Key takeaways

In this case, Witron Australia Pty Ltd v Turnkey Innovative Engineering Pty Ltd [2023] NSWCA 305, the NSW Court of Appeal held that a respondent’s failure to provide a reason for withholding a distinct and substantial component of a payment claim will amount to an invalid payment schedule under the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act).

The Court of Appeal also considered whether certain types of statements are valid, or invalid, as reasons for withholding payment.

This case serves as a critical reminder to respondents that:

1. If payment is being withheld, reasons for withholding payment should be given for each component of a payment claim for which payment is withheld, and
2. Reasons for withholding payment must grapple with the claim made, and not merely indicate a failure or unwillingness to assess the claim at the time of the payment schedule.

What happened in this case?

Witron Australia Pty Ltd (Witron) had contracted with Turnkey Innovation Engineering Pty Ltd (Turnkey) for the installation of a series of electrical “group controls” at a distribution centre in Kemps Creek, NSW.

On 1 May 2023, Turnkey submitted a payment claim pursuant to the SOP Act. The payment claim comprised two distinct, substantial components; $499,924 for contract works based on a revised contract price, and $304,230 for variation works, totalling $804,154.

On 3 May 2023, Witron responded to the payment claim by email as follows:

“As discussed during our meeting on 18/4 with Cameron and Juergen, we will review your variations and your new pricing after we see real progress on the handing over of GCs. This approach is also in line with our meeting from last week in Redbank with our 2 CEOs.

Based on this you can claim progress for April based on the original contract price minus the 5 deducted GCs.

Please adjust your claim accordingly and resubmit for approval.”

The email suggested that the scheduled amount was nil. The Court was also of the view that a reason for withholding payment had been given with respect to the contract works; that is, the respondent would not pay the contract works at the new prices because it had not agreed those prices.

The key issues for consideration then became:

1. Whether the payment schedule was required to give reasons for withholding payment for both aspects of the payment claim, or whether a reason for withholding payment of some of the claim was sufficient, and
2. Whether the email in question gave reasons for withholding payment of the variations.

What was the outcome?

As to the first issue, after considering the purpose and significance of payment schedules under the SOP Act, the Court found that while reasons may not be needed for trivial components of a payment claim, as a general rule a payment schedule must provide reasons for withholding payment for all distinct components of a payment claim. His Honour Kirk JA stated at [35]:

“..in general a failure to provide any reason or reasons directed to a distinct and substantial component of a payment claim will constitute a failure sufficiently to indicate why the scheduled amount is less than the amount claimed for the purposes of s 14(3) of the Act. Such an omission would fail to identify the parameters of the dispute, impeding the claimant being able to make an informed decision as to how to proceed, and impeding the adjudicator in being able to identify what reasons could be raised in the adjudication response.”

As to the second issue, the Court considered whether the phrase “we will review your variations and your new pricing after we see real progress on the handing over of GC’s” was sufficient to be described as a reason for withholding payment of the variation works. The Court found that it was not a sufficient reason and was instead a refusal to grapple with the claim made. The Court also considered a number of similar examples which may or may not be valid reasons for withholding payment as follows:

For those reasons, the Court was of the view that Witron’s email response was not a valid payment schedule pursuant to the SOP Act.

Further information / assistance regarding the issues raised in this article is available from the authors, Sarah Hammond, Partner, Emily Barnett, Lawyer, or your usual contact at Moray & Agnew.