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Striking the balance between a ‘reference date’ and a contractors’ entitlement to payment

01Dec
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The Queensland Supreme Court in Lean Field Developments Pty Ltd v E & I Global Solutions (Aust) Pty Ltd & Anor [2014] QSC 293 had to consider whether conditions can be placed on when a reference date may arise under the Building and Construction Industry Payments Act 2004 (QLD)(BCIPA).

The facts of the case

The applicant, Lean Field Developments Pty Ltd, contracted the respondent, E & I Global Solutions to supply services relating to high voltage and fibre optic cables.

Clauses 33.7 and 33.8 of the contract required that the reference date for the purposes of the BCIPA worked out under the contract as the date on which a claim for a progress payment may be made 14 days after the delivery of the draft claim for payment. Additionally, the clauses also stipulated that a reference date did not arise under the BCIPA until the respondent submitted the draft, and actual claim for payment. Section 12 of the BCIPA entitles progress payments on a reference date and also makes an allowance for a reference date to be “worked out” under a contract.

E & I Global initiated adjudication proceedings in relation to a payment claim having failed to submit a draft claim for payment in accordance with cl 33.7. In response, Lean Field argued that the payment claim was invalid due to the fact that no reference date had arisen, and of course, no draft claim for payment was submitted. The adjudicator ultimately decided in favour of E & I Global for the amount of $527,783.08.

Lean Field made an application to the Supreme Court arguing that the decision of the adjudicator was void for jurisdictional error. E & I Global in response argued:

  • clauses 33.7 and 33.8 do not provide for a date to be “worked out” under the contract with the consequence that the “reference date” is the last day of each calendar month;
  • alternatively, s 99 of the Act means that clauses 33.7 and 33.8 are void to the extent they condition a “reference date” coming into existence by such a requirement, since these provisions change the effect of the BCIPA which gives a statutory entitlement to a progress payment.

The decision

 Applegarth J dismissed the application of Lean Field Developments and noted the following in relation to the term “worked out”:

“The term “worked out” is not defined in the Act. The ordinary meaning of “worked out” in this context connotes a process of calculation. Absent some contextual basis to not apply that ordinary meaning, the statutory definition of “reference date” would seem to allow a reference date to be worked out by applying a formula to facts that are capable of being ascertained.”

Applegarth J recognised that with the freedom that the BCIPA grants in determining a reference date can be abused by drafting clauses which imposes onerous conditions. However, his Honour noted that s 99 is a bulwark against the drafting of such clauses and that such conditions may be invalid if there is an impediment to a statutory entitlement, without the corresponding benefit:

“The inquiry into validity requires the identification of the condition or conditions in the absence of which there would be a statutory entitlement to a progress payment. Even a condition which has some utility in a contractor making a payment claim and receiving a progress payment may be excessively onerous and be invalid because of its unjustified effect in denying a party what otherwise would be a statutory entitlement. A condition which has no significant utility in terms of the scheme created by the Act may be invalid…”

Key point

The decision of Applegarth J allows for some leeway in the manner that progress payments are drafted. However, it is essential to remember that clauses which place inimical conditions to a party’s entitlement for progress payments would be considered invalid.

 

This article or the information contained therein does not purport to provide a full explanation of the law, give advice or any guidance to anyone in connection with BCIPA or any other issue and this article is not to be used by anyone to support their legal position or otherwise. This article is provided on the basis of particular facts and circumstances. This article is limited only to what is the generally accepted view in Australia. This firm cannot take responsibility for any action readers take based on this information.  We would be happy to assist you with any construction and engineering related legal issues you may have, please get in touch via enquiries@usherlevi.com or telephone our Brisbane office on (07) 3087 3463, Sydney office on (02) 9293 2546 or Sunshine Coast office on (07) 5413 9270 and one of our experienced lawyers will respond to you.

 

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