The requirements for a valid payment schedule are relatively undemanding and are set out in subsections 14(2) and (3) of the Building and Construction Industry Security of Payment Act 1999 (NSW):
(2) A payment schedule:
(a) must identify the payment claim to which it relates, and
(b) must indicate the amount of the payment (if any) that the respondent proposes to make.
(3) 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.
There is no requirement that a payment schedule be a formal document. Neither is it a requirement that it specifically identifies itself as a payment schedule. The Court will assess whether a document is a payment schedule in a purposive manner, taking account of the significance of the payment schedule in the statutory scheme. As such, it is a substance over form inquiry.
In Turnkey Innovative Engineering Pty Ltd v Witron Australia Pty Ltd [2023] NSWSC 981, the issue before the Court for resolution was whether an email constituted a valid payment schedule. Stevenson J held that the email in question was not a valid payment schedule. His Honour opined at [29] that "[r]esolution of this case depends upon careful analysis of the words used in the Email itself, in the context of the mutually known background, accepting the limits to which resort can properly be had to context.”
On 1 May 2023, the contractor served on the principal a payment claim for $884,570.10, comprising of two separate components. The first was a claim for $499,924.63 for the contract works, calculated on the basis of an increase to the contract price and also on the basis that seven group control areas had been deducted from the scope of works and that no amount was claimed in respect of them. The second was a claim of $304,230 for 10 variations.
On 3 May 2023, the principal sent an email to the contractor which stated, in its entirety:
“As discussed during our meeting on 18/4 with Cameron and Jurgen, we will review your variations and your new pricing after we see real progress on the handing over of GCs. This approach is also in line with our meeting from last week in Redbank with our 2 CEOs.
Based on this you can claim progress for April based on the original contract price minus the 5 deducted GCs.
Please adjust your claim accordingly and resubmit for approval.”
There was no dispute that the email identified the payment claim to which it purported to relate, satisfying s 14(2)(a).
His Honour found that the email satisfied the requirements of s 14(2)(b) by indicating that the scheduled amount was nil:
[37] By making a reference to what the Contractor “can claim”, the Principal was clearly enough drawing a distinction between what the Principal was contending the Contractor was entitled to do, that is make a claim based on the “original contract price”, and what the Contractor was in fact doing: making a claim based on its “new pricing”.
[38] In those circumstances, the following statement, “please adjust your claim accordingly and resubmit for approval” was apt to convey to the Contractor that the Principal did not intend to make any payment in response to the payment claim.
His Honour found that although there was a sufficient reason given for withholding payment for the part of the claim relating to the contract works component, there was no reason given for withholding payment with respect to the claim for variations:
[42] … In the Email, the Principal stated that it was reviewing that new pricing. That statement, combined with the statement in the following paragraph that the Contractor could, and inferentially should, make a claim “based on the original contract price” made clear enough, in my opinion, that the reason given by the Principal for withholding payment was that it had not yet agreed to the new pricing.
[44] But the payment claim also claimed $304,290 for variations. This was some 40% of the Contractor’s claim. The Email did not indicate, in any way, the reason that the Principal was withholding payment in respect to that component of the payment claim. The Email said no more than that, after it saw “real progress on the handing over” of the completed Group Control areas, it would “review your variations”.
[45] The Email thus did not indicate why the Principal proposed to make no payment at all in response to the payment claim. Nor did it indicate the Principal’s reasons for withholding payment of the entirety of the amount claimed by the Contractor in the payment claim. Thus, it did not comply with the requirements of s 14(3) of the Act.
His Honour also opined at [42] that, “there is nothing in s 14(3) of the Act that requires that the reasons given be correct, justified or adequate; so long as the reasons are indicated”.
An appeal by Witron against Stevenson J’s decision in Turnkey Innovative Engineering Pty Ltd v Witron Australia Pty Ltd [2023] NSWSC 981 was dismissed in Witron Australia Pty Ltd v Turnkey Innovative Engineering Pty Ltd [2023] NSWCA 305. The Court agreed with the trial judge’s reasoning and re-iterated that Witron gave no reasons which could reasonably be seen as answering the distinct component of the claim relating to variations. Witron’s answer to that part of the claim suggested that it would not consider the variations at that point in time, only later. The Court held at [47] that, “[s]aying as much does not constitute an indication of why it was not prepared to pay the amount claimed, in the sense required by s 14(3) of the Act.”
The Court then went on at [48] and [49] to provide some useful guidance on what would be considered as a sufficient statement of reasons for the purposes of s 14(3). The issue is to be assessed purposively, that is, taking account of the fact that the purpose of giving the reason/s is to apprise the parties of the real issues in the dispute:
i) to say “we are not going to consider paying this until you do X” is, of itself, to refuse to grapple with the claim made. It is not saying that the claim is not payable, but rather declining to consider whether or not that is so, let alone giving reasons for rejecting the claim, until some other condition is met;
ii) merely stating that the item is rejected is insufficient as the result is stated but not reasons for the result;
iii) to say “I will explain our reasons if you come and see me”, or “we do not intend to pay your claim” or “we will not pay your claim until …” is insufficient;
iv) however, if the respondent said, “we are not going to consider paying this until you do X because under the contract X is required before such a claim is made”, that would be sufficient for the purposes of s 14(3).
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Copyright declaration: the text to this article is extracted from the Security of Payment (NSW) chapter in the Thomson Reuters for the loose-leaf subscription service, Commercial Arbitration Law & Practice, contributed by Vikram Misra.
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