Allens

Construction & Major Projects

Focus: Good faith and a SOPA claim

29 June 2012

In brief: A recent Supreme Court of Victoria decision confirms that contractors are not required to act in good faith when submitting claims made under Security of Payments legislation. Partner Nick Rudge (view CV), Senior Associate Nikki O'Leary and Law Graduate Matthew De Remer report.

How does it affect you?

  • Contractors are under no obligation to act in good faith to ensure that the facts contained within statutory declarations submitted in support of payment claims are correct, or that contractors hold a bona fide belief in their entitlement to moneys claimed, when submitting claims for payment under the Building and Construction Industry Security of Payment Act 2002 (Vic) (the SOPA). Principals (or their superintendents) should be aware of this when relying on information contained in statutory declarations when assessing entitlement to claims for payment made under the SOPA.
  • The Victorian Supreme Court's decision1 is consistent with the approach adopted by the New South Wales and Queensland Supreme Courts that payment claims are not required to be made in good faith to be valid for the purposes of the Security of Payments legislation. This reversed Justice Vickery's recent judgment in another Supreme Court case that payment claims under the SOPA were required to be bona fide to be valid.2
  • The court has also confirmed that where adjudicators provide brief reasons in adjudication determinations, these reasons may still be adequate for the purposes of the SOPA provided the reasons deal with the substantive issues in dispute. Justice Vickery considered such an approach satisfied the 'robust procedure provided for in the Act'.3

The facts

The principal, 470 St Kilda Road (the principal), entered into a construction contract with Reed Constructions Australia Pty Ltd (Reed) whereby Reed was to design and construct residential apartments and office suites.

Reed made a payment claim for $760,698 in January 2012. The principal issued its payment schedule which assessed Reed's entitlement to payment as nil (even though the parties agreed on the value of work included in Reed's payment claim). The superintendent gave Reed a lawful direction that it was required to submit statutory declarations that confirmed that all subcontractors had been paid, when submitting its payment claims. The principal alleged that Reed submitted a false statutory declaration that stated that all subcontractors had been paid amounts due to them, when this was not the case. Accordingly, Reed had sought payment from the principal on a false basis and the principal submitted this was contrary to Reed's obligation under the contract to act honestly and with utmost good faith.4

The dispute proceeded to adjudication under the SOPA, and the adjudicator determined that the principal was required to pay the full amount claimed by Reed.

The principal sought judicial review of the adjudicator's determination on the basis that:

  • the SOPA contains an implied obligation of good faith in preparing and submitting a payment claim and, as Reed's payment claim included a false statutory declaration, the claim was void and the adjudicator's determination was invalid;
  • the adjudicator had erred in finding that Reed had not breached its contractual obligations when serving a false statutory declaration;
  • the adjudicator incorrectly held that the SOPA did not require him to consider whether the statutory declaration was true and failed to provide adequate reasons when reaching his adjudication determination; and
  • the adjudicator did not have jurisdiction to determine the adjudication because Reed failed to submit the adjudication application within the time the SOPA requires.

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The decision

Justice Vickery dismissed the proceeding and declared that the adjudicator's determination was valid.

His Honour held that the SOPA does not require a payment claim to be made in good faith for the claim to be valid. He stated:

[t]here is no implied precondition to the making of a valid payment claim under s 14 of the Act that the claimant has made the claim with a bona fide belief in its entitlement to the moneys claimed or that otherwise the claim is made in good faith.5

Justice Vickery's judgment was made in consideration of the overarching purpose of the SOPA, to provide prompt interim determination of the parties' rights in relation to the recovery of progress claims. His Honour considered that an implied obligation of good faith 'would fly in the face of this purpose.'6 When making his determination, his Honour followed the approach of the NSW and Queensland Supreme Courts, which have held that payment claims are not required to be made in good faith to be valid for the purposes of the Security of Payments legislation.7 In doing so, Justice Vickery declined to follow his judgment in a prior case where he held that a payment claim must be bona fide in order to be valid under the SOPA.8

The principal also contended that Reed had breached its contractual duties by providing the false statutory declaration and that the adjudicator had erred by failing to take into account the terms of the contract. Justice Vickery did not consider this point in much detail and held that the adjudication determination was not open for review on these grounds.9

The adjudicator's determination that Reed's adjudication application had been made within the time limit provided for by the SOPA, was held not reviewable, as the adjudicator had considered the SOPA's provisions when reaching his determination. Further, Justice Vickery stated that even if that finding was reviewed and a different decision made on appeal, the adjudication determination would not be invalidated because compliance with '[t]he time regime set out in s 18(3) of the Act is not a basic and essential requirement'10 for a valid adjudication.

Justice Vickery did accept that the evidence suggested that Reed may have made a false statutory declaration. However, the fact that there was some evidence supporting the adjudicator's determination that the statutory declaration was true meant the determination was not open to review on this basis. His Honour did not appear to consider that the factual enquiry as to the veracity of the statutory declaration required any more careful analysis than that usually required by adjudicators when reaching determinations of facts. As to the adequacy of the reasons the adjudicator provided, Justice Vickery was satisfied that these reasons, while relatively brief, were adequate to satisfy the 'robust procedure provided for in the Act.'11

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Conclusion

When reaching determinations in relation to progress claims under the SOPA, the Supreme Court, at least in Victoria, will favour a determination that progresses the Act's overarching purpose to provide a simple and prompt system for resolving payment disputes. It is clear that contractors are under no obligation to act in good faith when submitting payment claims under the SOPA.

Footnotes
  1. 470 St Kilda Road Pty Ltd v Reed Constructions Australia Pty Ltd & Anor [2012] VSC 235.
  2. Ibid at [45] to [47]. Refer to Justice Vickery's judgment in Metacorp Australia Pty Ltd v Andeco Construction Group Pty Ltd [2011] VSC 199 [101].
  3. Ibid at [92] to [93].
  4. Ibid at [18].
  5. Ibid at [47].
  6. Ibid at [44].
  7. Ibid at [29] to [47].
  8. Ibid at [45] to [47]. Refer to Justice Vickery's judgment in Metacorp Australia Pty Ltd v Andeco Construction Group Pty Ltd [2011] VSC 199 [101].
  9. Ibid at [96].
  10. Ibid at [62].
  11. Ibid at [92].

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