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Construction and Infrastructure update: Must a payment claim be made in good faith?

Jun 18, 2012

470 St Kilda Road Pty Ltd v Reed Constructions Australia Pty Ltd

On 7 June 2012, the Supreme Court of Victoria published a decision in the case of 470 St Kilda Road Pty Ltd v Reed Constructions Australia Pty Ltd & Anor [2012] VSC 235 which affirmed the Supreme Court’s reluctance to interfere with adjudication determinations made under the Building and Construction Industry Security of Payment Act 2002 (the Act) and further declined to imply an obligation that payment claims must be made in good faith or be made bona fide.

The facts

Reed Constructions Australia Pty Ltd (Reed) served a payment claim on 470 St Kilda Road Pty Ltd (St Kilda Road) claiming the sum of $760,698.84 including GST. St Kilda Road served a payment schedule on Reed which was somewhat ambiguous in that St Kilda Road was in agreement as to the value of the work claimed, but stated that it withheld payment on grounds, including a most serious allegation that Reed was not entitled at law to receive payment because Reed had submitted a statutory declaration with the claim declaring that its subcontractors and suppliers had been paid and that this statutory declaration was false.

In the Adjudication Determination, the adjudicator determined that he had no power under the Act to consider the statutory declaration and required St Kilda Road to pay Reed the full amount of the payment claim. St Kilda Road then sought judicial review of the adjudication on the following grounds:

  • The Adjudicator did not have jurisdiction to make the Adjudication Determination as the payment claim was void for want of good faith.
  • The Adjudicator erred in finding the scheduled amount was $760,698.84 rather than nil, with the result that the adjudicator lacked jurisdiction to determine the claim as the adjudication application was made out of time.
  • The Adjudicator erred in his consideration of a statutory declaration.

The Court’s findings

Good Faith

The Court held that there is no implied pre-condition to the making of a valid payment claim, that the claimant makes the claim with a bona fide belief in its entitlement to the moneys claimed or that otherwise, the claim is made in good faith.

In so concluding, Justice Vickery declined to follow his previous comments in Metacorp Australia v Andeco Construction Group in which His Honour stated that:

“Provided that a person makes a claim to be entitled to a progress payment, and that claim is made bona fide, the claimant is permitted to serve its payment claim pursuant to …[the]… Act, and this is so, whether or not there existed an actual entitlement to payment at the time when the payment claim was served.”

The jurisdictional grounds

St Kilda Road argued that the adjudicator lacked jurisdiction to determine the claim based on the time periods for bringing an adjudication application in section 18(3) of the Act. That section provides:

  • If the scheduled amount that is less than the claimed amount, the claimant is required to make its adjudication application within 10 business days after the claimant receives the payment schedule; or
  • If the respondent fails to pay all or part of the scheduled amount by the due date for payment under the contract, the claimant may bring an adjudication application within 10 business days after the due date for payment.

Reed’s adjudication application was made more than 10 business days after the payment schedule was received but within 10 business days after the due date for payment under the contract. As there appeared to be some ambiguity as to what the payment schedule provided, the Adjudicator’s finding that the payment schedule provided a scheduled amount of $760,698.84 meant that the adjudication application had to be made within 10 days of the due date for payment and therefore, the adjudication application was made in time and the adjudicator did have jurisdiction to determine the claim.

The Court held that by considering and concluding that the Adjudication Application was bought within the time permitted by the Act, the Adjudicator fulfilled his statutory duty as required under section 23(2) of the Act, to consider the provisions of the Act and any regulations made under the Act, in reaching his determination.

The Court declined to embark on an assessment of the review of the merits of the Adjudicator’s determination as to jurisdiction concluding that:

“This was a matter for the Adjudicator, and the Court is not in a position to disturb his findings on the matter.”

Effect of the Statutory Declaration

This ground for seeking review arises from clause 38.1 of the Construction Contract, pursuant to which Reed was required to submit with its payment claims a statutory declaration confirming that Reed’s subcontractors had been paid all amounts which were due to them.

Evidence was produced by St Kilda Road both before the Adjudicator and before the Court in support of its argument that the statutory declaration was false.

The Adjudicator made a reasoned conclusion that the Act did not empower or require him to consider whether the statutory declaration was false.

Noting the Adjudicator’s reasoned conclusion, the Court declined to interfere with the reasoning of the Adjudicator stating that:

Although the Adjudicator may have made a wrong finding of fact and it was open for him to arrive at a different conclusion on the issue, equally there was some evidence upon which the Adjudicator could have arrived at the finding of fact which he did…”


This judgment reflects the Court’s reluctance to allow technical legal arguments such as implied duties of good faith and contractual limitations to defeat the intention of the Act, being to provide a fast track mechanism for the resolution of payment disputes in construction contracts, albeit on an interim basis.

As long as the Adjudicator has considered the issues it is required to consider under the Act and his determination was open to him on the facts, even if the Adjudicator’s Determination is wrong, that will not provide grounds for judicial review.

For contractors, the lessons to take from this case are:

  1. Payment Schedules should be clear and unambiguous;
  2. The contractor’s best case must be put before the adjudicator as there is very limited scope for judicial review; and
  3. Contractors must ensure that their contract administration is in order and legal advice is sought promptly on receipt of an adjudication application, so that it can promptly and thoroughly prepare its adjudication response to maximise its potential of achieving a positive outcome.

More information

For more information, please contact Darren Cain, Principal Lawyer and Head of Construction and Infrastructure, on (03) 8600 8835.

Note: This update is a guide only and is not intended to constitute legal advice.