Look out for Icebergs? - The Dangers of meddling with the Payment's Act when you do not understand the process

A recent Qld Supreme court decision is a clear warning to the construction industry that it is a high-risk strategy to amend clauses in standard contracts without aligning them to the legislated payment processes under the Payment's Act and without a clear understanding of the operation or intent of the Act. Contractors and subcontractors should be wary of signing agreements or being involved in informal processes that attempt to establish an entirely unnecessary "pre-agreement" to the legislated payment process.

[Simcorp Developments and Constructions P/L v Gold Coast Titans Property P/L; Gold Coast Titans Property P/L v Simcorp Developments and Constructions P/L [2010] QSC 162 (18 May 2010)]
An adjudication decision published on 14th May was overturned in what may be record time on 18th May 2010.

From reading the judgement of Douglas J, starting at [5] it is obvious that the drafting of amendments to the contract show little or no understanding of the intent or operation or the Payment's Act, by the clumsy effort to essentially bring the Superintendent's certificate into play in a way that, in effect, is designed to circumvent the payment process established by the Act. It is clear that the drafter has misunderstood the intent of the Act in relation to payment claims, payment schedules and tax invoices and the interface with contract provisions, including certificates.

Simcorp exacerbated its problems by misconstruing the reference date in its submissions [6] (ie., the date from which the claimant can claim for work done up to that date). Had the submissions been put more concisely and correctly to the Court, his honour might well have been led to the conclusion that the payment terms under the contract exceeded the maximum terms under the Act, that the convoluted "certificate" process might well have fallen foul of s.99 of the Act (contracting out) and that the payment claim was properly served under the Act.

As it was, the submissions clearly led his honour to the conclusion that the reference date was triggered by a certificate due on the 30th of the Month following the submission of a payment claim, and the payment claim was therefore made before the reference date, which he decided was 30th April instead of 23rd (or the 28th) February. In practice this would only be the case if the payment claim included work (or charges, such as interest on overdue amounts) after 23rd February, which amounts an adjudicator would have excluded from his decision.

His honour makes the point that the amended clauses did not add clarity to the process. What an understatement!

With respect to the argument that there was more than one payment claim in relation to a reference date, his honour reinforces earlier decisions (eg., Doolan & Rubikcon) in reading s17(5) of the Act to mean that where a payment claim that includes all the work of an earlier, rejected payment claim, it may not be re-submitted in a subsequent payment claim. If his Honour's interpretation is correct, then it forces a claimant to dispute an item rejected in a payment schedule, rather than accepting it for now and leaving it on the table for negotiation, whilst not foregoing the claimant's rights to ultimately have the matter adjudicated. His Honour's interpretation must lead to more adjudicated claims in order for claimants to preserve their right to ultimately dispute a rejected claim. It is a matter that may need clarification in the Act.

With respect to the claim that the adjudication application at the time that the court proceeding is on foot is an abuse of process, His Honour hints that it might indeed be the case, but does not decide the matter on the basis that it was clear Simcorp were seeking a discontinuance. It is a pity that this matter was not decided, since it leaves adjudicators in the invidious position of having to complete an adjudication decision in these circumstances, since there is nothing in the Act to prevent or curtail the adjudication in the event of a concurrent action.

This decision is a clear warning to the construction industry that it is a high-risk strategy to amend clauses in standard contracts without aligning them to the legislated payment processes under the Payment's Act and without a clear understanding of the operation or intent of the Act. Contractors and subcontractors should be wary of signing agreements or being involved in informal processes that attempt to establish an entirely unnecessary pre-approval process to the legislated payment process.

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