31 July 2019

Is your payment claim invalid? The requirement to identify "construction work"

This article was written by Scott Watson and Aisling Scott.

For a payment claim to be valid under the Queensland security of payment regime, it must identify the construction work to which the progress payment relates.  This is not usually thought to be an onerous requirement.  Previously, Courts have held that:

  • This requirement is general, rather than prescribing a particular form of payment claim.
  • A common sense, rather than unduly technical approach, should be adopted in complying with this requirement.
  • A payment claim is typically given and received by parties who are experienced in the building industry and are familiar with the particular building contract, the history of construction of the project.
  • A payment claim which would be meaningless to the uninformed reader may be able to be understood readily by the parties themselves and regard should be had to their background knowledge and understanding.

In the recent decision of KDV Sport Pty Ltd v Muggeridge Constructions Pty Ltd [2019] QSC 178, Brown J found that a payment claim containing percentages of work completed (referrable to categories of work contained a contract schedule) and variation numbers to be deficient, and therefore invalid, by reference to this requirement. In particular:

  • The payment claim contained no description of the work the subject of the claim as references to the total percentages of work claimed to date did not sufficiently identify the work done.
  • Some of the variations included in the payment claim (by reference to variation numbers only) had not yet been submitted to the principal and no further information was provided in relation to these variations.
  • While it was possible to decipher the payment claim  by engaging in a process of reconstruction based on previous claims and amounts paid, the payment claim was not reasonably comprehensible to a reasonable principal. 
  • The payment claim did not convey sufficient information to enable even the other party familiar with the project to understand the claim and respond accordingly.

Background

KDV Sport Pty Ltd (KDV) and Muggeridge Constructions Pty Ltd (Muggeridge) entered into a lump sum contract for $10.6million, under which Muggeridge would construct a student accommodation complex. Muggeridge purported to serve a payment claim in the amount of $2,365,432 (Claim 13).  KDV responded to Claim 13, proposing to pay $0.  KDV expressly stated that its primary position was that Claim 13 did not identify the work the subject of the claim, and was therefore invalid.  

Muggeridge subsequently made an adjudication application in relation to Claim 13.  The adjudicator determined that the amount of $802,198.59 was payable by KDV.  KDV applied to the Court in relation to the adjudicator’s determination, contending that the decision was affected by jurisdictional errors rendering the decision void. The primary jurisdictional error being that the payment claim relied on by Muggeridge was invalid.

Decision

Claim 13 was made by reference to categories of work contained in the “Trade Breakdown Schedule” to the contract.  KDV submitted that this was not sufficient to identify the actual construction work to which Claim 13 relates.  Muggeridge submitted that no individual description of the work done was required as the Trade Breakdown Schedule is part of the contract and a matter which KDV has background knowledge of.  On Muggeridge’s submission, this background knowledge enabled KDV to identify the completed construction work the subject of the payment claim. 

Her Honour accepted that KDV was aware of the content of the Trade Breakdown Schedule.  However, her Honour considered that a mere reference to a completed percentage of a category of work was not sufficient to identify the actual work to which the claim related.  This was particularly relevant in the context of the contract between the parties, by reference to the number of categories and components of work to be undertaken. Her Honour further considered that the Court was not directed to anything contained in Claim 13 from which parties with background knowledge of the Trade Breakdown Schedule could identify the actual work the subject of the claim.

As to the variations referred to in Claim 13, while no description of the work for each variation is provided, her Honour considered that regard could be had to the supporting paperwork previously submitted to KDV in relation to those variations.  This was relevant background knowledge that KDV had. 

However, her Honour noted that as at the date of Claim 13, no such paperwork had been received in relation to a number of the variations included in Claim 13.  Her Honour considered that on this basis, Claim 13 again failed to identify the relevant construction work to which it relates.

Key takeaways

It may not be enough to refer to a contract scope in a payment claim in reliance on a counterparty’s familiarity with a contract, or your prior dealings with that counter party.  What is required is sufficient information to enable the other party to understand and respond to the payment claim.  If contract item references form the basis of a payment claim to be submitted, these should be supplemented with a line item detailing or describing the actual work completed.

We note for completeness that while the decision relates to section 17(2) of the old BCIPA Act, section 68(1)(a) of the new BIF Act retains the requirement that a payment claim identify the construction work to which the progress payment relates.


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