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Commercial and Industrial Contruction Group v King Construction Group

by Hugh Foxcroft

30 September 2015  Hugh Foxcroft QC In a nutshell

1                Persons carrying out construction work under construction contracts will lose their entitlement to receive and recover progress payments when they make more than one payment claim in respect of any reference date.

2                 The indiscriminate issuing of invoices, each expressed to be a payment claim under the Act and meeting the requirements of s 14(2)(e), risks breaching s 14(8) of the Act and loss of any entitlement to recover a progress payment. Facts

3                 King Construction Group Pty Ltd (King) was engaged by Commercial and Industrial Construction Group Pty Ltd(CICG) to perform certain construction works at the Sunraysia Community Health Services Project in Mildura (Project).[1] Certain construction works were performed by King, but no construction works were performed by King at the Project after 17 December 2014.[2]

4                 Relevantly, King submitted payment claims under the Building and Construction Industry Security of Payment Act 2002 (Vic) (the Act): (a)             on 23 December 2014  (Invoice 1223) with respect to the reference date of 5 January 2015; and (b)             on 21 January 2015 (incorporating earlier part unpaid payment claims invoiced on 21 November 2014, 26 November 2014, 28 November 2014 and 23 December 2014  (this last being Invoice 1223 referred to in (a) above), and Invoice 1226 dated 21 January 2015 for previously unclaimed hire and supervision)(the Payment Claim).

5                 There was no reference date stated in the Payment Claim pursuant to which any of the invoices was calculated, and no reference date was expressed in any of the invoices.[3] Each of the five invoices was expressed to be a payment claim under the Act conformably with the requirements of s 14(2)(e) of the Act.

6                 CICG served a payment schedule in response to the Payment Claim on 5 February 2015 providing for a ‘nil’ amount, contending that no actual work was done by King on the Project in the period after 21 December 2014 to 21 January 2015, the date of the Payment Claim. King commenced an adjudication application on 19 February 2015. Adjudicator’s determination

7          The adjudicator determined that the Payment Claim was valid and determined that an amount was owing by CICG to King. The adjudicator determined that the Payment Claim was valid, finding that:

(a)       the relevant reference date for Invoice 1223 was 5 January 2015;[4]

(b)       the relevant reference date for the Payment Claim was 3 February 2015;

(c)       there is no necessary relationship between the reference date under s 9 of the Act and the time when work is performed under s 14 of the Act;

(d)       section 14

(8) does not require work to have been performed between the penultimate and ultimate reference dates; and

(e)       section 14(8) does not preclude a claim for work performed prior to the penultimate reference date.     Application 8          CICG applied to the Court to quash the adjudication determination on the grounds that the Payment Claim was invalid under the provisions of the Act and was infected with a vitiating error going to jurisdiction. Arguments

9          CICG submitted that:

(a)       in serving the Payment Claim King breached s 14(8) of the Act by serving a second payment claim in respect of the reference date 5 January 2015 (the Payment Claim incorporated invoices seeking payment for works which were all performed before the earlier reference date (5 January 2015), although one was for work performed prior to 23 December 2014 but not previously claimed (Invoice 1226));

(b)       if the Payment Claim was made in respect of the reference date 3 February 2015 there was no entitlement as, although s 9 of the Act permits a claimant to claim in subsequent payment claims an amount previously claimed and not paid, the Act does not permit a claimant to claim an amount previously claimed with respect to earlier reference dates in later payment claims.[5] As no work was performed by King after 23 December 2014, CICG submitted that the Payment Claim was made with respect to the same reference date as the 23 December payment claim (that is, 5 January 2015), and offended the prohibition in s 14(8) of the Act as a second or further payment claim in respect to an earlier reference date.[6]

10        King submitted that:

(a)       there was no necessity to perform work between the reference date and the date of the payment claim; and

(b)       there was nothing in the Act that prevented a claimant from claiming payment for work performed and not claimed in payment claims served with respect to earlier reference dates.[7] Relevant legislation

11        Section 14 of the Act relevantly provides:  (8)     A claimant cannot serve more than one payment claim in respect of each reference date under the construction contract. (9)       However, subsection (8) does not prevent the claimant from including in a payment claim an amount that has been the subject of a previous claim if the amount has not been paid. Reasoning

12        The adjudicator had ruled that a passage from Jotham Property Holdings Pty Ltd v Cooperative Builders Pty Ltd[8] was not to be read as requiring new work to enliven the s 14(9) exception, but could apply in any case where a payment claim contained any work (regardless of when it may have been performed) not previously claimed.[9] In so ruling the adjudicator placed reliance on the earlier Queensland Court of Appeal decision in Spankie v James Trowse Constructions Pty Ltd [10]and found the Payment Claim to be a valid claim under the Act.

