The recent decision in 470 St Kilda Road v Reed Constructions Australia Pty Limited [2012] VSC 235 follows the previous line of authority in New South Wales and Queensland in holding that there is no obligation for a contractor to act in good faith or with a bona fide belief in its entitlement to monies claimed in a payment claim submitted under the Building and Construction Industry Security of Payment Act (Vic) (Act), or of facts made under oath in a statutory declaration.

Background

470 St Kilda Road (the Principal) sought judicial review of an adjudication determination which provided for full payment of a claim submitted by Reed Constructions Pty Limited (the Contractor) in the amount of $760,698.84 (Payment Claim). The Principal had previously rejected the Payment Claim on the grounds that the Contractor was not entitled to be paid any amount under the Act because it had submitted a false statutory declaration. It was alleged that Reed had asserted as part of its Payment Claim, and in its statutory declaration, that it had paid its subcontractors at the relevant time when it had not.

The case against the Contractor, both in the Adjudication and in Court, was that the adjudicator did not have jurisdiction to make a determination in respect of a Payment Claim accompanied by a false statutory declaration which lacked ‘good faith’ or a bona fide belief in the entitlement to the monies. The Principal argued that the Act contained an implied obligation of good faith in preparing and submitting payment claims and a failure to comply with this obligation rendered the claim void.

Is there an implied duty of good faith in preparing and submitting payment claims?

In reaching its decision, the Court reiterated the mechanisms provided under the Act to respond to a spurious claim lacking foundation. As the merits of a payment claim could be tested by a respondent in a payment schedule, and again by an adjudicator at adjudication, the Court decided against implying a requirement of good faith in submitting payment claims under the Act. To do so, it was said:

“Would fly in the face of [the] purpose of the Act, and the robust determination of disputes under the statutory adjudication process”

In its judgment, the Court referred to the New South Wales (Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2006] NSWCA 238) and Queensland (Neumann Contractors Pty Ltd v Traspunt No 5 Pty Ltd [2010] QCA 119) authorities supporting the position that good faith was not an essential prerequisite for a valid payment claim under the Act.

In adopting the conclusion of the judges in each of these cases, the Court declined to follow the previous decision to imply a bona fide duty in Metacorp Australia Pty Ltd v Andeco Construction Group [2011] VSC 199.  It was concluded that, on reflection and with the full benefit of argument on the matter, and in light of the New South Wales and Queensland authorities (which were not referred to the court in Metacorp), the earlier decision to imply such a duty into the scope of the Act was incorrect.

Does making a false statutory declaration affect the validity of the Payment Claim and the Adjudication Determination?

The Principal submitted that the falsity of the statutory declaration (and its non-compliance with the requirements of the contract) was conclusively demonstrated by, amongst other things, the failure by the Contractor to deny the falsehood (while being afforded ample opportunity to do so); a ‘creditors list’ showing outstanding monies owing and direct evidence from the subcontractors that they had not been paid the outstanding money. This was the basis for rejecting the claim in full in the payment schedule. In relying on this evidence, it was put that the Contractor had claimed payment from the Principal on a false basis (by claiming for payments to subcontractors which were never actually made).

The Court held that even if there was some truth to this allegation, it was not a courts position to interfere with the adjudicator’s ‘interim’ determination in respect of this matter. The adjudicator had reached the conclusion that the Act did not empower or require him to consider whether the statutory declaration was false. As such, as long as the adjudicator turned his mind to the question, it was irrelevant whether or not the reasons provided were short or if he was factually correct in his interpretation.

Implications

Principals should, in the face of an unsustainable or untrue payment claim, respond fully and carefully to every item claimed, providing succinct reasons for withholding payment, as rights of judicial review are limited and defending an adjudication application depends solely on the merits of a properly drafted payment schedule and adjudication response.

Gadens Lawyers can assist throughout the entire Adjudication process. For further information, please contact Scott Laycock on (02) 9931 4865.