Early SOPA payment claims – a warning to contractors

The NSW Court of Appeal decision in All Seasons Air Pty Ltd v Regal Consulting Services Pty Ltd [2017] NSWCA 289 has confirmed that a payment claim submitted under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act) prior to a valid reference date will be deemed to be invalid for the purposes of the Act.

All Seasons Air and Regal Consulting entered into a Contract which stipulated that a payment claim submitted prior to the due date (the reference date) in the contract would be deemed to have been submitted when the reference date occurred. A dispute arose when All Seasons Air submitted a progress payment eight days prior to the contractual reference date, which was held to be valid by at adjudicator.

Regal appealed the determination to the NSW Supreme Court. The Court found that despite the deeming provision, a progress claim submitted prior to the contractual reference date was premature and therefore invalid. The Supreme Court followed the High Court in Southern Han, stating that that if “no reference date has arisen, there is no statutory entitlement to a progress payment.”

In the NSW Court of Appeal, All Seasons Air argued that the deeming provision in the Contract meant that on the occurrence of a reference date the payment claim became a payment claim under the Act. Therefore, while the payment claim had been submitted prior to the reference date, it was not ‘served’ under the Act until the reference date, at which point it became a valid payment claim under the Act.

The Court of Appeal disagreed with this interpretation and relied on the following points in dismissing the appeal:

•   The High Court in Southern Han authoritatively determined that a statutory entitlement to a progress payment arises only “on and from” each reference date.
•   As between the parties, the payment claim was deemed to have been made when the reference date arose for the purpose of the Contract. However, the agreement by the parties did not mean that an early payment claim is taken to have been served on the respondent for the purpose of the Act.
•   Therefore, at the time All Seasons Air’s payment claim was submitted, it had no entitlement to a progress payment under the Act and the payment claim was deemed to be invalid.

The Court of Appeal’s decision is a timely reminder that the payment regime in the Act sits alongside and operates independently of any contractual entitlement to payment. Contractors should be aware that the terms of a construction contract will not override when a payment claim is taken to have been validly submitted under the Act.

The full decision can be found here.