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Sorry SOP Act Tales in QLD & NSW - Retention Money Claims Post-Termination

Two recent decisions in QLD Supreme Court in Iris Broadbeach Business Pty Ltd v Descon Group Australia Pty Ltd & Anor and NSW Court of Appeal in A-Civil Aust Pty Ltd v Ceerose Pty Ltd concern appeals of Adjudicator’s decisions (in NSW also an appeal from the primary judge) in respect of payment claims issued after termination of the respective contracts, whereby the Adjudicator in each instance had awarded payment of retention money to the claimant contractor.

Central to the background in each case was clause 5.2 (recourse to security) of the respective contracts with substantially similar wording.

The Adjudication decision the subject of the QLD case was decided by the Adjudicator relying on clause 5.2, which clause was not addressed by either party in Adjudication submissions.

By contrast, the Adjudication decision the subject of the NSW case was decided by the Adjudicator reaching a conclusion that clause 5 of the contract ceased to operate after termination and without considering respondent’s submissions on the operation of clauses 5.2 and 5.4 in the payment schedule.

The QLD Court held the Adjudicator fell into jurisdictional error on a range of issues, including by the failure to afford procedural fairness to the parties in respect of the decision to award payment of $1.8m of retention money to the claimant. The Court held the Adjudicator had failed to put the parties on notice of her intention to decide the retention claim by reference to clause 5.2 and failed to invite submissions from the parties on the issue, which was a material issue amounting to a denial of natural justice.

The respondent had argued in the payment schedule that it was entitled under clause 5.7(a) of the contract to retain the retention money, which submission the Court found the Adjudicator had failed to consider. Further finding, had the Adjudicator invited submissions on clause 5.2 and those submissions been made, the Adjudicator may have been persuaded to change her mind (John Holland Pty Ltd v TAC Pacific Pty Ltd).

The NSW Court held the Adjudicator fell into jurisdictional error by the failure to afford procedural fairness to the parties in respect of the decision to award payment of approx. $115K of retention money to the claimant. The Adjudicator decided the matter (by unexpressed conclusion) that clause 5 ceased to operate entirely after termination, a proposition neither party contended and without considering the respondent’s reliance on clause 5.2 in the payment schedule, which was a complete answer to the issue.

The Court held the Adjudicator reached the conclusion without putting parties on notice and without inviting submissions on the operation of clause 5 upon termination, which was a material issue amounting to a denial of natural justice. Further finding, had the Adjudicator invited submissions and those submissions been made, the Adjudicator’s decision could have been different.

For advice, contact Julian Troy at [email protected].

NSW v QLD - SOP Act Claims Open to Unlicensed Builders in NSW

In 2023, the decision of the NSW Supreme Court in Sunshine East Pty Ltd v CBEM Holdings Pty Ltd (Sunshine) highlighted a major divergence between NSW and QLD in respect of security of payment legislation applied to unlicensed contractors.

The NSW Court in Sunshine (relying on the NSW Court of Appeal decision in Brodyn) upheld on appeal summary judgment of $420,952.39 obtained by CBEM as an unlicensed contractor (in breach of s10 of the Home Building Act NSW) under s15 of the NSW SOP Act where no payment schedule had been provided by the principal in response to its payment claim. On appeal, the contractors entitlement to payment for failures of licensing and insurance were considered.

The Court held, despite that s10 of the Home Building Act NSW (which states if a contractor is unlicensed the subject contract is unenforceable), relief by summary judgment under s15 of the NSW SOP Act (in respect of a payment claim) was unaffected because it was statutory relief under that Act and was not enforcement of the contract.

The decision is in stark contrast to the position in QLD, where an application for summary judgment in respect of a payment claim under the equivalent provision in QLD (s78(2) of the BIF Act) requires a contractor to be licensed. The key distinction in QLD is the wording of s42(3) of the QBCC Act which (unlike s10 Home Building Act NSW) says an unlicensed contractor “is not entitled to any monetary or other consideration”, except as per s42(4) of the QBCC Act. Several authorities in QLD have confirmed an unlicensed contractor in not entitled to payment under the BIF Act (and predecessor legislation) by summary judgment or otherwise.

