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Security of payment: Why references dates are critical to making a valid claim

Morrissey Law + Advisory’s series of articles on the security of payment process have previously  touched on payment claims, payment schedules, adjudication application notices and legislative reform[1], this article takes a closer look at the timing of payment claims and the effect reference dates can have on your entitlement to payment.

What is a reference date?

Put simply, a reference date is the date on and from which a payment claim under the Building and Construction (Security of Payment) Act 1999 (NSW) (Act)[2] may be issued to claim payment for the work done under a construction contract in the month prior to that date.

Reference dates are integral to the security of payments process and your right to receive payment, as section 8 of the Act states:

“On and from each reference date under a construction contract, a person:

  • Who has undertaken to carry out construction work under the contract, or
  • Who has undertaken to supply related goods or services under the contract,

is entitled to a progress payment.”

Where a written contract exists between two parties, there will likely be a provision in the contract which covers reference dates, however, where the contract doesn’t mention reference dates, section 8(2)(b) of the Act dictates the first reference date will be the last day of the calendar month in which construction work was first carried out and the last day of each subsequent calendar month.

Why are reference dates so important?

Under section 13 of the Act, a claimant may not serve more than one payment claim in respect of each reference date under the construction contract. As such, reference dates play a vital role in ensuring a consistent frequency of claims are made.

If more than one claim is served in respect of a certain reference date, the second claim will be invalidated as ‘Section 13(1) operates to require that each payment claim be supported by a reference date and s 13(5) operates to require that each reference date support no more than one payment claim’[3]. Further, the High Court in Southern Han upheld the reasoning in Dualcorp Pty ltd v Remo Constructions Pty Ltd in which it was held that ‘…a document purporting to be a payment claim that is in respect of the same reference date as a previous claim is not a payment claim under the Act.’ [4]

In the NSW Supreme Court case of Regal Consulting Services[5], the claimant issued a payment claim for $44,500.00 (incl GST) on 12 July 2016, eight days before the relevant reference date. The respondent argued this payment claim was invalid as the claimant had issued a payment claim on 20 June 2016 and hence was attempting to serve a second payment claim for the month of June.

The claimant argued that the construction contract between the parties operated such that a payment claim issued early would be deemed to have been made on the date for making that claim, and as such the 12 July claim was deemed as having been issued on 20 July.

The Supreme Court followed the High Court decision of Southern Han Breakfast[6] in stating that although the entitlement to a progress payment exists where the person who issued the payment claim has undertaken to carry out construction work as per section 8 of the Act, the entitlement exists only on and from each reference date under the construction contract. The Supreme Court reiterated the fact that the existence of a reference date is a precondition for a valid payment claim.

All Seasons Air Pty Ltd appealed the NSW Supreme Court’s decision arguing that:

  • the effect of reading sections 8(2)(a) and 13(1) together is that the payment claim made on 12 July 2016 should be taken by reason of clause 37.1 of the contract to have been served on 20 July 2016;
  • it is not correct to say that the payment claim was served ahead of time, it was in fact “provided or served” in accordance with the contract and was “made” on the 20 July reference date;
  • despite the invoice dated 12 July saying on its face that it was a payment claim, it was not a payment claim such that it engaged the provision so the Act until the 20 July 2016 reference date occurred;

Despite All Seasons Air’s arguments, the NSWCA upheld the decision in Southern Han that the entitlement to a progress payment arises on and from a reference date.

The NSWCA reiterated the NSWSC reasoning, stating that:

  • the deeming provision of the contract (that early payment claims were deemed to be served on the relevant reference date) operated only for the purposes of the contract and not the Act; and
  • at the time of service, the claimant was not entitled to a progress payment for the purposes of the Act.[7]

As a result of this case and Southern Han it is clear that the courts consider the contractual regimes for claims and payments to be completely separate from those of the Act.

It is worth noting that although only one payment claim may be issued per reference date, a payment claim which was previously submitted and not paid in whole or in part may be resubmitted as part of a new payment claim. However, it is critical that you stipulate in the payment claim what amounts are claimed in respect of which time period to avoid ambiguity and confusion.

Reference dates after completion or termination

As a project nears its end, either by completion or termination, a contractor’s right to issue payment claims becomes a more complicated issue as the prospect of issuing the final claim approaches. This is due in part to the States’ different interpretations of the term “reference date”.

In Southern Han, the High Court found that in the absence of a clear contractual intention for the contrary to apply, reference dates, and hence a contractor’s entitlement to serve payment claims, do not continue to accrue following termination.[8]

The accrual of reference dates following the achievement of practical completion is a matter to be determined by analysis of the construction contract.[9]

In Fairfield City Council v Abergeldie Contractors, the construction contract stipulated that only two reference dates would occur after practical completion; the first date for a progress claim arising immediately after practical completion and the final payment claim. The NSW Supreme Court held that a payment claim issued by the contractor which was not made in respect of a reference date under the contract was invalid.

How to avoid issues with reference dates and the service of claims

The steps to ensure that your payment claim is properly served on a reference date, as required by the Act include:

  • Carefully reviewing your contract to determine the date when your entitlement to serve payment claims arises (where your contract does not state a reference date, remember that the reference date will be the last day of each calendar month in which the works are carried out);
  • Keeping a register of all payment claims issued on the project, including the date on which they were served and the works for which payment was claimed (it is helpful to provide an updated copy of the register to the respondent with each payment claim showing the percentage of each part of the works already claimed and yet to be claimed);
  • Where possible, coordinating any subcontractor invoices so that you are able to provide evidence of the amounts incurred in respect of each payment claim;

If you have any questions regarding the service of payment claims or your security of payment obligations and the legislation, please do not hesitate to contact Morrissey Law + Advisory.

[1] This series is focused on the legislation in NSW, however if you have any questions around other jurisdictions, please contact us directly.

[2] Building and Construction (Security of Payment) Act 1999 (NSW)

[3] Southern Han Breakfast Point Pty Ltd (in Liq.) v Lewence Construction Pty Ltd [2016] HCA 52

[4] Dualcorp Pty Ltd v Remo Constructions Pty Ltd (2009) 74 NSWLR 190.

[5] Regal Consulting Services Pty Ltd v All Seasons Air Pty Ltd [2017] NSWSC 613

[6] Southern Han Breakfast Point Pty Ltd (in Liq.) v Lewence Construction Pty Ltd [2016] HCA 52

[7] All Seasons Air Pty Ltd v Regal Consulting Services Pty Ltd [2017] NSWCA 289

[8] Ibid.

[9] Fairfield City Council v Abergeldie Contractors Pty Ltd [2017] NSWSC 166

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.