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THE PROPOSED SECURITY OF PAYMENT LEGISLATION:

(1)

Parist Holdings Pty Ltd V WT Partnership Australia Pty Ltd [2003] NSWSC 365 Walter Construction Group Ltd V CPL (Surry Hills) Pty Ltd [2003] NSWSC 266
By Brendon Choa

(2)

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(1) Parist Holdings Pty Ltd V WT Partnership Australia Pty Ltd

Brief facts

This NSW case concerns the ambit of the Adjudicators powers under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the BCISP Act).

WT Partnership had provided consultancy services to Parist Holdings, in relation to construction work undertaken by Paris Holdings. On 10 January 2003, a Payment Claim for $90,488 was served on Parist Holdings.
On 24 January 2003, Parist Holdings served a Payment Schedule on WT Partnership, who then applied for adjudication in respect of the progress payment.

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(1) Parist Holdings Pty Ltd V WT Partnership Australia Pty Ltd

Scope of Adjudicators powers On 20 February 2003 the Adjudicator made a determination in favour of WT Partnership.

Parist Holdings then applied to set side the determination of the Adjudicator, amongst other things on the ground that it was not open to the Adjudicator to decide whether or not the contract contained an implied term and to construe the provisions of the contract to determine whether Parist Holdings was obliged to pay GST.

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(1) Parist Holdings Pty Ltd V WT Partnership Australia Pty Ltd

Scope of Adjudicators powers (contd)

The Judge, Nicolas J, however disagreed with Parist Holdings saying that the proper exercise of power and discharge of function of the Adjudicator would require him, to interpret contractual

documents and/or evidence as to the existence of an oral contract or an oral term, and/or to make findings as to the existence and effect of contractual provisions whether express, implied, written or oral .. these are likely to be necessary steps to

be taken in the course of deciding a dispute the ambit of which is evidenced by the payment claim and the payment schedule.

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(1) Parist Holdings Pty Ltd V WT Partnership Australia Pty Ltd

Scope of Adjudicators powers (contd) Summary of this decision From this case it is clear that it is within the ambit of an Adjudicator powers to:

decide whether or not the construction contract contains an implied term and

construe the provisions of the contract to determine whether GST is payable by either party.

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(2) Walter Construction Group Ltd V CPL (Surry Hills) Pty Ltd
Facts

This case concerns the consequences of the failure by the employer to serve a Payment Schedule. Walter Construction (Walter) as main contractor agreed to design and construct certain works at Glebe Point Road, New South Wales, Australia for CPL (Surry Hills) (CPL) as principal. This was a lump sum contract, which works included the construction of a multistorey residential building consisting of 46 apartments, basement car parking, landscaping works, residential gymnasium and a swimming pool. The Superintendent for the contract was Greencliff (CPL) Developments.

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(2) Walter Construction Group Ltd V CPL (Surry Hills) Pty Ltd
Facts (contd)

On 20 December 2002 Walter served on the Superintendent Progress Claim No. 20 for the sum of $14,915,255 inclusive of GST pursuant to cl. 42.1 of the contract.

On 20 December 2002, Walter served on CPL the documents which evidence a claim for the same amount as made in Progress Claim No. 20. Walter contends that these documents constitute a Payment Claim within the meaning of s 13 of the BCISP Act.
On 23 January 2003, the Superintendent issued payment certificate No. 20 in accordance with cl 42.1 of the contract which assessed the amount payable under Progress Claim No. 20 to be $952,351.

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(2) Walter Construction Group Ltd V CPL (Surry Hills) Pty Ltd
Facts (contd) On 28 January 2003 CPL paid Walter the sum of $953,351 in accordance with payment certificate No. 20.

On 11 February 2003, Walter suspended the carrying out of works under the contract, apparently in reliance upon ss 15(2)(b) and 27 of the Act. CPL did not provide to Walter a Payment Schedule within the meaning of s 14 of the Act within 10 business days after service of the payment claim (i.e. by as prescribed, or at all.

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(2) Walter Construction Group Ltd V CPL (Surry Hills) Pty Ltd

Walter then sued CPL for the unpaid portion of the claim of $13,962,904. Walter argued that as a consequence of failing to provide a Payment Schedule, CPL became liable to pay this unpaid portion of the claimed amount, pursuant to section 15(1) and (2)(a) of the BCISP Act. Section 15(1) states: This section applies if the Respondent: (a) becomes liable to pay the claimed amount to the claimant under section 14(4) as a consequence of (b)

having failed to provide a payment schedule to the claimant within the time allowed by that section, and fails to pay the whole or any part of the claimed amount on or before the due date for the progress
payment to which the payment claim relates.

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Section 15(2) states: In those circumstances, the claimant:

(a)

may recover the unpaid portion of the claimed amount from the respondent, as a debt due to the claimant, in any court of competent jurisdiction, and may serve notice on the respondent of the claimants intention to suspend carrying out construction work (or to suspend supplying related goods and services) under the construction contract.

(b)

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In its defence to Walters claim CPL argued, amongst other things, that Walters payment claim (i.e. Progress Claim No. 20) was not a valid claim within s 13 of the BCISP Act, because the

payment claim did not relate to construction work (or related goods and services within the meaning of s 13(2)(a) of the Act.

Section 13(2) states that A payment claim: (a) must identify the construction work (or related goods and services) to which the progress payment relates, and (b) must indicate the amount of the progress payment that the claimant claims to be due for the construction work done (or related goods and services supplied) to which the payment relates (the claimed amount), and (c) must state that it is made under the Act.

