In KDV Sport Pty Ltd v Muggeridge Constructions Pty Ltd & Ors [2019] QSC 178 (“KDV”), the Queensland Supreme Court has held that a payment claim that failed to identify the construction work to which the progress claim related with sufficient particularity did not satisfy the requirements of the Building and Construction Industry Payments Act 2004 (Qld) (the “Act”) such that it could not be enforced through the Act’s adjudication process.
Readers should note that the Act was repealed on 17 December 2018 and replaced by Chapter 3 of the Building Industry Fairness (Security of Payment) Act 2017 (Qld). The Act now only applies to payment claims that were served prior to 17 December 2018. The conclusions with respect to the validity of a payment claim reached in KDV would be the same for either piece of legislation.
Facts
On or about 14 August 2017, KDV Sport Pty Ltd (“KDV Sport”) and Muggeridge Constructions Pty Ltd (“Muggeridge”) entered into a contract for the construction of student accommodation. The contract was a lump sum contract for $10.627 million pursuant to which Muggeridge was to provide the construction work.
Muggeridge issued a payment claim for the sum of $2.36 million on 20 August 2018. The payment claim served by Muggeridge was a one-page document comprising six (6) columns. The first column was titled “trade breakdown” and listed 51 categories of work that was contained in a trade breakdown schedule contained in the contract. A “total claim to date” column provided the percentage of each category of work that was alleged to have been completed. The payment claim was not supplemented by any particulars of the works within each trade breakdown that had been carried out or any supporting documentation.
KDV Sport’s solicitors wrote to Muggeridge contending that the payment claim did not meet the requirements of section 17(2) of the Act. Pursuant to section 17(2) of the Act, a payment claim must identify the construction work or related goods and services to which the progress payment relates. While reserving its rights, KDV Sport issued a payment schedule under the Act proposing no payment to Muggeridge.
Muggeridge subsequently applied for adjudication pursuant to section 21 of the Act. On 4 December 2018, the adjudicator issued a decision that an amount of $802,198.59 was payable to Muggeridge. KDV Sport applied to the Supreme Court of Queensland for orders that the adjudication decision be set aside on the basis that the decision was void and unenforceable by Muggeridge. KDV Sport argued that in circumstances where Muggeridge’s payment claim failed to comply with the requirements of section 17(2) of the Act, there was no payment claim pursuant to the Act that would enliven the adjudicator’s jurisdiction.
The decision in KDV
Her Honour Justice Brown held that for a payment claim to be valid pursuant to the Act, it must reasonably identify the construction work to which it relates, such that the basis of the claim is reasonably comprehensible to the applicant. Justice Brown did not consider Muggeridge’s payment claim met that relatively undemanding test.
Justice Brown made the following specific findings:
- the payment claim contained no description of the work that was the subject of the claim;
- references to the total percentages of work claimed to date and the amount the subject of the claim did not sufficiently identify the work done;
- while the background knowledge of the parties is relevant in determining the sufficiency of a payment claim, in this case, KDV Sport’s knowledge of the trade breakdown schedule contained in the contract was not sufficient to shed light on the information set out in the payment claim to make that claim reasonably comprehensible;
- while it may have been possible for KDV Sport to determine what part of the work was being claimed out of the percentage by engaging in a process of reconstruction based upon previous claims and amounts paid, such an exercise would be contrary to the Act in circumstances where the payment schedule is required to be provided within ten (10) days of receipt of the payment claim; and
- a payment claim must at least be reasonably comprehensible so as to enable the respondent to respond within the time frame provided under the Act. Muggeridge’s payment claim failed to do so.
Conclusion
As can be seen from the above decision, the consequences of not properly preparing a payment claim can be significant. Parties submitting payment claims for significant progress payments which may be disputed should consider engaging solicitors to assist in the preparation of such claims.
Marino Law has extensive experience in acting for parties to construction contracts. Our highly experienced lawyers regularly:
- draft and review construction contracts;
- assist parties with the preparation of payment claims and payment schedules;
- provide advice as to what is required to comply with contractual obligations;
- provide submissions for use in adjudication proceedings; and
- act on behalf of parties involved in contractual disputes including the commencement and defence of breach of contract proceedings.
Should you require assistance in any of the above areas, please contact one of our highly experienced lawyers.
