A recent court case examines whether the right to payment under the Security of Payment Acts persists after termination.

McConnell Dowell Constructors(“MDC”) v. Heavy Plant Leasing, a 2013 a decision of the Supreme Court of Queensland (“MacDow case”), deals with the availability of adjudication once the contract is brought to an end.  The case also considers the difference between “termination” and “determination.”

In Queensland, there were only two cases that directly answered this question before the MacDow case: the 2011 case of Walton Construction v Corrosion Control Technology and the 2013 case of McNab v Walkrete.  Critically, those cases provide that reference dates (which are the dates under the contract for making a progress claim) no longer accrue after termination of the contract. A reference date is needed for a payment claim to be valid.

In the MacDow case, on March 18, 2013 MDC, exercised a right under the subcontract to “determine forthwith the Sub-Contractor‘s employment under this Sub-Contract …” Reference dates under that subcontract were the 25th of each month. A payment claim had already been served in relation to the February 25 reference date. HPL sought to deliver a payment claim on March 28, 2013 supported by a March 25, 2013 reference date. HPL submitted that the “determination” of its employment had not terminated the contract so that the construction contract remained on foot together with the accrual of reference dates.

The phrase “determination of a contractor’s employment” has been found in building contracts for a long time. It has been considered by the courts to either mean effective termination of the contract or revoking the contractor’s licence to be on the site and perform the works. Oddly, the adjudicator interpreted the word “determine” to mean determine the works to have been completed, rather than the subcontractor’s employment having been determined. It was on that basis that the adjudicator found jurisdiction because (the adjudicator said) MDC had determined that the works were complete and therefore HPL the subcontractor was entitled to a final claim which arose on March 18, the “date of determination.” The Court described the adjudicator’s reasoning as “contentious” and “strained.

The Court found that MD had likely terminated the contract. However, the Judge held that the “termination or determination” question was, in this case, a distinction without a difference. Whether terminated or not, there no longer remained a construction contract within the meaning of the SoP Act. At the very least, HPL’s principal obligations to perform the works were at an end so that there was no longer a “contract, agreement or other arrangement under which one party undertakes to carry out construction work for, or to supply related goods and services to, another party” as required by the SoP Act.

The Court concluded that the contract, having been terminated on March 18, meant that no further reference dates accrued from which HPL could serve a payment claim.

To summarise, in Queensland unless the contract provides otherwise, termination (or determination) of the contract means that reference dates will not continue to arise. Nevertheless, a reference date that accrued pre-termination can support a payment claim as can an express right to submit a claim on termination, such as for the costs of termination following a termination for convenience.

The position in NSW is different. The NSW courts, including in the oft-cited Brodyn v. Davenport case, have found that reference dates continue to accrue notwithstanding termination. The reason for the difference is in the definition of reference date. Whereas Queensland defines reference date as a date “under the contract,” in NSW the definition of reference date is further removed from the terms of the contract as it to be “in accordance with the terms of the contract.”  That subtle distinction has had the major impact of reference dates continuing post-termination.

In Victoria, the position is different again. Unlike NSW or Queensland, there is provision in the Victorian Payments Act for a final payment on the last day the work was carried out. Therefore in Victoria, on termination there will be one more reference date and one more opportunity to submit a payment claim to be referred to adjudication.

The message to take away from these authorities, is that in Queensland there is a real strategic advantage for respondents (principles or head contractors – as the case may be) to exercise rights to terminate a building contract and avoid the risk of an adjudication.  That strategic advantage is less readily available in Victoria and unavailable in NSW.

By Rob Buchanan & Tom Heading