The Difference Between a Letter of Demand and a Statutory Payment Claim

There is a difference between a letter of demand and statutory payment claim as explained below.

What is a letter of demand

A letter of demand is sent by a creditor to a debtor demanding payment of the debt.  It is usually the final step taken before the commencement of a legal proceeding.

What is a Statutory Payment Claim

Conversely, a statutory payment claim derives from a statutory right to payment under the Building and Construction Industry Security of Payment Act 2002 (Vic) (the Act).

Section 14 of the Act provides that a Respondent, namely a person who is liable to make payment to the Applicant, can be served with a payment claim.  Further, a failure to respond to the payment claim within 10 days will generally result in the Respondent being liable to make payment in full.

Can a letter of demand operate as a payment claim?

The question of whether a letter of demand can operate as a payment claim was considered recently in the case of Total Construction Pty Ltd v Kennedy Civil Contracting Pty Ltd [2023] NSWCA 306.

In that case, the solicitors for Kennedy Civil Contracting Pty Ltd (Kennedy) sent Total Construction Pty Ltd (Total) a letter of demand for payment of an alleged outstanding debt comprising the balance of a series of previous payment claims.

Total did not pay the claimed amount.  Further, Total did not provide a payment schedule setting out the amount it was prepared to pay and the reasons why it was paying a reduced amount.  As a result, Kennedy commenced statutory debt proceedings to recover the alleged debt of $545,352.

On first hearing, the District Court of NSW held that the letter of demand and its attachments are a valid payment claim pursuant to the Building and Construction Industry Security of Payment Act 1999 (NSW).  However, this decision was rejected on appeal.

On appeal, the Court held that a reasonable person would not have considered the letter and attachments to constitute a statutory payment claim under the Act for the following reasons:

(a)   Firstly, the deadline for payment was inconsistent with the Act;

(b)   Secondly, the letter was on the letterhead of and signed by solicitors who were acting for the administrators; and

(c)   Thirdly, the invoice attachments did not satisfy the requirements of the Act.

Accordingly, the Court determined that the letter of demand did not constitute a statutory payment claim under the Act. 

There is no one-size-fits-all approach

However, Honour Justice Mitchelmore, also noted that in certain circumstances a letter of demand may constitute a statutory payment claim if it satisfies the relevant criteria. Therefore, there is no one-size-fits-all approach as to whether a letter of demand will constitute a statutory payment claim.

To learn more about any of the matters discussed here, or if you require legal assistance, please contact Chris Moshidis, Director and Principal Lawyer on +61 9521 7956 or chris@urbanlawyers.com.au.