Andrew Kelly and Tom McKillop

Milestone payments and reference dates: one and the same for security of payment?

Andrew Kelly and Tom McKillop

10 October, 2018

Security of payment

The recent Supreme Court of New South Wales decision in Greenwood Futures v DSD Builders [2018] NSWSC 1407 has confirmed that in contracts where payments are made following the completion of construction milestones (as opposed to monthly payments based on progress of the works), the reference date for the purposes of security of payment legislation will not necessarily be the date upon which completion of each milestone is achieved.

The Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act), and its east-coast equivalents, provides that a reference date for a construction contract is determined in accordance with the terms of the contract itself, and where no such contractual terms exist, the reference date defaults to the last day of each month.

Typically, where a construction contract provides for a milestone-based payment regime, as opposed to monthly payments based on the percentage completion of the works, the parties operate on the basis that the completion of each milestone gives rise to a reference date for the purposes of the SOP Act.

The contract between Greenwood and DSD, in typical fashion, stated that the builder must give the owner a written claim for a progress payment for the completion of each stage.  The claimant argued that the contract thereby provided for reference dates on the completion of each millstone.  Justice McDougall disagreed holding that this clause did not sufficiently establish a reference date under the SOP Act and, as a result, the reference date defaulted to the last day of each month (notwithstanding that a particular milestone may not have been achieved).

The decision highlights the importance, particularly in contracts where the parties intend that the right to claim for payment is tied to the completion of milestones, of ensuring that the contract expressly states that the achievement of a milestone gives rise to a reference date for the purposes of the SOP Act.

As an aside, the decision reveals the Court’s willingness to impose adverse cost orders on parties that misuse the SOP Act.  Despite a finding in the claimant’s favour, the Court declined to award the claimant its legal costs due to its ‘scant regard’ for the requirements of the SOP Act – the claimant had made multiple other invalid payment claims.  The Court strayed from its usual costs order because of the claimant’s numerous payment claims and adjudication applications which the Court considered were used to harass the respondent.