The Impact of False Declarations on a Payment Claim
In a decision before the New South Wales Supreme Court in February 2016, Justice Ball of that Court considered some unusual circumstances surrounding an adjudication application in J Hutchinson Pty Ltd v Glavcon Pty Ltd. As the title suggests part of the controversy surrounded allegedly false declarations being relied upon by the subcontractor joiner, Glavcon Pty Ltd (Glavcon), in support of a payment claim with respect to joinery work at the Bondi Pacific Development at Bondi Beach in Sydney. What follows is a short review of the case with respect to the providing of an allegedly false declaration and the impact that had upon the validity of the adjudication in light of the provisions making void attempts to contract out of the Act. While there are other interesting issues discussed in the case, these are the ones that we will concentrate on:
The subcontract required as a pre-condition to a reference date arising under the New South Wales Security of Payment legislation (SOPA), and consequently being able to make a progress claim, that the subcontractor submit a declaration that not only had the subcontractor’s suppliers been paid all monies due and payable, but also confirming payment of workers compensation insurance premiums.
The payment claim in question was accompanied by a statutory declaration signed by the sole director of Glavcon, stating that all workers compensation insurance premiums payable had been paid. The matters were not raised in any detail before the adjudicator and indeed J Hutchinson Pty Ltd (Hutchinson) did not become aware of the problems of any declaration until after the adjudication. Hutchinson subsequently became aware of the Workers Compensation insurer commencing proceedings to wind up Glavcon for failing to pay a statutory demand in respect of workers compensation insurance premiums. The Adjudicator had already handed down his determination in favour of Glavcon to an extent of approximately $1.2 million plus GST of a $2.9 million claim. It was alleged by Hutchinson that as a consequence, the adjudication was obtained by fraud as if the matters had been known at the time of adjudication the Adjudicator would have withheld any payment and not resulted in an adjudication in favour of Glavcon.
During the hearing, the Court paid particular attention to what the sole director did and did not know concerning the workers compensation payments and whether it was reasonable in the circumstance for that director to rely upon advice given to him by others. The following matters were reviewed and taken to be relevant to this consideration:
- The identity of who administered the paperwork being supplied to the director.
- The director's knowledge and recollection of who prepared the statutory declaration.
- The assumption by the director that the person responsible would have alerted him to any incorrect material.
- The director’s lack of awareness of the non-payment of the workers compensation premium until following any adjudication.
- The director’s actions subsequent to becoming aware of non-payment (payment).
- The evidence of the solicitor for Glavcon concerning approaches to parties to give evidence, their refusal and the reasons for their refusal.
In the end the Court paid due regard to the serious nature of the allegation and the level of satisfaction it needed to have to make out an allegation of fraud. The Court considered that the allegation wasn’t made out and there was insufficient evidence with respect to whether or not the sole director intentionally or with due recklessness executed the declaration. Evidence was further reviewed in relation to the sole director’s general duties and understanding, and who he relied upon. It was said to be reasonable in the circumstances to rely upon others where his focus was directed elsewhere to sales, contracting and supervision of the workforce and factory.
The Court held that even if the declaration could be said to be knowingly or recklessly false the precondition for making a reference date was a matter that was void pursuant to the provisions of section 34 of SOPA. Section 34 deals with “no contracting out” and has similar wording to the Queensland and Victorian provisions. His Honour took up comments made recently by Justice Applegarth in the Queensland Supreme Court decision of Lean Field Developments Pty Ltd and E&I Global Solutions (Aust) Pty Ltd -
‘……in my opinion a provision in the contract that makes the occurrence of a reference date conditional under a provision of a statutory declaration or a true statutory declaration concerning the payment of other amounts owed by the subcontractor falls into that category. That is not a provision which provides the mechanism for fixing a date. Rather it is a provision that seeks to add an additional condition to the right to obtain a progress payment…. A condition that sets out a form of a payment claim may, for example fall into that category. However the apparent purpose in this case of the requirement to supply a statutory declaration in the form of Annexure Part M is to make the payment of progress payments conditional on the payment by Glavcon of the workers compensation premiums. It is not clear how that furthers the purpose of the Security of Payment Act which is to ensure that those who do construction work have a cash flow from that work they do so that they are in the position to meet their financial obligations.’
The circumstances of this case made it to some extent irrelevant whether the declaration was intentionally false or not because of the non–contracting out provisions, but nevertheless makes some interesting conclusions and demonstrates how difficult it is to prove. This case adds to a growing number that draw a clear distinction between clauses that serve some practical mechanism for fixing a reference date as opposed to putting further hurdles in front of a subcontractor for no apparent practical reason, which will be struck down as void.
Tony Mylne, Partner