December 4, 2023
No reasons? No excuses. Under the Building Industry Fairness (Security of Payment) Act 2017 (Qld) (BIFA), a failure to provide a Payment Schedule which clearly outlines reasons for withholding payment (where anything less than the full amount claimed is being paid), may result in implicit admissions, or may invalidate your payment schedule if the matter is referred to adjudication.
Part 2 of this series will discuss the importance of providing reasons when challenging a payment claim under BIFA, as highlighted in Insite Construction Services Pty Ltd v Daniels Civil Pty Ltd & Anor [2023] QSC 33 (Insite Construction Services).
BIFA
If you have been served with a payment claim and you do not agree with the works being claimed, it is important to always include detailed reasons within the payment schedule as to why payment is being withheld, to avoid implicit admissions or your payment schedule being invalidated.
In accordance with s 69(c) of BIFA, a payment schedule must state why the amount proposed to be paid is less than the amount claimed, and it must include the reasons for withholding that payment. As demonstrated in Insite Constructions Services, failure to provide reasons in your Payment Schedule may invalidate it all together.
Insite Construction Services
Insite Construction Services Pty Ltd (Insite), engaged Subcontractor Daniels Civil Pty Ltd (Daniels), to construct new buildings at the Good Samaritan Catholic College at Bli Bli (project).
During the Project, Daniels announced that it would cease trading and wind down its business, and as such, on 9 June 2022, Daniels issued Insite with a Notification of Contract Termination (Notification), and advised it would complete some of the remaining earthworks.
Insite subsequently engaged another subcontractor to complete the remaining works, and Daniels asserted that this constituted repudiation (which Daniels accepted). Insite did not agree, and asserted that termination occurred in June 2022 when Daniels issued the Notification.
On 2 August 2022, Daniels served its Payment Claim (with a reference date of 28 July 2022) on Insite for works completed. Insite responded with its Payment Schedule asserting that nil was payable to Daniels, but did not include any reasons for withholding payment. Rather, the Payment Schedule only made reference to Insite looking for a new subcontractor to take over the works.
Insite submitted that the reasons for assessing the Payment Claim as nil were well known to Daniels, as they had been stated in an earlier payment schedule (which previously included, ‘We [Insite] are struggling to confirm a subcontractor to take over the balance of the scope of works that you [Daniels] are contracted to finish… Until such time, we are not in a position to confirm with certainty what is owed, if any(thing), to Daniels Civil.’
The matter was subsequently referred to Adjudication, where the Adjudicator found in favour of Daniels for the full amount claimed in the Progress Claim (Adjudication Amount). Insite sought (unsuccessfully) a declaration from the Court that the Adjudicator’s decision was void on the basis that the Adjudicator denied it procedural fairness and committed a jurisdictional error in determining the Adjudication Amount.
Adjudication Decision
In making its decision, the Adjudicator had to determine when and how the Subcontract was terminated. Insite argued the Subcontract had been terminated by Daniels on 9 June 2022, and that the Payment Claim was invalid as it was the second payment claim issued for a single reference date. The Adjudicator rejected Insite’s arguments, noting that by issuing the Notification, Daniels intended to terminate the Subcontract. However the sole right to terminate laid with Insite, and the process for termination was provided by a clause in the Subcontract requiring Insite to issue a show cause notice.
Whilst the Adjudicator acknowledged that Daniels had breached its contractual obligations under the Subcontract by issuing the Notification, and its actions amounted to a repudiation, he found:
- The reference date and Payment Claim were valid, as the subcontract remained on foot until it was validly terminated on 29 August 2022 when Insite issued a show cause notice;
- Insite’s Payment Schedule was invalid, and therefore, Insite had failed to give Daniels a payment schedule in accordance with s 76 of BIFA; and
- The amount claimed by Daniels in its Payment Claim was the acceptable amount payable by Insite (Adjudication Amount).
The Adjudicator rejected Insite’s argument that the reasons were well known to Daniels, and could not accept reasons which were provided in a previous payment schedule. Consequently, the Adjudicator determined that Insite failed to provide (in its relevant Payment Schedule) adequate reasons for assessing the Payment Claim as nil, and therefore had failed to comply with the requirements under s 69 of BIFA.
The Adjudicator found in favour of Daniels for the full amount claimed in the Payment Claim.
Held
The court held that Insite’s failure to provide reasons why the Payment Claim should not be paid, entitled the Adjudicator to conclude that Insite did not dispute Daniels’ valuation. Ultimately, this failure by Insite, resulted in the court considering Daniels valuation had been impliedly accepted.
For more information, read the full case here.
Key Takeaways
The decision in Insite reinforces the importance of including detailed reasons in a payment schedule if the valuation of the amounts claimed is being challenged. It will not be sufficient to merely assert ‘incomplete work’ or ‘pending’, you must make sure to provide detailed reason as to why the full amount claimed in the Payment Schedule is not being paying paid. In the absence of a payment schedule containing reasons for not paying the amount claimed, an adjudicator will not be permitted to consider new reasons for withholding payment.
LPC Lawyers
LPC Lawyers have industry knowledge and experience to assist both Principals and Contractors in all major projects and payment disputes.
If you would like to discuss any matters raised in the above article or this series as it relates to your specific circumstances, please contact Lamont Project & Construction Lawyers.
The contents of this article is for information purposes only; it does not discuss every important topic or matter of law, and it is not to be relied upon as legal advice. Specialist advice should be sought regarding your specific circumstances.
Contact: Peter Lamont or Kimi Pace
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