In Lewence Construction Pty Ltd v Southern Han Breakfast Point Pty Ltd [2015] NSWCA 288, handed down last Friday 25 September 2015, the Supreme Court of NSW Court of Appeal unanimously held that the question of whether a ‘reference date’ has occurred – which gives rise to an entitlement to a progress payment under security of payment legislation – is not a matter that the court can quash an adjudication determination over if the adjudicator gets it wrong.  In other words, the existence of a reference date is not an essential pre-condition to a person making a valid payment claim and applying for adjudication in NSW; it is not a ‘jurisdictional fact’.

In doing so, the NSW Court of Appeal has gone the opposite way to the Queensland courts, which have held that the existence of a reference date is a requirement for a valid payment claim, the absence of which will give rise to a jurisdictional error: see, e.g. Lean Field Developments Pty Ltd v E & I Global Solutions (Aust) Pty Ltd [2014] QSC 293.  Although the NSW and Qld legislation are different in many respects, there is no clearly compelling reason why a different conclusion should be reached in respect of this particular issue under their respective Acts.  The NSW Court of Appeal’s decision will affect the interpretation of the equivalent Victorian, SA, Tasmanian and ACT legislation.

In Lewence, the Principal had given notice to the Contractor under an AS 4000 contract alleging various breaches and requiring the Contractor to show cause by a certain date why the works should not be taken out of its hands.  The Contractor responded denying any breach and said that if the Principal purported to take the works out of its hands it would treat that as a repudiation of the contract, upon which it would exercise its right to terminate and claim damages.  The Principal proceeded to take the whole of the remaining work out of the Contractor’s hands.

Shortly after, the Contractor made a payment claim in the amount of $3.2m for work done up to the date the work was taken out of its hands, and was successful to the tune of $1.2m in a subsequent adjudication.  The Principal at first managed to overturn the adjudication, arguing that there had been no reference date giving rise to a progress payment because, first, the provisions of AS 4000 suspend all payments when work is taken out of the contractor’s hands, and secondly, that if the contract had indeed been validly terminated by the Contractor then no further reference dates accrued.

However, the Court of Appeal reversed that decision, allowing the adjudication determination in the Contractor’s favour to stand.  In doing so, the Court of Appeal highlighted how the legislation treats as conceptually separate the right to progress payments (which requires a reference date) from the procedure for recovering them by payment claims (which can be made by a person who is or who merely claims to be entitled to a progress payment).  Therefore, the question of whether there is a reference date cannot fundamentally undermine the procedure of making a payment claim and going to adjudication; rather it is a matter that is left to the adjudicator to determine as part of that process.

In light of that decision, the Court of Appeal did not need to determine whether the adjudicator had in fact been wrong about the existence of a reference date, but nevertheless Justice Ward went on to find that a reference date had arisen in any event, because the contract did not preclude a reference date arising after termination and the suspension of payment provisions in AS 4000 did not extend to payment for work already performed.