Practical completion and service under security of payment legislation
A New South Wales security of payment case could be an indicator of how Queensland security of payments legislation may be interpreted by the Queensland courts.
The High Court, in its first decision dealing with the Security of Payment legislation, ruled that a payment claim is only valid, if there is in existence
a valid reference date.
This approach leaves open the possibility that contractors could unknowingly use up the practical completion claim reference date leaving them unable
to claim any of their retentions before the final claim.
- 28 Aug 2016: Payment Claim no. 14 issued
- 16 Sept 2016: Contractor writes to Superintendent asserting PC achieved on that date and asking for certificate to be issued
- 30 Sept 2016: Superintendent wrote and confirmed PC achieved on 16 September but stated that certificate confirming PC could not be issued
- 25 Nov 2016 (morning) – Payment Claim no. 15 issued
- 25 Nov 2016 (later in day) – Superintendent certifies that practical completion was achieved on 16 September 2016
The contractor’s response was to argue there was no date of practical completion, until the certificate was actually issued and therefore there was still a reference date available.
The relevant clause in the AS4950-2006 contract was clause 34.6. The relevant clause in the commonly used AS4901-1998 is identical.
The Court interpreted the clause as meaning there was no date of practical completion until the certificate was issued. Accordingly, the date of practical completion was the 25 November 2016 and the payment claim was valid.
Contracts should be interpreted to facilitate the use of the Security of Payment Legislation…
Of course, not all contracts are worded the same way. No doubt it will be said, it is only a case about interpreting a particular form of words. However, the Court specifically pointed to the need to facilitate the operation of the Security of Payment legislation as a reason for adopting this interpretation. We think, a similar policy will inform the interpretation of other contractual formulations of practical completion in Queensland.
It should also be acknowledged, this is a decision of the New South Wales Court of Appeal and there have been some divergences between Queensland Courts and New South Wales Courts in the interpretation of this legislation. However, once again, the same policy of facilitating the effectiveness of the Security of Payment legislation, should hold sway here.
How the new Building Industry Fairness (Security of Payment) Act will affect this
This Act’s security of payment provisions are now expected to come into force in July 2018. As previously notified, the Project Bank Account provisions and certain other parts of the Act are already in force.
If you would like advice relating to the Building Industry Fairness (Security of Payment) Act, please contact one of our team members.