Status quo Returns: the High Court Weighs in on Reference Dates and the NSW Court of Appeal Clears up the Grounds for Challenge
Sandra Steele and Michael O'Callaghan
The decisions of the High Court in Southern Han Breakfast Point Pty Ltd (In Liq) v Lewence Construction Pty Ltd [2016] HCA 52 and the New South Wales Court of Appeal in Shade Systems Pty Ltd v Probuild Constructions (Aust) Pty Ltd (No 2) [2016] NSWCA 379 were delivered on 21 December 2016 and 23 December 2016 respectively and provide some certainty in respect of the importance of reference dates and the grounds upon which an Adjudicator's determination can be challenged.
The High Court's decision in Southern Han The Southern Han decision confirms that the existence of a reference date under a construction contract is a necessary precondition to the making of a valid payment claim under the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act). Southern Han and Lewence were parties to a contract for the construction of an apartment block at Breakfast Point in Sydney. The contract made provision for Lewence to make payment claims on the 8th day of each calendar month for work completed up to the 7th day of the same month (referred to as the "reference date" under the SOP Act). A reference date is a date when a party becomes entitled to make a payment claim (either determined in accordance with the terms of a construction contract or, if a construction contract makes no express provision, a date determined in accordance with the applicable security of payment legislation). On 27 October 2014, Southern Han took all of the work remaining to be completed under the contract out of Lewence's hands. Lewence treated Southern Han's conduct as a repudiation of the contract and elected to terminate. Under the terms of the contract, if works were taken out of Lewence's hands, Southern Han's payment obligations were to be suspended. On 4 December 2014, Lewence served a document on Southern Han, purporting to be a payment claim under the SOP Act, for work carried out under the contract up to 27 October 2014 (i.e. for works carried out from the last reference date (8 October 2014) to the date the contract was terminated). The matter proceeded to adjudication and Southern Han contended that the Adjudicator did not have jurisdiction to determine the Adjudication Application on the basis that the payment claim was invalid because it was not made in respect of an available reference date. The Adjudicator determined that the payment claim was valid and that monies were payable to Lewence. Southern Han challenged the Adjudicator's determination in the Supreme Court of New South Wales, arguing that the determination was void because Lewence's payment claim was not valid under the SOP Act because it was not made in respect of an available reference date. At first instance, the Court held that the payment claim was void and ordered that the Adjudicator's determination be set aside. Lewence appealed the decision. The NSW Court of Appeal upheld the appeal in reversing the decision and finding that the existence of a reference date was not a precondition to the making of a valid payment claim under the SOP Act. This decision was met with surprise in the building and construction industry as it went against the established status quo. The case then proceeded to the High Court.