In a recent decision, the Supreme Court of New South Wales reaffirmed that a contractual provision will be void if it makes the occurrence of a reference date conditional upon a contractor providing a statutory declaration stating that it has paid all amounts owed by it to others.
The decision also provides guidance on the ramifications of a contractor providing a false statutory declaration.
Facts
Glavcom, as subcontractor, entered into a subcontract to carry out the design, fabrication and installation of joinery at the Bondi Pacific, a residential and commercial redevelopment at Bondi Beach (Subcontract).
Glavcom served a payment claim, on the head contractor, and subsequently lodged an adjudication application in respect of that payment claim.
The adjudicator determined that there was an amount due and payable to Glavcom.
The head contractor applied to the Supreme Court of New South Wales to have the adjudicator’s decision set aside.
Subcontract provisions
A key issue in the proceedings was the effect of clause 37.0 of the Subcontract, which required Glavcom to provide a statutory declaration certifying that its employees, workers, subcontractors and suppliers had been paid all moneys due and payable to them in relation to the works under the Subcontract.
Pursuant to clause 37.0, the requirement to provide a statutory declaration was a precondition to:
1. a reference date arising;
2. Glavcom being entitled to make a payment claim under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act); and
3. Glavcom being entitled to make a progress claim under the Subcontract.
False statutory declaration
In making its payment claim, Glavcom provided a statutory declaration as required by clause 37.0.
However, after the adjudication decision was made, it was discovered that Glavcom had not paid its workers’ compensation insurance premiums, despite declaring that it had done so in the statutory declaration.
Before the Supreme Court, the head contractor argued, relevantly, that the adjudication decision had been obtained by fraud because the adjudicator had relied upon the truth of the statutory declaration in making his decision.
Decision
Ball J held that:
1. The truth or otherwise of the statutory declaration was irrelevant because clause 37.0 was void pursuant to s 34 of the Act.
2. In any event, the statutory declaration provided by Glavcom was not ‘false’, and therefore the adjudicator’s decision was not obtained by fraud.
When will a requirement to provide a statutory declaration be valid?
Ball J held that clause 37.0 was void pursuant to s 34 of the Act because it:
1. did not provide a mechanism for fixing a reference date, but rather sought to add an additional condition to the right to obtain a progress payment; and
2. did not further the purpose of the Act.
Following this decision, and several recent decisions of the Supreme Court of Queensland,2 it is now clear that that a contractual provision which makes the occurrence of a reference date conditional upon a contractor providing a statutory declaration stating that it has paid all amounts owed by it to others, is void and of no effect.
However, this is not to say that all contractual preconditions to the occurrence of a reference date are void. A precondition may be valid if it furthers the purpose of the security of payment legislation, which is to maintain cash flow to contractors to ensure they can meet their financial obligations.
We consider that a valid precondition is one which assists the head contractor in assessing the value of the works claimed. For example, a clause stating that a reference date will not arise until the subcontractor has provided satisfactory evidence (e.g. test results) demonstrating that the works claimed are in accordance with the contract, can be more clearly seen as facilitating the purpose of the legislation.
What does this mean for you?
Principals and head contractors should be aware that:
1. A contractual provision which makes the occurrence of a reference date conditional upon a contractor providing a statutory declaration certifying that it has paid all amounts owed by it to others, is void under the Act.
2. However, a contractual precondition to the occurrence of a reference date which furthers the purpose of the security of payment legislation may be valid.
3. Where a statutory declaration contains an untrue statement, which is relied upon by an adjudicator, will not be set aside due to fraud unless the person making the declaration knew that the statement was false, or was recklessly indifferent to whether it was true or false.