The Decision

On 12 November 2010 in the decision of Parsons Brinckerhoff Australia Pty Limited v Downer EDI Works Pty Limited (Parsons v Downer) his Honour Justice Hammerschlag of the Supreme Court of New South Wales emphasised the dangers to any party to a construction contract in not specifying in the contract its "ordinary place of business" and not maintaining effective structures to ensure payment claims are properly dealt with. His Honour held that a payment claim had been successfully served on Downer EDI's "ordinary place of business" pursuant to section 31 of the Building and Construction Industry Security of Payment Act 1999 (Act) and Downer EDI was liable to pay Parsons the sum of $1,389,362.07 as Downer had failed to serve a payment schedule.

The Facts

Downer contracted with Parsons as its sub-consultant to provide design consultancy services in relation to the upgrade of a passenger rolling stock production facility in New South Wales.

The facts of the case are simple. Parsons served a payment claim on Downer at two locations (one in Melbourne and one in Broadmeadow) in purported compliance with section 31(1)(c) which states the following:

31 Service of notices

  1.  Any notice that by or under this Act is authorised or required to be served on a person may be served on the person:
  1.  by delivering it to the person personally, or
  2.  by lodging it during normal office hours at the person's ordinary place of business, or
  3.  by sending it by post or facsimile addressed to the person's ordinary place of business, or
  4.  in such other manner as may be prescribed by the regulations for the purposes of this section, or
  5.  in such other manner as may be provided under the construction contract concerned.
  1.  Service of a notice that is sent to a person's ordinary place of business, as referred to in subsection (1) (c), is taken to have been effected when the notice is received at that place.
  2.  The provisions of this section are in addition to, and do not limit or exclude, the provisions of any other law with respect to the service of notices. [Emphasis added]

Downer alleged the payment claim was not served at its registered office.

His Honour on looking at the facts surrounding the business conducted at the Melbourne office and the fact the address appeared on Downer's letterhead, held that the Melbourne office was the "ordinary place of business" of Downer. Downer failed to serve a payment schedule within the time prescribed under the Act and accordingly his Honour entered judgment for the entire amount sought in the payment claim, being $1,389,362.07.

Contractual Amendments

Despite the Act having been in effect for a number of years, large organisations often struggle with the administration of payment claims received at their offices. More often then not payment claims are ignored or do not reach the intended recipient until after the expiration of the 10 business days required to respond. The Act provides zero tolerance with respect to claims which are not responded to within 10 business days and entitles the claimant to obtain judgment for the entire amount claimed, plus interest and costs. Appropriate structures and procedures must be established and maintained by organisations in order to ensure that a payment claim does not slip through the cracks.

The decision of his Honour in Parsons v Downer highlights this precise problem. Aside from the maintaining an appropriate structure to deal with a payment claim, this judgment could have been avoided had the parties drafted the construction contract (or in this case the sub-consultancy agreement) with the Act in mind.

Had the parties considered the Act in drafting the contract they could have included a clause along the lines of:

"For the purposes of serving any claims under the Act the ordinary place of business is [insert address]."

A clause drafted in this form would not offend section 34 of the Act as it is providing clarity around what is an "ordinary place of business". As his Honour pointed out, such a concept is unique to the Act and one that should be given its ordinary meaning. It is noted at paragraph 8 of the judgment that neither party drew the Court's attention to any pertinent authority on the meaning to be attributed to the phrase "ordinary place of business".

The case highlights that construction contracts must be drafted with the provisions of the Act in mind. Similarly to the issue of the "ordinary place of business", other clauses with respect to the payment provisions and the time for issuing certificates should also be brought in line with the Act. We would also recommend including drafting regarding the manner in which claims are valued and selection of the authorised nominating authority.