Security of Payment update: Court of Appeal clarifies controversy of the Supporting Statement
In TFM Epping Land Pty Ltd v Decon Australia Pty Ltd [2020] NSWCA 93 the Court of Appeal has confirmed that a non-compliant supporting statement by a head contractor will not invalidate a payment claim or render ineffective service of a payment claim under the Building and Construction Security of Payment Act 1999 (SoPA).
This 14 May decision is welcome clarification to head contractors because it settles the controversy that had arose as a result of conflicting decisions of the NSW Supreme Court.
The Legislation
Section 137 (7) of SoPA says 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’.
The maximum penalty prescribed for a breach of section 137 (7) is 200 penalty points or $22,000.
The authorities
First, in 2014, His Honour Justice McDougall held that there was invalidation (see Kitchen Xchange v Formacon Building Services [2014] NSWSC 1602). McDougall J was then followed twice by His Honour Justice Meagher in 2016 (see Kyle Bay Removals Pty Ltd v Dynabuild Project Services Pty Ltd [2016] NSWSC 334; Duffy Kennedy Pty Ltd v Lainson Holdings Pty Ltd [2016] NSWSC 371).
Second, in 2018, His Honour Justice Ball found that there was no invalidation in these circumstances (see Central Projects Pty Ltd v Davidson [2018] NSWSC 523).
In dismissing the appeal of the principal, the Court of Appeal preferred Ball J’s reasoning that as s13(7) provided for a penalty for failure to comply with its requirements regarding supporting statements there was no basis to imply a legislative intention that further consequences ought to apply.
In practice
Head Contractors who have issued a payment claim with a non-compliant supporting statement should not issue another claim for that reference date because to do so may place them in breach of s 13 (5).
Principals can no longer assume that a non-compliant supporting statement will comply render the payment claim invalid and should be preparing and serving a payment schedule should within the time stated in the SoPA.
Do you need legal advice regarding the security of payments?
Clare Peacock is an experienced construction lawyer working on Sydney’s Northern Beaches. Clare provides practical, cost-effective building approval advice to property owners, builders and strata managers. Services include residential building disputes, body corporate issues and strata building problems.