Lying to get paid quickly

Introduction

A recent decision in the NSW Supreme Court considers whether false statutory declarations provided by a subcontractor in support of a Payment Claim enable the head contractor to avoid liability to make a progress payment it has promised to pay. The case involved a Payment Claim made under the Building and Construction Industry Security of Payment Act (1999) NSW (“NSW Act”). 

While other States have different provisions to those in the NSW Act, the similarities are extensive.[1] The legislation has been in force in NSW since 1999 and similar legislation came into force in SA in 2011. 

The legislation provides a cost effective and rapid method for ensuring timely progress payments are made on construction contracts.

Under the legislation, a progress payment is claimed by providing a Payment Claim and must promptly be responded to by providing a Payment Schedule, including comprehensive reasons why the full amount will not be paid, to avoid liability to pay the full amount.

The legislation is relatively straightforward to adopt, and any construction business should ensure that it is familiar with its requirements.

Statutory declarations

It is common practice in commercial construction contracts to include terms that require the claimant to provide a statutory declaration when requesting a progress payment. 

For example, head contractors usually include a clause in their subcontract terms, requiring the subcontractor to provide with each claim for payment a sworn statement to the effect that all employees, suppliers, and any sub-subcontractors have been paid what is owing to them.  Often, the contract will state that no progress payment will be paid until the declaration is provided.

A statutory declaration is a statement made in the presence of an authorised witness.  It is a criminal offence to provide a statutory declaration that is untrue. 

However, anecdotal evidence indicates that claimants occasionally take a rose-tinted view of what they owe and might sometimes bend the truth of their declarations, exposing themselves to criminal sanctions.

What happened in Parkview

In Marques Group Pty Ltd v Parkview Constructions Pty Ltd [2] Marques, a formwork contractor, had made Payment Claims against Parkview on two separate projects, in the amounts of $1,610,212.26 and $647,048.42, each supported by a statutory declaration providing the required assurances.

Parkview issued Payment Schedules within the timeframe required by the Act agreeing to pay the sums of $1,264,804.63 and $520,688.21 respectively.

However, when the due date for payment arrived, Parkview failed to pay the amounts it had agreed to pay as specified on the Payment Schedules.  

Failing to pay what was promised

Under the Act, if a party fails to pay the amount promised on a Payment Schedule, the claimant is entitled to seek summary judgment in Court for the unpaid amount. Marques applied to the Supreme Court for summary judgment in relation to the amounts admitted as due on the Payment Schedules. 

For a summary judgment claim to succeed, the Court must be presented with a clear meritorious case that does not require exhaustive consideration.  Otherwise, a claim is not suited to the summary judgment process and would have to proceed to a full trial where both sides would present their full arguments.

Reasons for not paying

Parkview defended the claim for summary judgment on numerous grounds.  Relevant to this Update was the assertion by Parkview that Marques had engaged in misleading and deceptive conduct when it provided the statutory declarations that accompanied the Payment Claims.

Misleading and deceptive conduct in trade or commerce is prohibited by the Competition and Consumer Act 2010. (“ACL”)

Parkview said that contrary to what was stated on the statutory declarations, Marques had not paid superannuation contributions and had not paid some sub-subcontractors.  On that basis, Parkview said the Payment Claims were not genuine Payment Claims.

Further, Parkview said that it had relied on the statutory declarations when it issued the Payment Schedules, accepting its liability to pay a large proportion of the amount claimed on the Payment Claims.  If the false statutory declarations had not been provided, Parkview said it would have served Payment Schedules with amounts of $0, or an amount less than that scheduled.

Finally, Parkview said that the Payment Claims were not capable of giving rise to an entitlement under the Act because an essential element of the claim was brought about by Marques’ contravention of the law in relation to misleading and deceptive conduct.

Consideration by the Court

The Act is known as “pay now argue later” legislation, being addressed specifically to keeping cash flowing in the construction industry.  In order to speed up payments, the Act prohibits a respondent from raising the usual defences where it has already provided a Payment Schedule admitting liability to a certain sum.  In this case, Parkview’s Payment Schedules had conceded that most of the amount claimed on Marques’ Payment Claims should be paid. 

However, it has been established since the Bitannia case in 2006 that a defence under the law in relation to misleading and deceptive conduct is not excluded by the security of payment legislation.[3]

Parkview said that even though it had said in the Payment Schedules that it would pay most of the amount claimed, the false statutory declarations provided by Marques were misleading and deceptive.  This conduct of Marques had caused it to promise to pay the progress payments when it would not have done so if Marques had not lied.

In other words, where a plaintiff like Marques makes a claim and the claim is based in part on misleading and deceptive conduct, it is open to the respondent to claim that the misleading and deceptive conduct affords an arguable defence and summary judgment cannot be obtained.

Bitannia was followed in Winslow Constructors Pty Ltd v John Holland Rail Pty Ltd. [4]  In Winslow, the claimant had cancelled bank guarantees without the knowledge of the respondent and had not paid sub-sub contractors. In Winslow, the Court held that the Payment Claims were:

“tainted with misleading or deceptive … conduct. Had the plaintiff known that the bank guarantee … had been cancelled, or that sub sub-contractors had not been paid, it is inconceivable, in my view, that the defendants would have issued the same Payment Schedules.

In Parkview, the Court considered the Winslow case and found its facts were indistinguishable.  In its consideration, the Court observed that the use of a defence under the ACL “appears to strike at the heart of the [security of payment] scheme”.  His Honour concluded that “As inherently unattractive as that defence is, I cannot say that it is so clearly untenable that it cannot possibly succeed.”

Marque’s summary judgment application was dismissed and the matter was listed for further directions.

Conclusion

To provide a false statutory declaration is a criminal offence.  Not only is this an offence that can lead to a criminal conviction, but discovery of the fact of the false declaration also leads to the probable failure of the payment claim accompanied by the declaration.

The NSW Act and similar legislation Australia wide are powerful tools to keep cash flowing in the construction industry.  The legislation imposes significant burdens on respondents to payment claims.  It is appropriate that those who make claims for payment should be scrupulous in their use of the Act and should ensure that every document included in a payment claim is accurate and truthful.

[1] Each State and Territory has similar legislation.

[2] [2023] NSWC 625

[3] Bitannia Pty Ltd v Parkline Constructions Pty Ltd (2006) 67 NSWLR 9.

[4]  [2008] VCC 1491

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