Judgment for progress claim under the Building & Construction Industry Security of Payment Act - Can it be stayed pending Appeal or Application under Section 32 of the SOP Act?

02/07/2020

On 19 June 2019 the New South Wales Court of Appeal considered the requirements for obtaining a stay of execution of a Judgment Debt arising under the Building and Construction Industry Security of Payment Act  1999 (NSW) (“The SOP Act”). 

In that case the Developer sought a stay of a Judgment following the service of a Payment Claim by the Builder, in order to litigate a cross claim against the Builder.

The facts leading to the Judgment in favour of the Builder were as follows:

1. The Developer and Builder entered into a Building Contract in late 2016 or early 2017 for the design and construction of a residential development in Epping.
2. On 27 May 2019 the Builder commenced proceedings against the Developer in the Construction List of the Supreme Court of New South Wales (Construction List Case) in which the Builder claimed for the same amounts, the Builder later claimed in the Payment Claim referred to below.
3. On 3 June 2019 the Builder served on the Developer a Payment Claim under Section 13 of the SOP Act claiming $6,355,352.46 for outstanding payments for contractual works, variations and interest.  This was for the sums claimed by the Builder in the Construction List Case.
4. The Developer did not serve a Payment Schedule in response to the Builder’s Payment Claim.  The Developer then became liable to pay the Builder the amount claimed in the Payment Claim pursuant to the provisions of the SOP Act.
5. On 3 July 2019 the Builder commenced proceedings against the Developer following the Developer’s failure to serve a Payment Schedule in response to the Payment Claim (SOP Act case).
6. On 18 September 2019 there was a Hearing of the SOP Act case. 
7. On 11 October 2019 the Judge considering the SOP Act gave Judgment in the amount of the Payment Claim having regard to the fact that there was no Payment Schedule in response to the Payment Claim. 
   
   This is common where there is no Payment Schedule in response to a Payment Claim in accordance with the provisions of the SOP Act.
8. The Developer appealed the Decision of the Judge in the SOP Act case to the Supreme Court of Appeal.  The fundamental issue was whether the Payment Claim was invalid on various bases.  Each of the Developer’s points were rejected and Judgment was delivered on 14 May 2020 dismissing the Appeal. 
9. As at that time namely 14 May 2020 nothing of substance occurred in the Construction List proceedings. 
10. On 18 May 2020 the Developer filed a Cross Claim in the Construction List proceedings seeking from the Builder various orders claiming the Builder was not entitled to the retention, variation amounts and further the Builder had an additional liability in relation to defects estimated at approximately $4,700,000; the effect of which was that there was no money owing by the Developer to the Builder. 
11. As at this stage the Judgment in favour of the Builder pursuant to the provisions of the SOP Act remained on foot and enforceable however the Construction List proceedings had not been set down for hearing and no decision had been made.
12. In May 2020 the Developer made an Application for a Stay of the Judgment in the SOP Act matter pending the hearing and determination of the Construction List proceedings.
13. On 29 May 2020 the Supreme Court refused the stay and accordingly the Judgment for approximately $6,000,000 remained immediately payable.
14. The decision of the Trial Judge in the Supreme Court made 29 May 2020 was appealed to the Supreme Court of Appeal which was heard on 16 June 2020. The Supreme Court of Appeal made orders dismissing the Appeal. 
15. In those circumstances the Judgment of approximately $6,000,000 based on the SOP Act proceedings stood and remained immediately payable notwithstanding that the Construction List matter which included a rehearing under Section 32 of the SOP Act had not been listed for hearing or determined. 

The Basis of the Claim by the Developer for a Stay

The Developer sought the stay on the basis that:

1. The Developer was unable to pay the Judgment Debt (of approximately $6,000,000); and
2. The Developer would be insolvent if the Judgment was not stayed;
3. That the Developer had defences available to defend the Builder’s claim in the Construction List proceedings and the Developer had a Cross Claim in an amount exceeding the Judgment Debt in favour of the Builder.

The Court noted that the Application before him for a stay was inconsistent with the regime established by the SOP Act namely that the amounts would be payable subject to an opportunity to have the matter re-determined pursuant to Section 32 of the SOP Act to bring substantial final proceedings that may re-determine the issue that had been the subject of the Payment Claim. 

