September 2017

Supporting Statement Timing is Critical - NSW Security of Payment Act

In Brief

A payment claim served by a head contractor on a principal:

- that is not accompanied by a supporting statement; or
- is accompanied by a supporting statement that is signed and dated earlier than the date of the payment claim to which the supporting statement relates

is not a valid payment claim under the Building and Construction Industry Security of Payment Act 1999 (NSW) (NSW SOP Act) and an SOP adjudicator does not have jurisdiction under the NSW SOP Act to determine it.

Why tell me this?

If you are a principal and have been served with a payment claim by your head contractor, or you are a head contractor serving a payment claim on your principal, you should check that the payment claim:

- is accompanied by a supporting statement; and
- that the supporting statement has not been signed and dated prior to the date of the payment claim.

Otherwise, as a principal you will be paying when you don’t have to, and as a head contractor you will be claiming a payment under the NSW SOP Act to which you aren’t entitled (and committing an offence!).

In Detail

Section 13(7) of NSW SOP Act provides that:

…a head contractor must not serve a payment claim on the principal unless the claim is accompanied by a supporting statement that indicates that it relates to that payment claim…

A supporting statement is a declaration, in the prescribed form, by the head contractor that all subcontractors have been paid all amounts that have become due and payable in relation to the construction work concerned.

You should click here to access the prescribed form of supporting statement.

Lesson 1 – A payment claim served on a principal without a supporting statement is not validly served

In Kitchen Xchange v Formacon Building Services (5 November 2014), principals and head contractors alike were put on notice that an adjudicator lacked jurisdiction (i.e. did not have the power under the NSW SOP Act) to determine a payment claim that was served without the requisite supporting statement.

The Court held that not attaching a supporting statement had the effect that the payment claim was not effectively served and that in those circumstances the adjudicator lacked jurisdiction to adjudicate on the payment claim.

The lesson here for principals, and head contractors in particular, is to ensure that all payment claims made are accompanied by a supporting statement. If they are not, the head contractor can’t use the machinery of the NSW SOP Act to enforce payment.

Lesson 2 – A supporting statement must not be signed and dated prior to the date of the payment claim to which it relates.

A decision of the NSW Supreme Court handed down on 24 August 2017, Mt Lewis Estate Pty Ltd v Metricon Homes Pty Ltd provides a further salient lesson for principals and head contractors.

In this case the head contractor (Metricon) served a payment claim on the principal (Mt Lewis) which attached a supporting statement.

The declaration in the supporting statement was made on 13 December 2016, but the payment claim to which the supporting statement related was identified as being dated 15 December 2016, two days later.

Mt Lewis, in challenging the validity of the adjudicator’s determination, argued that the NSW SOP Act, and its regulations, required the “declaration to speak as at the time at which the payment claim is made".

The Court agreed and held that:

- the declaration in the supporting statement must be made in relation to “the matters that are contained in this supporting statement”;
- the supporting statement is to declare that all subcontractors have been paid all amounts that have become due and payable “in relation to the relevant construction work concerned", noting that this is a reference to the construction work the subject of the payment claim to be identified by date; and that
- neither logically nor rationally can a declaration be made that all payments have been paid to subcontractors in relation to a payment claim that has not yet been made.

The Court found further support for its finding in the Second Reading Speech of the 2013 amendment bill, given on 23 October 2013, which recorded the following:

“…if at the time a head contractor makes a payment claim to a principal under a construction contract an amount is owed to a subcontractor or supplier then the provisions require the head contractor to confirm that these payments have been made…”

The Court held that this passage "makes it clear that the declaration was intended to pertain to the time of the payment claim”.

To hold otherwise, the Court held, “would have the consequence that a head contractor could make a payment claim for work done by subcontractors, without having to ensure that those contractors have been paid - even though they are entitled to be paid before the payment claim is actually made. This would be inimical to the policy behind the provisions” (our emphasis).

Conclusion

Exercising the considerable rights afforded to head contractors under the NSW SOP ACT requires strict compliance with its provisions.

This includes, in the case of a payment claim served on a principal, the inclusion of a compliant supporting statement.

Otherwise it is not a payment claim made under the NSW SOP Act and cannot be sent to an adjudicator for determination.