13        Relevantly, Vickery J made certain factual findings:

(a)       the Payment Claim comprised four previous claims and a new invoice for work not previously claimed;[11]

(b)       there was no express provision for reference dates in the construction contract, so dates calculated in accordance with s 9(2)(b) of the Act applied with the relevant reference dates being 3 December 2014, 5 January 2015 and 3 February 2015;[12]

(c)       the reference date for Invoice 1223 (the 23 December Payment Claim) was 5 January 2015, as it was served on 23 December 2014 in respect of payment for work performed after the preceding reference date (3 December 2014);

(d)       as the 23 December Payment Claim was served prematurely, prior to the next reference date, but was nevertheless valid, the rights under the Act had been activated and became operable upon the next reference date, namely 5 January 2015; and

(e)       the reference date for the Payment Claim was also 5 January 2015, not 3 February 2015 as found by the adjudicator, as no further work had been performed since 17 December 2014 and prior to 21 January 2015 (the date of service of the Payment Claim).

14        Vickery J held that there was no warrant for applying the reference date which followed the making of the Payment Claim (3 February 2015) as:[13]

(a)        there was nothing in the Payment Claim itself that entitled the reader to infer that it was calculated by reference to a later reference date or that the payment claim was in respect of a later reference date;

(b)       King performed no further construction work on the Project beyond 17 December 2014 and before service of the payment claim, for which it claimed to be entitlement to a progress claim, and it therefore had no factual basis upon which it could be inferred that the 21 January Payment Claim was in respect of any subsequent reference date; and

(c)       it did not follow that, by reason that the relevant reference date for the 23 December Payment Claim was 5 January 2015, the relevant reference date for the Payment Claim was the reference date which next followed, namely 3 February 2015.

15        His Honour next examined whether s 14(8) of the Act, which prevents a claimant from serving more than one payment claim in respect of each reference date under the relevant construction contract, had been contravened.

16        Vickery J concluded that the Payment Claim was ‘in respect of’ a reference date for which the First Defendant had previously served a payment claim. The reference date of 5 January 2015 was the same for both the 23 December Payment Claim and for the Payment Claim,[14] and was also the reference date for that part of the Payment Claim comprising Invoice 1226.[15] Section 14(8) of the Act had been contravened.[16]

17        His Honour then turned to consider whether the s 14(9) exception operated. The exception in s 14(9), if it applies, works to limit the operation of s 14(8) by not preventing a claimant from including in a payment claim an amount that has been the subject of a previous claim if the amount has not been paid. Therefore the exception in s 14(9) applied to any unpaid portions of the payment claims represented by the earliest four invoices, but not to the remaining Invoice 1226, which comprised part of the Payment Claim. This invoice was with respect to work performed before the end of December 2014, but had not been claimed in any previous payment claim. As this claim had never been the subject of a previous claim, the exception provided by 14(9) could not apply.

18        Vickery J held that, absent the application of s 14(9), the terms of s 14(8) indicated a clear statutory indication that what may be advanced by a claimant as a payment claim that is in respect of the same reference date as a previous claim, is not to be treated as a payment claim made under the Act, and is invalid.