To the extent of the insurance failure, the NSW Court found only a small proportion of work was residential building work which required insurance under Part 6 of the Home Building Act. Further, the Court found the principal had represented to the contractor it would pay that insurance. On that basis, the NSW Court did not proceed further to consider the failures of insurance as that of the contractor.

Interestingly, had that consideration been necessary on the facts, the wording of s94(1)(b) Home Building Act NSW (for uninsured contractors of residential building work) is similar to that in s42(3) of the QBCC Act (for unlicensed contractors). Therefore, in the ordinary course, an uninsured contractor in NSW (to the extent of residential building work) would likely not obtain the benefit of the decisions in Brodyn and Sunshine and would not be entitled to payment.

For further details contact [email protected]

Security of Payment Tips – QLD & NSW

Short summaries of recent NSW & QLD Supreme Court and NSW Court of Appeal decisions below provide useful tips in relation to issue of payment claims and payment schedules under security of payment legislation.

Payment Claim Tips
The recent NSW Supreme Court decision in Acciona Infrastructure Projects Australia Pty Ltd v EnerMech Pty Ltd concerns the subcontractor EnerMech’s payment claim of over $10.1m under the electrical installation subcontract with Acciona on the Westconnex project in NSW and the subsequent Adjudication decision in the subcontractor’s favour in full. The payment claim almost entirely sought payment for security (over $10.1m) which security the head contractor previously had recourse to for amounts owed by the subcontractor.

Only a small proportion of the claimed amount (0.18%) related to construction work performed by the subcontractor. The Court held that the payment claim was not a payment claim for construction work and therefore was not a valid payment claim under the NSW SOP Act and the Adjudication decision void.

Ensuring the validity of payment claims, particularly high value claims, before issue is paramount and particularly prior to applying for Adjudication to avoid an expensive road of disappointment. This decision likely has application in Qld.

The recent QLD Supreme Court decision in Canadian Solar Construction Pty Ltd v Re Oakey Pty Ltd concerned a high value payment claim (over $4m) submitted by the contractor Canadian Solar, sent by email to 6 representatives of the principal, its project manager and agent and engineers under the Contract, which was received by 5 of 6 recipients (one email not operational at the time).

The principal argued it was a ‘common assumption‘ between the parties that, receipt by the one recipient that did not receive it, was essential to making a valid payment claim. The Contract did not provide a direction as to how payment claims under the BIF Act were to be issued.

Past payment claims were, in the most part, issued by the contractor in the same manner and receipt was acknowledged. The Court adopted a practical approach finding the contractor’s payment claim was effectively given under the Qld BIF Act.

Although for payment claims, the NSW SOP Act uses with word ‘serve’ as opposed to the word ‘give’ in the QLD BIF Act, contractors in both states have the option of also sending a hard copy payment claim to the principal’s registered office to avoid the issue entirely.

Payment Schedule Tips
A recent NSW Court of Appeal decision in Witron Australia Pty Ltd v Turnkey Innovative Engineering Pty Ltd considered whether an email given by the principal, Witron, in response to the contractor’s payment claim of approx. $800K was a valid payment schedule under the NSW SOP Act.

The payment claim was issued under an electrical installation contract for an automated distribution centre in Kemps Creek NSW and included claims for “base contract works” calculated as part of the fixed contract price and separately for “contract variation works” of approx. $300K relating to identified variations.

The principal’s email rejected the base contract works and advised the variations will be reviewed later. At first instance, the primary judge held the email was not a payment schedule because it failed to specify reasons for denying payment for variations. The principal appealed to the Court of Appeal.

The Court of Appeal agreed holding, because the email failed to consider a significant part of the claimed amount, it failed to satisfy statutory requirements for a valid payment schedule under the NSW SOP Act. This decision likely has application in Qld.

Principals and head contractors must be cautious when issuing email responses to payment claims because the response may be not be a valid payment schedule, or alternatively, may constitute the full extent of the reasons for withholding payment to be later be relied upon.

Further, the consequences of failing to issue a valid payment schedule are significant, resulting in an assumed debt with the options open for defending the payment claim significantly reduced.

