Are you ready?

The construction industry Christmas and New Year shutdown raises questions about what potential recipients of Payment Claims under Security of Payment legislation (SOP legislation) can do to minimise the potential risk of failing to provide a Payment Schedule within time whilst their offices are closed.

We have heard of strategies intended to avoid being served with a Payment Claim (or Adjudication Application) such as closing offices and posting prominent notices saying that the office is closed or even by disconnecting fax machines.

For the reasons set out in this alert we conclude that there is no combination of strategies that can prevent service of a Payment Claim (or Adjudication Application). We do, however, consider a range of risk identification measures and practical strategies to minimise the risk of an unanswered Payment Claim. This article focuses on the position in Queensland, New South Wales and Victoria.

Mismatch - Business days vs industry shutdown

The primary source of the problem lies in the mismatch between an industry shutdown period for which no allowance is provided in Victoria, and which extends significantly longer than the 'grace' days allowed in the definition of "Business Day" in the New South Wales SOP legislation.

In Queensland, a "Business Day" is defined as a day other than a Saturday, Sunday, public holiday or any day occurring within the periods 22 to 24 December, 27 to 31 December, and 2 to 10 January inclusive..[1] This is the most Respondent-friendly of the three jurisdictions.

In New South Wales, a "Business Day" is defined as a day other than a Saturday, Sunday, public holiday or 27 to 31 December inclusive...[2]

In Victoria a "Business Day" is defined as a day that is not a Saturday, Sunday or a day that is wholly or partly observed as a public holiday throughout Victoria.  No provision is made for the Christmas/ New Year period..[3]  In Victoria (unlike New South Wales and Queensland), a "Business Day" therefore includes the period from 27 to 31 December inclusive unless one of those days is a public holiday in Victoria.

The mistaken assumption that the definition of "Business Days" is the same across the SOP legislation in every state could prove costly, particularly when dealing with a Victorian Payment Claim.

Companies in New South Wales adopting a shutdown until 11 or 18 January 2016 will find that, for service of a Payment Schedule in response to a Payment Claim served prior to Christmas, between 5 and 10 Business Days, respectively, of the 10 Business Days otherwise available for service of the Payment Schedule will have already expired before their offices reopen.

Companies in Victoria adopting the same shutdown period will find that between 9 and 14 Business Days, respectively, will have already expired.

Queensland companies, in contrast, can enjoy their time on holiday safe in the knowledge that time will not begin to run until Monday 11 January 2016.

Don't rely on strategies to avoid service

You cannot avoid being served with a Payment Claim or an Adjudication Application by locking the front door of your office, switching off your fax machine or turning off your computer.

SOP legislation and construction contracts themselves specify various methods for serving notices and claims, including by ordinary post, personal delivery and fax or by email (if so provided in the relevant contract). 

Postal service will deem receipt to have occurred regardless of whether the relevant office is open for business. For example, the Victorian security of payment legislation specifies that a Payment Claim posted by ordinary post will be deemed to have been received 2 business days later..[4] As such, if a Payment Claim is posted by ordinary post on 24 December 2015 in Victoria, it will be deemed to have been received on 30 December 2015 (as 28 December has been deemed a public holiday for 2015) and therefore during the industry shutdown period.

Similarly, if a Payment Claim is sent by fax it will be deemed to have been received when the document is received into the memory of the addressee's fax machine. It is not necessary for the document to be printed out for service to have been effected. This means you cannot avoid service by fax by removing paper from the fax machine or by not being at the office when it is sent. Possibly, the only way to avoid service by fax is to ensure the document does not enter the fax's memory – a technical 'fix' outside the scope of most potential recipients' knowledge.

A Payment Claim can also be served by lodging it at a company's office.  In this case, service will be effective even if the Payment Claim did not come to the attention of the recipient - as long as it is lodged at the address. Therefore, service may be effective if a Payment Claim is left at an office (during the extended shutdown period) when a cleaner or a tradesperson is present or if it is placed under the front door.

Construction contracts increasingly provide for use of email or project communication systems (such as Aconex). Best practice is for contractual notice provisions to specifically identify whether email and/ or project communication systems are an authorised mode for service of contractual notices and SOP documents.

Several scenarios may arise, where email and/ or project communication system are:

  1. expressly stated to be an authorised mode for service - in which case service will be effective immediately, subject to any provisions regarding ineffective service where 'out of office' messages are received.
  2. authorised for general project correspondence, but not authorised for service of contractual notices or SOP communications - this is the preferable position for respondents to SOP claims, compelling the claimant to serve a Payment Claim or Adjudication Application by post, fax or service at the company's office.
  3. used between the parties but not addressed in the contract - this is the most problematic, where the claimant maybe able to point to 'custom and practice' in the prior acceptance of Payment Claims as constituting a representation by conduct that service by email or use of the project communication system is acceptable in substitution for the modes of service provided in the relevant SOP legislation.

Note also that the NSW Court of Appeal in Downer EDI Works Pty Ltd v Parsons Brinckerhoff Australia Pty Ltd [2011] NSWCA 78 held that a person's 'ordinary place of business' for service of Payment Claims and other notices under SOP legislation does not have to be the place of business with the closest connection to the relevant works. In that case, a Payment Claim was validly served by faxing it to Downer EDI's head office in Melbourne even though the relevant site office was in Newcastle, New South Wales.

What to do to minimise risk

We suggest the following measures be considered to minimise the risk of liability under SOP legislation during the holiday shutdown period:

  • Work on the assumption that service cannot be avoided and alert all relevant staff regarding the need for immediate action if a Payment Claim or Adjudication Application is served.
  • Carefully consider all the people, both in your organisation and engaged as consultants, who may potentially receive a Payment Claim.  This list should include site-based project managers, legal advisers and accountants (if the company's registered office is the accountant's office). Ensure those potential recipients are made aware:
    • that a Payment Claim or Adjudication Application may be served and must be given urgent attention; and
    • who to contact if they receive a Payment Claim (or think they have).  
  • Identify any third parties (including project managers or superintendents) authorised by contract to give and receive SOP related documents and ensure they are aware that immediate action is required if they receive a Payment Claim or Adjudication Application and that they are familiar with your organisation's contingency plans to deal with documents received.
  • Have plans in place to ensure the relevant managers are contactable to respond to any Payment Claim or Adjudication Application received during the shutdown period.
  • Arrange for regular checking of all sites where a Payment Claim or Adjudication Application may be served.  The main office, any site offices and any addresses registered with ASIC should be checked.
  • Warn your lawyers that you may receive a Payment Claim or Adjudication Application so they also have contingency plans to ensure that the appropriate people are contactable if necessary.
  • Prepare a 'ready reckoner' identifying the deadline dates for submission of Payment Schedules, calculated by reference to the relevant time periods under the SOP legislation for each relevant state or the contract, whichever is the shorter time period.

This list is not exhaustive. There may be other strategies you can put in place in your particular circumstances to ensure a Payment Claim or Adjudication Application does not 'slip under the radar' during the holiday shutdown period.