On 24 September 2019, Justice Digby of the Supreme Court of Victoria handed down his decision in MKA Bowen Investments Pty Ltd v Carelli Constructions Pty Ltd [2019] VSC 436.  The decision marks a significant shift in Victoria’s position on premature service of payment claims. 

Previously, bona fide payment claims served before the arrival of the reference date under the contract could be valid (Metacorp Australia Pty Ltd v Andeco Construction Group Pty Ltd & Ors (2010) 30 VR 141).  Digby J has overturned this position: now payment claims served early are no longer valid even where the construction contract allows service of payment claims on the next reference date.

So what happened?

MKA Bowen engaged Carelli, a contractor, under a design and construct contract for 17 apartments in Melbourne. The reference date for making payment claims under the contract was ‘the 25th day of each month’.  The contract also included a clause that a payment claim served prior to a reference date would be deemed to have been made on the arrival of the reference date. 

The Carelli served 2 payment claims: (a) the first was issued on 26 November 2018 for $39,087.48 (November Payment Claim, served one calendar day after the reference date) and (b) the second was issued on 21 December 2016 for $411,358.36 (December Payment Claim, served four calendar days before the reference date). 

In response to the December Payment Claim, MKA Bowen provided a payment schedule in the sum of $7,181.

Adjudication

Carelli referred the December Payment Claim to adjudication under the Building and Construction Industry Security of Payment Act 2002 Act (Vic) (SOP Act).  The adjudicator determined that Carelli was entitled to payment of $209,470.04.

Appeal to the Supreme Court

MKA Bowen commenced proceedings in the Supreme Court seeking to quash the adjudication determination because the December Payment Claim was not validly served under the SOP Act as it was not served ‘on and from’ the relevant ‘reference date’.

His Honour held that the December Payment Claim was invalid because it had been served prior to the prescribed reference date under the contract. This was despite the construction contract seeking to allow for early service of payment claims before a reference date had arisen (in those circumstances service under the contract is deemed to have occurred on the arrival of the next reference date).  In His Honour’s words, giving effect to such deeming clauses in a contract would “contradict the intent and purposes of the SOP Act which seeks to establish a strict and time critical regime”.[1]

Key takeaways

To engage the operation of the SOP Act, claimants must serve payment claims on or after the relevant reference date under the contract.  Where the reference date falls on a non-business day, the payment claim must be served on or after the next non-business day. 

This decision highlights the importance of familiarising yourself with the terms of your construction contract and ensuring that your payment claims are served on the reference date (and not prior to its arrival).

Read the judgment here

[1] MKA Bowen Investments Pty Ltd v Carelli Constructions Pty Ltd [2019] VSC 436, [74].