Recent Security of Payment developments in SA

The Supreme Court of South Australia has recently clarified the requirements of a payment schedule under the Building and Construction Industry (Security of Payment) Act 2009 (SA) (“the SOP Act”) in Linke Developments Pty Ltd v 21st Century Developments Pty Ltd [2014] SASC 203.

Linke Developments (“Linke”) commenced an action in the Magistrates Court seeking, amongst other things, that summary judgment be entered against 21st Century Developments as it had failed to respond appropriately to a payment claim. Under the SOP Act, a claimant is entitled to seek judgment of the full amount of its payment claim if a respondent has failed to provide a payment schedule within the required timeframe.

The Magistrate dismissed Linke’s application for summary judgment on the basis that a letter sent by 21st Century Developments met the requirements for a payment schedule under the SOP Act.

Linke appealed the decision in the Supreme Court of South Australia. The primary issue for consideration on the appeal was whether the Magistrate was correct in finding a letter sent by 21st Century Developments dated 16 September letter (“the 16/9 letter”) satisfied the requirements of s14 of the SOP Act for a payment schedule.

Facts

Linke was engaged by 21st Century Developments to undertake building works at the Woodcroft Shopping Centre. On 20 April 2013 Linke issued a progress claim to the construction manager who certified that $42,548.62 (“the Certificate”) was due and payable.

In a letter dated 3 July 2013, 21st Century Developments wrote to Linke and referred to the Certificate. It advised Linke that it wanted to finalise all claims made for the building works and set out the basis upon which it disputed certain variations and its off-setting claim for rectification works. Following a meeting between the parties, 21st Century Developments again confirmed in a letter dated 9 August 2013 its position in response to the Certificate by virtue of the disputed variations and off-setting claims.

In a letter dated 10 September 2013, Linke served a payment claim in accordance with the SOP Act for $88,217.21. 21st Century Developments replied to the payment claim with the 16/9 letter. In the 16/9 letter, 21st Century Developments referred to its previous letter of 9 August 2013 responding to Linke’s variation claims and set out its costs for rectification of defects. The 16/9 letter also enclosed a cheque for $31,966 in purported satisfaction of Linke’s claim.

Requirements of the Act

Under s14 of the SOP Act, a payment schedule must satisfy the following three requirements:

  •  identify the payment claim to which it relates (s14(2)(a));
  •  indicate the amount of the payment (if any) the respondent proposes to make (the “scheduled amount”) (s14(2)(b)); and
  •  if the scheduled amount is less than the claimed amount, it must indicate why the scheduled amount is less and (if it is less because the respondent is withholding payment for any reason) it must provide the respondent’s reasons for withholding payment (s14(3)).

Basis for appeal

Linke submitted the 16/9 letter did not satisfy s14(2)(b) of the SOP Act because it did not indicate the amount 21st Century Developments proposed to pay in relation to the payment claim. It argued the 16/9 letter was not responding to its payment claim but rather was part of a “continuing dialogue” in respect of $42,548.62 originally certified as due and payable by the construction manager for an earlier month (the Certificate). On that basis, it argued that the cheque enclosed in the 16/9 letter was in purported satisfaction of the Certificate, leaving the payment claim under the SOP Act unanswered.

The Decision

Using the “practical” and “commonsense” approach, the Supreme Court confirmed that it will be sufficient if a payment schedule   “achieves the basic objective of putting the claiming party on notice as to how much the party making payment intends to pay with reference to the payment claim and the reasons why that amount is lower than that claimed, if that is the case.”

The Court found, taking into account the history of the parties’ dealings with each other concerning the project, each party, acting reasonably, should have understood the other’s position on each of the contested items. Therefore, it did not matter that in the 16/9 letter, 21st Century Developments was simply restating its position with reference to previous correspondence.

Summary

The case confirms the test to be applied is whether a respondent to a payment claim has provided a payment schedule that includes sufficient particularity so as to enable the claimant to decide whether it wants to pursue its claim or not.

 

A summary explanation of the Security of Payment Legislation can be found here.