Owners and Builders be Prepared for Claims under the Building and Construction Industry Security of Payment Act – Recent Cases indicate Consequences

21/09/2023

We refer to our previous article published relating to the general process under the Building and Construction Industry Security of Payment Act which is now applicable to Owners of residential building work which has been undertaken pursuant to a Contract on or after 1 March 2021. 

Homeowners beware of the severe consequences of failure to properly respond to a Payment Claim by the Builder.  We emphasise the default position is that if the Owner does not properly consider the matter and comply with the very strict rules and time limits provided for in the Security of Payment Act, the default position is against the Owner.  The Owner will have to pay the amount awarded either by a Court or in an Adjudication process.  The Owner has very limited rights to challenge the Adjudication Determination which is based on the Payment Claim by the Builder and the Payment Schedule by the Owner in response; they are the two documents that set out the ambit and limitation of the claim and the response.  However in the response to the Adjudication Application there can be some further explanation or evidence of the matters that have already been stated in the Payment Schedule.  It is critical that the Payment Claim on behalf of the Builder and the Payment Schedule on behalf of the Owner be properly prepared.

Following the Builder complying with the requirements of the Building and Construction Security of Payment Act in providing the Payment Claim the Builder has a right to proceed to Adjudication process in relation to the Builder’s claim having regarding the Payment Claim and the Owner’s response by way of a Payment Schedule.  As we have indicated previously, the Adjudication process is a paper driven process generally and strict time limits apply.  The Builder may serve more than one Payment Claim as long as it complies with the Security of Payment Act and can chose to either proceed by way of an Adjudication Application or enfrocement in Court.  Alternatively the Builder may chose not to proceed to Adjudication or Court enforcement in relation to a particular Payment Claim.  However this leaves the opportunity for the Builder to make a further Payment Claim claiming the same items that have previously been claimed and remain outstanding.

We regularly advise Owners and Builders as to the process, circumstances, requirements and we make recommendations as to the content that needs to be firstly included in the Payment Claim and secondly, in relation to the Payment Schedule.

This takes considerable preparation much of which can be undertaken as a first draft by the Builder or the Owner with our guidance, however one must always remember the time limits that apply. 

Following the issue of the Payment Claim and the Payment Schedule if the claim has not been paid by the Owner to the Builder, the Builder may then make an Application for Adjudication.

Any Application for Adjudication of the claim by the Builder must be lodged with an Authorised Nominating Authority (ANA).

If an Adjudication Application is served, then the Owner has an opportunity to provide a response to the Application which must be lodged within 5 business days of the date of service of the Adjudication Application or within 2 days after receiving Notice of the Adjudicator’s acceptance of the Application, whichever is later. 

This does not give the Owner much time to assess the position and obtain the appropriate evidence to support his/her position.  An Owner needs to be prepared to be able to respond firstly to the Payment Claim and secondly, to the Adjudication Application with the appropriate response and evidence.

The Owner’s Response to the Adjudication Applicantion is the opportunity to respond to the claim.  The Owner’s  Response is limited to matters that the Owner has referred to in the Payment Schedule.  The Payment Schedule and the response should deal with each of the claims made by the Builder. 

The Adjudication Application and or the Adjudication Response should be supported by appropriate evidence and a statement, preferably by way of a Statutory Declaration or Affidavit in support. 

The usual evidence that will be required will include the evidence of the Contract or arrangement providing a brief history usually including but not limited to, the Contract documents, approvals, claims, history, payments. 

Most often the claim and more particularly the Owner’s response, should be supported by expert evidence as to the value of the work based on the Contract and other matters that are taken into consideration for example, any defects and the cost of rectification of the defects.  There are numerous other matters that should be considered.

In the event that the Builder makes an Adjudication Application and it is served and the Owner fails to file an Adjudication Response by the required time (which cannot be extended), then the matter will be determined by the appointed Adjudicator on the basis of the materials produced by the Builder.  In those circumstances, we would expect that the Adjudicator would allow the majority of the Builder’s claim.

Once the Adjudicator has received the Adjudication Application and the Response, the Adjudicator has 10 business days to determine the Adjudication Application unless he/she requests an extension of time and the parties agree to that extension. 

There are very limited bases for appealing a Decision of an Adjudicator.  One needs to establish jurisdictional error in that the Adjudicator made a jurisdictional error as distinct from a miscalculation of the claim. 

We refer to the case of Chase Oyster Bar v Hamo Industries Pty Limited [2010] NSWCA 190 in which we acted on behalf of the Owner and established that there was jurisdictional error in that case.  This overturned earlier decisions of Courts as to jurisdictional error.  There have been numerous cases since the Chase Oyster Bar Bar v Hamo Industries Pty Limited [2010] NSWCA 190 case.  Jurisdictional error is difficult to establish and one should prepare for the Adjudication Application rather than hope that there is a way out to overcome the failure of a reasonable determination by the Adjudicator.

If you are a Homeowner or a Builder involved in a construction of a residence or any building works, please consider your rights and obligations and the considerable risk of not being aware of the position.  In those circumstances, please contact the experienced Lawyers at Watson & Watson by contacting Richard Watson Accredited Specialist, accredited by the Law Society of New South Wales in Commercial Litigation Building and Construction Stream and expert in relation to building and construction matters and strata matters.  Please contact Shereen Da Gloria, Richard Watson’s Personal Assistant 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