Many construction contracts require contractors submitting progress claims to also submit a statutory declaration in a specific form confirming subcontractors have been paid. How does this sit with the requirements of Building and Construction Industry Payments Act 2004 (Qld) (BCIPA)?
The Supreme Court of Queensland case of BRB Modular Pty Ltd v AWX Constructions Pty Ltd  QSC 218 recently considered this issue.
BRB Modular Pty Ltd (BRB) engaged AWX Constructions Pty Ltd (AWX) to construct a camp and accommodation village at an LNG processing facility.
Under the terms of the construction contract, AWX could make a claim for a progress payment on the 28th of each month. However this was subject to AWX complying with a number of conditions. One such condition was that AWX was required to sign a statutory declaration that contained the following wording:
To the best of my knowledge all sub-contractors and suppliers who have at any time been employed by the sub-contractor for work under the sub-contractor have as at the date of this declaration been paid all monies due and payable to them in respect of their employment in relation to that work.
AWX did sign a statutory declaration, but the required wording was qualified by the addition of the words ‘other than those owed variations, payable by the head contractor’.
BRB refused to pay the payment claim that was issued with the statutory declaration on the grounds that the condition had not been complied with and that therefore AWX did not have a right to a progress payment.
AWX referred the payment claim to an adjudicator, who determined that the requirement for a statutory declaration was void because of section 99 of BCIPA, which prevents parties from relying on contractual provisions that have the effect of excluding, modifying, restricting or otherwise changing the effect of a provision of BCIPA.
BRB brought court proceedings challenging the jurisdiction of the adjudicator to make that determination.
His Honour Justice Applegarth upheld the decision of the adjudicator and found that the requirement that AWX sign a statutory declaration before it could make a progress claim was void.
In reaching this conclusion, his Honour made the following observations about clauses of this type, and the circumstances in which section 99 of BCIPA will render a contractual provision void:
- While the requirement for a statutory declaration might encourage intermediate contractors to promptly pay undisputed amounts to their subcontractors, and this would be a desirable result, it was not a result thatBCIPA was concerned with achieving. The focus of BCIPA is on establishing and enforcing the rights and obligations of the parties to the construction contract, not on protecting the rights of third parties.
- Further, the rights of subcontractors would be better served by having the intermediate subcontractor receive payment because it would improve the intermediate contractor’s cash flow, allowing them to pay subcontractors who might otherwise miss out if the funds were withheld.
- The rights of subcontractors would not be sufficiently protected by the Subcontractors’ Charges Act 1974(which allows subcontractors to require those higher up the contractual chain to pay them directly out of money owed to the contractor) because, if BRB’s argument were correct, no money would be owing to AWX, so AWX’s subcontractors would not be able to make any claim under the Subcontractors’ Charges Act.
- The New South Wales version of BCIPA does require head contractors to declare that all subcontractors have been paid before making a progress claim. BRB had argued that this showed that the New South Wales Parliament had determined that the requirement was consistent with the BCIPA regime. However, his Honour pointed out that AWX was not a head contractor, and that the Queensland Parliament had made a different legislative decision.
- The condition requiring a statutory declaration lacked utility for the purposes of BCIPA because it did not achieve any purpose that was consistent with the purposes of BCIPA. It might have been different if the statutory declaration went only to issues such as whether certain works had been completed or some other substantive obligation had been performed, but the requirement in this case went further than that.
- Provisions qualifying a right to payment should be construed commercially and not strictly, so AWX’s argument that the provision was harsh because it would have denied them a right to payment even for a minor typographical error was rejected. However, Applegarth J did agree with AWX’s position that the consequences of non-compliance could be disproportionate and that this weighed in favour of the provision being void.
The case was primarily concerned with the application of section 99 of BCIPA because that is the provision that the adjudicator had relied on. However, his Honour also noted that the result in this case was also justified by the fact that, while the requirement for a statutory declaration qualified AWX’s contractual right to receive progress payments, it had not been drafted to prevent a reference date from arising for the purposes of BCIPA.
Therefore, even if AWX did not have a contractual right to a progress payment, they did have a statutory right under BCIPA, which the adjudicator was correct to enforce.
This case is the most recent in a line of cases in which the Supreme Court of Queensland has displayed an increasing willingness to strike down provisions that restrict a contractor’s right to make a progress claim.
Organisations that contract out construction work should review their standard terms and conditions in light of these recent cases to ensure that they do not contain provisions that may be declared void.
On the other hand, organisations that perform construction work should make themselves aware of the conditions that have been imposed on their right to progress payments and, if they consider those conditions to be unreasonable or onerous, they should seek legal advice about the options for challenging those provisions.