Who does this affect?

All construction industry participants in jurisdictions with Security of Payments legislation

What do you need to do?

Ensure that payment schedules contain adequate reasons. We can help.

Author
Scott Budd  
Partner

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Scott Budd  
Partner
T +61 7 3244 8054

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Perform (NSW) Pty Ltd v Mev-Aus Pty Ltd T/AS Novatec Construction Systems [2008] NSWSC 858

The plaintiff, Perform Pty Ltd, entered into three separate agreements with the defendant Mev-Aus Pty Ltd for the leasing of formwork systems.

On 10 March 2008 Mev-Aus served a payment claim pursuant to the provisions of the Building and Construction Industry Security Payment Act 1999 (NSW) (“the Act”). On 26 March 2008, Perform served a payment schedule (“March Payment Schedule”) under s 14 of the Act. The March Payment Schedule included a paragraph which provided “…the Respondent refers and repeats the reasons contained in its payment schedule served on the claimant on the [February Payment Schedule] referred to at Attachment 4 below”.

Perform sought to incorporate the reasons for withholding payment contained in the February Payment Schedule. In both the March and February Payment Schedules, Perform alleged that the formwork supplied by Mev-Aus was not what was promised and was of an inferior quality. Perform asserted that it was entitled to a reduction or credit for the amount claimed by Mev-Aus. Perform also sought to claim back charges, to cover the cost of rectifying the defective formwork supplied by Mev-Aus.

The matter went to adjudication and it was held that the February Payment Schedule did not form part of the March Payment Schedule.

Perform challenged the findings of the Adjudicator before Einstein J of the NSW Supreme Court. The following issues were raised by Perform:

1. Does s14(3) of the Act permit incorporation by reference into a payment schedule?

Section 14(3) provides:

“If the scheduled amount is less than the claimed amount, the schedule must indicate why the scheduled amount is less and (if it is less because the respondent is withholding payment for any reason) the respondent’s reasons for withholding payment”

His Honour held that section 14(3) requires that reasons be indicated in the payment schedule with sufficient particularity.

His Honour noted that the February Payment Schedule was a 123 page document, including one negative variation, six separate back-charges and a range of other complaints. His Honour further noted that the February Payment Schedule was internally inconsistent and it was unclear as to whether the whole or only part of the February Payment Schedule was in fact served on Mev-Aus.

His Honour held that the Adjudicator’s view was correct in deciding that Perform had not complied with s 14(3). In doing so, His Honour noted that allowing parties to incorporate previous documents that had passed between parties in to the payment schedule could lead to mayhem. This is especially so where time is of essence in relation to the critical significance of steps taken by the respective parties under the Act.

2. Whether the adjudicator’s findings constitute a failure by the adjudicator to comply with the requirements contained in s22 (2) (d) of the Act?

Section 22 (2) (d) of the Act provides that the Adjudicator must consider the payment schedule and all submissions (including relevant documentation) made by the respondent in support of the schedule.

His Honour held that the Adjudicator did consider the payment schedule and had particular regard to the February Payment Schedule.

Further it was held that even if the Adjudicator had erred in this respect that error does not invalidate the determination.

In providing reasons for withholding payment under section 14 (3) of the Building and Construction Industry Security of Payment Act 1999 (NSW) a party cannot by incorporation refer to reasons provided in previous payment schedules.