In the recent decision of the Supreme Court of New South Wales, Kitchen Xchange v Formacon Building Services [2014] NSWSC 1602 (Kitchen Xchange), it was determined that a payment claim served by a head contractor to a principal which did not attach a statutory declaration in the form prescribed by the regulations had the effect of rendering the service of the payment claim ineffective, and invalid. 

It was also determined by McDougall J in Kitchen Xchange that a payment claim under the Building and Construction Industry Security of Payment Act 1999 (the Act) could be withdrawn with the consent of both parties, and a new payment claim issued in respect of the same reference date.

Background

The claimant and the defendant were parties to a construction contract containing 4 milestone reference dates, in the role as head contractor, and principal, respectively.

Throughout the course of June 2014, the claimant served on the defendant three successive payment claims made in respect of the one milestone reference date. The claimant did not attach to any of the three payment claims statutory declarations, as required by section 13(7) of the Act.

It was mutually agreed between the claimant and the defendant that the first payment claim was to be withdrawn. The claimant issued two more payment claims in June (the “second” and “third” payment claims, respectively).  In response to the second payment claim, the defendant’s solicitors issued to the claimant a letter meeting all the formal requirements of a payment schedule under the Act.

In response to the third payment claim (claiming approximately $15,500 more than the second payment claim), the defendant did not provide a payment schedule in response, and on 8 July 2014 the claimant served on the respondent a notice under section 17(2) of the NSW Act, allowing the respondent a further 5 business days to provide a payment schedule under the Act.

The Respondent did not provide a payment schedule within the 5 business days, and the matter was referred to adjudication by the claimant. It was subsequently determined by the adjudicator appointed that the claimant should recover the full claimed amount, less an amount of $10,400 claimed as “damages for failing to pay on time”.

The defendant (plaintiff) made an application to the New South Wales Supreme Court seeking relief in the nature of certiorari to quash the determination.

The determination

One claim per reference date

While the first payment claim had been successfully withdrawn (with the consent both parties), it was the primary determination of McDougall J that the second and the third payment claims had been made in respect of the same milestone reference date and, accordingly, the third payment claim upon which the claimant proceeded to adjudication on was not valid.  As a result, the adjudicator had no jurisdiction to determine the claim, and the adjudication decision awarding the claimed amount was quashed.

No statutory declaration = invalid service of payment claim

Furthermore, McDougall J continued to consider the effect of the claimant failing to include a statutory declaration to its payment claims, pursuant to section 13(7).

Section 13(7) states that a head contractor “must not serve a payment claim on the principal unless the claim is accompanied by a supporting statement”, as prescribed by the regulations, and which includes a declaration to the effect that all subcontractors, if any, have been paid all amounts that have become due and payable.

It was McDougall J’s determination that the claimant’s failure to attach a statutory declaration to any of its payment claims rendered the service of those payment claims ineffective, and invalid. As a result, any subsequent determination of that (invalidly served) payment claim by an adjudicator would be a jurisdictional error, and the liable to set aside by the Court.

To be aware

If you are a head contractor making a payment claim against a principal for monies due under the Act, you must attach to all claims a statutory declaration in the prescribed form.

If you do not, a principal can successfully rely on that failure as a reason for non-payment of the payment claim, because the claim will not be deemed as validly served.

AuthorLucinda Coman

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