For advice contact Julian Troy at Troy Legal, [email protected].

Adjudication Decision Upheld - denial of procedural fairness rejected

The NSW Court of Appeal in the recent decision of Demex Pty Ltd v McNab Building Services Pty Ltd considered an appeal by the subcontractor Demex seeking to overturn a decision at first instance that an adjudication decision in its favour for approx. $1.3m was void. Demex succeeded on appeal and the Adjudicator's decision upheld.

The first instance decision held there was a denial of procedural fairness to the contractor McNab by the Adjudicator’s failure to invite submissions on the calculation of the volume of material claimed in cubic metres in the subcontractor’s payment claim converted from the weight of the material in tonnes.

The key issue on appeal was whether the Adjudicator’s failure to invite submissions on the conversion factors applied was a material denial of procedural fairness and whether there was a real possibility of a different outcome had those submissions been invited. Troy Legal reported the NSW Supreme Court first instance decision back in October 2022.

The Court of Appeal noted the conversion factor applied (although not explained by the subcontractor in the Adjudication) could be easily calculated on the information provided with the payment claim and was therefore implicit.

The Court of Appeal held the Adjudicator had correctly determined that the subcontractor had provided sufficient information and methodology as to calculation of the material volumes claimed and the contractor was not denied an opportunity to contest the conversion factor applied. Further noting, the contractor elected not to offer an alternative conversion factor, or explain why the conversion factor applied was inappropriate.

The Court of Appeal also noted that the Adjudicator went further than necessary by satisfying himself that that conversation factor applied was reasonable by industry standards. Doing so meant there was no possibility of a different outcome and no material denial of procedural fairness to the contractor.

The Court also commented that the contractor did not directly dispute the conversion factor applied in its payment schedule.

Payment schedules should expressly include all reasons for withholding payment. Where similar issues arise, in addition to consideration of arguments about insufficient particulars resulting in an invalid payment claim, to the extent any aspect of a claim calculation is disputed, that should be clearly stated in the payment schedule.

For advice contact Julian Troy at Troy Legal, [email protected].

NSW SOP Act - Only One Valid Claim After Termination

The NSW Supreme Court in Castle Constructions v Napoli Excavations recently considered the builder’s application to have an Adjudication determination in favour of the subcontractor for approx. $48K declared void because the subject payment claim dated 30 September 2022 was invalid.

It was not in dispute between the parties that the subcontract was terminated in May 2022. The builder in its adjudication response submitted that by operation of the s13(1C) of the Act only one payment claim can be validly submitted after termination. The work had been validly claimed on 24 June 2022 and was improperly re-agitated in subsequent claims, including on 30 September.

The Adjudicator in his determination made no reference to the May 2022 termination or re-agitation of claims by the subcontractor after 24 June 2022. The Court found that had the Adjudicator considered the issue “he may well have come to a different conclusion”, finding that he failed to properly exercise his duty and his determination was void.

Submissions disputing the validity of claims or jurisdiction of an Adjudicator to assess claims must appear front and centre in payment schedules and adjudication responses to ensure these critical submissions are not overlooked. For more information, contact Julian Troy at Troy Legal, [email protected].

Awaiting an Adjudication Decision? Get on the Front Foot!

Late last year the Qld Supreme Court considered an application by a developer principal, to set aside an Adjudication decision in favour of the builder on the basis it was given out of time and sought a refund of approx. $1.8m paid to the builder in respect of that decision.

At issue was the validity of the decision due to late notice given by the Adjudicator to the parties of the right to withhold release of the decision (after the due date) pending payment of his fees.

The Court held the right must be exercised and communicated to the parties prior to expiry of the due date. If not, the Adjudicator is required to give a copy of the decision to the QBCC registrar and the parties prior to expiry of the due date. Because the Adjudicator in this instance failed to do both, the Court held the decision was void.

To rub salt into the wound, the Court held the builder was obliged to repay in full the money paid by the principal in respect of the decision, plus interest.

Contractors awaiting a decision should eliminate the risk of a favourable decision being rendered worthless. Make contact with the Adjudicator (before the due date) to ensure proper notice of the right to withhold the decision is given.

