Insights

In brief - Misconceptions about reference dates cause confusion and uncertainty

It is incorrect that under no circumstances can you serve a payment claim after the contract has ended, that contractual pre-conditions to reference dates are unenforceable and that the legislation provides for minimum monthly reference dates.

What is a "reference date" under the Queensland Building and Construction Industry Payments Act?

A "reference date" is the date stated in, or worked out under a construction contract on which a claim for a progress payment may be made, or if no date is provided for in the contract, then the last day of the month in which the work is first performed and the last day of each later month.

If a payment claim is served before a reference date has arisen, or if multiple payment claims are served in relation to the same reference date, then the subsequent payment claim(s) will usually be of no effect under the Building and Construction Industry Payments Act 2004 (Qld).

Reference dates are a hotly contested issue and are fundamental to a contractor’s right to submit a payment claim under the Payments Act. There are, however, a number of commonly held misconceptions regarding when and in what circumstances they can arise, which often lead to confusion and uncertainty.

Myth 1: You can’t serve a payment claim after the contract has ended

The 2011 Queensland Supreme Court decision of Walton Construction (Qld) Pty Ltd v Corrosion Control Technology Pty Ltd & Ors [2011] QSC 67 held that a contractor cannot serve a payment claim under the Queensland Payments Act after a contract has been terminated, absent express terms of the contract to the contrary.

This view was further enforced in Queensland by the recent decisions of McConnell Dowell Constructors (Aust) Pty Ltd v Heavy Plant Leasing Pty Ltd [2013] QSC 269 and McNab Developments (Qld) Pty Ltd v MAK Construction Services Pty Ltd & Ors [2013] QSC 293.

Those decisions, however, do not necessarily prevent a contractor from validly serving a payment claim after the date of termination of the contract if the payment claim is based upon a reference date that arose prior to termination. (See Paragraph 38 of Walton and paragraph 17 of McNab.)

Reference dates which arise prior to termination of the contract

For example, if a reference date arose on the 25th day of the month but the contractor did not submit a payment claim in relation to it before the contract was terminated on, say, the 28th day of the month, the contractor may still rely on the reference date which arose on the 25th day of the month to serve a payment claim under the Payments Act, even after termination.

In Queensland at least, unless the contract expressly provides otherwise, no further reference dates will arise after termination, but the reference date which arose before termination (and was not used) may still survive.

It is yet to be seen whether the Walton, McConnell Dowell and McNab decisions will be followed in New South Wales and Victoria. Contractors should ensure that their contracts expressly allow them to serve a payment claim after termination in any case.

Myth 2: "Contractual pre-conditions" to reference dates are enforceable

Contracts frequently provide that a payment claim may only be validly made if the contractor has also complied with certain additional "contractual pre-conditions", such as providing sworn statutory declarations with its payment claim.

The Queensland Court of Appeal decision of John Holland Pty Ltd v Coastal Dredging & Construction Pty Limited & Ors [2012] QCA 150 is often cited as an authority for the proposition that contractual pre-conditions to the right to serve a payment claim are invalid and cannot prevent a contractor from serving a payment claim and recovering payment under the Payments Act.

Clauses which attempt to "contract out" of the legislation may be void

The John Holland decision dealt with a provision in a contract which required the contractor to submit statutory declarations with each of its payment claims. In this case, the court said that the contractor’s payment claims were void and the monthly reference date was deferred to the next month if the contractor did not comply.

The relevant clause in the contract set a reference date on the 25th of each month, but then purported to withdraw the reference date if the payment claim was not supported by a statutory declaration. The Court of Appeal understandably found that the clause was void pursuant to section 99 of the Payments Act because it purported to "contract out" of the legislation by effectively taking away the contractor’s pre-existing rights under the Payments Act.

Contract clauses which are not well drafted may be unenforceable

The Queensland Supreme Court decision of State of Queensland v T & M Buckley P/L [2012] QSC 265 also held that certain contractual pre-conditions to reference dates were void or unenforceable.

In T & M Buckley, the court found that the contractual clause in question, which set out what a contractor was required to do prior to submitting a payment claim, did not affect the clause of the contract which stated that payment claims could be submitted monthly (for the purposes of the Payments Act at least).

These decisions should not, however, be taken to mean that all contractual pre-conditions to reference dates will be unenforceable. The decisions dealt with specific contractual provisions which were (arguably) poorly drafted and did not operate as they were intended.

Properly drafted contractual pre-conditions more likely to be enforceable

By way of illustration, construction contracts frequently provide for payment claims to be submitted at the completion of certain stages of the work, (known as "milestone" or "stage" payments).

Under those contracts, a contractor must comply with contractual terms before a reference date and a right to serve a payment claim arises - namely, by completing stages of the work - and there is no suggestion that those provisions are void or unenforceable under the Payments Act. In fact, the definition of "progress payment" in the Payments Act includes a payment that is based on an event or date, known in the construction industry as a "milestone payment".

Accordingly, there is no reason why properly drafted contractual terms which place pre-conditions on the occurrence of reference dates and a contractor’s right to submit progress claims would be unenforceable.

Myth 3: The legislation provides for minimum monthly reference dates

This myth is similar to Myth 2 and can perhaps be traced to the fact that the Payments Act creates monthly reference dates if a contract does not provide for the matter.

However, the Payments Act allows for parties to a contract to agree on when reference dates arise and when payment claims can be made.

While it is commonly the case that construction contracts will provide for monthly reference dates, in some it could be weekly or fortnightly. In others it could be upon the completion of stages of work.

Parties can agree between themselves when payment claims can be submitted

There is nothing to prevent the parties to a contract from agreeing that a contractor is entitled to submit payment claims on a daily basis or that the contractor is only entitled to submit one payment claim at the completion of all the work.

In fact, the definition of "progress payment" in the Payments Act states that a progress payment includes a single or one-off payment for carrying out construction work or for supplying related goods and services.

Only if the contract is silent as to when payment claims can be made will the minimum monthly reference dates be imposed. The parties are otherwise free to decide for themselves in their contract.

Provided the contract does not purport to restrict the contractor’s rights under the Payments Act or attempt to deter a person from taking action under the Payments Act, the contractual provisions are more likely than not to be upheld.

Proper contract drafting is key to protecting your position

While the case law referred to above has established general principles regarding when and in what circumstances reference dates will arise, the decisions largely deal with specific contractual terms and therefore cannot be applied universally.

Proper contract drafting is crucial to protecting a party’s position, both in relation to the Payments Act and more generally at law.

This article has been published by Colin Biggers & Paisley for information and education purposes only and is a general summary of the topic(s) presented. This article is not specific legal advice. Please seek your own legal advice for any questions you may have. All information contained in this article is subject to change. Colin Biggers & Paisley cannot be held responsible for any liability whatsoever, or for any loss howsoever arising from any reliance upon the contents of this article.​