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(2) Walter Construction Group Ltd V CPL (Surry Hills) Pty Ltd

CPLs argument

The items in Walters payment claim (i.e. Progress Claim No. 20) had included a Schedule described as EOT Consolidated Claim (EOT, 19A, 25, 26, 26A and 26B only) for the sum of $13,140,022. This was a consolidation of extension of time claims previously made by Walter. CPL argued that as the payment claim by Walter included an extension of time claim it cannot constitute a payment that relates to construction work. According to CPL, the introductory words to s 5 of the BCISP Act, namely construction work means any of the following work shows that physical work was contemplated as fundamental to an entitlement to a payment claim.

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(2) Walter Construction Group Ltd V CPL (Surry Hills) Pty Ltd

CPLs argument (contd)

Consequential loss occasioned by delay to the progress of the works under the contract was in a substantially different category, and was thus outside the definition of construction work (or related goods and services) thereby rendering it invalid as a claim within the statute.

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(2) Walter Construction Group Ltd V CPL (Surry Hills) Pty Ltd

What the Court ruled

The Court however ruled that Walters Progress Claim No. 20 was nevertheless still a valid payment claim for the purposes of s 13(2) of the BCISP Act. It said that the payment claim of 20 December 2002 had adequately identified the work (or related goods and services) to which the progress payment related, and

that was sufficient to meet the requirements of s 13(2)(a).

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(2) Walter Construction Group Ltd V CPL (Surry Hills) Pty Ltd

What the Court ruled (contd)

The Judge, Nicolas J said [at para. 67]: To demonstrate compliance with s 13(2)(a) it is irrelevant, in my opinion, that an item which is a component of a payment claim may be disputed, albeit on the grounds that such item cannot be categorized as either work or goods or services within the meaning of s 5 or s 6 respectively. Inclusion of a disputed

item does not render a payment claim invalid. The statutory requirement for provision of payment schedules and the scheme for adjudication allow for the ventilation and determination of disputes following service of a payment claim under s 13. (Emphasis added)

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(2) Walter Construction Group Ltd V CPL (Surry Hills) Pty Ltd
What the Court ruled (contd)

Therefore Nicolas J ruled that:

the failure of CPL to provide a Payment Schedule to Walters Payment Claim (i.e. Progress Claim No. 20) for the sum of $14,915,255 within the time allowed by s 15 of the BCISP Act, and CPLs failure to pay the whole or any part of the claimed amount on or before the due date (having paid only $953,351 on 28 January 2003), entitles Walter to summary judgment for the balance sum of $13,962,904.

BRIEFING BY EQUITAS CORPORATION IN CONJUNCTION WITH ACIES LAW CORPORATION Implications of this case

Under the NSW BCISP Act, a contractors payment claim, only needs, very simply, to (i) identify the construction work (ii) indicate the amount claimed and (iii) state that it is made under the statute, to qualify as a valid claim under the Act.

It is procedural in nature and contractor does NOT have to establish merits of his payment claim at this stage.
If the employer wishes to dispute or challenge the merits of the contractors payment claim, he MUST provide a Payment Schedule to the contractor within 10 business days after the payment claim is served (or as provided for in the contract) stating the amount, if any, of the progress claim which will be paid and the reasons for not paying the amount claimed.

BRIEFING BY EQUITAS CORPORATION IN CONJUNCTION WITH ACIES LAW CORPORATION Implications of this case (contd)

By providing a Payment Schedule, it allows the claimant to immediately commence the adjudication process under the Act. In other words, the Payment Schedule is a necessary requirement to trigger the adjudication process under the Act.

But if employer fails to provide a Payment Schedule, and does not pay the full amount claimed under Progress Claim, the

unpaid balance automatically becomes a debt due from the employer to the contractor.

More importantly, the employer loses the right to dispute the unpaid balance of the contractors Payment Claim at this stage, and loses the right to have the dispute adjudicated under the Act.

BRIEFING BY EQUITAS CORPORATION IN CONJUNCTION WITH ACIES LAW CORPORATION Implications of this case (contd)

In explaining the rationale of this statutory payment regime, Nicolas J quoted the following speech by the NSW Minister during the second reading of the Bill in parliament: Under part 3, when a payment claim is made, and the other party, called the respondent, does not intend to pay the full amount of the payment claim, it must issue a payment schedule stating the amount, if any, of the payment claim which will be paid and the reasons for not paying the amount claimed.

The payment schedule alerts the claimant to the existence of a dispute over payment and allows the claimant to immediately commence the adjudication process available under the legislation. This is a critical component of the bill as it provides a statutory early warning to claimants that the respondent does not propose to pay their claim in full.

BRIEFING BY EQUITAS CORPORATION IN CONJUNCTION WITH ACIES LAW CORPORATION Implications of this case (contd):

My views

The main objective of this statutory payment regime, with its built-in adjudication process, is to ease the temporary

cashflow of the contractors whilst the works are in progress

and is not intended to affect the substantive, permanent rights of any party.

Query: whether upon the completion of the works, the employer still has the right to arbitrate his dispute over the contractors payment claims which he was liable to pay only by reason of his failure to provide a payment schedule?
Surely, CPLs right to dispute and arbitrate (at the end of the works) Walters Extension of Time claim amounting to $13,140,022 cannot be lost forever just because CPL failed to serve a Payment Schedule within 10 business days.

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end ~ thank you

Brendon Choa ACIES Law Corporation