If you require further information, contact Julian Troy at [email protected].

Scope Uncertainty leads to Protracted Dispute

The Qld Ct of Appeal decision in Built Qld P/L v Pro-Invest Australian Hospitality Opportunity (ST) P/L demonstrates how generalised descriptions in the scope of work can easily result in dispute.

The appellant contractor (Built) proposed at tender an alternative AC system for a hotel development at Spring Hill, which alternative proposal was accepted by the Client (Pro-Invest) as a suitable cost saving alternative. The alternative proposal was recorded in the Contract by general description, without detailing the full scope.

At first instance, the Court held reference to extrinsic evidence was not permitted to give meaning to the Contract, unless sufficient ambiguity existed. On appeal, this was rejected, the Ct of Appeal permitting resort to extrinsic evidence to give context, particularly where without that evidence, the description in the Contract had little meaning.

By reference to extrinsic material, the Ct of Appeal held the alternative AC system installed conformed with the Contract and the Client’s purported defect notice was instead a Variation, giving rise to a dispute over time and costs - ultimately found in the appellant's favour.

A detailed scope of work is critical to avoid uncertainty and the potential for dispute.

If you require further contracting information, contact [email protected].

Only One Payment Claim After Termination - NSW SOP Act

The NSW Supreme Court in the case of BCFK Holdings Pty Ltd v Rork Projects Pty Ltd recently considered the Principal’s (BCFK) appeal of an adjudication decision in favour of the builder (Rork) in the sum of $685,915 in respect of works to a childcare centre in Balmain, Sydney.

On 12 July 2022, the builder issued a payment claim (first claim) but did not proceed to adjudication on that claim because there was some doubt as to whether it had effectively been served on the Principal under the NSW SOP Act.

Instead, on 20 August 2022, the builder served a second payment claim on the Principal and proceeded to adjudication on the second claim. The parties agreed for the purposes of the adjudication of the second claim that the Contract had been terminated on 12 May 2022.

At issue on appeal in respect of the first claim was, whether despite being served incorrectly on the Superintendent it ultimately came to the attention of the Principal and triggered the operation of the Act.

This was significant in the context of the adjudication of the second claim because, if the first claim did trigger the operation of the Act, the second claim was likely invalid because of the effect of s13(1C) of the NSW SOP Act – which stipulates “a payment claim” may be served on and from the date of termination.

Citing the NSW Court of Appeal authority in Falgate Constructions which held “a document will be served in accordance with the requirements of [the Act] if it actually comes to the attention of the person to be served”, the Court held the first claim was effectively served on 18 July 2022 when it came to the attention of the Principal’s sole director and triggered the operation of the Act.

Considering the effect of s13(1C) of the NSW SOP Act, the Court held it was the Parliament’s intention that after a construction contract has been terminated, only one payment claim may be served on and from the termination date.

As a result, the second claim was invalid and the adjudicator’s decision void.

Adjudication Decision Void - No Procedural Fairness
The recent NSW Supreme Court decision in McNab Building Services Pty Ltd v Demex Pty Ltd considered an appeal of an Adjudicator’s decision under the NSW SOP Act granting the claimant subcontractor (Demex) the full claim amount of approx. $1.3m for remediation work at a Tweed Heads site for removal asbestos contaminated soil (ACM) and placement of clean fill.

At issue was the calculation of claimed volumes of ACM removed from the site and claimed volumes of clean fill imported to the site which were in dispute. The respondent contractor (McNab) stated in its payment schedule that calculation of soil volumes claimed by the subcontractor in the payment claim were not properly particularised and as a result, the construction work claimed could not be identified.

No explanation or calculation for the conversion of soil tonnage data to soil volumes was supplied with the payment claim and no submissions were made by either party in the Adjudication in respect of that conversion. In the absence of any agreement between the parties and without inviting submissions from either party in the Adjudication, the Adjudicator applied conversion rates of 1.6 and 1.96 tonne per cubic metres respectively.

The Court held the Adjudicator’s application of the conversion factors to calculate soil volume were material factors in arriving at his decision and submissions as to the appropriate conversion factor to be applied should have been invited by the Adjudicator, but he had failed to do so. Accordingly, the Court held the respondent contractor was denied procedural fairness in the Adjudication process and the Adjudicator’s decision was void in its entirety.

