Key point and significance of MKA Bowen v Carelli Constructions
This decision marks a change in the legal position in Victoria with respect to the early service of payment claims under the Building and Construction Industry Security of Payment Act 2002 (Vic) (Act).
Since Vickery J's decision in Metacorp Australia Pty Ltd v Andeco Construction Group Pty Ltd & Ors (2010) 30 VR 141, it has been accepted that a bona fide payment claim served prematurely could be valid. However, this is no longer the case, even where the relevant construction contract contains a clause deeming an early payment claim as effective only from the next reference date.
Accordingly, to engage the operation of the Act, claimants must ensure that payment claims are only served on or after the relevant reference date under the contract. In particular, where a reference date falls on a non-business day, parties must serve the payment claim on or after the non-business day (and not on the business day prior).
Facts of the case
MKA Bowen Investments Pty Ltd (respondent) engaged the first defendant, Carelli Constructions Pty Ltd (claimant) to design and construct an apartment complex in Mont Albert, Victoria.
Under clause 37.1 and Item 33 of the contract, payment claims were to be submitted on the 25th day of each month (being the relevant reference date). Where a payment claim was served early, clause 37.1 of the contract stipulated that the early payment claim "shall be deemed to have been made on the date for making that payment claim in accordance with Item 33."
On 26 November 2018 (in reliance on the 25 November 2018 reference date), the claimant served a payment claim on the respondent for $39,087,48. On 21 December 2018 (in reliance on the 25 December 2018 reference date), the claimant served a further payment claim on the respondent for $411,358.36 (December Payment Claim). In response to the December Payment Claim, the respondent provided a payment schedule to the claimant in the amount of $7,182.
The claimant referred the December Payment Claim to adjudication under the Act. The adjudicator determined that the claimant was entitled to payment of $209,470.04. The respondent commenced proceedings in the Supreme Court of Victoria seeking to quash the adjudication determination because the December Payment Claim was not validly served under the Act as it was not served 'on and from' the relevant 'reference date'.
Decision that the December Payment Claim was not a valid payment claim
Digby J said that the December Payment Claim was not a valid payment claim under the Act as it was served before the relevant reference date. Accordingly, the adjudication determination was quashed.
Following the High Court of Australia's reasoning in Southern Han Breakfast Point Pty Ltd (in Liquidation) v Lewence [2016] HCA 52 and the New South Wales Court of Appeal in All Seasons Air Pty Ltd v Regal Consulting Services Pty Ltd [2017] NSWCA 289 (All Seasons), Digby J considered that sections 9(1) and 14(1) of the Act did not permit the service of a payment claim prior to the relevant reference date. In reaching this conclusion, His Honour had particular regard to the words 'on and from each reference date' which appear in section 9(1)(a) of the Act.
Digby J considered that the provision of the contract which purported to deem early payment claims as being made on the relevant reference date did not cure the invalidity of the December Payment Claim. Citing All Seasons, His Honour emphasised that the Act establishes a time-critical regime for the submission of payment schedules and referral to adjudication. His Honour was concerned that uncertainty would arise if such deeming provisions could have the effect of circumventing the temporal requirements of the Act. Accordingly, the clause was held to be of no effect and did not cure the invalid early service of the December Payment Claim.