Turnkey Innovative Engineering Pty Ltd v Witron Australia Pty Ltd [2023] NSWSC 981

Andrew Hales |  Michelle Knight  |  Sarah Summers

Key takeout

Courts will take a broad approach to determining the validity of a payment schedule, but if it does not include reasons for withholding payment for each withheld amount it will likely be invalid.  Parties responding to payment claims therefore face a real risk of having judgment entered against them for the claimed amount if they do not provide reasons for withholding.

The Supreme Court construed an email from the principal in such a way as to find that it indicated a scheduled amount of $nil to satisfy the requirements of s 14(2)(b) of the Building and Construction Industry Security of Payment Act 1999 (NSW) (Act) even though this was not clearly stated.  However, the email only provided reasons for withholding payment for one of the two categories of claims and therefore could not constitute a valid payment schedule for the purpose of s 14(3) of the Act.

Facts

On 8 September 2022 Witron Australia Pty Ltd (principal) and Turnkey Innovative Engineering Pty Ltd (contractor) entered into a contract to carry out electrical installation works. 

The works were delayed and the contractor sought to re-price the works.  The parties appeared to reach agreement on the reprice in correspondence.

On 1 May 2023 the contractor served a payment claim for $884,570 calculated in part on the basis of the $499,924 increased contract price and the balance of $304,230 for 10 variation claims. 

On 3 May 2023 the principal sent an email to the contractor stating:

‘As discussed during our meeting on 18/4 with Cameron and Jurgen, we will review your variations and your new pricing after we see real progress on the handing over of GCs [Group Control areas]. This approach is also in line with our meeting from last week in Redbank with our 2 CEOs.

Based on this you can claim progress for April based on the original contract price minus the 5 deducted GCs.

Please adjust your claim accordingly and resubmit for approval.’

The contractor replied stating ‘you already agreed to the… reprice‘.

The contractor commenced proceedings seeking judgment for the amount claimed in the payment claim.  The issue before the court was whether the principal’s email of 3 May 2023 was a valid payment schedule for the purpose of s 14 of the Act.

Decision

The court determined that the payment schedule was not a valid payment schedule under the Act.  Whilst the email satisfied s 14(2)(b) of the Act by sufficiently identifying the amount the principal proposed to pay (ie nothing) and provided reasons as to why the principal withheld payment in respect of the $499,924 claim (ie that it had not yet agreed to the repricing of the works), the email did not provide any reasons for withholding payment in respect of the variation claims totalling $304,230.

The email therefore did not meet the requirements of s 14(3) of the Act as it did not indicate why the principal proposed to make no payment at all in response to the payment claim and did not indicate the principal’s reasons for withholding payment in respect of both categories of claim the subject of the payment claim. 

Appeal  

The principal appealed this decision and the NSW Court of Appeal handed down its decision on 13 December 2023. The appeal was dismissed. We will publish a review of the Court of Appeal decision.