Forefront were not entitled to suspend works, and consequently, CMOC was therefore entitled to specific performance.
- When serving a Payment Claim, more is required than simply leaving the document with an employee. It is necessary to bring the Payment Claim to the attention of the person(s) the Payment Claim is addressed to. The Payment Claim will not be considered to have been served ‘personally’ until it comes to the attention of the relevant responsible person.
- ‘Normal office hours’ and ‘operating hours’ are not the same. Even though the Mine operated continuously 24/7, the administrative and clerical hours were typically between 7-7.30am and 4-4.30pm. Accordingly, the delivery of the Payment Claims at 5.15pm was outside ‘normal office hours’.
- When suspending works under a contract, it is imperative to be sure you are entitled to do so. Wrongful suspension of works as a result of miscalculating dates may lead to serious consequences, including a right of the other party to terminate the contract for breach and/or a right to damages for breach.
The Security of Payment Act can be a powerful tool when used correctly. If you require advice regarding your usual delivery practices, methods to ensure compliance with the SOP Act, or would like a review of contract terms and processes in relation to the Act, please don’t hesitate to get in touch with Morrissey Law + Advisory.
Morrissey Law + Advisory communications are only intended to provide commentary and general information as at the date of publication. They are for reference purposes only, do not constitute legal advice and should not be relied upon as such. Formal legal advice should always be obtained about particular transactions, contracts or matters of interest before taking any action based on this communication. Authors and contributors may not be admitted in all State and Territories.