The vast majority of construction contracts include preconditions on the right to lodge progress claims or when progress claims will be valid. These include:
- provision of a statutory declaration that all subcontractors, employees and suppliers have been paid;
- evidence that security has been provided; and
- evidence that insurance has been taken out.
Such preconditions have been found to be valid under the contract but invalid under BCIPA.
Where does that leave the parties? Can such preconditions be relied on to determine a reference date-as distinct from the right to lodge a claim under BCIPA?
A recent decision of the NSW Supreme Court indicates that this will now be very difficult. The following propositions are now evident from the case law:
- BCIPA provides some freedom to the parties to determine when a reference date arises (Lean Field Developments Pty Ltd v E & I Global Solutions (Aust) Pty Ltd [2014] QSC 293 at [71]).
- The parties to a construction contract can fix a reference date or provide a mechanism for fixing a date other than the date set out in the Act (Hutchinson Pty Ltd v Glavcom Pty Ltd [2016] NSWSC 126 at [26] (Ball J)).
- A reference date may be set by reference to a milestone, for example, practical completion (Energetech Australia Pty Ltd v Sides Engineering Pty Ltd [2005] NSWSC 801 at [19] (McDougall J)) or “completion by the contractor of a defined part of the work” (Lean Field at [67]).
- However, the parties do not have “unconstrained freedom to contract about when a reference date will arise” (Lean Field at [73]).
- A clause which goes beyond fixing a mechanism for determining the date on which the contractor is to be paid, and which:
- imposes conditions on the occurrence of a reference date (Hutchinson at [26]);
- modifies or restricts the circumstances in which a contractor is entitled to a progress claim (Hutchinson at [26]);
- inordinately delays or effectively prevents a reference date from arising (Lean Field at [55]);
- unjustifiably impeaches the making of a payment claim or renders the statutory entitlement practically illusory (Lean Field at [68]);
- imposes onerous conditions which make a reference date more of a theoretical possibility than an actuality (Lean Field at [73]); or
- does not facilitate a statutory entitlement to a progress payment (Lean Field at [74]);
will probably be invalid.
In the very recent case of Castle Constructions v Ghossayn 2017 NSWSC 1317, the contract did not purport simply to provide that payment be made on achievement of a milestone (completion of the work). Rather, it purported to provide that the payment be made when an “engineer and surveyor [have signed] off on completion of work in accordance with approvals”.
The Supreme Court of NSW held that this precondition did more than simply provide a mechanism whereby the time on which the builder would receive a progress payment could be ascertained and did not facilitate the entitlement to a progress claim, and was void.
A condition that a builder was entitled to a final payment when the relevant engineers and surveyors had signed off on completion of the work did exclude, modify or restrict the operation of the Act, and might reasonably be construed as an attempt to deter and is void.
Conclusion
Preconditions on the right to lodge a payment claim, the right to be paid and when a reference date arises will only be valid if they facilitate the objects of BCIPA – such as assisting in determining the amount due.
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