A tale of two payment schedules (continued)

In March this year we reported on the Court’s approach to dealing with the situation where there are two potential payment schedules in play under the Building Industry Fairness (Security of Payment) Act 2017 (Qld) (BIF Act). The Queensland Court of Appeal has now overturned this decision of the Supreme Court.  The Court of Appeal’s decision turned on a contractual drafting point, and the circumstances giving rise to this litigation can be overcome with appropriate drafting that clearly regulates which documents are intended to be documents given under the BIF Act.

Background

RHG Construction Fitout and Maintenance Pty Ltd (Contractor) was the builder of a development for Kangaroo Point Developments MP Property Pty Ltd (Developer). On 27 July 2020, the Contractor served a payment claim on the Developer claiming payment of $2,013,528.98.

On 10 August 2020, the Superintendent issued a payment schedule in response to the payment claim. The schedule stated that ‘Payment is recommended for the following amount: -$1,361,442.00 including GST’.

On 17 August 2020, the Developer’s solicitors wrote to the Contractor’s solicitors rejecting an assertion that the Superintendent’s payment schedule was the payment schedule under the BIF Act. The Developer’s solicitors then issued their own payment schedule which stated that no money was due to the Contractor.

The Contractor commenced an adjudication under the BIF Act. On 4 December 2020, the adjudicator determined that the Superintendent’s payment schedule was the valid payment schedule and ordered the Developer to pay $788,439.54 with interest to the Contractor.

On 15 December 2020, the Developer commenced proceedings in the Supreme Court. The Developer argued that the Superintendent’s payment schedule was not a payment schedule under section 76 of the BIF Act.  Consequently, the Developer argued, the adjudication application and decision were invalid.

The Supreme Court decision

In Kangaroo Point Developments MP Property Pty Ltd v RHG Construction Fitout and Maintenance Pty Ltd & Ors [2021] QSC 30, Justice Dalton ruled in favour of the Developer and held that the Superintendent’s document was not a payment schedule. This was because it did not state the amount of the payment, if any, that the Developer proposed to make, as required by section 69(b) of the BIF Act.  Instead, the document only contained the Superintendent’s recommendation of the money due from the Developer to the Contractor. This meant the Contractor’s adjudication application was void because it did not identify a payment schedule as required by section 79(c) of the BIF Act. The Contractor appealed Justice Dalton’s decision to the Court of Appeal.

The Court of Appeal decision

The Court of Appeal in RHG Construction Fitout and Maintenance Pty Ltd v Kangaroo Point Developments MP Property Pty Ltd & Ors [2021] QCA 117 overturned the Supreme Court’s decision. The Court referred to clause 37.2 of the parties’ standard-form AS 4902-2000 Contract (Contract). That clause provided, inter alia, that a payment schedule issued by a Superintendent under clause 37.2 constitutes a payment schedule for the purposes of the BIF Act.  It further provided that the amount stated as due is the amount which the Developer ‘shall…pay to the Contractor’. The Court held that the effect of clause 37.2 was that the Superintendent’s schedule triggered the Developer’s liability to the Contractor and its contents meant that it stated the amount of the payment, if any, that the Developer proposed to make, as required by section 69(b) of the BIF Act. The payment schedule was therefore valid. That in turn meant that the adjudication application and decision were valid.

What does this mean?

The decision reminds us of the sometimes capricious nature of compliance under the BIF Act. It also demonstrates the potential pitfalls in incorrectly identifying the documents which trigger rights and obligations under the BIF Act. Perhaps most importantly, the Court of Appeal’s judgment suggests that a payment schedule may not need to strictly adhere to the requirements as to form detailed in section 69 of the BIF Act, so long as it is issued under a relevant contractual provision and the parties act in a manner that supports its intended effect.

For parties entering building contracts, care should be given to what powers a superintendent or principal’s representative are given in relation to producing payment schedules for the purposes of the BIF Act.  With the correct drafting, the unfortunate situation that gave rise to the proceeding before the Court of Appeal could have been avoided.

If you have any queries about how the BIF Act or payment schedules may affect your project or business, please do not hesitate to contact us.

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