Suspension of building work

By May 13, 2019 June 3rd, 2019 No Comments

It is not an uncommon occurrence. In the course of a building contract the builder presents a claim for payment, the owner disputes that claim refuses to pay it, in whole or in part. The builder then stops work.

These are some of the things to bear in mind when one or other of the parties come to ask for your assistance.

First, there is no right at common-law to suspend works. There may be a right to treat the contract as being at an end either on the basis that there has been a breach of an essential term of the contract or on the basis that the owner has evinced an intention to no longer be bound by the terms of a contract. But there is authority that mere failure to make a payment in relation to which there is a bona-fide dispute is unlikely to be regarded as a breach entitling the other party to treat the contact as being at an end: Cassidy v Engwirda Constructions (No 2) [1968] Qd R 159.

Second, there may well be a right under the contract to suspend works under where there has been non-payment. By way of example, in a recent case (Kostos Pty Ltd v Vellios; Vellios v Kostos Pty Ltd [2019] NSWCATCD 13) the relevant contractual provision (clause 21) was as follows:

should the Owner: …fail to pay or cause to be paid any payment or any part thereof including an amount for GST within the time required by Item 4 of Schedule 2 …then the builder may, without prejudice to his rights to determine this contract, suspend the works.

The Tribunal (Corsaro SC) noted that the requirements for payment were identified in the contract, and said this:

The Payment Claim, which the accompanying email described as a “final invoice”, was issued by the Builder during the DLP. For clause 21 to apply, the Builder has to establish that both its form and content made the amount to which it referred due and payable under a term of the Contract, otherwise it was no more than a contingent debt, which if denied, required the Builder to prove the entitlement in a court or in the Tribunal. The best case for the Owners is that the Payment Claim was actually a progress payment claim under clause 20. However, the Payment Claim does not comply with the requirements of clause 20. It contains no statement of “the value of the contract work performed at the date of the claim”, as required by clause 20(b)(i) of the Contract. It contains no statement of the amount previously paid by the Owners other than the deposit, as required by clause 20(b)(iv) of the Contract. It contains no statement of amount claimed by the Builder, referrable to the amount previously paid by the Owners, as required by clause 20(b)(v) of the Contract.

My point is this. There may be a suspension clause under the contract, and there may have been a failure to make a payment. These may be necessary requirements for suspension under an express provision of the contract but they may not be sufficient requirements. And if the builder gets it wrong,  and suspends work unlawfully, then that conduct may well be regarded as a breach of an essential term enabling the owner to treat the contract as being at an end (see, for example, Wesiak v D&R Constructions (Aust) Pty Ltd [2016] NSWCA 353).

Third, there is a statutory right of suspension in s 27 of the Building and Construction Industry Security of Payment Act 1999. Section 27 says this: 

(1)        A claimant may suspend the carrying out of construction work (or the supply of related goods and services) under a construction contract if at least 2 business days have passed since the claimant has caused notice of intention to do so to be given to the respondent under section 15, 16 or 24.

(2)        The right conferred by subsection (1) exists until the end of the period of 3 business days immediately following the date on which the claimant receives payment for the amount that is payable by the respondent under section 15 (1), 16 (1) or 23 (2).

(2A)      If the claimant, in exercising the right to suspend the carrying out of construction work or the supply of related goods and services, incurs any loss or expenses as a result of the removal by the respondent from the contract of any part of the work or supply, the respondent is liable to pay the claimant the amount of any such loss or expenses.

(3)        A claimant who suspends construction work (or the supply of related goods and services) in accordance with the right conferred by subsection (1) is not liable for any loss or damage suffered by the respondent, or by any person claiming through the respondent, as a consequence of the claimant not carrying out that work (or not supplying those goods and services) during the period of suspension.

Obviously this section only applies where the statute itself is applicable and the statute does not apply to contracts for the carrying out of residential building work (within the meaning of the Home Building Act 1989 ) on such part of any premises as the party for whom the work is carried out resides in or proposes to reside.

It also only applies after an amount has become due and payable under the Act, either because a payment claim has been served  and no payment schedule has been served in response (s 15), or payment has not been made of an amount conceded as due under the schedule (s 16) or payment has not been made of an amount adjudicated as being due (s 23).