BCIPA Update: Consequences of Termination

A recent decision of the High Court of Australia confirms the rights of principals and building contractors under the Building and Construction Industry Payments Act 2004 (BCIPA) when a construction contract is terminated.

The object of the BCIPA is to ensure that a person is entitled to receive and recover progress payments where construction work and related goods and services are supplied under a construction contract. In other words, preventing costly and protracted litigation through the courts and keeping that all-important cash flow moving through the industry.

Under the BCIPA a person is entitled to a progress payment from each reference date, which is either of:

• the date stated in or worked out under the contract as the date on which a claim for a progress payment may be made; or
• if the contract does not state such a date, the last day of the month in which construction work or related goods and services were first supplied, and the last day of each later month.

Can further reference dates arise after the contract is terminated?

The High Court of Australia has seemingly answered this question once and for all in the case of Southern Han Breakfast Point Pty Ltd (in liquidation) v Lewence Construction Pty Ltd [2016] HCA 52.

Southern Han Breakfast Point Pty Ltd (Southern Han) and Lewence Construction Pty Ltd (Lewence) entered into a contract for the construction by Lewence of a 5 storey apartment building in Sydney’s Breakfast Point. The contract allowed Lewence to claim progress payments on the 8th day of each month for work done to the 7th day of that month.

On 27 October 2014 Southern Han gave Lewence notice that the contract was terminated, which Lewence accepted.

On 4 December 2014 Lewence issued a payment claim under the New South Wales equivalent of the BCIPA for works completed to 27 October 2014. Southern Han responded by issuing a payment schedule proposing to pay nothing. The dispute was referred to an adjudicator and a determination was made in favour of Lewence.

Southern Han appealed the adjudicator’s determination to the New South Wales Supreme Court on the grounds that Lewence’s payment claim could not have been valid because it was made after the contract was terminated and no further reference dates could have arisen following termination. The Supreme Court found in favour of Southern Han that no further reference dates could arise after the contract was terminated and for this reason Lewence’s payment claim was deemed invalid.

Lewence appealed to the New South Wales Court of Appeal, which found the existence of a reference date was not a necessary precondition to the making of a valid payment claim and for this reason Lewence’s payment claim was in fact valid.

Southern Han appealed to the High Court of Australia, which considered the wording of the New South Wales equivalent of the BCIPA and decided:

• contrary to the decision of the New South Wales Court of Appeal, a reference date is a necessary precondition to the making of a valid payment claim; and
  no further reference dates can arise after a contract is validly terminated, unless the contract states otherwise.
• High Court decisions must be followed by all other Australian courts deciding similar cases. Given the wording of the Queensland BCIPA and its New South Wales equivalent, the position in Queensland is that a valid payment claim cannot be made unless there is a valid reference date, and a reference date cannot arise after the contract is terminated, unless the contract contains an express entitlement.

All parties to a construction contract should consider this decision in view of their rights and obligations to make or receive payment following termination of the contract. Contracts may need redrafting as a consequence of this decision.

Please contact John Carey of our office if you require assistance with a BCIPA related matter.