Australia has seen an increase in the number of disputes involving parties alleging that there has been a breach of an obligation of ‘good faith’ that has resulted in loss or damage.
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If you have received a payment claim from a builder or contractor who is performing building and construction work for you, or for related goods and services under a construction contract, it means they are seeking a payment from you for the work they have done recently, or the related goods and services that were provided, on account of the final price of the completed work.
This is an important document requiring your prompt consideration as strict time limits apply under your contract with the builder, and/or the relevant legislation affecting the contract, to dispute the amount claimed if you do not agree with it.
If you do not respond to the payment claim within the required time, you may be relinquishing your right to a proper and independent determination of the amount that is payable.
It is therefore imperative that you urgently seek professional advice if you have received a payment claim you dispute.You should contact a lawyer whether or not you believe you owe the amount claimed in the payment claim if you are unsure of your rights, because an experienced building and construction lawyer (as you will see below) may be able to delay, set aside, dispute or otherwise invalidate the payment claim on technical legal grounds or assist you to negotiate a resolution of a disputed payment claim.
Information regarding payment claims
All standard form building contracts include a requirement for the builder to be paid progress claims at intervals throughout the building project. These may be monthly or at specific stages of the building work. This provides the builder with cashflow during the project.
A statutory right to progress payments for the builder also arises under Chapter 3 of the Building Industry Fairness (Security of Payment) Act 2017 (Qld) (BIFA). The builder’s claim for progress payments for their work under the BIFA is called a ‘payment claim’. Progress payments in the form of a payment claim were first established under the Building and Construction Industry Payments Act 2004 (Qld) (BCIPA). On 17 December 2018, the BCIPA was replaced by the BIFA which also changed the form of, and time for compliance with, a payment claim. The BIFA provisions extend to all commercial building work with some minor exceptions. They also do not apply to domestic building work for an owner who intends to reside in the completed works within six months of completion.
Progress claims for standard form building contracts (whether in the form of a payment claim, or not) must be issued by the builder strictly according to the requirements of the contract: after the prescribed interval for issuing them has expired, or after the building work has reached a prescribed stage. Not before. Doing so will render the progress claim ineffective.
The builder’s right to a progress payment under the BIFA statutory scheme relies on the passing of a ‘reference date’ before a payment claim can be issued. Properly calculating the ‘reference date’ such that the payment claim is not issued prematurely is a precondition to a builder making a valid payment claim (Southern Han Breakfast Point Pty Ltd (in liq) v Lewence Construction Pty Ltd & Ors  HCA 52).
Payment claims must be in writing and:
- Identify the building and construction work or related goods and services to which the claim relates; and
- State the amount owed; and
- Request payment of the amount owed.
Tax invoices can be considered payment claims if they meet these requirements. Payment claims can also be issued even though there is no written contract.
If the payment claim relates to work performed up to a contract reference date, that should be identified in the payment claim, and if the contract requires any supporting documents to accompany the payment claim, they must be included in order for the builder to make a valid claim. If any of these requirements have not been met, the payment claim may not be valid.
If a payment claim is not valid, the builder who issued it will be unable to access the adjudication process under the BIFA to expedite resolution of a dispute concerning the payment claim.
In order to enforce a progress claim, or a payment claim under the BIFA, the builder issuing it must be able to prove service. If the building contract provides a mechanism for effecting service, then the BIFA adopts that mechanism (section 102 (1) BIFA). Alternatively, general legislative requirements for service may need to be adopted (section 39 Acts Interpretation Act 1954 (Qld); section 109X (1) Corporations Act 2001 (Cth)), if the contract does not prescribe a means for serving notices or documents.
Alternative means of service using new technology has recently presented some challenges for builders pursuing payment claims. Service by electronic mail to which an internet link was attached from which the documents to be served could be accessed; and the delivery of a USB stick containing the documents to be served, were found not to constitute good service as the recipient can only become aware of them after downloading or accessing the documents (Parkview Constructions Pty Ltd v Total Lifestyle Windows Pty Ltd t/as Total Concept Group  NSWSC 194). However, service of a payment claim using an electronic document exchange was upheld by the Queensland Supreme Court recently as the contract terms clearly allowed this method of service (Trust Company (Australia) Ltd atf the W H Buranda Trust v Icon Co (Qld) Pty Ltd  QSC 87).
