Introduction

10 December 2011 marks a watershed moment in South Australia for the construction industry. On that day, the Building and Construction Industry Security of Payment Act 2009 (SA) comes into effect.

This is the first in a series of updates that will deal with the new legislation.  Fenwick Elliott Grace, have produced a series of short videos using actors to illustrate the practical effects of the legislation.  The first video “The Payment Claim” can be found by following the links at feg.com.au.

The Act introduces a new method for contractors and subcontractors to recover payment for their work.  In the past, when payment was late, it was necessary to try to enforce the contract terms through the courts or arbitration.  The Act changes all this.  It introduces a “pay now, argue later” scheme and makes it easier for suppliers of labour, materials and/or services in the construction industry to obtain payment on time.

The essential scheme of the Act has been introduced around the world in recognition of the fact that cash flow is the lifeblood of the construction industry. While the Act can interact with the parties’ contract, the timelines in it are independent of contract deadlines and impose a separate regime.

This update discusses a recent Victorian Court of Appeal case, Pearl Hill v Concorp[1] dealing with similar legislation enacted there in 2002.

The Facts

Concorp Construction Group Pty Ltd (“Concorp”) undertook to carry out concreting work as part of a larger construction project in Box Hill being undertaken by Pearl Hill Pty Ltd (“Pearl Hill”). There was no formal written contract but Concorp gave a written quote for the work and Pearl Hill accepted the quote.

As it turned out, a related company called Concorp (Vic) Pty Ltd (“Concorp Vic”) actually performed the work on site instead of Concorp.  The two companies had the same owners.

A dispute erupted, whereby Pearl Hill refused to pay claimed progress payments totalling $852,158.34.

The Payment Claim is served

On 23 January 2011, Concorp served a Payment Claim on Pearl Hill for the full amount outstanding, relying on the provisions of the Building and Construction Industry Security of Payment Act 2002 (Vic) (“the Act”).  There are minor differences between that Act and the South Australian equivalent that are not relevant to this update unless mentioned.

After Pearl Hill received the Payment Claim, it apparently wrote back saying it would send a responding Payment Schedule but it failed to do so.  On that basis, and under the terms of the Act, 10 days after the service of the Payment Claim, Concorp became entitled to sue and recover the unpaid portion of it.  In South Australia, the legislation allows 15 business days after receipt of a Payment Claim to provide a Payment Schedule.

Proceedings commence

Concorp commenced proceedings in the County Court of Victoria seeking summary judgment for the full $852,158.34.

In Victoria, the Civil Procedure Act 2010 states that the test for summary judgment is whether the defendant’s defence has any “real prospect of success”.  South Australian courts also adopt a similar test.

Pearl Hill opposed the application on the basis that the wrong party was making the claim.  It said that the work had been performed by Concorp Vic, not Concorp and that Concorp had no entitlement to be paid because it did not do the work.

The judge rejected this argument.  He agreed with Pearl Hill that the construction contract was between Pearl Hill and Concorp and that the subsequent documents showed that invoices had been rendered by Concorp Vic who had apparently done the work.  He stated that this was only “sloppy paperwork” and not sufficient to change the identity of the contracting parties.

The judge considered the structure and purpose of the Act and noted that an “unduly technical” approach was to be avoided and a robust approach was to be preferred.  He referred to another Victorian case Hickory v Schiavello[2] where the Court said that the central aspiration of the Act is freedom from excessive legal formality.

The Appeal

Pearl Hill filed an appeal against the decision and sought a stay of the requirement to pay $852,158.34.

Concorp said that Pearl Hill first needed to obtain permission to appeal because the Judge’s decision was an interlocutory order.  An interlocutory order is to be contrasted with a final order or judgment.  There is an automatic right of appeal against final orders, however, where an order does not finally determine the rights of the parties, it is necessary to obtain the permission of the Court before it will hear the appeal.

Was it a final order?

The Court of Appeal considered the Act and the recent case law and said that an order granting summary judgment following non-provision of a Payment Schedule is not a final order, but instead, is an interim determination.  The Act specifically provides for the parties’ ultimate rights under their contract to be preserved.  The Act is about cash flow, not about finally determining entitlements.

Therefore, the decision was an interlocutory order and it was necessary first for Pearl Hill to obtain the permission of the Court before the Court would hear the appeal.

The result of the Appeal

In determining whether to grant permission to appeal, the first issue examined by a Court will be the likelihood of success of the appeal.   This was also the first consideration in deciding whether to grant the application by Pearl Hill for a stay of the order that it should pay the $852,158.34.

The Court examined the merits of the appeal.  It said that the only support for Pearl Hill’s argument, that the wrong party had brought the claim, was the section in the Act providing for progress payments for persons “who carry out” construction work. If this was rigidly interpreted, it might be said that those who engage others are not entitled to claim for the work they perform.  However, the Court said such an interpretation was not in line with the rest of the Act, which referred to persons who “undertake” to carry out construction work being entitled to make claims for payment.   Therefore Concorp was entitled to make the claim for payment.  While it had not done the work, it had “undertaken” to carry out the work and had engaged Concorp Vic to perform the work.

The Court said that the failure by Pearl Hill to provide a Payment Schedule was pivotal.  The appeal had no prospect of success.

The Court noted that the day before the appeal was to be heard, Pearl Hill had discontinued its appeal.  The Court said that the appeal was incompetent as permission was required and the appeal had no prospects of success.  The Court ordered Pearl Hill to pay the legal costs of Concorp on an indemnity basis.

Conclusion

The Act provides a powerful method of obtaining progress payments in a timely manner.

The failure to provide a Payment Schedule will be fatal to any attempt to avoid payment where the Payment Claim itself is validly made and served.

An unduly technical approach is to be avoided when attempting to avoid the obligation to make payments requested in a Payment Claim

The essential requirements for a Payment Claim are set out in the Act and are summarised in the video entitled “The Payment Claim” to be found by following the links at feg.com.au.

Contributor:   Tom Grace

Tom is a former engineer who ran his own construction company for 20 years before becoming a construction lawyer.  His legal practice is centred on resolving construction and engineering disputes.

Contact Details

Tom Grace – Partner
tom.grace@feg.com.au
Ph:  (08) 8110 8000
Web:      feg.com.au

October 2011

This publication is not legal advice.  It is for general interest.  You should not rely on it without obtaining legal advice.
Fenwick Elliott Grace is a law firm that specialises in providing legal services to the construction and engineering industries.
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[1] Pearl Hill Pty Ltd v Concorp Construction Group (Vic) Pty Ltd [2011] VSCA 99

[2] Hickory Developments Pty Ltd v Schiavello (Vic) Pty Ltd (2009) 26 VR 112.