Statutory declaration preconditions to payment claims under construction contracts held to be invalid – NSW follows Queensland’s approach

In August last year, Cooper Grace Ward reported on the decision of the Supreme Court of Queensland in BRB Modular Pty Ltd v AWX Constructions Pty Ltd [2015] QSC 218, which held that a clause in a construction contract requiring a statutory declaration that subcontractors had been paid was invalid  under the Building and Construction Industry Payments Act 2004 (Qld). Now, the New South Wales Supreme Court has followed that reasoning in holding that a similar clause, requiring the builder to confirm that all workers’ compensation insurance premiums had been paid, is also invalid under similar legislation in New South Wales.

Background

In J Hutchinson Pty Ltd v Glavcom Pty Ltd [2016] NSWSC 126, the Court was asked to set aside an adjudicator’s decision awarding $1,263,399.72 to Glavcom Pty Ltd under a subcontract for construction work on a commercial and residential development in New South Wales.

Hutchinson’s principal argument was that Glavcom had failed to comply with a clause of the subcontract requiring it to deliver a statutory declaration confirming that all workers’ compensation insurance premiums had been paid. The declaration had, in fact, been delivered, but it subsequently emerged that not all premiums had been paid, rendering the declaration incorrect.

The Court found that the incorrect statutory declaration still satisfied the requirement set out in the subcontract because the director of Glavcom did not know the declaration was false.

However, the Court went on to say that, even if the declaration could not be relied on by Glavcom, the clause requiring the declaration was invalid because it sought to modify or restrict the circumstances in which a person was entitled to a progress payment and was therefore void under section 34 of the Building and Construction Industry Security of Payment Act 1999 (NSW).

The Court applied similar reasoning to that adopted in BRB Modular Pty Ltd v AWX Constructions Pty Ltd and cited another important decision of the Queensland Supreme Court in Lean Field Developments Pty Ltd v E & I Global Solutions (Aust) Pty Ltd [2014] QSC 293.

Comment

There had been some doubt as to whether the reasoning in BRB Modular and Lean Field Developments would survive a journey south of the border.

One possible distinction between New South Wales and Queensland was that the New South Wales legislation does, in some circumstances, require builders submitting payment claims to declare that certain payments to subcontractors have been made (although those provisions did not apply in this case). Some had therefore argued that statutory declaration preconditions were more compatible with the New South Wales legislative regime and would be less likely to be found invalid.

The Queensland courts have shown a greater willingness to strike down clauses in construction contracts that limit a contractor’s right to receive a progress payment. This case confirms that the courts in New South Wales are moving in the same direction.

It is important for parties to a construction contract to constantly review the terms of their agreements to ensure they are not inconsistent with security of payments legislation in the jurisdiction the construction work will be carried out.

If you have any doubts about whether a clause in your contract or proposed contract is valid, call Rocco Russo on +61 7 3231 2468 to discuss your matter.