The Supreme Court decided on 10 October 2013 that in McConnell Dowell v Heavy Plant Leasing that even if a subcontract is not terminated - but the relationship to carry out work is ended (for example, by taking the work out of subcontractor hands) - then no further reference dates arise so Security for Payment claims cannot be made.

Subcontractor payment claims and reference dates: what happens once the subcontract is terminated?

In McConnell Dowell Constructors (Aust) Pty Ltd v Heavy Plant Leasing Pty Ltd [2013] QSC 269, McConnell subcontracted earthworks and civil works to HPL. The subcontract gave McConnell the right to ‘determine’ HPL’s employment in a variety of circumstances, including if HPL appointed an administrator, receiver and manager, and if ‘determined’, then McConnell would not have to make payment of any monies payable to HPL until the subcontract works were complete.

Administrators were appointed to HPL, and McConnell exercised its right under the subcontract to ‘determine’ the employment of HPL and take over all of the plant, equipment and materials provided.

After the date of determination, HPL served a payment claim on McConnell under the Building and Construction Industry Payment Act 2004 (Qld) (the Act), and was awarded over $10million at adjudication. McConnell appealed to the Supreme Court to set aside the decision on the basis that the adjudicator did not have jurisdiction to decide the claim as HPL’s employment under the subcontract had been ‘determined’ before the service of the payment claim, and that as a result, there was no reference date available under the Act for this claim or any other payment claim.

Justice Applegarth held that the use of the word ‘determine’ was used in the same sense as ‘terminate’ in the subcontract and that, as a result of the ‘determination’ of HPL’s employment, the subcontract had been terminated, and McConnell did not have to make any payment to HPL until the subcontract works were completed.

Reference dates and termination

In considering whether the subcontract expressly made provision for a reference date following termination, His Honour found that the valuation exercise (to calculate any money owing) to be performed under the subcontract following the termination did not provide for the making of a ‘progress claim’ and did not amount to a reference date for making a payment claim under the Act.

His Honour said that, even if the ‘determination’ did not have the effect of terminating the subcontract, it did terminate the relationship by which HPL undertook to carry out construction work and supply related goods and services – reducing the subcontract to a modified version which was no longer a ‘construction contract’ for the purposes of the Act, and preventing entitlement to make a payment claim.

Because the subcontract did not expressly provide for a reference date after termination (and there were no previous dates available) then no reference date arose to support the payment claim in question. As there was no reference date, the adjudicator lacked jurisdiction and the adjudication decision was therefore found to be void.

What does this mean for Contractors?

This case again affirms that a reference date will not arise after the proper termination of a contract (or subcontract) – unless the contract expressly provides.

Also for the first time the Supreme Court has found that there will be no reference date once the “relationship to carry out work” has ended – even if the subcontract is not terminated.

Contractors need to ensure head contracts are amended to provide that reference dates survive termination, and that reference dates cease on termination in subcontracts.

 

Contact: 

Troy Lewis, Partner
T: +61 7 3135 0614
E: troy.lewis@holdingredlich.com

Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this publication is accurate at the date it is received or that it will continue to be accurate in the future. We are not responsible for the information of any source to which a link is provided or reference is made and exclude all liability in connection with use of these sources. 

 

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