The NSW Court of Appeal’s recent decision in Style Timber Floor Pty Ltd v Krivosudsky[1] provides an important reminder of the need for payment schedules to clearly outline the reasons for withholding payment.

For a general insight into preparing payment schedules, please check out our previous article, Payment Schedules – 6 Steps for Responding to Claims

Facts of the case

Style Timber engaged Mr Krivosudsky to undertake floor grinding and topping works at a number of sites throughout Sydney.

On 28 November 2017, Krivosudksy emailed Style Timber 7 invoices which he claimed were overdue. Each invoice included the words “This is a payment claim made under the Building and Construction Industry (Security of Payment) Act 1999 (NSW)”.

Krivosudsky’s email contained the following words:

“Hi Jack,

Have a look on overdue invoices which are made under the Building and Construction Industry Security of Payment Act 1999 (NSW) and pay it in 14 days or my lawyer will be in touch.

Kind regards,

Rastislav Krivosudsky”

On or around 30 November 2017, Mr Jack Wang of Style Timber responded with the following email:

“Rasti

Sorry, I was in the hospital in the past few days for my family, so couldn’t reply your email.

If you want, make a appointment with me, come to my office. I will show you the working agreement between Style timber and Rk grinding, many emails, photos, videos, back charges from builders and other trades, complains from my clients. You will understand why I can’t pay you. The damages you done is more than what you claimed.

Then, it’s up to you want you want to do next.

Best regards

Jack Wang”

Krivosudsky sought summary judgment for the total of the 7 invoices, as he argued that the 30 November email was not a valid payment schedule, and was successful in his application.

Style Timber sought leave to appeal the District Court’s decision to the Court of Appeal, as it argued that the email constituted a valid payment schedule for the purpose of the Act.

Relevant legislation

Section 14(3) of the Building and Construction Industry (Security of Payment) Act 1999 (NSW) was the critical provision considered by the Court of Appeal, it states:

“If the scheduled amount is less than the claimed amount, the schedule must indicate why the scheduled amount is less and (if it is less because the respondent is withholding payment for any reason) the respondent’s reasons for withholding payment.” [Emphasis added]

Decision

During the Appeal proceedings, the Court of Appeal closely considered the purpose and importance of payment schedules in the Security of Payment regime. It held that:

“the payment schedule serves two important functions … to inform the claimant as to the metes and bounds of its dispute with the respondent, so that it can make an informed choice as to whether to engage the … adjudication procedures under Division 2. The second is to articulate the respondent’s case which will then be determined by the adjudicator. … At the time an adjudication application is made, all that the claimant and the prospective adjudicator will know of the nature of the respondent’s side of the case is what is contained in its payment schedule.

The Court of Appeal also analysed the relevant case law surrounding section 14(3) of the Act and in particular the following statement by Palmer J in Multiplex Constructions Pty Ltd v Luikens[2]:

…precision and particularity [of the reasons for withholding payment] must be required to a degree reasonably sufficient to apprise the parties of the real issues in dispute.”

The Court of Appeal upheld the District Court’s decision as it did not consider Mr Wang’s 30 November email a valid payment schedule, for the following reasons (amongst others):

·         Nothing in the email was directed to any particular invoice, or to any particular project.

·         It was not possible to determine the scope of the dispute from the email, e.g. was there a dispute about all of the sites mentioned in the invoices? Would submissions from Krivosudsky as to the quality of work be necessary? What materials would Krivosudsky have to provide to an adjudicator (had the email been a valid payment schedule)?

·         Whille the email asserted that Style Timber had an offsetting claim which exceeded that of Krivosudsky, no details of this claim were provided.

Implications

Incorporation of other documents into your payment schedule

In the 30 November email, Mr Wang referred to many emails and photos in an attempt to note the reasons for withholding payment, however, the Court of Appeal held:

When documents are referred to in a payment schedule, its receipient should not be left to guess what documents are being referred to nor should a reciepient be expected to guess …which aspects of those documents or emails set out the respondent’s reasons for withholding payment[3]. [Empahasis added]

It follows that, if you are going to refer to other documents in your payment schedule, ensure they are included as attachments.

Invitation for a meeting to discuss payment dispute

The Court of Appeal held that Mr Wang’s invitation for Krivosudsky to attend his office to discuss the reasons for withholding payment did not amount to an actual disclosure of the reasons, which is explicitly required by section 14(3)[4].

It follows that an invitation to discuss the reasons at a later date will not suffice.

Conclusion

In order for a payment schedule to be valid, it must:

1.       Include sufficient reasons and details of these reasons for withholding payment, including the amount that is proposed to be paid; and

2.       Provide details of any documents on which the reasons are based.

This attention to detail is also of paramount importance for the rule under section 20(2B) of the Act, which states that a respondent in an adjudication is only able to raise issues or arguments that were raised in its payment schedule.

https://www.caselaw.nsw.gov.au/decision/549fb6553004262463b93f71
https://www.caselaw.nsw.gov.au/decision/549fb0f33004262463b7dc51
https://www.legislation.nsw.gov.au/#/view/act/1999/46
[1] 2019 NSWCA 171
[2] [2003] NSWSC 1140 at [76] (endorsed in Clarence Street Pty Ltd v Isis Projects Pty Ltd [2005] NSWCA 391).
[3] At [6].
[4] At [78].

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.