Southern Han Breakfast Point Pty Ltd (in Liquidation) v Lewence Construction Pty Ltd [2016] HCA 52
Under the New South Wales security of payment Act as it then stood, a valid payment claim had to be supported by a reference date; on the contract in this case, none arose once the remaining work was taken out of the contractor's hands (suspending payment) or, alternatively, once the contract was terminated.
What the court decided
The appeal concerned the Building and Construction Industry Security of Payment Act 1999 (NSW) [1]. The Court applied the Act as amended to 20 April 2014, and said that the amendments made between then and its decision were not material [5]. Southern Han engaged Lewence to build an apartment block at Breakfast Point [20]. The contract allowed Lewence to make a progress claim on the 8th day of each month for work done to the 7th day of that month [21]. In October 2014 Southern Han purported to take the remaining work out of Lewence's hands [26]. Lewence treated that as a repudiation and purported to accept it and terminate the contract [26]. Lewence then served a document purporting to be a payment claim for work done to 27 October 2014, which did not nominate a reference date [27]. On an adjudication application that Lewence purported to make, the adjudicator rejected Southern Han's objection that he lacked jurisdiction and purported to determine the application [28].
Southern Han sought a declaration that the adjudicator's purported determination was void [29]. The primary judge (Ball J) made the declaration [31]. He found no reference date on either of two alternative hypotheses, and it was common ground that Southern Han had to succeed on both [32]. The first was that Southern Han had taken the remaining work out of Lewence's hands (the take-out hypothesis), and the second that Lewence had accepted Southern Han's repudiation and terminated the contract (the termination hypothesis) [33]. The Court of Appeal allowed Lewence's appeal, holding that a reference date was not a precondition to a valid payment claim [34]. Ward JA, with whom Sackville AJA relevantly agreed, held that Lewence's right to claim was suspended on the take-out hypothesis, but considered that 8 November 2014 was an available reference date on the termination hypothesis [35], [36]. In joint reasons, the High Court allowed Southern Han's appeal, set aside the Court of Appeal's orders and in their place dismissed Lewence's appeal to that Court [1], [82]. Lewence was ordered to repay $1,276,000 paid to it on 7 October 2015, with interest [82].
The Court held that the existence of a reference date under the construction contract is a precondition to the making of a valid payment claim under section 13(1) [61]. A document that is not in respect of a reference date is not a payment claim and cannot trigger any of the procedure under Part 3 of the Act [62]. The Court also rejected Southern Han's argument that the document was in respect of the 8 October 2014 reference date, so that section 13(5) precluded its service [37], [41]. Claiming for work done before 7 October 2014 did not make it so, and because the document also claimed for work done to 27 October 2014, it was to be characterised as made in respect of some reference date after 27 October 2014 [41].
A reference date under section 8(2)(a) is a date fixed by the operation of the express terms of the contract [70]. It is not a date worked out merely from the contractual terms, independently of the contract's operation [70]. Because the contract expressly fixed the date for progress claims, section 8(2)(b) could not supply a fallback date [73]. The Act secures payment for work under the contract, not damages for breach or restitution [66].
The decisive question was whether the payment clause continued to operate to fix 8 November 2014 as a reference date after the events of October 2014 [74]. On the take-out hypothesis, the take-out clause suspended payment until the work had been completed and the superintendent had assessed its cost and certified the amount due under clause 39.6 [23], [76]. That suspension extended to all rights and obligations under the payment clause, including the right to claim for work already done [78]. On the termination hypothesis, termination left Lewence with only the rights that had already accrued, unless the contract provided otherwise [79]. The right to claim for work done to 27 October 2014 had not accrued at termination, and would have accrued only on 8 November had the contract continued [79]. Nothing in the contract showed an intention that the payment clause would survive termination [80].
Why it matters
The result on suspension and termination turned on the terms of this contract. The Court recognised that a claim for a progress payment, such as a final payment, might be made after a contract has expired [65]. Where termination on acceptance of repudiation ends the payment clause before the next reference date, the contractor's future right is replaced by a right to damages or restitution, which the Act does not secure [81]. The decision construed the New South Wales Act, and the equivalent Acts in other States and Territories must be read on their own terms. The New South Wales Act may have changed since the decision, and readers should check its current text.
Numbers in square brackets are paragraph numbers of the judgment. This note summarises a decided case for education and is not legal advice. See how the notes are written.