19        His Honour continued: [95]     The scheme of the Act is such as to render it impermissible to claim only some part of the work performed in relation to a particular reference date, only to make a further claim for further work at a later time, where the further work performed and claimed for is in respect of the same earlier reference date. [96]     If such conduct was to be permitted, a claimant could serve more than one payment claim in respect of each reference date for different items of work, resulting in the potential for multiple payment claims being made in respect of each reference date, each requiring individual assessment by a respondent on construction projects. Further, and contrary to a key objective of the Act, this may in turn result in multiple adjudication applications being made in relation to different parts of what is in effect, or should be, the same payment claim. [97]     Section 14(8), when read with the exception in s 14(9), is designed to address this mischief and should be given a construction which supports its statutory purpose. The privileges conferred on claimants by the Act are appropriately addressed with the balancing facility provided by s 14(8).  

20        Although finding that the Payment Claim was in breach of s 14(8) of the Act,[17] his Honour did address the further ground of invalidity that it was necessary to perform some work between the reference date and the date of the payment claim, otherwise there was no entitlement to issue a progress payment claim.

21        CICG argued that King was not entitled to issue the Payment Claim containing Invoice 1226, even though Invoice 1226 had not previously been claimed, because it was in respect of work performed to which the earlier reference date (of 5 January 2015) was applicable.

22        Vickery J dismissed this ground in clear terms: [100]   However, in my opinion, the fact that an item of work could have been claimed as part of a payment claim served in respect of an earlier reference date, but was not, is not a bar to it being claimed in a later payment claim made in respect of a later reference date, provided that s 14(8) is not breached. The time when the work is done may be relevant to a determination as to the correct reference date which applies to a payment claim served in respect of that work. However, the time when the work is done is not a factor which ‘per se determines the validity of the payment    [101]   The text ‘calculated by reference to [the relevant reference date]’ in s 9(1) of the Act simply means that a payment claim for a progress payment made under the Act is to be calculated in respect of work done up to and including the relevant reference date and not beyond it. Payment for all such work is claimable, regardless of whether or not the work had been performed since the preceding reference date or prior to the       preceding reference date.

23        His Honour stated that what he had said in Jotham [18] was: … not to be construed as importing any further requirement for a valid payment claim governed by when the work claimed for was performed or when the materials claimed for were supplied. It is confined to explaining how, in the opinion of the Court, the exception in s 14(9) of the Act is intended to operate.    24        Vickery J then considered interstate decisions in relation to s 9(1) of the Act. His honour concluded that the addition of the words ‘calculated by reference to’ the [relevant reference date] in Victoria, made no material difference to the meaning or operation of the sub-section, when considered against its counterpart provisions in NSW and Queensland. Judgment      

25        Vickery J determined that the adjudication determination was founded upon an invalid payment claim and was an invalid exercise under the Act. The Payment Claim was served in contravention of s 14(8) of the Act and was incapable of providing a jurisdictional basis for a valid adjudication conducted under s 23 of the Act.[19]  

30 September 2015 Chancery Chambers Melbourne TEC Chambers             Hugh Foxcroft            
 
[1]Judgment at [3].
[2]Judgment at [62].
[3]Judgment at [17].
[4]Judgment at [32].
[5]Relying on Kellett Street Partners Pty Ltd v Pacific Rim Trading Co Pty Ltd [2013] QSC 298; Taylored Projects  Pty Ltd v Jedfire Pty Ltd [2009] QSC 32.
[6]Relying on Dualcorp Pty Ltd v Remo Constructions Pty Ltd [2009] NSWCA 69 at [8], [13] to [15] per Alsop J; Jotham Property Holdings Pty Ltd v Cooperative Builders Pty Ltd [2013] VSC 552 at [57] – [58] per Vickery J.
[7]Relying on Spankie v James Trowse Constructions Pty Ltd [2010] QCA 355; Jotham Property Holdings Pty Ltd v Cooperative Builders Pty Ltd [2013] VSC 552 at [57] and [58] per Vickery J.
[8][2013] VSC 552 [57] and [58] (Vickery J).
[9]Judgment at [39].
[10][2010] QCA 355.
[11]Judgment at [63].
[12]Judgment at [67] and [68].
[13]Judgment at [73].
[14]Judgment at [82].
[15]Judgment at [85].
[16]Judgment at [89].
[17]As it was served by the claimant following the earlier service of the 23 December Payment Claim in respect of the same reference date, being 5 January 2015, and was invalid for that reason.
[18][2013] VSC 552 at [43].
[19]Judgment at [98].

 

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