Construction Security of Payment Claims: Properly Identifying the Work

The recent Supreme Court decision in KDV Sport Pty Ltd v Muggeridge Constructions Pty Ltd & Ors [2019] QSC 178 highlights the importance of ensuring payment claims properly detail the works for which payment is sought.

Queensland’s security of payment legislation requires a payment claim to identify the construction work (or related goods and services) to which the progress payment relates. If the claim fails to do this, it will not be a valid payment claim under the legislation and the security of payment regime will not apply.

Facts

Muggeridge served a payment claim on KDV seeking payment for works associated with the construction of student accommodation. It subsequently obtained an adjudication decision in its favour for the sum of $802,198.59.

KDV applied to the Court for orders setting the adjudication decision aside on the basis that Muggeridge’s claim had not properly identified the work to which it related. It argued there was no ‘payment claim’ within the meaning of the legislation to enliven the adjudicator’s jurisdiction. It would follow that the decision was void and unable to be enforced by Muggeridge.

The payment claim served by Muggeridge was a one-page document with six columns. The first column was titled “trade breakdown” and listed 51 categories of work, as contained in a trade breakdown schedule in the contract. Examples of those trade breakdown categories include ‘concrete supply’, ‘electrical’ and ‘mechanical’. A “total claim % to date” column provided the percentage of each category of work that was said to have been completed. These entries were not supplemented by any particulars of the works within each trade breakdown that had been carried out, or supporting documentation in that regard.

KDV submitted that this was inadequate and that, even with the benefit of the background information known to it, the payment claim offered no meaningful information about what actual work had been claimed for.

Findings

Her Honour Justice Brown acknowledged that when evaluating whether a payment claim sufficiently identifies the work to which it relates, consideration needs to be given to the background knowledge of the parties, their past dealings and exchanges of documentation.

KDV was aware of the content of the trade breakdown schedule and the constituent parts that made up each category of work. However, the contract was sizeable with several components in the work to be undertaken. The order in which work was undertaken could be affected by many factors, such as the availability of materials, particular tradesmen or the weather.

Taking these matters into account, Her Honour found that Muggeridge’s references to completion percentages for the various categories of work under the contract failed to identify the work the subject of the claim. KDV could not ascertain with sufficient certainty the work for which payment had been sought.

Muggeridge’s position was not assisted by a series of mathematical errors and inconsistencies contained in the claim, with figures for many items unable to be reconciled. These errors contributed to the incomprehensibility of the claim.

As Muggeridge’s claim failed to meet the legislative requirements, the Court ordered that the adjudication decision be set aside.

Lessons

While the courts have been reluctant to analyse payment claims in an unduly technical manner, claimants still need to be careful when preparing their claims to make sure that the relevant work has been sufficiently identified.

The validity of any purported payment claim will ultimately be determined based on the specific factual circumstances (including party dealings) that apply to the matter at hand. However, as indicated above, claimants would be well advised to provide descriptions of work that contain more detail than broad category of works completion percentages.

Contractors preparing claims for significant progress payments which may be disputed should consider engaging solicitors to assist with claim preparation.

You can read the full decision here.