Can a deeming provision render an early payment claim valid? It depends on the jurisdiction!

It is commonplace for construction contracts to contain provisions that "deem" all early progress claims to be made on a prescribed "reference date".

In the recent decision of All Seasons Air Pty Ltd v Regal Consulting Services Pty Ltd [2017] NSWCA 289, the New South Wales Court of Appeal determined that deeming provisions of this nature cannot render an early payment claim as valid. The decision largely followed the High Court's judgment in Southern Han Breakfast Point Pty Ltd (in liq) v Lewence Construction Pty Ltd [2016] HCA 52, and the finding in that case that the existence of a reference date under a construction contract is a precondition to the making of a valid payment claim under the Building and Construction Industry Security of Payment Act 1999 (NSW).

In this article, we examine the reasoning of the Court in All Seasons, and consider whether these principles are applicable to construction contracts in other Australian jurisdictions - and what that means for you.

Factual background - All Seasons

All Seasons concerned a construction contract which provided that:

• all early progress claims were "deemed to have been made on the date (specified) for making a claim"; and
• progress claims were to be made "on the 20th day of the month".

The applicant submitted (what purported to be) a progress claim to the respondent on 12 July 2016. The respondent ultimately rejected this claim in its payment certificate dated 26 July 2016, leading to an adjudication being brought under the NSW Act.

One of the issues in dispute was whether the 12 July 2016 progress claim should be taken, by reason of the deeming provision in the contract, to have been served on 20 July 2016. The applicant conceded that its 12 July 2016 claim, despite expressly being referred to as a "payment claim", could not in fact be a payment claim for the purposes of the provisions of the NSW Act until 20 July 2016.

Findings of the Court of Appeal in All Seasons

The Court of Appeal found that the 12 July 2016 claim was invalid for the purposes of the NSW Act, notwithstanding the deeming provision in the contract. It held that the NSW Act creates a "parallel regime, separate from the contract", and therefore  the provisions of the NSW Act apply despite any provision in the contract to the contrary.

In coming to this finding, the Court of Appeal closely examined the wording in sections 8(1) and 13 of the NSW Act. It was held that:

• the existence of a reference date under a construction contract; and
• the service of a payment claim under section 13(1),

were essential preconditions to the making of a valid payment claim under the NSW Act. Accordingly, the Court of Appeal stated:

"… both the entitlement under s 8(1) and service of a payment claim under s 13(1) can only occur on or from each reference date". [emphasis added]

In support of this conclusion, the Court also found that the applicant's argument about the deeming provision was inconsistent with section 13(5) of the NSW Act. This was because:

• section 13(5) (which states that no more than one payment claim can be served in respect of each reference date) cannot be overcome by the existence of a deeming clause in a contract; and
• as a result, the fact that the applicant had previously submitted another payment claim in the period within which the 12 July 2016 claim was submitted rendered the 12 July 2016 claim invalid.

Finally, the Court of Appeal determined that the recent decision of Abergeldie Contractors Pty Ltd v Fairfield City Council [2017] NSWCA 113 was not authority for the proposition that a payment claim submitted before a reference date ought to be taken to have been made on that reference date. Rather, it was held that the Court in Abergeldie merely made an assumption about the effect of reference dates in construction contracts (without engaging in any technical analysis on point).

Broader implications of the All Seasons case for security of payment regimes across Australia

The following graphics compare the wording in sections 8, 13(1) and 13(5) of the NSW Act to the equivalent provisions in the security for payment legislation in other States and Territories:

Queensland / South Australia / Australian Capital Territory

The principles in All Seasons will likely apply to construction contracts governed by Queensland, South Australian and Australian Capital Territory law. This is largely because (as is evident from the graphics above) the Queensland, South Australian and Australian Capital Territory security for payment statutes (as well as the Building Industry Fairness (Security of Payment) Act 2017 (Qld)) contain identical (or near identical) provisions to that of sections 8(1), 13(1) and 13(5) of the NSW Act.

We note that the Queensland Supreme Court in FK Gardner & Sons Pty Ltd v Dimin Pty Ltd [2007] 1 Qd R 10 has specifically determined that early progress claims are invalid under the Building and Construction Industry Payments Act 2004 (Qld).

Victoria

Prior to Southern Han, the Victorian Supreme Court in Metacorp Pty Ltd v Andeco Construction Group Pty Ltd [2010] VSC 199 determined that payment claims submitted prior to the prescribed reference date under the Building and Construction Industry Security of Payment Act 2002 (Vic) did not necessarily render the payment claim invalid. The Court held that this was because such claims become "enlivened upon the arrival of the relevant reference date".

The decision in Metacorp was distinguished on the basis that at the time of the decision there were differences in the wording of the NSW and Victorian security of payment legislation (Seabay Properties Pty Ltd v Galvin Construction Pty Ltd [2011] VSC 183). Those relevant differences no longer exist, so it is quite possible that the Victorian Supreme Court will re-evaluate its position on this matter in light of the All Seasons decision.

The Victorian Act contains an equivalent provision to section 8(1) of the NSW Act, but does not contain an equivalent provision to section 13(5).

Tasmania

It is unclear whether the principles in All Seasons will apply to construction contracts governed by the Building and Construction Industry Security of Payment Act 2009 (Tas).

The Supreme Court of Tasmania in Skilltech Consulting Services Pty Ltd v Bold Vision Pty Ltd (2013) 22 Tas R 147 was specifically faced with the question of whether a premature payment claim ought to be deemed invalid under the Tasmanian Act. However, the Court in that case ultimately decided that there was no need to determine which line of authority was preferred.

As such, it is possible that the Supreme Court of Tasmania will now re-evaluate its position on this matter.

Western Australia / Northern Territory

Neither the Western Australian nor the Northern Territory security for payment legislation contains the concept of a "reference date". As a result, it is unlikely that the All Seasons decision will have any applicability in those jurisdictions.

Key take-outs for payment claims

Wherever you are, the All Seasons decision is a good prompt to review construction contracts and identify any deeming provisions that might be lurking in them. If deeming provisions are found, legal counsel and contract managers will need to understand the impact of the All Seasons decision in the relevant jurisdiction.

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