In the recent case of Hynash Constructions Pty Ltd v BRP Industries Pty Ltd [2025] NSWCA 14, the New South Wales Court of Appeal held that a respondent who fails to serve a payment schedule is precluded from claiming a set-off for a prepayment made under the relevant building contract.

Background

Hynash Constructions Pty Ltd (Hynash) was engaged as head contractor for a stormwater harvesting project commissioned by Bathurst Regional Council (Council). Hynash subcontracted BRP Industries Pty Ltd (BRP) to perform certain works for the project. The subcontract included provisions allowing Hynash to withhold disputed amounts and set off any debts owed by BRP and on termination, an entitlement to reimbursement of any overpayments or other monetary benefits by way of set-off.

Pursuant to the subcontract, Hynash made an upfront payment to BRP for an amount equivalent to 10% of the quotation, being $110,756.80.

During the project, Hynash advised BRP of a dispute with Council, which lead to a cessation of further works on site. BRP subsequently terminated the subcontract and served a payment claim on Hynash for $234,286.80 (Claimed Amount) under the Building and Construction Industry Security of Payment Act 1999 (NSW) (Act). Hynash failed to pay the Claimed Amount or serve a payment schedule within the time required under the Act.

Primary Proceedings

BRP commenced proceedings in the District Court of NSW seeking judgment for the Claimed Amount plus interest and costs. Hynash contended that the up-front payment should be set-off against the Claimed Amount. On application for summary judgment by BRP, the primary judge awarded BRP the full amount of the Claimed Amount on the basis that section 15(4)(b)(ii) of the Act, which prohibits a party from raising a defence under the contract, precluded Hynash from pleading the contractual set-off provisions as a defence.

Appeal Proceedings

On appeal, Hynash argued that the upfront payment did not constitute a defence precluded under section 15(4)(b)(ii) of the Act, but instead should be set-off as a partial payment of BRP’s payment claim under s15(2)(a)(i) of the Act.

In dismissing the appeal, the Court of Appeal held that Hynash’s failure to serve a payment schedule precluded it from asserting any set-off or withholding amounts that could have been claimed under the subcontract. The Court also reasoned that the upfront payment could not be properly construed as a part payment of the Claimed Amount because it was made well before the payment claim was made. Further, if Hynash’s contentions were accepted, the Court would be required to consider all payments made under a contract to determine any unpaid portion of a claimed amount, which would be inconsistent with the prohibition under s15(4)(b) of the Act. It would also undermine the overall purpose of the Act, including the statutory entitlement to payment for construction works/services performed.

Implications

The decision reinforces the principle that strict adherence to the procedural requirements of the Act is essential. A respondent’s failure to serve a payment schedule within the statutory time limits may preclude the right to dispute a payment claim, including any set-off claims. To preserve such rights, respondents should ensure they carefully monitor and manage incoming payment claims as well as the service of any payment schedule within the statutory time frames. Failure to do so may result in the loss of these rights, leading to potential financial and contractual disadvantages.

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