Security of Payment Act trumps deemed service provisions

Background

Under s14(4) of the SoP Act, a respondent must provide a payment schedule to the claimant within the earlier of:

1. the time required by the relevant construction contract; and
2. ten business days after the payment claim was served.

If the respondent fails to do so, the respondent is liable to pay the claimed amount on the due date for the progress payment to which the payment claim relates, and the claimant can commence court proceedings to recover the debt.

Issue

The construction contract in this case included a clause providing that a notice given after 5pm on a business day will be treated as having been given and received at 9am on the next business day (Deeming Clause). The Deeming Clause is not an uncommon provision in construction contracts such as the subcontract in this case.

On Friday, 28 February 2025, at 7.18pm, Sharvain Facades Pty Ltd (Administrators Appointed) (Sharvain) emailed a payment claim on Roberts Co (NSW) Pty Ltd (Roberts) in the amount of $3,207,999.03 by uploading it to Payapps, an electronic payment system prescribed by the contract.

On 17 March 2025, Roberts issued a payment schedule to Sharvain.

If the payment claim was served on 28 February 2025, then Roberts’ payment schedule was issued out of time (because it was provided more than ten business days after service of the payment claim) and Sharvain was entitled to enforce payment of the entire amount under s15 of the SoP Act. If the payment claim was served on 3 March 2025 by reason of the Deeming Clause, then Roberts’ payment schedule was issued in time.

Sharvain brought proceedings against Roberts seeking to enforce the statutory debt it contended arose under s15(1) of the SoP Act on the basis that the Deeming Clause is void under s34 of the SoP Act, as it modifies or purports to modify the SoP Act. At first instance, Stevenson J held that the Deeming Clause does purport to modify the Act and is therefore void “for all purposes”.

Outcome

The NSW Court of Appeal dismissed Roberts’ appeal and found that service took place on 28 February 2025; Roberts’ payment schedule was therefore late, and Sharvain was entitled to judgment under the SoP Act. The Court’s reasons included:

• The fact that the payment claim was sent after business hours is irrelevant, as it has long been established that the law does not recognise fractions of a day and treats a day to be twenty-four hours.
• The overall effect of s14(4) of the SoP Act and one consistent with the SoP Act’s policy of quick resolution, is that the period for providing a payment schedule can be contractually shortened, but not lengthened.
• The time of actual service was 28 February 2025, and ten business days after that date expired on 14 March 2025. The payment schedule was not issued within time.

Takeaways

The case is an important lesson that a conservative approach is often the right one when it comes to the SoP Act, and a party should not rely on a deeming clause when determining the date by which to respond to a notice under the SoP Act.

An interesting question arising from this case is whether a deeming clause that has the effect of modifying the operation of the SoP Act would be void for the purpose of the SoP Act only, or void for all purposes.

At first instance, Stevenson J ruled that the Deeming Clause in this case modified the operation of the Act and was void “for all purposes”. This suggests that the Deeming Clause would also not be able to be relied upon in respect of other notices not relating to the SoP Act (eg notices of delay, notices of dispute etc).

Despite being invited by Roberts to deal with the question because of its importance to the building industry, the Court of Appeal followed a different path of reasoning to that of Stevenson J, which did not involve a finding that the Deeming Clause was void under s34 of the SoP Act. In his decision, Hammerschlag CJ stated that the question as to whether a clause voided under s34 of the SoP Act is void for all purposes should await a case in which it needs to be answered.

Until this question is finally determined with certainty, we recommend that parties adopt a conservative approach by not relying on a deeming provision that may be inconsistent with the purpose of the SoP Act.