When adjudication certificates meet statutory demands

/in

Parties to a payment dispute in the commercial building industry may utilise the Building and Construction Industry Security of Payment Act 1999 (NSW) (the ‘SOPA’) to resolve the matter.

The Act provides an efficient means of recovering money owed for construction work by invoking a statutory right for a contractor to receive progress payments under a contract.

Disputes are usually resolved quickly by an adjudicator. A determination is made which, in most cases, requires a respondent to pay the claimant a specified amount within the statutory timeframe. The determination is enforceable but without prejudice to the common law rights of either party. If the respondent fails to pay, the claimant may apply for an adjudication certificate which can be filed in Court to obtain judgement against the respondent.

When additional attempts are made under other legislation to enforce payment of the debt the matter can become complex.

Powerpark Systems Pty Ltd [2018] NSWSC 793 considers the interplay between the state-based SOPA and the issue of a statutory demand under the Commonwealth’s Corporations Act 2001. The case recognises the policy supporting the adjudication process and emphasises the need for parties to act quickly if they wish to challenge a determination.

The case and the decision

Powerpark Pty Ltd (Powerpark) retained Shoemark Electrical Pty Ltd (Shoemark) to install solar panels at various sites. Shoemark invoiced Powerpark for $44,811.11 for services carried out in New South Wales and Queensland and subsequently issued a payment claim under the SOPA.

Powerpark responded to the claim by issuing a payment schedule complaining of Shoemark’s defective work at building sites, agreeing to pay $24,956.97, and threatening to pursue Shoemark for rectification costs if the defective work was not resolved.

Shoemark proceeded to have the claim adjudicated which was determined in its favour for $44,811.11. Relying on the adjudication certificate, Shoemark served a statutory demand on Powerpark under the Corporations Act 2001. (The effect of serving a statutory demand is that a company will be presumed insolvent if, after 21 days it fails to pay the debt or is unsuccessful in having the demand set aside by a Court.)

Subsequently, and pursuant to the SOPA, Shoemark obtained judgment against Powerpark from the Local Court for $48,230.74 being the amount determined under adjudication plus fees and interest.

Powerpark applied to the Supreme Court to have the statutory demand set aside on the following grounds:

  • There was a genuine dispute about the existence or amount of the debt due to a purported jurisdictional error affecting the adjudication certificate and judgment.

One of the contracts for which the adjudication was determined related to work performed in Queensland. Powerpark claimed that as the SOPA expressly excluded work performed outside of New South Wales, the adjudication was ‘beyond the jurisdiction of the adjudicator’. It followed that the judgement issued by the Local Court in reliance of the adjudication certificate should be void.

The Court rejected this argument. Although the SOPA does not apply to work performed outside of New South Wales that in itself, was insufficient to invalidate the judgement. Whilst a potentially erroneous decision is reviewable, once the adjudication certificate is filed the debt is nevertheless payable.

Although Powerpark may have applied for judicial review to stay the judgement for jurisdictional error, its’ time for commencing proceedings had expired and it failed to explain any reason for not commencing or delaying proceedings.

  • The jurisdictional error constituted ‘some other reason’ as to why the demand should be set aside in accordance with s 459(1)(b) of the Corporations Act 2001.

Powerpark was again unsuccessful on this argument. The Court has discretion regarding what may constitute ‘some other reason’ to have a statutory demand set aside however, ‘the pendency of curial proceedings’ was, without more, insufficient to establish ‘some other reason.’

  • Powerpark had an offsetting claim against Shoemark comprising the losses claimed due to defective work.

On this point Powerpark was again unsuccessful in having the statutory demand set aside. It did however convince the Court of its offsetting claim resulting in the amount of the statutory demand being reduced to $21,483.14 which took into account the defective works.

Key takeaways

  • A judgment arising from the filing of an adjudication certificate determines that the judgment debt is indisputably due and payable. The legislative policy supporting the SOPA is to facilitate payment of an adjudicated amount notwithstanding the potential of a ‘curial dispute’ which, if later established could be cured by restitution.
  • An offsetting claim (in respect of a statutory demand) may be ordered by a Court without disturbing the validity of an adjudication certificate or the statutory demand.
  • Once a judgment debt issues, the subject of an adjudication certificate, a respondent will face difficulties in challenging its validity. Obtaining early advice during any construction payment dispute is important to ensure the merits of the proceedings and relevant timeframes are considered.

If you or someone you know wants more information or needs help or advice, please contact us on +612 9248 3450 or email info@bradburylegal.com.au.