Background

The contractor, Turnkey Innovative Engineering Pty Ltd (Contractor) and the principal, Witron Australia Pty Ltd (Principal) entered into a contract, for a contract sum of $11.4 million.

After the works were delayed and in March 2023, the Principal deducted or omitted certain works from the Contract (Removed Works). Following this, the Contractor sought to re-price the remaining works at $14,141,951.32 on the basis of additional works which were required to be undertaken that were not due to the fault of the Contractor. In April 2023, the Principal confirmed its acceptance of the revised contract sum by way of email.

On 1 May 2023, the Contractor served a payment claim on the Principal pursuant to section 13 of the SOP Act, claiming $884,570.10 (Payment Claim), broken down into two components. The first component was for the sum of $499,924.63 which comprised contract works (Contract Works Claim). The second claim was for the sum of $304,230 which comprised ten identified variations (Variations Claim).

On 3 May 2023, the Principal sent an email to the Contractor in response to the Payment Claim identifying that no amount was payable,  on the basis that the Principal would review the variations and the new pricing after seeing ‘real progress’ on the handing over of the Removed Works and suggested that the Contractor claim for works undertaken in April based on the original contract price (Principal’s May Email). The Principal alleged that the Principal’s May Email constituted a valid payment schedule pursuant to section 14 of the SOP Act.

The Contractor commenced proceedings to determine whether the Principal’s May Email constituted a valid payment schedule under the SOP Act. If the payment schedule was held to be invalid, the Principal would be liable to pay the amount identified in the Payment Claim to the Contractor.

Decision

The Court held that in order for the Principal’s May Email to be construed as a valid payment schedule under section 14(3) of the SOP Act, the Principal’s May Email would need to provide reasons for the Principal’s withholding of payment, including why the scheduled amount is less than the claimed amount. The Court noted that a valid payment schedule needs to identify these matters with sufficient particularity to allow the Contractor to broadly understand the nature of the issue between itself and the Principal.

The Court determined that section 14 of the SOP Act clearly contemplates that the purpose a payment schedule is to allow the claimant to make an informed choice as to whether to engage in the adjudication procedures. Therefore, while a payment schedule can be served in an informal, such as by way of email, it cannot contain vague or generalised objections to payment.

In circumstances where the Principal’s May Email stated that the Principal would review the new pricing and suggested that the Contractor make a new claim based upon the original contract price, the Court held that this constituted a valid reason given by the Principal for withholding payment for the Contract Works Claim. However, the Principal failed to sufficiently indicate its reasons for withholding payment of the Variations Claim as it had only stated that it would review the variations after identifying ‘real progress’ on the handing over of the Removed Works.

The Court ultimately held that the Principal’s May Email failed to sufficiently identify the reasons for withholding payment of the entirety of the amount claimed by the Contractor. Therefore, the Principal’s May Email did not comply with the requirements of section 14(3) of the SOP Act.

Conclusion

Respondents should ensure that a payment schedule clearly indicates the reasons for withholding payment of any amount claimed in a contractor’s payment claim, and seek legal advice should they require assistance in the preparation of their payment schedules.