It is common in claims made under the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act) for a Respondent to assert that the claimant’s claims have been “grossly embellished” (to put it politely). The Court of Appeal’s judgment in YTO Construction Pty Ltd v Innovative Civil Pty Ltd serves as a stark warning to contractors who think making exaggerated claims in Payment Claims are a good idea.
The background can be summarised as follows:
- YTO Construction Pty Ltd (YTO) engaged Innovative Civil Pty Ltd (Innovative) for bulk excavation piling works;
- Innovative submitted a Payment Claim, which included a variation for $493,950.00 (Variation) for the removal and disposal of 66 loads of bulk waste by its subcontractor, Elkordi;
- Innovative claimed that this amount was for the removal of general solid waste (GSW) as opposed to the removal of virgin excavated natural material (VENM), which is less difficult and (more importantly) less expensive to dispose of;
- Unfortunately for YTO, it did not challenge the Variation in its Payment Schedule beyond stating that variations generally were not allowed under the contract. This meant that it could not include further reasons for disputing the Variation in the Adjudication Application;
- The Adjudicator largely found in Innovative’s favour, awarding the sum of $462,000 in respect of the Variation;
- YTO appealed to the Supreme Court to have the determination set aside. Its alleged fraud in respect of the Variation on two bases:
- The loads removed were known by Innovative were known to not be GSW; and
- The cost of removing the loads was known by Innovative to not be $7000 per load as alleged (Ground 2);
- At first instance, the primary judge held against YTO because YTO had not proven all 66 loads were not GSW that YTO had not made out the case for fraud.
- YTO appealed and, in a significant development for SOP cases, overturned the primary decision.
The Appeal Decision
The Court of Appeal analysed two of the Subcontractor Elkoridi’s invoices (with supporting dockets) that were submitted to the Adjudicator. These invoices demonstrated that only 26 loads were in fact GSW and therefore a false representation had been made.
His Honour found that for YTO to establish the falsehood, it was sufficient to prove that one of more of the 66 loads was not GSW material. For this reason alone, the matter was remitted to the primary judge for redetermination.
In respect of the allegation of fraud specifically, the Court of Appeal did not find for YTO. It concluded that Innovative’s director’s (Mr Bhatt) view that $7,000 per load to be the commercial rate for removal of GSW was not necessarily false but a matter of opinion, and therefore did not satisfy the necessary elements to be considered fraudulent.
What this case shows is that the appeal Courts are more than willing to open up Adjudication determinations on the basis of false representations and fraudulent behavior. Obviously if they do, there are significant penalties for the party who made the falsehood.
Despite being considered a ‘rough and ready’ process for enforcing construction debts, the SOP Act should definitely not be utilised as a means of obtaining payment for exaggerated or unsupportable claims. It’s important that expert advice is used to properly establish claims in the first instance, as the costs and consequences of getting it wrong, even inadvertently, are significant.
If you need help preparing claims or are on the receiving end of a ‘dodgy’ claim, we strongly recommend you contact the Nexus construction team to set up your SOP matter properly and avoid pitfalls like this.
Lawyer, Nexus Law Group
+612 9016 0141
Group Principal, Nexus Law Group
+612 9016 0141
This publication is © Nexus Law Group and is for general guidance only. Legal advice should be sought before taking action in relation to any specific issues
  NSWCA 110
 Ibid,