As the new year gets underway in earnest, we thought it would be timely to provide you with an update on some recent cases relating to the Building and Construction Industry Security of Payment Act 2002 (Vic) (“the Security of Payment Act”) that have had a significant change on how the Act operates. The recent cases have held that:
- Early Payment Claims submitted before the reference date are invalid; and
- Payment Claims which only include claims for the return of retention money are invalid.
Early Payment Claims submitted before the reference date are invalid
In MKA Bowen Investments Pty Ltd v Carelli Constructions Pty Ltd [2019] VSC 436, the Victorian Supreme Court held that a Payment Claim that was served prior to the reference date under the Contract was not a valid Payment Claim.
Relevantly, the Court held that the words “on and from each reference date” which are contained in Section 9 of the Security of Payment Act meant that a Payment Claim could not be served before the reference date. A reference date is the date pursuant to the relevant construction contract on which the Claimant is entitled to make payment claims. If the contract does not specify a reference date, a reference date will arise every 20 business days commencing on the date, being 20 business days after the commencement of works.
This decision effectively overturns the earlier decisions of the Victorian Supreme Court which held that a Payment Claim that had been served prior to the relevant reference date became a valid Payment Claim on the reference date.
In our experience, many Contracts that are based on the commonly used standard form contracts contain a provision to the effect that a Payment Claim which has been served early will be deemed to become a valid Payment Claim on the date that it should have otherwise been served under the Contract. Notwithstanding the existence of a similar provision in the relevant Contract in this case, the Court held that such a provision would not be effective for the purposes of the Security of Payment Act.
Even if the reference date falls on a date that is not a business day (such as a Saturday, Sunday or Public Holiday), the Payment Claim will need to be served on the next business day immediately following the reference date if it cannot be served on the actual reference date. If the Payment Claim is served on the last business day immediately before the reference date it will be invalid.
Accordingly, a Payment Claim which has been submitted before the reference date will be invalid (for the purposes of the Security of Payment Act) irrespective of whether the Contract states otherwise and irrespective of whether the reference date falls on a day which is not a business day.
Payment Claims which only include claims for the return of retention money are invalid
In Punton’s Shoes Pty Ltd v Citi-Con (Vic) Pty Ltd & Anor [2020] VSC 514 the Victorian Supreme Court held that a Payment Claim which included a claim for the return of retention money without any claim for the balance of the works was not valid for the purpose of the Security of Payment Act as the Payment Claim did not include any claims for construction work or related supply of goods and services undertaken under the Contract.
This decision was followed in the subsequent decision of the Victorian Supreme Court in Watpac Construction v CGM [2020] VSC 637 and in the County Court of Victoria in Foursquare Construction Management Pty Ltd v Chevron Corporation Pty Ltd [2020] VCC 1928.
Whilst it is common for Payment Claims issued immediately following Practical Completion to include a claim for the balance of the contract sum, variations and retention money, we often see Final Claims that do not include any claim other than a claim for the return of the balance of retention money.
In light of the above decisions, if a Final Claim only includes a claim for the return of the balance of retention money then it will not constitute a valid Payment Claim under the Security of Payment Act.
Accordingly, the Security of Payment Act cannot be used by a Claimant to recover retention moneys that are required to be repaid to the Claimant under the Contract unless the Payment Claim also includes a claim for construction works or related goods and services in the form of a variation claim or a claim for the balance of the contract sum.
Please get in touch with a member of our team if you would like more information on anything we have discussed in this article.
