State Asphalt Services Pty Ltd v Leighton Contractors Pty Ltd: security of payment – importance of responding on time

Many contractors and subcontractors in the New South Wales building and construction industry have utilised the security of payment regime (the “SOPA”) to obtain swift recovery of progress payments.

Under the SOPA, before the construction work is completed:

1. a new payment claim can be issued every month on or after the reference date;
2. a later claim can include any amounts already sought in an earlier payment claim; and
3. if the respondent, having been served with a payment claim, does not respond with a payment schedule within the prescribed time  – 10 business days after service, then the claimant may, amongst other things, seek the amount claimed in a Court as a judgment debt and enjoy the advantage that the respondent cannot raise a defence under the contract or bring a cross-claim in those proceedings.

In that context, an interesting scenario arose in State Asphalt Services Pty Ltd v Leighton Contractors Pty Ltd [2013] NSWSC 528 where:

1. the claimant served a payment claim (the “First Payment Claim”) for $308,596.29;
2. the respondent did not serve a payment schedule in response of the First Payment Claim;
3. the claimant did not take any action with respect to the lack of a payment schedule for more than four months after the First Payment Claim was served;
4. subsequently, the claimant served a second payment claim (the “Second Payment Claim”) which was identical to the First Payment Claim (save for the reference date);
5. the respondent served a payment schedule in response to the Second Payment Claim valuing the work at nil; and
6. after that, instead of taking action with respect to the Second Payment Claim, the claimant sought Court judgment for the claimed amount on the basis of the lack of a payment schedule with respect to the First Payment Claim.

The question facing the Supreme Court of New South Wales was: can the claimant do that?

The Court held yes. In essence, the Court’s view is that even though the respondent replied to the Second Payment Claim on time, this does not change the fact that it failed to reply on time to the First Payment Claim and therefore there is nothing wrong with the claimant proceeding to judgment on the First Payment Claim.

Accordingly, this judgment reaffirms the claimants’ entitlements in circumstances where a payment schedule is not served on time.

From the respondents’ perspective, this judgment highlights the importance of responding to a payment claim on time. That is because once the 10 business days deadline is missed, a judgment can be obtained – even if they later respond to a separate and identical claim on time.