Civil contractors particularly should note the importance of properly particularising soil volume calculations in payment claims made under the BIF or SOP Acts and ensure sufficient material in support is included at first instance.

For advice contact Julian Troy at Troy Legal, [email protected].

Estoppel fails to avoid Consumer Protections

The Queensland District Court in the recent decision of Thallon Mole Group Pty Ltd v Morton considered whether estoppel stands in the face of the statutory obligation in section 40 of Schedule 1B of the QBCC Act (applied to domestic building contracts) for variations to be writing. Section 40(5) of Schedule 1B requires that a building contractor must not start to carry out work the subject of the variation before the building owner agrees to the variation in writing.

The builder Thallon Mole argued that it received a verbal direction from an authorised agent of the owner to vary the design of the pool balustrade and the owner was now estopped from denying that the builder was not authorised to alter the design or otherwise rely on the design change as a breach of contract by the builder.

On the evidence, the Court was satisfied a direction to change the design was given by an authorised person, albeit without the knowledge of the owner and the builder relied on that direction and suffered loss as a result.

However, the Court rejected the builder's estoppel argument. The Court considered the legislative background to section 40 of Schedule 1B of the QBCC Act and its purpose of reinforcing consumer protection, and section 108D of Schedule 1B, the prohibition from contracting out of the requirements the Act, finding that allowing the estoppel would in effect exclude the owner's statutory right to have variations in writing and offend s108D of Schedule 1B. The Court held that estoppel cannot be relied upon to avoid consumer protections in Schedule 1B.

Payment Claims under the BIF Act - Lessons from KDV Sport

Last month, Troy Legal published a reminder for Queensland commercial construction businesses of the importance of properly preparing payment claims under the BIF Act by adopting the principles applied in KDV Sport – see https://troylegal.com.au/bif-act-payment-claim-fundamentals/.

Earlier this month a decision of the Queensland District Court in Denbrook Constructions Pty Ltd v CBO Developments Pty Ltd highlights pitfalls for claimants who ignore the principles applied in KDV Sport when preparing payment claims under the BIF Act.

The plaintiff, Denbrook, prepared progress claims under a Master Builders Construction Management Contract, claiming payment in accordance with an itemised breakdown of the agreed Construction Management Budget used to calculate the lump sum price of the Works under the Contract (CM Budget).

Progress claims were submitted as % complete for each item within the CM Budget (skip bins, security, tools, consumables, labour hire, fencing, contract administration, etc). For example, if a budget figure of $53,486 was allocated to labour hire in the CM Budget, it was claimed progressively as % complete with each progress claim with no further information given apart from the % previously claimed and the % now claimed for that item.

Denbrook sought summary judgment before the Court for its final payment claim 26 (purportedly made under the BIF Act) in circumstances where the defendant, CBO, failed to give a payment schedule within the time required by the Act. The defendant’s failure to provide a payment schedule within time was not disputed and it instead argued payment claim 26 was not a valid payment claim under the BIF Act for its failure to properly identify the work the subject of the claim.

Although payment claim 26 was in a different form to earlier progress claims, like earlier claims, it did not properly describe the work performed the subject of the claim for each CM Budget item since the previous progress claim. This failure offends the fundamental principle applied in KDV Sport.

That is, if claiming for work progressively by % complete, a claimant must give sufficient information in the payment claim itself to allow the recipient to understand the further work performed (that constitutes the greater % now claimed) since the previous claim.

Although there were other deficiencies and errors in payment claim 26, this was a fundamental error identified by the Court preventing the defendant from sufficiently identifying the work claimed.

Troy Legal provides advice to contractors, subcontractors and consultants ensuring that they prepare valid payment claims under the BIF Act. Contact [email protected] for more information.

BIF Act Payment Claim Fundamentals - Troy Legal Fundamentals to preparing a valid payment claim under the BIF Act

Master Plumbers Association Queensland - South Brisbane Golf Day
Last Friday was a great day on course at Oxley Golf Club. Thanks to MPAQ and Mates in Construction. The course was in great condition despite the recent floods only a few months ago. The boys from Q Plum & Gas (proudly servicing the Ipswich/Springfield region) shared a couple of cold ones c/- drinks partner - Troy Legal.

