Unpaid interest did not give a head contractor the right to keep work suspended

What happened

Source: the judgment on NSW Caselaw. Numbers in [brackets] are the judgment’s paragraphs.

1. 18 April 2017 — Duffy Kennedy, the head contractor, contracts to design and build two residential buildings, a car park and a pool at Miranda for $65,758,576 (ex GST) [2]. Practical completion is due on 18 February 2019 [3].
2. 26 February 2019 — Duffy Kennedy serves payment claim 26 for $1,010,161.72 [4].
3. 12 March 2019 — the principal’s representative issues a payment schedule (the written reply that says how much the principal will pay and why) for $293,984.42 (ex GST) [5]. Payment of that amount is due on 19 March [6].
4. 22 March 2019 (a Friday) — the principal starts an electronic payment. The money reaches Duffy Kennedy on Monday 25 March. The payment does not include interest [6].
5. 25 March 2019, 4.43pm — Duffy Kennedy gives notice under s 16(2)(b) of the Act of its intention to suspend work [7]. The same day, the payment reaches it [6]. The notice does not say that the default it relies on is a failure to pay interest [9].
6. 28 March 2019 — two business days after its notice, Duffy Kennedy suspends work [14], [15]. The trial judge found that its right to suspend ended at the end of that same day, three business days after it received payment [15].
7. 29 March 2019 — the principal’s representative issues a show cause notice (a notice asking the contractor to show why the principal should not act against it under the contract). The principal’s lawyers drafted the notice, and the representative checked it, amended it and countersigned it [74], [81]–[89].
8. 12 April 2019 — in its response to the show cause notice, Duffy Kennedy relies for the first time on $177.20 of unpaid interest [16], [24]. The principal pays the interest on 15 April [16].
9. 29 April 2019 — the principal takes the remaining work out of Duffy Kennedy’s hands [30]. On 1 May, Duffy Kennedy treats that step as a repudiation (a refusal to be bound by the contract) and ends the contract [31].
10. 25 February 2020 — the Court of Appeal agrees with the trial judge. It dismisses Duffy Kennedy’s appeal with costs [45], [181].

The rule

A claimant may suspend work once at least 2 business days have passed since it gave notice of its intention to suspend (s 27(1)) [13]. The right to suspend lasts until 3 business days after the claimant receives payment of the amount payable under s 15(1), s 16(1) or s 23(2) (s 27(2)) [13], [68].

Where the respondent gave a payment schedule, the amount payable is the scheduled amount. The scheduled amount is the amount the respondent says in its payment schedule that it proposes to pay (ss 4, 14) [53], [68]. Interest under s 11(2) is payable on a progress payment that is due and unpaid. That interest is not part of the scheduled amount [63]. A contractor can include a claim for the interest in a payment claim [63].

The Minister’s second reading speech referred to “all moneys due under the Act”. The court held that the words of s 27(2) govern, and those words do not include interest [67]–[69].

Because the suspension was wrongful, it was itself a breach. That breach allowed the principal to act under the contract’s show cause clause [106]–[107].

What it means for you

If you’re the claimant, builder or trade: once the scheduled amount has been paid, your right to suspend work ends 3 business days later [68]. Unpaid interest does not extend that right [63], [68]. Claim the interest in a payment claim instead [63].

If you’re the principal or owner: you can take part in preparing a show cause notice that your representative issues under the contract. In this case the representative reviewed the draft, amended it and agreed it should be sent, and that was enough [91], [97]. The representative could also take into account what was said at a without prejudice meeting when deciding whether the contractor’s response showed cause [165]–[166].

Either way: the right to suspend work has an end date. If you keep work suspended after that date, the other side can rely on the suspension as a breach [106]–[107].