Is a letter of demand a payment claim?

A recent New South Wales Supreme Court decision has found that a letter of demand could constitute a valid payment claim for the purposes of the Building and Construction Industry Security of Payment Act 1999 (NSW) (BCISP Act).

The decision, Piety Constructions Pty Ltd v Megacrane Holdings Pty Ltd [2023] NSWSC 309, confirms that even the most unassuming document has the potential to be a payment claim for the purposes of the security of payment regime.  

Background

Piety Constructions Pty Ltd (Piety) entered into a contract with Megacrane Holdings Pty Ltd (Megacrane) for the supply of tower cranes and associated labour.  In March 2022, an administrator was appointed to Megacrane pursuant to s436A of the Corporations Act 2001 (Cth).  

The administrator advised Piety that he was considering the viability of engaging a third party to provide labour services so that Megacrane was able to complete its obligations under the Contract. Piety subsequently issued a notice under the contract which advised Megacrane that it will take the remaining works out of Megacrane's hands.

On 11 May 2022, the administrator sent Piety an email which attached a document described as a "letter of demand" and also various invoices.  The letter of demand stated that Piety was indebted to Megacrane in the sum of $258,976.18 and directed Piety make payment.  All documents attaching to the email included the statement:

"This is a payment claim issued pursuant to the Building and Construction Industry Security of Payment Act NSW 1999."

Piety responded denying that it was indebted to Megacrane as Piety had taken the remaining works out of Megacrane's hands and, as a result, payment was suspended.

On 3 June 2022, Megacrane lodged an adjudication application for its payment claim (being, its letter of demand).  Piety later delivered an adjudication response which submitted that the adjudicator did not have jurisdiction to determine the application because:

1. the payment claim was not a valid payment claim; and
2. in the event it was a valid payment claim, Piety did not issue a payment schedule and therefore Megacrane was required to issue a notice under s17(2) of the BCISP Act before proceeding to adjudication, which it did not.

The adjudicator determined the adjudicated amount to be $108,828.05 and concluded that the administrator's correspondence dated 11 May 2022 did meet the requirements of a payment claim in accordance with the BCISP Act.  Subsequently, Piety made an application to set aside the adjudicator's determination based on the same grounds in its adjudication response.

Decision

The Court held that the letter of demand was a valid payment claim for the purposes of the BCISP Act because it:

1. particularised the amounts in the payment claim;
2. included sufficient detail of the construction work so Piety could decide whether to dispute it;
3. stated that it is a claim issued under the BCISP Act; and
4. was a single payment claim.  

In determining whether a payment claim and payment schedule was issued for the purposes of the BCISP Act, the Court noted that a critical approach should not be taken and that regard should be given to substance rather than form.  

For completeness, the Court also found that the adjudicator's determination was not affected by jurisdictional error and therefore was valid.

Queensland jurisdiction

Industry stakeholders in Queensland should be particularly cautious when receiving correspondence as the Queensland security of payment regime does not require a payment claim to expressly state – "This is a payment claim issued pursuant to the Building Industry Fairness (Security of Payment) Act 2017 (Qld)".  

This means that even the most unassuming document has the potential to be considered a payment claim under the Queensland regime.  As a result, a letter of demand or even a simple email requesting payment could be considered a valid payment claim for the purposes of the Queensland security of payment regime.

Industry stakeholders should carefully review all project correspondence and documents they receive which relates to the payment for works performed to ensure they do not find themselves in a situation of having to pay any unwanted amounts.  

For more information, please contact a member of our Construction and Infrastructure Team.

Authors

Andrew Kelly | Partner | +61 7 3338 7550 | akelly@tglaw.com.au

Samuel Speechly | Senior Associate | +61 7 3338 7529 | sspeechly@tglaw.com.au

Vanessa George | Lawyer

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