On 21 April 2014, sections 13(7) and 13(9) of the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOPA) were introduced to require head contractors to attach supporting statements to payment claims.

In short, section 13(7) of the SOPA requires a payment claim by a ‘head contractor’ to be accompanied by a supporting statement that indicates that it relates to that payment claim, while section 13(9) requires the supporting statement to declare that all subcontractors have been paid all amounts that have become due and payable in relation to the construction work concerned. 

Court decisions since have confirmed that a head contractor cannot validly serve a payment claim under the SOPA without attaching a supporting statement to the payment claim.

In the recent decision of Mt Lewis Estate Pty Ltd v Metricon Homes Pty Ltd [2017] NSWSC 1121, further judicial guidance has been provided to head contractors and principals.  In Mt Lewis Estate, the NSW Supreme Court determined that a payment claim was not validly served under the SOPA when accompanied by a supporting statement that predated the payment claim to which the supporting statement related.  The consequence of the failure to serve a valid payment claim was that the adjudicator did not have jurisdiction under the SOPA to determine the adjudication application made in respect of the purported payment claim.

The Facts

On 16 December 2016, Metricon served on Mt Lewis a payment claim in the sum of $3,316,584 with a series of supporting documents, including a supporting statement.  The supporting statement was signed by Metricon’s General Manager on 13 December 2016 and the payment claim was dated 15 December 2016. 

The claim proceeded to adjudication, where Mt Lewis in its adjudication response, argued that the supporting statement was non-compliant with sections 13(7) and 13(9) of the SOPA.  Mt Lewis argued that the SOPA required the declaration that all subcontractors have been paid in the supporting statement to “speak at the time at which the payment claim is made”.  The adjudicator rejected Mt Lewis’ argument and determined that Mt Lewis was to pay Metricon $1,830,537.09 in respect of the payment claim. 

Mt Lewis sought a judicial review of the adjudicator’s determination on the basis that there was no valid supporting statement attached to the payment claim and the payment claim was therefore not validly served in accordance with the SOPA.  Relevantly, the Court found:

There is no room to read the words of ss 13(7) and (9) and the prescribed form as requiring anything other than a declaration which relates to a payment claim, that is a document, which is in existence at the time the declaration is made and which identifies the work to which the claim relates. The declarer must have something before her or him with respect to which she or he can make the supporting declaration.

The Court observed that, if a supporting statement could pre-date a payment claim, this would enable head contractors to validly sign a supporting statement and then serve a payment claim, thus avoiding any supporting statement in respect of payments that became due and payable in the period between the date of the supporting statement and the date of the payment claim.  The Court found that such a construction of sections 13(7) and 13(9) of the SOPA would defeat the purpose of the sections, which was to ensure head contractors had paid subcontractors all amounts due and payable at the time of the payment claim.

Notes for principals and head contractors

1. Principals served with a payment claim from a head contractor attaching a supporting statement that pre-dates the payment claim may assert that the payment claim has not been validly served in accordance with sections 13(7) and 13(9) of the SOPA.  The consequence is that the payment claim is not a valid payment claim under the SOPA and the mechanism for recovering progress payments under the SOPA is never invoked. 

Principals should also rely on any other reasons for withholding payment and those reasons should be fully documented in a payment schedule served within 10 business days of receiving the purported payment claim. 

2. Head contractors should take care to ensure that a payment claim attaches a supporting statement in the form required by the SOPA and that the supporting statement does not pre-date the payment claim.  The supporting statement should be seen as a verification process completed by an authorised person who reviews the payment claim and then signs the supporting statement.