Key takeaways

The NSW Court of Appeal has unanimously confirmed that when deciding whether a letter of demand meets the requirements of a valid payment claim, context is not a substitute for reading the document objectively and as a whole.

Whilst the matter of Kennedy Civil Contracting Pty Ltd [2023] NSWSC 99 confirmed that the prohibition against companies in liquidation serving payment claims does not apply to insolvent companies more broadly, this case is an important reminder for insolvency practitioners when deciding to issue a letter of demand on the requirements of a valid payment claim.

What happened?

On 25 October 2022, the solicitors for the administrators for Kennedy Civil Contracting Pty Ltd (subject to a Deed of Company Arrangement) (Kennedy) sent Total Construction Pty Ltd (Total) a letter of demand for payment of an alleged outstanding debt comprising the balance of a series of previous payment claims.

The letter enclosed invoices for each prior claim. The invoices had been updated to account for payments made, though they retained their historical dates.

Total did not serve a payment schedule in response to the letter or pay the amount alleged as owing within the time required. Accordingly, Kennedy commenced statutory debt proceedings in the District Court of NSW for the alleged debt of $545,352.

On 18 August 2023 Justice Abadee of the District Court of NSW held that the letter of demand and its attachments were a valid payment claim pursuant to the Building and Construction Industry Security of Payment Act 1999 (NSW) (Act) after having regard to the context of prior dealings and the document as a whole.

Accordingly, Total was liable for the full claimed amount in the absence of serving a payment schedule. This case arose following Total’s appeal of that decision.

The primary question on appeal was whether the letter and its attachments met the requirements of a valid payment schedule under section 13(1) of the Act.

What was the outcome?

The Court unanimously allowed the appeal for the reasons given by Justice Mitchelmore with Justices Meagher and Adamson agreeing.

The Court held that, viewed objectively and as a whole, a reasonable person would not have understood the letter and attachments to be a payment claim made pursuant to the Act.

The reasons for this included:

• the deadline for payment was inconsistent with the Act
• the letter was on the letterhead of and signed by solicitors who were acting for the administrators, and
• the invoice attachments were referred to in support of Total’s “indebtedness”.

Moreover, the fact that each of the invoices attached to the letter contained a statement that they were made under the Act was of no more than historical significance when read together with the letter.

However, as her Honour noted:

“It does not follow from the conclusion I have reached that a letter of demand could not, in other circumstances, satisfy the requirements of a payment claim under s 13 of the Act.”[1]

Despite this, the Court made it clear that whilst payment claims may be read in the context of matters such as contractual dealings and industry practices, context is not a substitute for reading the documentation as a whole.

[1] [38]