Australia: What should the supporting statement to a payment claim contain or does it matter anymore?

Last Updated: 5 May 2018
Article by Helena Golovanoff

Most Read Contributor in Australia, September 2018

In the recent decision of Central Projects v Davidson the Supreme Court has clarified the requirements for a Supporting Statement under section 13(7) of the Building and Construction Industry Security of Payment Act making observations about the consequences of a breach of section 13(8) that depart from established authority.

It didn't take long after the commencement of the amendments to the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act) inserting the requirement for a Supporting Statement in April 2014 for the operation of those provisions to be tested. In Kitchen Xchange v Formacon Building Services [2014] NSWSC 1602 (5 November 2014, concerning events that took place in June 2014) McDougall J observed that section 13(7) is "prohibitory", going on to say that a payment claim not accompanied by a Supporting Statement is not properly served [36].

So for three and a half years most went about serving their payment claims accompanied by a Supporting Statement of some sort and getting most worked up when the Supporting Statement was wrongly omitted. In Central Projects Pty Ltd v Davidson [2018] NSWSC 523 Ball J has clarified the requirements for a valid Supporting Statement and made some observations contrary to the long accepted position set out by the court in Kitchen Xchange regarding the impact of the omission of a Supporting Statement.

The facts

Central Projects served a payment claim under the Act accompanied by a purported Supporting Statement. Davies failed to serve a payment schedule. Central Projects sought judgment under section 15 for $1,224,354.06. Davies, sought to resist judgment on the basis that a number of deficiencies in the Supporting Statement (including false information) meant that the payment claim had not been properly served under the Act.

Section 13(7) of the Act states: A head contractor must not serve a payment claim on the principal unless the claim is accompanied by a supporting statement that indicates that it relates to that payment claim.

Section 13(8) of the Act states: A head contractor must not serve a payment claim on the principal accompanied by a supporting statement knowing that the statement is false or misleading in a material particular in the particular circumstance.

Both sections prescribe a penalty for breach of the section.

The issues

The court was called upon to consider two issues:

  1. Whether the purported Supporting Statement met the requirements of the Act; and
  2. If it did not, whether the payment claim was validly served.

There was no dispute that the Supporting Statement in this case was broadly in the form prescribed by the Act and Regulation (albeit improperly completed in places). The criticism was that it omitted certain suppliers it should have contained. It was not determined however whether the omission was made knowingly.

The first issue

Davies contended that Section 80 of the Interpretation Act requires the Supporting Statement to contain all the required information (thereby the omission of the suppliers being fatal). The Court disagreed with this contention finding that section 80 was not concerned with the accuracy of the contents of a form. Going on to say "Forms are prescribed for a wide range of purposes and it would be unreasonable to expect those who rely on... forms to check the accuracy... before being entitled to proceed..." [32].

Ball J agreed with Central Projects' Counsel's submission that a Supporting Statement need only be in the prescribed form and contain the required declaration. Further, that 13(8) "assumes that a supporting statement may contain false or misleading information and provides a significant penalty where it is served knowing that it does so" [28]. In other words the fact that a Supporting Statement contains false information or omits required information does not diminish the Supporting Statement for the purposes of section 13(7), as the Act provides other consequences for the false statement.

The second issue

While the Court's decision on the first issue obviated the need for a determination of the second issue, Ball J went on to make observations contrary to McDougall J in Kitchen Xchange and Meagher JA in Kyle Bay Removals Pty Ltd v Dynabuild Project Services Pty Ltd [2016] NSWSC 334 and Duffy Kennedy Pty Ltd v Lainson Holdings Pty Ltd [2016] NSWSC 371.

In those cases the Court found that "to hold that s.13(7) did not intend to invalidate service of a payment claim unaccompanied by the requisite statement would set a nought the prohibition" McDougall J in Kitchen Xchange at [47]. Ball J disagreed with that conclusion on the basis that section 13(7) contained its own remedy for breach. Going on to conclude at [39] that the legislature did not intend other consequences, that is the invalidation of the service of the payment claim. Ball J cited three reasons for his conclusion:

  1. The language of section 13 (when considered in the context of the Act as whole and particularly section 31, concerning the requirements for services) does not "readily accommodate an additional consequence"
  2. Subsection (7) which has a prescribed consequence for breach (a penalty) should be contrasted with subsection (5) (the prohibition on service of more than one payment claim in respect of a reference date): subsection (5) not having any other consequence
  3. The reasons for insertion into the Act the requirement for the Supporting Statement, did not mandate the invalidation of the payment claim as a consequence of a deficient or false statement. Instead, the intention was to address inconsistencies in the provision of this sort of information to principals and the widespread practice of the provision of false information.

Ball J (possibly to his relief) did not have to decide whether he was required to follow the decisions of McDougall J and Meagher JA in light of his conclusions.

Where to from here?

On the one hand, it is clear that a Supporting Statement with false information or that omits required information may be sufficient for the purposes of section 13(7) (providing it is in the required form). However, Central Projects throws a potential life line to those having to defend a payment claim accompanied by a Supporting Statement that is not in the prescribed form or does not contain the required declaration.

The issue will likely be tested again. To avoid being the test subject those preparing Supporting Statements should take due care to ensure that they conform in every respect with the requirements of the Act and that the information provided is full and accurate.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.

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