Get your dates right! The importance of reference dates in claims under the Security of Payment legislation

The recent decision of the Supreme Court in Venture Spirits v Adjudicate Today Pty Ltd and O’Brien (No 2) [2024] TASSC 76 (Venture Spirits v Adjudicate Today) highlights the importance of understanding when a reference date has accrued under the Building and Construction Industry Security of Payment Act 2009 (SOPA).

What is a security of payment claim?

Why SOPA?

It has been said that cashflow is the lifeblood of the construction industry. With substantial sums being needed to undertake a project, builders, subcontractors and suppliers can often rely on progress payments to keep themselves afloat. When payments are delayed or withheld there can be disastrous financial consequences, not just to the immediate party seeking payment, but to those businesses and employees downstream from the immediate agreement who suffer a knock-on effect.

Proceedings in court to recover payments take time and money, and in the meantime, the financial impacts of the delayed cashflow need to be weathered. Sometimes businesses who had legitimate claims to the delayed payment are unable to survive to see a successful outcome.

SOPA was introduced in an effort to address these issues by providing builders, subcontractors, consultants and suppliers a means to enforce their contractual entitlements in a more cost effective and speedy way.

How does SOPA work?

1. SOPA allows a party to make a “payment claim”. A payment claim is a claim for payment for construction work carried out, or for related goods and services supplied. The value of the payment claim (Claimed Amount) is to be determined by reference to the contract, or in accordance with a regime under SOPA if the contract does not provide a method. A payment claim must expressly state that it is a claim made under the legislation and must contain certain other information in order to be valid.
2. A payment claim can only be served when the claiming party accrues a “reference date”. A reference date is a day defined under the contract which entitles the claimant to issue a claim for payment (for example, when a build reaches a specified milestone, or for works performed to a specified period). If the contract does not provide a reference date, the reference date will be on the last day of each month that works were carried out. Importantly, only one payment claim can be served in relation to each reference date.
3. Once a progress claim is served, the responding party either pays the Claimed Amount, or if the Claimed Amount is disputed then they can serve a payment schedule which sets out the amount (if any) that they propose to pay (Scheduled Amount) and the reasons for that amount being less than the Claimed Amount.
4. There are strict timeframes in SOPA for serving a payment schedule. If a payment schedule is not served in time, the claiming party can enforce the payment claim as a debt.
5. If there is a discrepancy between the Claimed Amount and the Scheduled Amount, the claiming party can refer the dispute to an adjudicator who will decide what is owed (Adjudicated Amount). The adjudicator is required to make a decision within 10 business days after submissions are received.
6. If the adjudicator determines that the claiming party is owed money, that party can enforce the Adjudicated Amount as a judgment debt.

Adjudications are not final determinations. If a party wants a final determination they must progress their contractual rights by traditional means through a court, or by an alternative dispute resolution method if one has been agreed (for instance, by arbitration). The parties need to comply with the final determination, even if that means paying back an amount that was previously determined by the adjudicator to be owing to them as part of the Adjudicated Amount. Because of this, SOPA has been aptly described as a “pay now, argue later” scheme.

Even though the SOPA system does not produce a final result, the benefit provided by SOPA is that a successful claim by the builder or contractor will have them “in the money” quickly. Because of the expense and time to obtain a final determination, it is not uncommon for the dispute to be left at the SOPA adjudication stage.

What happened in Venture Spirits v Adjudicate Today

The decision concerned proceedings brought by Venture Spirits Pty Ltd (Venture Spirits) disputing an adjudication made in favour of their builders, Jayspec Builders Pty Ltd (Jayspec).

Under the contract, Jayspec was entitled to issue a payment claim upon the works reaching practical completion. Jayspec argued that the works had reached practical completion on 8 June 2022 and therefore, a reference date under the contract had accrued that day for the purposes of SOPA. Venture Spirits denied that a reference date was available to support the claim.

The adjudicator agreed that the works had reached practical completion on 8 June 2022 but found that the reference date was 30 June 2022.

In court, both parties agreed that the reference date found by the adjudicator was incorrect. Jayspec argued that the adjudication was still valid because there was an available reference date (being 8 June 2022) and thus the error of the adjudicator was of no consequence.

This argument was rejected. The court found that an adjudicator’s jurisdiction to determine a payment claim was underpinned by the existence of an appropriate reference date. Because reference dates are connected to the entitlement for payment, an adjudication made on the basis of an incorrect reference date (even if there was a valid reference date available but not identified) would mean that the adjudicator was without jurisdiction to make their determination.

The court also rejected Jayspec’s argument that there was a reference date on 8 June 2022. The court found that the works had actually reached practical completion on 28 April 2022, a date on which Jayspec had already served payment claims. The payment claim was therefore invalid because only one payment claim can be issued per reference date.

Key takeaways

1. Whilst the SOPA legislation is meant to provide a quick and cost-effective method of making a claim for money, the legislation is undeniably technical. Satisfying the jurisdictional formalities are essential to a SOPA claim as without it, the adjudicator does not have jurisdiction to determine the matter. A court can set aside an Adjudicated Amount if the adjudicator has wrongly determined their jurisdiction to determine the matter.
2. Invoicing practices need to be considered. On the one hand, including the required wording on an invoice that the claim is being made under the SOPA legislation can assist a builder enforce payment later. On the other hand, multiple invoices which are sent out of sequence with the formalities of the contract can cause reference dates to be accidently used up. For parties receiving invoices, it is good practice to issue a payment schedule to each payment claim even if there are doubts as to its validity under the SOPA legislation.

Our Dispute Resolution team can assist you in relation to disputes involving construction projects including advising on entitlements under the SOPA legislation and assisting in SOPA claims, whether at an adjudication or court level.