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4 Jul 11
All over, red rover - the loss of ‘reference dates’ following termination

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Until recently, it was generally accepted in Queensland that the termination of a construction contract would not prevent a claimant from having the ability to serve a payment claim pursuant to the Building and Construction Industry Payments Act 2004 (Qld) (BCIPA).

However, the recent Supreme Court of Queensland decision of Walton Construction (Qld) Pty Ltd v Corrosion Control Technology Pty Ltd & Ors [2011] QSC 67 (Walton) has changed the landscape of BCIPA payment claims following the termination of a construction contract. In Walton, Justice Peter Lyons held that the termination of a construction contract not only discharges the parties from their future obligations under it, but it also deprives a claimant of the use of BCIPA.

This decision will have significant consequences for principals, contractors and subcontractors alike. While those that are frequently respondents to BCIPA claims are now armed with an additional defence against payment claims following termination, claimants will need to be mindful of yet another limitation on their ability to utilise BCIPA.

A brief overview of BCIPA

BCIPA provides contractors and subcontractors with a fast and effective means of securing interim progress payments. Sections 12 and 17 of BCIPA entitle a party who has carried out construction work or supplied related goods and services to submit a payment claim for outstanding monies.

However, this entitlement is subject to important qualifications, namely:

  • a payment claim must be made within 12 months of when the works were last carried out or the goods and services were last supplied (or such later time as the contract may provide), and
  • in order to make a payment claim under BCIPA, a claimant must have a ‘reference date’ available to them. ‘Reference date’ is defined in BCIPA as a date stated in, or worked out under, a construction contract for the submission of progress claims, or, if the contract does not so provide, the last day of each month.

The position before Walton

Prior to the decision in Walton, it was widely accepted that the termination of a construction contract would not prevent reference dates from occurring, and that a claimant would remain entitled to utilise BCIPA post-termination.

This interpretation was adopted by the New South Wales Court of Appeal in Brodyn Pty Ltd v Davenport (2004) 61 NSWLR 421 (Brodyn) in respect of the New South Wales legislative counterpart to BCIPA. In Brodyn, the Court held that the claimant’s entitlement to make payment claims pursuant to the Building and Construction Industry Security of Payment Act 1999 (NSW) (BCISPA) survived termination, and that this right would only be lost when more than 12 months had elapsed from when the construction works or goods and services were last performed or supplied.

Given that BCIPA closely mirrors BCISPA, and their provisions are substantially similar, it was believed that the approach in Brodyn would be followed in Queensland.

The Walton decision

In Walton, a painting subcontractor’s contract was terminated by the contractor on 15 January 2010. Subsequently, the subcontractor continued to submit payment claims endorsed under BCIPA, and had obtained a favourable adjudication decision in respect of one of its payment claims that it pursued to adjudication.

The contractor challenged the adjudicator’s decision in the Supreme Court on a number of grounds, one of which was that the termination of the subcontract deprived the subcontractor of further reference dates. The contractor argued that the subcontractor’s entitlement to make a payment claim under BCIPA was lost upon termination.

Justice Lyons upheld this argument on two grounds. First, the subcontract contained a clause that is common to many of the Australian Standard contracts, which states that, upon termination, the parties’ rights are the same as they would be at common law had the defaulting party repudiated the contract (for instance, clause 44.10 of AS 2124-1992). Therefore, while the subcontractor could still pursue any common law causes of action that it may have had against the contractor to recover any outstanding monies, its BCIPA entitlements were held not to have survived the termination of the subcontract.

Second, the reasoning in Brodyn was not applicable in Queensland because BCIPA’s provisions concerning reference dates are worded differently to their New South Wales counterparts. Whereas BCISPA states that reference dates occur ‘in relation to’ construction contracts, BCIPA provides that in Queensland reference dates arise ‘under’ construction contracts. This subtle, yet crucial semantic difference was held by Justice Lyons to demonstrate that BCIPA accords greater primacy to the provisions of construction contracts than BCISPA. His Honour held that because a reference date occurs ‘under’ a construction contract in Queensland, once that contract ceases to exist, so too do the reference dates it would otherwise create.

The consequences of the decision in Walton

The decision to terminate a construction contract should never be taken lightly or without legal advice. As a result of the decision in Walton, the consequences of termination are now further reaching.

From a respondent’s perspective, the decision in Walton will be a welcome one, as it provides greater certainty as to how and when payment claims under BCIPA may be made against them following the termination of a construction contract.

However, the consequences of Walton for contractors and subcontractors whose contracts have been terminated are severe. Without BCIPA, these parties will be required to revert to litigation or arbitration to recover any residual outstanding progress payments or abandon the recovery of the outstanding amount. It will be interesting to see whether BCIPA, as part of its review, is amended to take into account this latest decision.

Focus covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. Focus is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.

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