Diamond Builders Pty Ltd v Gilridge Investments Pty Ltd [2023] VCC 1527

Peter Wood  |  Isobel Carmody  |  Sarah Waring

Key takeout

• A contractual ‘show cause’ regime which includes a right to suspend payment may result in no future reference dates arising once a ‘show cause’ notice is issued pursuant to that regime.  
  
• These kinds of regimes do not prevent a claimant from exercising rights which accrued before the contractual payment suspension right is triggered. This includes a right to make a payment claim under the security of payment legislation for work performed where there is a valid reference date which predates that payment suspension right.

Facts

Diamond Builder Pty Ltd (claimant) and Gilridge Investments Pty Ltd (respondent) were parties to a construction contract which specified that the time for making a payment claim was the 25^th day of each month. 

On 19 January 2023, the claimant served a payment claim on the respondent.  The payment claim stated that it related to works ending 25 November 2022 and attached a spreadsheet stating that it was a claim for work performed in the period between 26 September 2022 and 25 October 2022.  

On 3 February 2023, the respondent issued a payment schedule to the claimant which stated:

• there was no available reference date;
• that no new work had been performed for the period the payment claim was made; and
• that the payment claim was unintelligible,

and that the payment claim was therefore invalid.  

The claimant applied to the County Court for judgment under the Building and Construction Industry Security of Payment Act 2002 (Vic) (SOP Act) to recover the amount claimed in the payment claim, alleging that the respondent had failed to serve a payment schedule within the time required under the SOP Act.

Decision

The claimant was entitled to judgment for the amount of the payment claim under section 16(2) of the SOP Act. The reasons were:

• the payment claim was supported by a reference date;
• the payment claim did not on its face include a claim for excluded amounts; and
• the respondent had failed to serve a payment schedule within the time required by the SOP Act.

More detail on each of these reasons is set out below.

There was a valid ‘reference date’

The respondent sought to argue that the payment claim was not supported by a valid reference date.

The court found that there was a valid reference date (25 October 2022). The reference in the covering email to a reference date of 25 November 2022 was clearly made in error – the payment claim clearly stated that the works in question were for the period indicated in the attached spreadsheet (which indicated that it was a claim for work done in the period 26 September 2022 and 25 October 2022), and that a reasonable person would be able to easily identify that the covering email contained an error.

Where there is confusion over which reference date is identified in the payment claim, identification of a precise reference date in a payment claim is not necessary for that payment claim to be valid.   The key requirement is that there is a valid reference date to support the payment claim.

Even if a payment claim included a claim for some work that was performed after the relevant reference date, this would be permitted by the SOP Act.

The respondent had also argued that no reference date had accrued because:

• it had issued a ‘show cause’ notice for breach of contract by the claimant under the terms of the contract on 3 November 2022, and then on 17 November 2022 issued a notice taking the work under the contract out of the hands of the claimant for a failure to show cause in response to the 3 November 2022 notice; and
• the terms of the contract provided that once the work had been taken out of the hands of the claimant under the ‘show cause’ process in the contract, the claimant shall not be entitled to any further payment in respect of the work taken out of their hands (except for in a limited circumstance).  The respondent argued that this suspended the accrual of reference dates and deferred the due date for the existing payment claim.

The court considered that a contractual ‘show cause’ regime that carries with it payment suspension rights in the terms set out in the contract merely provides for no future reference dates to arise once the relevant notice is issued.  It does not result in a claimant being unable to exercise any rights which accrued prior to the suspension of payment in relation to a valid reference date that predates that suspension, such as making a payment claim under the SOP Act .

The payment claim did not include ‘excluded amounts’

The respondent alleged that the payment claim contained excluded amounts because although on the face of the payment claim it did not include any excluded amounts, there was separate correspondence from the claimant which:

• indicated that, in the next payment claim, the claimant would include costs in the nature of damages; and
• described the amount owing under the payment claim as being ‘in respect of works and variations‘.

The respondent’s argument was that the claimant was claiming excluded amounts ‘by stealth‘ and that it was asking the court to undertake a full investigation and ‘digging exercise‘ to determine if excluded amounts were claimed in the payment claim.  The court rejected this approach, and confirmed that all the court was required to do in the context of the application for judgment under section 16 of the SOP Act was consider whether ‘on the face of the payment claim‘ there were excluded amounts claimed.  The court concluded that there were no excluded amounts claimed.

The respondent’s payment schedule was not served in time

As a public holiday fell in the period immediately following the issue of the payment claim, the contract provided for a shorter period for serving a payment schedule (14 calendar days) than that provided by the SOP Act (10 business days).  The respondent’s payment schedule was served within 10 business days, but not within the 14 calendar days required by the contract.  The respondent argued that it was only required to issue the payment schedule within the time period under the SOP Act, instead of the shorter time period under the contract, because the applicant did not submit the payment claim in the manner required by the contract. 

The court rejected this argument, finding that the payment claim had been served in accordance with the requirements of the contract.  In any event, the delivery of notice provisions in the contract did not exclusively define the methods by which documents could be provided.

The payment had become due and payable despite non-compliance with contractual requirements

There was a term in the contract that the claimant must provide proof of, or a statutory declaration declaring that, all subcontractors having been paid.  The contract stated that this was a condition precedent to entitlement to submitting a payment claim. 

The respondent sought to argue that the claimant was not entitled to make a claim under the SOP Act as payment had not become due and payable under the SOP Act due to the claimant’s failure to comply with this requirement.  

The court held that this contractual requirement does not override a claimant’s right to make a claim under the SOP Act.  This is because, if it did, such a reading of the clause would be contrary to section 48 of the SOP Act (which provides that the SOP Act has effect despite any contractual provision to the contrary). Such a reading would exclude, modify and/or restrict the operation of the SOP Act.