The devil in the detail of Payment Schedules under the Security of Payment legislation

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The devil is in the detail – how detailed do Payment Schedules need to be under the Building and Construction Industry Security of Payment Act 1999 (NSW)? | Style Timber Floor Pty Ltd v Krivosudsky [2019] NSWCA 171

Payment Schedules

On 16 July 2019, the New South Wales Court of Appeal delivered judgment on an appeal from the District Court Judicial Registrar where the issue in dispute was whether an email with minimal detail could constitute a valid payment schedule under the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act).

This judgment is a reminder for respondents to always err on the side of caution and include in payment schedules as much detail surrounding reasons for withholding payment as is possible, in the short time available.

The Facts

The facts in Style Timber Floor Pty Ltd v Krivosudsky [2019] NSWCA 171, were (in summary):

  • Mr Krivosudsky served a payment claim under the SOP Act for $106,166.50.
  • Within 10 business days after the payment claim was served, Style Timber sent an email to Mr Krivosudsky inviting him to attend Style Timber’s office, where:

I will show you the working agreement , many emails, photos, videos, back charges from builders and other trades, complains from my clients. You will understand why I cant pay you. The damages you done is more than what you claimed. Then, its up to you want you want to do next.

  • Mr Krivosudsky commenced proceedings in the District Court and filed a notice of motion seeking summary judgment for the claimed on the basis that a valid payment schedule had not been received by the time required under the SOP Act.
  • The District Court entered summary judgment against Style Timber for the full claimed amount. The District Court found that the “email” from Style Timber was not a valid payment schedule.
  • Style Timber appealed against the District Court judgment on the basis that the email from Style Timber was a valid payment schedule.

The Findings

The Court of Appeal found in favour of Mr Krivosudsky and dismissed Style Timber’s appeal, with costs. In summary, the Court of Appeal found that the “email” could not constitute a payment schedule because it did not contain enough detail to enable Mr Kirvosudsky to understand the reasons for withholding payment.

Importantly, the Court of Appeal dealt with the type of detail that is required to be included in a payment schedule.  The Court of Appeal stated:

  • A payment schedule need not be attended with the same degree of formality that might be required in other legal contexts or forums. However, that is “not a licence for informality or an excuse for vague, generalised objections to payment.”[1]
  • When documents are referred to in a payment schedule, [the claimant] should not be left to guess what documents are being referred to nor should a recipient be expected to guess, from a universe of multiple documents … which aspects of those documents or emails set out the respondent’s reasons for withholding payment…[2]
  • General complaints in payment schedules which have no specific reference to a payment claim or to a project will not meet the requirements of a valid payment schedule[3]
  • Reasons for withholding payment which are restricted to formalities (i.e. not providing a certificate of currency for an insurance policy required by contract) alone will not be reason for denying the substance of the claims made in the payment claim, but instead would be reasons why a respondent did not intend to pay at that moment. Those types of “reasons” alone will not satisfy the requirements of a valid payment schedule.[4]

The Queensland Position

In considering the authorities on section 14(3) of the SOP Act and its counterparts the Court of Appeal referred to Minimax Fire Fighting Systems Pty Ltd v Bremore Engineering (WA) Pty Ltd [2007] QSC 333.[5]

That case had similar facts to Style Timber in that it was asserted that an email constituted a “payment schedule” for the purposes of section 18 of the Building and Construction Industry Payment Act 2004 (Qld) (which is now repealed) which was identical to the current form of s 14 of the NSW statute.  The email addressed only 1 out of 3 claimed items in the payment claim.

The Court found that the email, if it was intended to be a payment schedule, was an incomplete answer to the payment claim and therefore not a valid payment schedule.  The Court found that a valid payment schedule must address all parts of the claim made and not only a part of it.

The position is similar in New South Wales where it is established that even where a respondent proposes to pay no part of a payment claim, a respondent is still required to indicate reasons for withholding payment in accordance with s 14(3)[6]

Lessons

If you receive a payment claim, even if you consider the payment claim to be invalid or served when there is no entitlement to do so – it is prudent to serve a payment schedule that addresses the substance of the entire payment claim.

There is no single rule for the level of detail required in a payment schedule, as that will be determined on a case-by-case basis.  However, the principles that the Courts will apply are clearly set-out and the “guide” for respondents is to ensure that there is enough detail so that the claimant can understand why payments are being withheld (obviously, having regard to the information that is in the possession of the claimant).

Finally, the Queensland position means that best practice  requires a payment schedule to answer all items in a payment claim, regardless of whether the amount to be paid is less than the amount claimed and specifically, to ensure the reasons for withholding payment.  Silence in respect of one part of the payment claim may give rise to an unnecessary argument about the validity of the payment schedule as a whole.

Enquiries

If you have any questions about this article, please call Mark Yum or Nelson Arias-Alvarez on (02) 9324 5300 or get in touch online (below).

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References

[1] Style Timber at [2]

[2] Style Timber at [6]

[3] Style Timber  at [71]

[4] Style Timber  at [55] citing with approval Façade Treatment Engineering Pty Ltd (in liq) v Brookfield Multiplex Constructions Pty Ltd [2016] VSCA 247; 337 ALR 452 at [256]-[260]

[5] Style Timber at [50] to [52]

[6] Barclay Mowlem v Tesrol Walsh Bay [2004] NSWSC 1232 at [15]-[16]

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