Court provides guidance on minimum documentation standard for a payment schedule

In Turnkey Innovative Engineering Pty Ltd v Witron Australia Pty Ltd [2023] NSWSC 981 the Court assessed a Principal’s email that purported to be a payment schedule. It gave guidance on the minimum documentation standard for a payment schedule, and the meaning of the word ‘indicate’ in s 14 of the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act).

The email

As Principal, Witron contended its email was a valid payment schedule under s 14 of the SOP Act:

“As discussed during our meeting on 18/4 with Cameron and Jurgen, we will review your variations and your new pricing after we see real progress on the handing over of GCs. [3] This approach is also in line with our meeting from last week in Redbank with our 2 CEOs.

Based on this you can claim progress for April based on the original contract price minus the 5 deducted GCs.

Please adjust your claim accordingly and resubmit for approval.”

Payment schedule (s 14 SOP Act)

The Court said (amongst other things):

• A document purporting to be a valid payment schedule must be construed by reference to what it says. It need not be a formal document but must at least identify what the respondent proposes to pay and “what parts of the claim are objected to and why”.
• The word “indicate” in ss 14(2)(b) and 14(3), contrasted to the word “identify” in s 14(2)(a), meant “some lack of precision is permissible as long as the essence of ‘the reason’ for withholding payment is made known.
• The precision and particularity of a Supreme Court pleading is not required, but there must be sufficient particularity to enable the claimant “to understand, at least in broad outline, what is the issue between it and the respondent …”.
• It is not sufficient that a document purporting to be a payment schedule takes issue with part of the claim made in the payment claim but does not address the balance. That is because “the whole purpose of such a document is to identify what amounts are in dispute and why”.

Decision

Witron failed to meet the minimum standard for a payment schedule because its email did not address variations (some 40% of the claim). Whilst the Court said the other 60% was valid under s 14, this deficiency was enough to render the whole payment schedule invalid as it did not comply with s 14(3).

The email also did not “indicate” why the Principal proposed to make no payment at all in response to the payment claim, or “indicate” the Principal’s reasons for withholding payment of the whole amount claimed, and therefore did not comply with s 14(3) of the SOP Act.

Key takeaways

Unlike other construction documents (for example, certificate of completion), a payment schedule does not have to comply with a higher formal standard of documentation. It is clear though that it must address all claims in the payment claim and must identify “what parts of the claim are objected to and why”.  

Other jurisdictions use similar language in their security of payment legislation (for example, “indicate”).  A case like Witron might get a similar result in Victoria[1], Western Australia[2], Australian Capital Territory[3] and South Australia[4].  However, the legislation in Queensland[5], Northern Territory[6] and Tasmania[7] uses different language.

Principals should remain wary when issuing payment schedules.

[1] Section 15 of the Building and Construction Industry Security of Payment Act 2002 (Vic)

[2] Section 25 of the Building and Construction Industry (Security of Payment) Act 2021 (WA)

[3] Section 16 of the Building and Construction Industry (Security of Payment) Act 2009 (ACT)

[4] Section 14 of the Building and Construction Industry Security of Payment Act 2009 (SA)

[5] Section 69 of the Building Industry Fairness (Security of Payment) Act 2017

[6] Section 8 of the Construction Contracts (Security of Payments) Act 2004 (NT)

[7] Section 18 of the Building and Construction Industry Security of Payment Act 2009 (Tas)