The New South Wales Supreme Court, in the recent decision of Kitchen Xchange v Formacon Building Services [2014] NSWSC 160, has provided some guidance in relation to relatively new requirement in the Building and Construction Industry Security of Payment Act 1999(NSW) (the Act) for claimants to include with their payment claims a 'supporting statement'. Kitchen Xchange applied to the Court to have an adjudication decision in the favour of Formacon Building Services (Formacon) quashed. The questions to be determined by the Court were as follows:

  1. whether multiple payments claims with the same reference date may render a payment claim invalid, through a breach of section 13(5) of the Act; and
  2. whether a payment claim is invalidated where it is served without the supporting statement as required by section 13(7) of the Act.  

Background

On 2 May 2014, Kitchen Xchange contracted Formacon to fit out the former's shop in Rouse Hill. The contract prescribed payments to be made by four instalments.

On 4 June 2014, Formacon served Kitchen Xchange with the first payment claim, which was subsequently withdrawn.  On 12 June 2014, a further payment claim was provided by Formacon. Kitchen Xchange responded to the claim, through correspondence from their solicitors, with a document which was found by the Court to meet the requirements of a payment schedule. On 20 June 2014, a third payment claim was provided by Formacon, with the intention of replacing the second payment claim. Kitchen Xchange did not provide any response to this claim.

Critically, none of payment claims were served in accordance with s 13(7) of the Act, which requires that "head contractor must not serve a payment claim on the principal unless the claim is accompanied by a supporting statement that indicates that it relates to that payment claim".

Consequently, Formacon served a notice under section 17(2)(a) of the Act in respect of the third payment claim.  As a result of no response from Kitchen Xchange, the matter was referred to adjudication where the adjudicator found in favour of Formacon. 

Decision

The Court found that a payment claim may be validly withdrawn, therefore avoiding a breach of the Act, where it is withdrawn in agreement. The Court decided that the first payment claim was validly withdrawn, however the Court could not find any evidence that Formacon had withdrawn the second payment claim with the consent of Kitchen Xchange. Consequently, it was established that the third payment claim was made from the same reference date as the second payment claim and therefore was invalidly served in breached section 13(5) of the Act.

In relation to Formacon's failure to provide with the payment claims a supporting statement, the Court found that the words 'must not' in section 13(7) of the Act, creates an absolute obligation of prohibition. The Court held that where a payment claim is not accompanied by a supporting statement, the service of the payment claim is invalid. As a result, all three payment claims were invalidly served.

Implications for claimants

This decision confirms the necessity for claimants to ensure that payment claims are accompanied by a supporting statement. Failure to do so will result in the invalidity of the payment claim and the claimant losing the statutory protections created by the Act.  

As a secondary lesson, the decision highlights the importance of seeking consent from the relevant parties if a claimant intends to 'withdraw' a payment claim.

Implications for respondents

The Court's strict interpretation of the legislation arms respondents with an additional defence in responding to a payment claim. In addition, the decision provides valuable guidance as to how the Courts are interpreting the recent amendments of the Act.