In Lean Field Developments1, the Queensland Supreme Court recently revisited the basis upon which the Building and Construction Industry Payments Act 2004 (Qld) (BCIPA) would invalidate conditions to a contractor’s entitlement to progressive payment.
Special Counsel Tony Roccisano and Partner Ren Niemann review this decision and its implications.
The case in brief
Lean Field Developments Pty Ltd (Lean Field) contracted E&I Global Solutions (Aust) Pty Ltd (Global) to supply services relating to high voltage and fibre optic cables. Clause 33.7 of their contract required Global to submit a draft claim for payment only on a specified day. Clause 33.8 of the contract said that Global could submit a payment claim 14 days after it had submitted the draft claim for payment, and that this date for submitting its actual payment claim was the reference date for the purposes of the BCIPA.
There were several differences between the content and effect of the draft payment claim and the actual payment claim, including that they could end up covering different work. Global submitted a payment claim under the BCIPA, and went to adjudication, despite it having failed to submit a draft claim for payment in accordance with clause 33.7. The adjudicator awarded Global $527,783.08 and Lean Field applied to the Supreme Court to overturn the adjudicator’s decision.
On the key issues before the court, Justice Applegarth decided that:
- under the BCIPA, the reference date can be “worked out” under the contract through a process of calculation2, e.g. by applying a formula to facts that are capable of being ascertained after the contract is entered into3
- the BCIPA expressly gives the parties some freedom to determine when the reference date is to occur. His Honour acknowledged that a party could try to abuse this contractual freedom by drafting a clause that made the required conditions unduly onerous to the contractor, but he said that s.99 BCIPA served the purpose of protecting against such drafting, and
- the validity of clauses defining the reference date depended on its content and practical consequences4. Importantly, His Honour said that a useful enquiry in evaluating whether a clause is valid is to ask whether it facilitates or impedes the BCIPA in achieving its purpose.
A clause that conditions the reference date is likely to be invalid if it neither facilitates a statutory entitlement to progress payments nor the resolution of payment claims under the BCIPA5. This is the case even if the case is not onerous on the contractor, but because it, “… has no significant utility in terms of the scheme created by the Act… because it impedes a statutory entitlement without any corresponding benefit”6. Equally, a clause could have a useful purpose but still be invalid because it is too onerous.
His Honour then went on to provide some examples of clauses that would and would not be invalidated by s.99 BCIPA:
- a clause that made a reference date dependent on the contractor completing a defined part of the work could be valid7
- a clause that made the reference date dependent on the principal being of the opinion that it should pay the progress payment would be too subjective and therefore invalid because it would make the statutory entitlement to a progress payment illusory8
- a clause that said the reference date arises a few days after the contractor provides an estimate of the work that will be done by the time of the payment claim and its expected value could be valid because it facilitates the prompt payment of claims and does not unjustifiably inhibit the reference date from arising9, and
- as for Lean Field, notwithstanding the requirement for a draft payment claim was not onerous, the requirement was invalid because it lacked utility for the purposes of the BCIPA. There was, “…no direct nexus…”, between the content of the draft payment claim and the actual payment claim because they related to different periods and different work. Also, the clauses provided for the Superintendent to give a preliminary assessment in response to the draft payment claim, but that assessment did not bind either party for the purposes of the actual payment claim10.
What next for your business?
In light of the further guidance by this decision, it is recommended that payment terms and conditions are carefully reviewed to ensure that they achieve the right balance between conditions to a reference date and contractors’ entitlement to payment. For both principals and contractors alike this means:
- considering the need to identify the conditions to the reference date that the parties believe achieve this balance
- drafting the conditions in a way which conforms to the BCIPA and the courts’ guidance – that is, determining the ‘reference date’ as opposed to qualifying the contractual entitlement to payment claims, payment schedules or the principal’s obligation to pay
- avoiding conditions that focus on pure form and subjective elements and, instead, are objective and demonstrate utility, and
- considering milestones and milestone payments as a means to driving appropriate behaviour.