Sending a valid payment claim just got tougher!

Latest update 03/08/2023 | Last update 03/08/2023 | First published 24/12/2019

Written by Aitchison Reid Building and Construction Lawyers, published by TradeBox with permission.

Sending a payment claim is your first step in triggering security of payment, so it is vital that you get it right. With the changes to the Building Industry Fairness (Security of Payment) Act 2017 (BIF Act) it would be easy to think that sending a valid payment claim is easy too, however the Supreme Court has raised the bar.

In the decision of KDV Sport v Muggeridge Constructions,[1] the Queensland Supreme Court made a wide reaching decision that considered whether the payment claim identified the construction work or related goods and services to which the progress payment relates.

Previously, as long as there was some mention of what the construction work was - that was enough. However, this case required that the payment claim identify exactly what work and related goods and services are included in that payment claim. In other words, to have a valid payment claim in the future you are going to have put in much more administrative work.

What was the case about?

• Muggeridge Constructions, the claimant, sent a payment claim to KDV Sport Pty Ltd (KDV) for works completed during the construction of student accommodation under a lump sum contract.

• The payment claim used headings that matched the trade breakdown provided in the contract, and it was a requirement of the contract to use this breakdown for payment claims.

• KDV responded with a payment schedule assessing payment as $nil.

• Muggeridge filed an adjudication application and the adjudicator found in favour of Muggeridge.

• KDV then challenged the adjudicator’s decision saying it was void as there was no valid payment claim made in the first place and therefore the adjudicator had no jurisdiction to make a decision.

• The Supreme Court agreed with KDV that Muggeridge had not submitted a valid payment claim and therefore the adjudicator’s decision was void and KDV did not need to pay.

What was the payment claim in KDV like?

An excerpt of the Muggeridge payment claim below shows a payment claim that is perhaps not too uncommon:[2]

Excerpt from KDV Sport Pty Ltd v Muggeridge Constructions Pty Ltd [2019] QSC 178, para 35

The Supreme Court found that Muggeridge’s payment claim was not valid because it was “not reasonably comprehensible to a reasonable principal”[3] because it:

• Claimed for all of the work done on a percentage basis;

• Credited the amounts previously paid; and

• Used categories of work rather than descriptions of the work done.

This is despite the categories of work done being taken from the Trade Breakdown Schedule, which had been given by the payer as part of the tender process and which formed part of the contract.

What should you take away from this decision?

• A payment claim must objectively identify the construction work carried out in the period that is the subject of the claim.[4] In other words, if your payment claim includes work carried out in June plus work previously claimed and not paid for, you need to clearly detail the work carried out in June and the work that you have previously claimed for, but not been paid.

• In KDV, headings and general categories of work such as “Electrical” and “Aluminium Windows & Doors” did not identify the contract work, but instead merely categorised the work.[5]

• Relying on the percentage claimed as identification of the work completed is not sufficient.[6]

Justice Brown said that a payment claim did not need to go into precise detail in order to objectively identify the work claimed, but that it did require some description.[7] However, in reading the decision, it is hard not to feel for Muggeridge, which only followed the same process that countless contractors and subcontractors have done to date. This decision has the effect of invalidating countless payment claims.

But wasn't the BIF Act supposed to make it easier?

It is important to understand that this decision is made under section 17(2)(a) of the old Building and Construction Industry Payments Act 2004. In other words, it was one of the last pre-BIF Act court decisions. The wording of this section, however, is exactly the same as under section 68(1)(a) of the BIF Act. So unless it gets appealed and overturned, or disagreed with by a higher court, this is how identifying the construction work and related goods and services is going to be interpreted by the courts and adjudicators.

There are two ways laws are made:

• by new Acts like the BIF Act, which are written by governments and consulted on; and

• by courts interpreting the Acts (common law) when a case is before the court.

It seems ironic in an age where the Queensland government has been trying to make it easier for members of the construction industry to send a valid payment claim that the judiciary have now made it more difficult for the humble claimant to send a valid payment claim.

How does this decision affect accumulative payment claims?

If you have done our course or one of our seminars you would know that we have previously been strong proponents of sending accumulative payment claims, which include all of the amounts claimed to date and deducting all of the payments made to date.

Basically the KDV decision says that a blanket accumulative claim of all the work done to date less work paid for to date is now not enough to identify the construction work or related goods and services because, according to the court, the payer will not be able to identify exactly what work or goods and services are included in that payment claim.

This means that if you want to claim for work that was previously not paid for, you are going to have to identify that work, goods and services specifically. For example:

• in payment claim 2, you were not paid for preparing and plastering walls 1 and 2;

• you can add this to payment claim 3, but you will need to state “preparing and plastering walls 1 and 2” in your payment claim 3 and the amount for that work.

In other words, you are going to need to decode the payment schedule sent to you by the payer, so that you can reclaim for items that you have not been paid for before. This is going to be extremely difficult when payers only use percentages to assess and reject claims, or are vague in their payment schedules. This very issue was raised by Muggeridge in the Supreme Court, however, it did not persuade the court to loosen its rigid approach to identifying the construction work.

Are you feeling confused or concerned by this decision? You are not alone, we felt concerned too when we read the decision. As this is such an important decision impacting the sending of valid payment claims, we are considering different options for delivering education and updates to help you get up to speed. We want to make sure you send valid payment claims in line with the KDV decision – for you to do this, you need to know what to do, because at the end of the day you deserve to be paid for the work you do.

If you need legal help understanding the KDV decision’s impact on your subcontractor or trade contractor business, call Aitchison Reid on 07 3128 0120 or email the Aitchison Reid team at subcontractors@arbuildinglaw.com.au.

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Endnotes

[1] [2019] QSC 178

[2] Excerpt from KDV Sport Pty Ltd v Muggeridge Constructions Pty Ltd [2019] QSC 178, para 35

[3] KDV Sport Pty Ltd v Muggeridge Constructions Pty Ltd [2019] QSC 178, para 64

[4] KDV Sport Pty Ltd v Muggeridge Constructions Pty Ltd [2019] QSC 178, para 15

[5] KDV Sport Pty Ltd v Muggeridge Constructions Pty Ltd [2019] QSC 178, para 51

[6] KDV Sport Pty Ltd v Muggeridge Constructions Pty Ltd [2019] QSC 178, para 37

[7] KDV Sport Pty Ltd v Muggeridge Constructions Pty Ltd [2019] QSC 178, para 51