Allens

Construction & Major Projects

Focus: Conditions on payment claims (remain) unenforceable

17 september 2012

In brief: Contractual conditions placed on a payment claim for construction work are at risk of being unenforceable under Queensland's security of payment legislation. Partner Adrian Baron explains.

How does it affect you?

  • The Building and Construction Industry Payments Act 2004 (Qld) (the Act) expressly prohibits parties from attempting to exclude, modify, restrict or otherwise change the effect of a provision of the Act. It is likely that any condition precedent to the issuing of a payment claim would fall foul of the Act, and will not be enforceable.
  • If you want to ensure certain conditions are met before a reference date arises (eg the provision of a certificate of currency, or the provision of a statutory declaration), those conditions should attach to the accrual of a reference date rather than the entitlement to issue a payment claim under the Act. Conditions that are so onerous that in practice they would prohibit a reference date occurring monthly will likely be held to be contrary to the Act's purpose, and will not be enforceable.

The legal context

The Act sets out the process by which, for 'each reference date under a construction contract, a person is entitled to a progress payment if they have undertaken to carry out construction work, or the supply of related goods and services, under the contract'.1

Schedule 2 to the Act defines the term 'reference date' to mean a date stated in or worked out under the contract as the date on which a claim for a progress payment may be made, or, if the contract does not provide such a date, the last day of the month in which the construction work was first carried out and the last day of each subsequent month.

In an earlier Allens Focus article,2 we noted that, in June 2012, the Queensland Court of Appeal had determined that the effect of certain provisions of the contract before the court operated to defer a statutory entitlement to make a payment claim regarding a reference date determined according to the Act. The Court of Appeal concluded that, in breach of the Act,3  those provisions were void because they purported to 'modify ... or otherwise change the effect of a provision of [the] Act'.

In August 2012, the Supreme Court of Queensland had also held that the absence of a statutory declaration was not a valid precondition to payment, and did not invalidate a payment claim for the Act's purposes4 .

The Act cannot be contracted out of.5 

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The facts

In December 2010, the State of Queensland entered into a contract with T&M Buckley Pty Ltd for construction work in relation to a building at Burleigh Heads.

In April 2012, T&M Buckley served a payment claim, purportedly under the Act, on the State. Clause 43.2 of the contract required T&M Buckley to provide a statutory declaration, which it failed to do with its April claim. 

The State argued that the statutory reference date did not accrue unless and until the statutory declaration was provided. T&M Buckley argued that the accrual of the statutory reference date was not subject to compliance with clause 43.2 of the contract.

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The decision

The Supreme Court agreed with T&M Buckley.

After considering the earlier Court of Appeal decision,6  it held that:

The statutory reference date is the date worked out under the subcontract on which a claim for a progress payment is made. That date is the monthly anniversary of the commencement of the work, regardless of whether the subcontract has delivered the statutory declaration required by clause 43.2 of the subcontract. In other words, accrual of the statutory reference date is not conditional upon the prior delivery of the statutory declaration.

  

Further, the Supreme Court suggested, without deciding the point, that judicial support for other conditions, such as that held in Simcorp Developments & Constructions Pty Ltd 7 may be 'arguably incorrect'.


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Commentary

The case demonstrates that the courts are taking a broad view of both the statutory rights provided by the Act.

While conditions may be placed on the form of a progress payment under a contract, in practice, if a contractor does not comply with these conditions, they will not be barred from issuing a payment claim under the Act.

The decisions do leave open the possibility of attaching conditions to the definition of the term 'reference date'. This would require careful drafting so as to ensure that, practically, these conditions did not prohibit a contractor being able to make a monthly payment claim. Any conditions that have the effect of excluding, modifying, restricting or otherwise changing the effect of a provision of the Act will be void.

What should not be overlooked is that, in both the Court of Appeal decision and the two Supreme Court decisions, the requirement that was not satisfied was the giving of a statutory declaration to the effect that all lower-tier contractors had been paid all amounts due and payable. There is good reason for a principal to require such a statutory declaration. Equally, there is good reason for lower-tier contractors to be concerned that contractors may make a valid claim under the Act without providing the declaration. It may well be that, because of the current line of decisions in Queensland, the Act will need to be amended to provide protection to both principals and lower- tier contractors regarding such payments.

Note: Allens acted for the receivers and managers of T&M Buckley in the litigation

 
Footnotes
  1. Section 12.
  2. Please see our Focus in relation to John Holland Pty Ltd v Coastal Dredging & Construction Pty Limited & Ors [2012] QCA 150.
  3. Section 99.
  4. BHW Solutions Pty Ltd v Altitude Constructions Pty Ltd [2012] QSC 214.
  5. Section  99.
  6. John Holland Pty Ltd v Coastal Dredging & Construction Pty Limited & Ors [2012] QCA 150.
  7. Simcorp Developments & Constructions Pty Ltd v Gold Coast Titans Property Pty Ltd [2010] QSC 162.
     

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