Without Prejudice Settlement Offer does not constitute Payment Schedule under SOPA

The decision of Rodrigues v customOz Services Pty Ltd [2023] NSWSC 379 considered whether a without prejudice communication made in commercial negotiations amounted to a valid payment schedule for the purposes of the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOPA).

Frank and Janina Rodrigues (Plaintiffs) and customOZ Services Pty Ltd (the Builder) entered into two construction contracts for the completion of renovations on the Plaintiffs’ home. A dispute arose between the parties regarding progress payments claimed by the Builder for completion of work.

The parties engaged an independent third party to facilitate commercial negotiations. During these negotiations, the Plaintiffs sent an email to the third party and the Builder marked “Without Prejudice”. The email set out the Plaintiffs’ position and made an offer to settle the dispute (WP Email).

The parties failed to reach a commercial settlement and the Builder commenced an adjudication application under SOPA. The adjudicator determined that the Builder was entitled to recover the whole of its payment claim and that the Plaintiffs had failed to issue a payment schedule within the times prescribed by sections 14(4)(b) and 17(2)(b) of SOPA.

The Plaintiffs appealed to the NSW Supreme Court seeking a declaration that the adjudication determination was void. In doing so, the Plaintiffs sought to rely on the WP Email as a payment schedule under SOPA, such that the adjudication application was out of time.

Justice Rees confirmed that requirements for a payment schedule are “relatively undemanding”. However, her Honour determined that the WP Email did not satisfy SOPA requirements because it did not adequately indicate the amount of the payment claim the Plaintiffs proposed to pay and more importantly, did not indicate why the amount the Plaintiffs offered to pay was less than the amount claimed by the Builder.

Further, the fact that the WP Email was marked “Without Prejudice” indicates that the purpose of the document was to attempt to negotiate a settlement of a dispute on a confidential basis and without admission. A document made on this basis is likely to be regarded as inadmissible in an adjudication or subsequent proceeding and hence, unable to be relied upon.

It is commonplace for parties to a construction contract to engage in commercial negotiations regarding progress payments, as was the case with the Plaintiffs and the Builder. To this end, this decision highlights that without prejudice communications during such negotiations are unlikely to meet the requirements of SOPA and will often be regarded as inadmissible.

The full decision is available here.