The Security for Payment Acts (‘SOPA‘) give contractors a statutory right to follow a process which aims to secure quick interim payments to contractors for construction works performed.

Under the SOPAs in most states, a contractor may submit one payment claim for each reference date in a contract, and if no reference date is included in the contract, the reference date is the 28th day of each month.

It is common for principals to insert contractual pre-conditions to a contractor being entitled to either issue a payment claim or to be paid for amounts claimed in the payment claim.  In a recent Queensland Court of Appeal case, the principal sought to introduce preconditions to the calculation of the reference date.  The Court’s decision highlights that the contractual process for payment, including calculation of the reference date, cannot trump a contractor’s right to progress payments arising under the QLD SOPA.

In John Holland Pty Ltd v Coastal Dredging & Construction Pty Ltd [2012] QCA 150, the contractor, Coastal Dredging, submitted a multi-million dollar payment claim.  An adjudicator found that the majority of the claim should be paid by the principal, John Holland.  One of principal’s main argument on appeal was that the payment claim was not made from a valid reference date under the contract, as the contract required that:

The Subcontractor may submit a Payment Claim … only on each Reference Date. The Subcontractor warrants … that Payment Claims will: ……

(b) be in the format [the principal] requires including the
provision of a statutory declaration as required under
clause 12.17;
……
The Subcontractor warrants and represents that if a Payment Claim does not comply with the conditions set out in this clause 12.6:

(h) that Payment Claim is void; and

(i) the Reference Date for the purposes of the Security of Payment Act shall be the same day on the following month.

The contract defined ‘Reference Date’ as:

the date when the Subcontractor may submit a Payment Claim … in accordance with clause 12.6 and Schedule A, and has the same meaning as defined in the Security of Payment Act

The principal submitted that the reference date could not arise until the contractor had complied with the preconditions set by the contract.  Since the contractor had not used the principal’s prescribed form, it was submitted that the payment claim was invalid.

However, Justice Fraser rejected this line of argument and said at [18]:

…the contractual provisions to which reference may be made for the purpose of ascertaining the “reference date” are those which state, or provide for the working out of, the date on which a progress payment claim “may be made”. The latter expression refers to an entitlement to make a progress claim. It does not comprehend reference to warranties which concern the form and content of progress claims….

The court found the reference date was the 28th day of each month under the contract and requiring the contractor to meet preconditions before a reference date could be calculated amounted to an attempt to contract out of the SOPA, which is not permitted under s.99(2) of the QLD SOPA.

This decision is an endorsement of a contractor’s statutory rights to progress payments arising under the SOPA process, notwithstanding contractual preconditions which might have appeared fair and reasonable.

Principals should carefully consider whether the processes set out in their contracts raise preconditions which may be found now to be invalid.  Contractors should take a second look at preconditions which may have otherwise dissuaded them from making payment claims under a contract.