Witron Australia Pty Ltd v Turnkey Innovative Engineering Pty Ltd [2023] NSWCA 305

Andrew Hales  |  Maciej Getta  |  Jenny Lin

Key takeout

When responding to a payment claim, a party must comply with the statutory requirements of a payment schedule, which includes providing reasons why the proposed payment is less than the amount claimed for each distinct and substantial component of the payment claim.

In 2023, Stevenson J of the Supreme Court of NSW held that a payment schedule which does not include reasons for withholding payment for each withheld amount is invalid.  Our update on that decision can be read here: A payment schedule that does not provide reasons for withholding is invalid – Construction Law Made Easy.

On appeal, the NSW Court of Appeal dismissed the appeal and confirmed Stevenson J’s decision.

Facts

Witron Australia Pty Ltd (principal) engaged Turnkey Innovative Engineering Pty Ltd (contractor) to carry out electrical installation works which involved a series of ‘group controls’.

The contractor submitted a payment claim with two components:

1. base contract works for the repricing of the contract price; and
2. contract variation works.

The principal responded to the payment claim in an email which said ‘we will review your variations and your new pricing after we see real progress on the handing over of GC’.

The principal argued that this email constituted a payment claim under section 14 of the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act).

Stevenson J rejected this argument.  Whilst the email communicated that the principal was not prepared to pay any amount and had provided a reason for not paying the first component based on the adjusted prices, the email had not given a reason for not paying the second component relating to claimed variations.

The principal appealed.  The two issues on appeal were:

1. what the SOP Act requires of a payment schedule; and
2. whether the principal’s email meets the SOP Act’s requirements.

Decision  

The NSW Court of Appeal unanimously dismissed the appeal.

What are the requirements of a payment schedule?

The criteria for a document to be characterised as a payment schedule under section 14 of the SOP Act are that it:

1. identifies the payment claim to which it relates;
2. indicates the amount of payment (if any) the respondent proposes to make; and
3. provides reasons why the proposed payment is less than the amount claimed for every distinct and substantial component of the payment claim.

Did the principal’s email meet the statutory requirements?

The principal’s email acknowledged that the progress claim had two components, being a contractual claim based on the new prices and a claim for variations. The email also indicated that the principal was proposing not to make any payment.

In relation to the base contract works, the email implied that the principal would not pay a claim based on new prices because it had not agreed to those prices.

In relation to the contract variation works, the email gave no reasons which could reasonably be seen as answering the distinct variation works component of the claim. The email stated that the principal ‘will review your variations’ once progress had been achieved, implying that the principal would not even consider the variations yet, let alone provide a reason for rejecting the claim. The Court of Appeal held that this does not constitute a reason under section 14(3) of the SOP Act.