The main purpose of the security of payment (SOP) legislation is to speed up the flow of cash to builders without prejudicing contracting parties’ legal rights (SOP Policy). The SOP acts provide a quick and simple process designed to determine claims efficiently and with minimum cost.
A recent case decided by the NSW Court of Appeal suggests that a failure to take prompt and meaningful steps to enforce an adjudication determination does not align with the SOP Policy, and builders who receive an adjudication determination in their favour should actively seek to enforce the determination as a judgment debt if the adjudicated amount is not paid within the time allowed.
In Western Australia, the Building and Construction Industry (Security of Payment) Act 2021 (WASOP) provides that a claimant may apply to have an unpaid SOP claim adjudicated. If the adjudicator finds in the claimant’s favour and the adjudicated amount is not paid, the determination can be enforced as if it is a court judgment. However, each of the SOP acts makes it clear that the adjudication process does not affect a party’s entitlement to enforce legal and contractual rights in other ways.
In WA, s 55 of the WASOP provides that the parties’ rights under the act don’t affect the parties’ rights under the contract or any other law. This means, for example, that a homeowner may complain to the Building Commission about faulty and defective workmanship; or a contractor may sue for a breach of contract.
However, traditional dispute resolution procedures are relatively slow to progress, so if a party commences proceedings before paying the adjudicated amount (adjudication debt), it’s likely to cause lengthy delays to payments further down the contracting chain, slowing vital cash flow, which is the opposite of what the SOP acts are intended to do. This raises the question:
Is a person required to pay an adjudication debt before commencing other dispute resolution proceedings?
The WASOP is still relatively new, so there haven’t been many disputes about the contracts it applies to, and there isn’t much guidance about how s 55 of the WASOP might be interpreted by WA courts. However, courts in the eastern states have considered similar issues, and because of the similarities between the various SOP acts, their rulings are a good indicator of how the WASOP is likely to be interpreted.
A recent decision in McDonald v MAK Constructions and Building Services Pty Ltd [1] (MAK Constructions) required the NSW Court of Appeal to consider the application of s 32 of the Building and Construction Industry Security of Payment Act 1999 (NSW) (NSWSOP) – which is in very similar terms to s 55 of the WASOP.
The decision in Mak Constructions indicates it’s unlikely that WA Courts will find an adjudication debt must be paid before commencing other dispute resolution proceedings, meaning that it will fall to builders who are successful in adjudications to promptly enforce their entitlements under the WASOP
In MAK Constructions the builder applied to have a disputed payment claim adjudicated. After the builder commenced the adjudication, but before the outcome was determined, the owner commenced proceedings in the NSW Civil and Administrative Tribunal seeking to recover around $530,000 for alleged defects and completion costs. Not long after the owner’s proceedings were commenced, the adjudicator determined that the builder was entitled to payment of around $250,000, and the builder filed the determination in the NSW District Court intending to enforce it. About a month after the adjudication debt was filed with the Court, the owner’s proceedings were transferred to the District Court.
While the owner’s proceedings progressed, the builder did not take any substantive action to enforce payment of the adjudication debt. Instead, the builder applied to have the owner’s proceedings stayed (put on hold) until both the adjudication debt and the builder’s legal costs were paid in full. The builder argued that it had been required to pay both the costs of defending the owner’s proceedings and all construction costs out of its own pocket, so if the adjudication debt was not paid it would not have any remaining funds to carry on its business or defend the owner’s proceedings.[2] In response, the owner argued that she could not afford to pay the adjudication debt without selling her house so the stay, if granted, would have the effect of turning the interim adjudication determination into a final judgment.[3]
Among other things, the judge found that s 32 of the NSWSOP meant that the owner was only entitled to bring the owner’s proceedings after the adjudication debt had been paid,[4] and granted the builder’s application for a stay. The owner appealed, and the Court of Appeal was required to consider how the SOP Policy should be balanced with the s 32 protection of the parties’ other legal rights.
The Court of Appeal found in favour of the owner, and ordered the builder to pay the owner’s costs, holding that:
The decision in MAK Constructions is not binding on WA courts, but because of the similarities between the SOP acts, it is likely to be persuasive, meaning that WA judges may take it into account when asked to consider similar cases relating to the WASOP. The case tells us that:
If you have any questions about the WASOP, or you need assistance dealing with a payment dispute, our team are available to help.
[1] [2024] NSWCA 63 (‘MAK Constructions’).
[2] MAK Constructions, [23].
[3] MAK Constructions, [17], [24].
[4] MAK Constructions, [21]–[22].
[5] MAK Constructions, [49].
[6] MAK Constructions, [53]–[58].
[7] MAK Constructions, [70].
This article was written by Briony Whyte, Associate Construction.