The Supreme Court has determined that a payment claim is not validly served in accordance with the Building and Construction Industry Security of Payment Act 1999 (NSW) (“Act”) if it is not accompanied by a supporting statement from a head contractor. The decision in Kitchen Xchange v Formacon Building Services clarifies the effect of non-compliance with one of the amendments to the Act that became operative on 21 April 2014.
A ‘supporting statement’ is essentially a declaration by a head contractor that all subcontractors have been paid all amounts that are due and payable in relation to the construction work the subject of the payment claim.
Section 13(7) of the Act says that a head contractor must not serve a payment claim on the principal unless the payment claim is accompanied by a supporting statement that indicates that it relates to the payment claim.
The Court has determined that, if a supporting statement does not accompany the payment claim, the payment claim may be valid, but, importantly, the payment claim is not validly served in accordance with the Act.
Valid service of a payment claim is an essential requirement for invoking the jurisdiction of the Act and therefore empowering an adjudicator to make a determination on an adjudication application. If a payment claim is not validly served, the adjudicator has no power to make an adjudication determination based on the payment claim and any determination by an adjudicator would be susceptible to being quashed by the Courts.
Contractors should bear this in mind before electing to expend significant time and expense in proceeding down the path of adjudication or applying for summary judgment (where there has been no payment schedule), only for a Court to render a favourable determination invalid and unenforceable.
Builders are reminded that the amendments to the Act made in April 2014, including the requirement for payment claims to be accompanied by a supporting statement, do not affect construction contracts entered into prior to 21 April 2014.