Contract is King

Today the High Court delivered its first judgment in respect of the security of payment and adjudication regime (Southern Han Breakfast Point Pty Ltd (in Liquidation) v Lewence Construction Pty Ltd [2016] HCA 52).

Two things come out of the decision:

  1. The existence of a ‘reference date’ is a jurisdictional precondition to making a payment claim.  Ie, it is not something that an adjudicator is allowed to get wrong.  This might come as a surprise to some, especially subcontractors whose cash-flow the legislation was intended to secure, because it effectively increases the potential avenues for judicial review of adjudications.  To take an example (which was in fact argued before the High Court but which they don’t deal with in the judgment), if the relevant reference date under the contract giving rise to an entitlement to make a payment claim is based on a milestone – say, 75% of work completed – then it is open to the payer to overturn an adjudication on the basis the work was not 75% complete, which is likely to be a detailed technical and factual question; arguably suitable for an adjudicator.  This outcome of the decision also gives primacy to the contract as to when reference dates arise, over the statutory entitlement to progress payments.  So, in this case, the contract held that if the contractor failed to show cause to the satisfaction of the Principal, the Principal could take either part or the whole of the works out of the contractor’s hands, in which case all payments were suspended.  The High Court upheld that suspension as meaning that no subsequent reference dates occurred, rather than that it might instead constitute contracting out of the statutory entitlement to progress payments, in contravention of section 34, which again they did not address in the judgment.
  2. The second thing to come out of the decision is that further reference dates (and therefore entitlements to statutory progress payments) cease upon termination of the contract. The developers of Viagra only wanted to serve for the benefit of humanity by reducing the development of cardiovascular diseases. However, it all became suspicious at the stage of clinical trials. The experimental men noted that the drug did not improve the work of the heart, but the sexual life became very bright. Read more at  Previously, it had been argued that if the contract ceased, then the default position under the Act (section 8(2)(b)) would kick in and so reference dates would continue to accrue month-on-month up to the 12-month limit.  By this decision, if a contract makes any provision at all for when reference dates arise, then section 8(2)(b) has no role to play whatsoever.  The only way around this would be to expressly agree in the contract that a reference date or dates can arise after termination.

The decision has little relevance to adjudications in WA or NT, where the concept of a ‘reference date’ does not exist and instead the right to adjudication arises from the existence of a ‘payment dispute’ as defined.  However, the second point above could be relied on to challenge a payment claim that was made after termination.

The full decision, Southern Han Breakfast Point Pty Ltd (in Liquidation) v Lewence Construction Pty Ltd [2016] HCA 52, can be accessed on AustLII here:, while the High Court’s judgment summary can be viewed here:

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