Failing to contest a payment claim under the BIFA by not serving a ‘payment schedule’ on the builder within time may lead to an expedited adjudication of the builder’s claim if the payment claim remans unpaid.
Failure to adequately dispute a payment claim also enhances the builder’s ability to seek summary judgment against the owner of the building works if an adjudication decision remains unpaid.
It is therefore important to note that if you intend to dispute a payment claim, you must do so within 15 business days after receiving it by issuing a payment schedule according to the requirements of the BIFA.
A payment schedule must be in writing and:
- Identify the specific payment claim which is disputed; and
- State the amount intended to be paid; and
- Provide reasons the amount intended to be paid is less than the amount claimed.
It is imperative to clearly identify in the payment schedule the reasons the full amount of the payment claim is not being paid because the BIFA does not allow additional reasons to be included upon adjudication of the dispute.
Because failure to respond to a payment claim has such serious consequences, the builder issuing it must have strictly complied with all legal formalities under the contract and/or the BIFA for issuing the payment claim. Some of these considerations are set out below.
How was the payment claim served?
How and when you received the payment claim is extremely important. You should make a note of how and when you received it and keep copies of all written communications you received with it.
Are the builder’s details correct?
Do you know the person or company who has sent you the payment claim? Compare the details on the payment claim with your building contract. Do they make sense or is there some confusion?
Are your details correct?
Has the person or company who sent you the payment claim correctly described your details in the document? Do these correspond with the building contract?
Were you aware there was a payment claim due?
The payment claim must not be issued by the builder prematurely. You should refer to the progress payment provisions of the building contract to confirm your obligations in relation to making progress payments for which the builder can issue payment claims. Has the builder complied with its obligations?
Do you agree with the amount of the payment claim?
According to your own records and understanding, do you owe the amount claimed in the payment claim to the builder? Does the amount being claimed correspond to the amount of work completed on site? You are not obliged to pay the builder in advance for work that has not been completed. Are there other reasons you consider you should not pay the amount being claimed to the builder?
You may have these options
As you can see, there are many important considerations to be examined before responding to a payment claim. Investigating these considerations and gathering information to identify any errors or oversights by the builder in compiling the payment claim takes time. We therefore urge you to consider those matters as soon as possible as they will determine your options as to how you respond to the payment claim.
In broad terms, you have three options:
- To pay the amount claimed in the payment claim by the due date (within 15 business days of receiving the payment claim, or earlier if the contract requires it)
- To respond with a payment schedule within that time if you:
- consider the payment claim is invalid
- are making a partial payment
- are disputing the payment claim
- To choose to ignore the payment claim – this is an offence under the BIFA with substantial penalties and grounds for disciplinary action by the QBCC if you hold a QBCC licence
If the information in the progress claim is completely accurate, the first option is the appropriate one for you to act on.
Alternatively, if the payment claim is not accurate, or does not comply with the requirements of the building contract or the BIFA, or has not been served correctly, you should seek advice concerning the second option identified above.
Under no circumstances should you entertain the third option. Aside from the penalties involved, it would also prevent you from being able to respond to the builder’s payment claim during the BIFA adjudication process even if you have valid grounds for disputing the amount claimed.
Building and construction is a technical and complex area of law and you should seriously consider obtaining legal advice if you believe that there may be grounds to question the validity of the payment claim you have received. Doing this may prevent substantial cost overruns in the building and construction work being performed for you by ensuring that the builder is strictly complying with its contractual and legislative obligations.
Contact Gibbs Wright Litigation Lawyers
If you have recently received a payment claim and require assistance to urgently assess its ramifications for you, one of our experienced team of solicitors will be happy to help you. Contact Gibbs Wright Litigation Lawyers today for a free and confidential initial consultation to explore your options and legal rights.
The content of this publication is intended as general commentary only and may not be suitable or applicable to your personal circumstances. It is not intended to replace independent legal advice. You can contact us at our Brisbane Office for a free consultation on a range of litigation matters on (07) 3088 6364.
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