This update considers an important Queensland Court of Appeal decision, delivered on 8 June 2012, regarding the Building and Construction Industry Payments Act 2004 (Qld) (BCIPA).1

The court held that a clause in a contract, which had the effect of prohibiting the service of a payment claim until certain conditions had been met – in other words creating preconditions – was void because it contracted out of the BCIPA.

Some of the preconditions in this case were that the payment claim:

  1. be in the format required by the respondent, including the provision of a statutory declaration
  2. must contain evidence reasonably required by the respondent.

Whether a provision is void under s 99 of the BCIPA is a question of degree. For example in a 2010 Queensland Supreme Court decision2, a contract requiring the submission of a draft claim and a progress certificate by a superintendent before a payment claim could be served was not contracting out of the BCIPA.3

In our view, a precondition for a reference date (being the date from which a payment claim may be served) is more likely to be contracting out of the BCIPA if it is a precondition within the control of the respondent.

If you are a claimant under the BCIPA, it is likely that you can serve a valid payment claim whether or not you have complied with contractual preconditions for a reference date. The prudent course however is to comply with those preconditions, which will probably remain enforceable under the contract notwithstanding the BCIPA. It is best to avoid the arguments which were raised in this case. You do not want to serve a payment claim, potentially succeed in adjudication then be required to argue subtle points of preconditions for reference dates in the courts. As noted above, although this is a “claimant friendly decision” the application of the principles from this case will turn on each unique set of facts.

If you are a respondent under the BCIPA, do not assume that preconditions to reference dates in your contract will be enforceable. If your contract provides a particular date for serving payment claims, for example the 25th day of each month, then the prudent course is to assume that the 25th day of each month is the reference date, whether or not contractual preconditions for a reference date have satisfied. So if you receive a payment claim served on, for example the 27th day of the month and certain preconditions have not yet been met, such as the provision of a statutory declaration, then the prudent course is to assume nevertheless that the claim is validly served on the 27th day of that month and you should serve a payment schedule within the required time.

This case has application in other jurisdictions including New South Wales and Victoria given the similarly worded Security of Payment Acts in those states.

The Decision

Coastal Dredging obtained an adjudicator’s decision in its favour against John Holland for dredging work carried out near Gladstone. John Holland in seeking to overturn the decision argued that there was no reference date from which a valid payment claim could have been served.

The terms of the contract were critical to this case. The contract provided preconditions for reference dates, for example that a payment claim must be in the format John Holland requires, and if the preconditions are not met the payment claim is void and the reference date deferred to the next month. The contract defined reference date4 as the 28th day of the month and when Coastal Dredging had complied with contractual preconditions for submission of a payment claim referred to above. John Holland relied upon a concession by Coastal Dredging that it had not complied with the required format and argued that a reference date had not arisen to entitle Coastal Dredging to submit the payment claim in question.

The court confirmed that the BCIPA provides a statutory entitlement for someone who has undertaken construction work to receive payment from each reference date. A reference date is defined in the BCIPA, for the purpose of this decision, as:

“a date stated in, or worked out under, the contract as the date on which a claim for a progress payment may be made for construction work carried out or undertaken to be carried out, or related goods and services supplied or undertaken to be supplied, under the contract.” (emphasis added)

John Holland argued that the reference date worked out under the contract had not yet arisen because of Coastal Dredging’s failure to comply with the required contractual preconditions.

The court disagreed and held that the reference date was the 28th day of each month, being the date on which a claim may be made, and that the contractual preconditions were void under s 99(2) of the BCIPA which provides that:

“(2) A provision of any contract, agreement or arrangement (whether in writing or not) is void to the extent to which it—

(b) purports to annul, exclude, modify, restrict or otherwise change the effect of a provision of this Act, or would otherwise have the effect of excluding, modifying, restricting or otherwise changing the effect of a provision of this Act; or …”

The court confirmed what was said by the New South Wales Supreme Court in John Goss Projects Pty Ltd v Leighton Contractors Pty Ltd5 that security of payment legislation seeks to strike a balance between competing considerations - the protection of the entitlement to receive progress payments and for parties to contract as they wish.

The court emphasised the intention of the BCIPA to ensure those undertaking to carry out construction work or supply related goods and services are entitled to receive progress payments and found that the preconditions in this case breached s 99 of the BCIPA as they purported to modify or otherwise change the effect of a provision of the BCIPA.

This case also considered whether the adjudicator’s decision was void because the adjudicator had substantially denied the parties natural justice by deciding the adjudication on a point for which neither party contended. The court held that there was no substantial denial of natural justice.