• 19 Jan 2017

Decision Alert: High Court Clarifies Requirements of Security of Payment Act Claims

Until the High Court's decision in Southern Han Breakfast Point Pty Ltd (in liq) v Lawrence Construction Pty Ltd [2016] HCA 52, the question whether a "reference date" was a precondition to issuing a valid "progress payment" under the Building and Construction Industry Security of Payment Act 2002 (NSW) (SOPA) remained undecided.

In a unanimous judgment, the Court has authoritatively answered that question with a resounding "yes".

The SOPA is a regularly used tool within the building and construction industry to ensure that those who have contracted for work make regular instalment payments, known as "progress payments", to their contractors, subject to the terms of their agreement.

This mechanism is significant as it allows a contractor to press for a progress payment even though it may later be determined that no payment was, in fact, due. As the Court noted, "a person on whom the Act confer[s] an entitlement to a progress payment [is] able to make a valid payment claim, even though it may ultimately be proved that no payment was due under the construction contract".

The timing of each progress payment is determined "on and from each reference date" in the contract. If no such reference date was identified, their Honours held that no valid payment claim could be made:

"Section 8(1) makes a person who has undertaken to carry out construction work or supply related goods and services under a construction contract entitled to a progress payment only on and from each reference date under the construction contract. In that way, the existence of a reference date under a construction contract within the meaning of section 8(1) is a precondition to the making of a valid payment claim under s 13(1)." (at [61]).

The Court's judgment serves to clarify the mechanism under SOPA for the recovery of progress payments and, importantly, to make certain the prerequisites for doing so validly.

As the mechanism involved is time critical, it is essential that a payment claim is scrutinised by experienced legal advisors to ensure that it meets the requirements of the Act. Failure to carefully review and consider such claims can leave principals out of time – and out of pocket!