QBCC Act Duties and Non-Conforming Building Products
Part 6AA of the Queensland Building and Construction Commission Act 1991 (Qld) (QBCC Act) defines what constitutes a non-conforming building product (NCBP), namely a product that is either not safe, not compliant with building regulations (eg. NCC) or otherwise not fit for the use, or to the standard, it is said to perform.

Section s74AE of the QBCC Act describes who is a person within the chain of responsibility, namely a person that designs, manufactures, imports, supplies or installs a building product, any architect or engineer, in designing a building, that specifies the use of the product, and anyone else who knows, or is reasonably expected to know, that the product is, or is likely to be, associated with a building.

Duty to Report
Under s74AE of the QBCC Act all persons in the chain of responsibility have a duty to report a NCBP to the QBCC if the person becomes aware, or reasonably suspects, the product is unsuitable for an intended use. The person is required to notify the QBCC ASAP, but within two (2) days after becoming aware or reasonably suspecting a NCBP, unless the person has a reasonable excuse.

If there is also a notifiable incident, the person must also give the QBCC notification of the incident within two (2) days after becoming aware or reasonably suspecting the incident. A breach of these duties attracts maximum fines of $7,187.50 (NCBP) and $14,375 (notfiable incident) respectively.

Duty regarding Representations
Under s74AK(2) of the QBCC Act all persons in the chain of responsibility also have a duty not to make representations about a product and its use suggesting it complies with regulations if the person knows, or ought reasonably to know, that the product or its use does not comply. A breach of this duty attracts a maximum fine of $143,750.

All persons in the chain of responsibility need to be aware of these duties and the Dept. of Energy & Public Works, Code of Practice, https://www.epw.qld.gov.au/__data/assets/pdf_file/0019/4654/nonconformingbuildingproductscodeofpractice.pdf.

Suppliers, manufacturers in particular need to be aware of these duties, ensuring product descriptions and related information comply, and that their employees and agents do not make representations in breach of that duty.

Troy Legal provides advice to construction businesses of these duties and remedies available when these duties have been breached.

SME's BEWARE - Onerous Terms May Be Struck Down

The recent Federal Court decision of Lobux Pty Ltd v Willshaun Pty Ltd [2022] FCA 204 considered the standard supply terms of a vacuum tank manufacturer (Lobux) finding several of the clauses constituted unfair contract terms for the purposes of s24(1) of the Australian Consumer Law (ACL), rendering them void and unenforceable.

The purchaser (Willshaun) took possession of the tank without making the final payment (on the promise of returning it after minor modification work was complete). When the tank was not returned as promised, the manufacturer in turn registered its security interests on the PPSA and commenced the proceeding seeking orders for return of the tank and related relief.

The purchaser cross-claimed for defective work and claimed clauses of the manufacturer’s supply terms were unfair contract terms voidable under s250 of the ACL, including the general security clause.

There was no dispute that the supply terms constituted a standard contract for the purposes of the ACL. The Court was also satisfied the terms constituted a small business contract for the purposes of s23(4) ACL as the upfront price payable was less than $300,000 and the purchaser employed fewer than 20 employees.

The manufacturer’s security clause charged all present and future property of the purchaser in respect of any money owing by the purchaser (although expressed in a somewhat unusual way, it was a standard AllPAAP clause).

The Court considered that together with other protections in the supply terms (such as preservation of ownership and rights of repossession where the price remained unpaid), the security clause was excessive and created a substantial imbalance of rights.

The manufacturer failed to satisfy the Court the clause was reasonably necessary in order to protect its legitimate commercial interests. Accordingly, the clause was declared void and unenforceable.

Ultimately the purchaser's other cross-claims failed and the tank was ordered to be returned to the manufacturer.

Manufacturers and suppliers (those who are or deal with SME’s) must be careful to ensure their standard terms are clearly expressed and do not overextend their rights, otherwise they risk being struck down. Troy Legal provides expert contractual advice to assist.