On 31 March 2016, the NSW Supreme Court handed down its decision in Kyle Bay Removals Pty Ltd v Dynabuild Project Services Pty Ltd  NSWSC 334:
- confirming that, if a payment claim is made by a head contractor without attaching a valid supporting statement that all subcontractors have been paid, it will not be deemed to have been served in accordance with the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act); and
- providing interesting comments around section 13(5) of the Act regarding the prohibition on a claimant serving two payment claims in respect of the same reference date.
The case concerned an application by Kyle Bay Removals Pty Ltd (Removals) to set aside a statutory demand that had been served on it by Dynabuild Project Services Pty Ltd (Dynabuild) pursuant to an adjudication in Dynabuild’s favour for the amount of $408,841.56 that had been registered as a judgment in the District Court. The adjudication stemmed from a payment claim served by Dynabuild on 23 November 2015 (the November Payment Claim). Relevantly, Removals argued that the November Payment Claim served by Dynabuild was invalid as:
- the supporting statement was knowingly false regarding payment to two subcontractors; and
- it was served contrary to section 13(5) of the Act because an earlier payment claim (the September Payment Claim) had been served in respect of the same reference date.
Removals argued that the supporting statement accompanying the November Payment Claim was knowingly false in breach of section 13(8) of the Act, as the director of Dynabuild knew that there remained payments owing to two subcontractors. The court found, on the evidence presented, that no false supporting statement had been served, notwithstanding that payment to one subcontractor was subject to a “payment agreement” under which the subcontractor would be paid periodically as Dynabuild was experiencing cash flow problems.
The contract between Removals and Dynabuild required Dynabuild to claim progressively on the “22 day of each month for the works done on and off site and materials on site to the 22 day of that month” until the final payment claim was made.
Removals argued the September Payment Claim was the ‘final’ payment claim made under the contract as:
- Dynabuild made a written request for the issue of a certificate of practical completion and issued the payment claim for works completed in September 2015 describing the works as “100% Complete” (the September Payment Claim), on the same day; and
- no work was undertaken after the September Payment Claim was served,
such that there could not have been any reference date after the September Payment Claim and so the November Payment Claim was made with respect to that earlier reference date.
The court held that the contract did not include a requirement that a payment claim could only be made if work had been completed in the preceding month. There was subsequently no issue with Dynabuild serving the November Payment Claim for works completed in earlier months as the contract entitled Dynabuild to make payment claims on the 22nd day of each month for work carried out under the contract to that date. The court was satisfied that the September Payment Claim and November Payment Claim were therefore in respect of different reference dates.
This decision turned on the drafting of the contract. If the clause entitling Dynabuild to submit payment claims had specified that a payment claim could only be made in respect of work completed in the preceding month, and in fact no work had been completed during that period, the court indicated that its decision would be very different. This case serves as a reminder to parties to pay particular attention to the clause entitling a contractor/subcontractor to submit:
- payment claims to ensure the clause is as wide or narrow as desired; and
- a final payment claim to ensure not only the contractor/subcontractor’s ability to claim but also that effective time bars are in place to prevent multiple ‘final’ payment claims being served.