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.
For a payment claim to be valid there must be a reference date…
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.
If there is no contract providing for the making of progress claims, the reference date is the last day of each month after the work commences, including the first month.
If there is an agreement, allowing a party to make a progress claim, the reference date is the date provided for in the contract for the making of a progress claim. For example, as is often the case, where the contract provides that a progress claim can be made on the 25th day of the month, that is the reference date.
Limits on reference dates after PC
Increasingly, contracts have been prepared which say there is an entitlement to make a progress claim at practical completion and the final claim, but no right to make a claim during the defects liability period.
However, it is common for builders to be tardy in issuing certificates of practical completion.
When is PC?
It has been argued that the issuing of a certificate of practical completion, is not necessary for there to be practical completion. Whether a job is practically complete, is a question of fact and the certificate, merely evidence of that fact.
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.
However, the Court of Appeal of New South Wales took a different approach in a case involving a AS4950-2006 contract. A brief outline of the facts of the case is below:
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 until later
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 principal argued that practical completion occurred on 16 September and the issuing of the certificate was not necessary for there to be practical completion within the meaning of the contract. The principal relied upon the contractual provision, which stated the contractor could only issue one more payment claim after practical completion, before having to wait until the final claim. As the contractor had issued a payment claim on 30 September, it had used up the reference date of 16 September and would now have to wait another 10 months.
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.