The procedure is under Section 32 of the SOP Act:

The Court of Appeal in the SOP Act claim said:

“As is well established the Act (“SOP Act”) makes provision for payment, if necessary enforceable by Judgment, of a builder’s or sub-contractor’s relevantly uncontested claim for claimed but unpaid monies in order to ensure continuity of cashflow, whilst not precluding the principal from seeking to reverse the effect of such a judgment in later substantive proceedings …”

The Court of Appeal did indicate that there is no particular reason under the SOP Act or otherwise which determines that a stay cannot in appropriate circumstances be granted.

The Court of Appeal in the SOP Act proceedings found that the Developer did not establish in those proceedings that the practical effect of failing to obtain a stay would stultify litigation of the Cross Claim.  For example if the Developer went into liquidation it would be open to a liquidator to proceed with such a claim. 

Further in this particular case there was a significant delay by the Developer in filing the Cross Claim in the Construction List proceedings. 

It can be seen that the Court of Appeal has not closed the door on a Stay Application however great care is required to establish the appropriate evidence. 

The Court of Appeal in the SOP proceedings also stated:

“A stay would generally be less readily available in relation to judgments entered following an adjudication under the SOP Act than in relation to Appeals arising from a (“Court”) proceedings, “such as the default position which arises when there is no Payment Schedule is lodged in response to a Payment Claim.”

These cases highlight a number of practical matters including:

1. The need to act promptly to dispute a Payment Claim so as to avoid a Claimant being in a position to obtain a Judgment due to the failure of the Developer (in this case) to lodge a Payment Schedule. 
   
   We note strict time limits apply and the default position is that the claim is allowed if no Payment Schedule is served in response to a Payment Claim.
2. If a Payment Schedule has merits and is lodged in response to a Payment Claim then this will be dealt with in the Adjudication Application.
3. The matter should be properly considered and prosecuted whether you are the Claimant making the Payment Claim or the Respondent seeking to defend the claim.
4. There is great difficulty in staying a Judgment based on an amount in a Payment Claim even where there is a countervailing claim by the respondent to the claim for an amount in excess of the claim made by the applicant.  The mere statement or even establishing a counterclaim of itself will not be sufficient.
5. One needs to consider the financial ability of each of the parties in considering what steps to take.
6. The interim determination under the SOP Act in a practical sense often finally resolve matters given that in numerous cases a person ordered to make payment under the Adjudication or where there is no Payment Schedule by the administrative action of having such Judgment registered may not financially survive long enough in order seek a final adjustment to the original determination.
7. The purpose of the SOP Act is for a quick determination of the interim rights leaving a right to have the matter thereafter determined in the primary case. 
8. There are very limited rights to challenge the Adjudication Determination.
9. The difficulty is that a proposition that the rehearing under Section 32 of the SOP Act can rectify the “wrong” Payment Claim or Adjudication Determination has an assumption in it that each of the parties are aware of the circumstances and effect of the law and further will be solvent and able to properly protect their position in considering the original claim by way of Payment Claim and Payment Schedule and Adjudication and then thereafter secondly in a re-hearing under the Section 32 of the SOP Act.
10. Do not ignore Payment Claims.  If you are in receipt of a claim you must properly consider those claims and have in place a system whereby you can respond to them as part of the Contract administration; failing that you will find yourself in difficulties such as were indicated in the dispute, the subject of this article.

If you are in the building and construction industry and are unsure of the ramifications when it comes to non compliance of Payment Claims or have any issues relating to claims and/or counterclaims under the building and construction contractual arrangements, we recommended that you seek appropriate advice expeditiously.  At Watson & Watson our highly experienced Building and Construction Lawyers can provide advice and assist in navigating what could possibly be, a challenging dispute.  Please contact Richard Watson Accredited Specialist Building and Construction or his Personal Assistant Shereen Da Gloria to discuss your important matter.

This is only a preliminary view and is not to be taken as legal advice without first contacting Watson & Watson Solicitors on 9221 6011.