Security of Payments – Case Study

Have you Agreed to Forgo amounts owed under a Construction Contract?

In the recent case of Citi-con (VIC) Pty Ltd v 8-10 New St Richmond Pty Ltd (2020) VCC 1611 shows that an “accord and satisfaction” can extinguish liability under a Payment Claim.

What is Accord and Satisfaction? It is the acceptance of something in place of a clause of action.

In this particular case, the accord and satisfaction arose from the developer and Citi-con agreeing to the proposed arrangement that the developer would not charge liquidated damages if Citi-con would forgo the GST component on Payment Claims.

The Developer wrote to Citi-con stating:

“I wont charge any additional Liquidated Damages from today’s date until your current completion date of 23rd of July 2019 and the project is completed and handed over. In return for the above you will withdrawal your current notice of Liquidated damages that have been issued.”

Later that day, the two men exchanged text messages confirming the arrangement.

The email and text messaged exchanged between the two parties were sufficient to create legal relations and extinguish the GST on future claims.

Take away from the case

If amounts from your payment claims remain unpaid while you continue to perform the Contract and you do not immediately enforce your right to payment, make sure it is clear that you dispute the non payment.