Are preconditions as to certificates of PC by a superintendent void as against BCIPA?

Most standard contracts provide:

  1. that the superintendent will issue a certificate of PC when certain preconditions are met including all required tests have been carried out and “all necessary documents and other information which in the superintendent’s opinion are essential for the use and occupation have been supplied”; and
  2. a reference date arises and a contractor can submit a payment claim at PC.

The Supreme Court of New South Wales in Castle Constructions Pty Ltd v Ghossayn Group Pty Ltd [2017] NSWSC 131 on 29 September 2017 had to decide whether a clause “which states that a contractor’s right to payment is contingent upon a third party forming an opinion, or certifying a particular state of affairs, is one that {is void} because it excludes modifies or restricts BCIPA” (the question).

The clause in question provided that no reference date would arise for the final claim (which was the PC claim) unless works:

a) had been completed in accordance with relevant plans and specifications; and

b) been signed off by the project surveyor, the project structural engineer and the project geotechnical engineer”.

Similar clauses appear in most contractual definitions of practical completion.

Preconditions to reference dates

Whilst the clause in question related to a precondition to a reference date arising; His Honours question was framed on a right to payment.

Stevenson J found that the true purpose of the precondition was to accommodate the requirements of the prospective purchaser of the site. In declaring the precondition to be void, Stevenson J observed:

“[the] condition did more than simply provide a mechanism whereby the time on which Ghossayn Group would receive a progress payment could be ascertained and does not, in my opinion, facilitate Ghossayn Group’s statutory entitlement to a progress claim.”

In consideration of previous authorities, Stevenson J held that a precondition to a reference date will or may be invalidated where it:

  1. imposes conditions on the occurrence of a reference date;
  2. modifies or restricts the circumstances in which a contractor is entitled to a progress claim;
  3. inordinately delays or effectively prevents a reference date from arising;
  4. unjustifiably impeaches the making of a payment claim or renders the statutory entitlement practically illusory;
  5. imposes onerous conditions which make a reference date more of a theoretical
    possibility than an actuality; or
  6. does not facilitate a statutory entitlement to a progress payment.

A precondition to a reference date will be void if it restricts, or has the effect of restricting, the operation of progress payments.

Importantly, contracting parties are still permitted to fix a reference date or provide a mechanism for fixing a reference date other than that which is prescribed under the Act.

Preconditions will be valid where they are set by reference to a milestone (e.g. practical completion) or completion by the contractor of a defined part of the work.

If the precondition goes beyond facilitating entitlement to payment or providing that payment may be made on the achievement of a particular event, it will be void.

Conclusion

A precondition to a reference date will be void and of no effect unless it:

  1. provides that payment is contingent upon the occurrence of a particular event; or
  2. facilitates the object of the Act, being to ensure speedy payment to

This prohibition may also extend to void preconditions for other contractual milestones, to the extent that the existence of a reference date is subject to the achievement of the milestone.

However, in the context of standard construction contracts (where a reference date typically arises upon achievement of PC), the risk that the preconditions to PC may be deemed void under BCIPA is mitigated by the fact that monthly reference dates will continue to accrue even if PC has yet to be achieved. In this regard, it is arguable that the contractor’s statutory entitlement to a progress claim has been preserved.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader’s specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.

Key contacts:

Stephen Pyman – Director | Principal
Christopher Rowden – Principal

 

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