Payment Claim under Building and Construction Industry Security of Payment Act 1999 (NSW) – Builder’s Options if No Payment Schedule disputing the Claim provided by Homeowner – Homeowners Beware

23/11/2023

Watson & Watson for many years have been engaged in relation to building and construction matters, strata title issues and easements, orders and other similar issues and have acted for Contractors, Principals, Builders, Owners and Subcontractors in relation to claims under the Building and Construction Industry Security of Payment Act (SOP Act).

One important development for Owners and Builders of residential building work under the Home Building Act, is that the Builder now has the benefit of the Building and Construction Industry Security of Payment Act 1999 (NSW) for works undertaken pursuant to Contracts for construction of a residential build, made on or after 1 March 2021.  In our previous articles for example, 25 August 2021, 5 May 2023 and 27 September 2023, we have set out the general provisions, procedures and examples of the operation of the SOP Act.

Our recent articles have dealt with the first stage of the procedures to engage the Building and Construction Industry Security of Payment Act namely:

1. Firstly the issue and service of a Payment Claim.
2. The requirements in relation to a Payment Schedule, if the person who has been served with a Payment Claim, wishes to object to the quantum claimed. 

The recent articles have discussed the issues relating to the procedures relating to an Adjudication Application by the Claimant such as the Builder against the Homeowner, for determination of an Adjudication Application payable by the Homeowner to the Builder. This process is for an appointment of an Adjudicator to determine the amount payable to the Claimant and is generally a paper driven process.  As we have indicated, strict time limits apply. 

Section 15 of the Building and Construction Industry Security of Payment Act provides for the rights of a Claimant such as the Builder as a consequence of the person served with the claim, for example the Homeowner, not making payment in accordance with the Payment Schedule. 

Section 15 of the SOP Act provides for various consequences and options for the Builder.

Section 15 of the Security of Payment Act states in part:

“15     Consequences of not paying claimant where no payment schedule

(1)            This section applies if the respondent -

(a)            “becomes liable to pay the claimed amount to the claimant ….. as a consequence of having failed to provide a payment schedule to the claimant” within the time allowed by that seciton, and

(b)            “fails to pay the whole or any part of the claimed amount on or before the due date”......for payment.

(2)            In those circumstances, the claimant –

(a)       may –

(i)              “recover the unapid portion of the claimed amount from the respondent, as a debt due to the claimant in any court of competent jurisdiction”, or

(ii)             “make an adjudication application” ….. in relation to the payment claim, and

(b)       ……..

(4)            If the claimant commences proceedings under subsection (2)(a)(i) to recover the unpaid portion of the claimed amount from the respondent as a debt –

(a)                      judgment in favour of the claimant is not to be given unless the court is sastisfied of the existence of the circumstances referred to in subsection (1), and

(b)            the respondent is not, in those proceedings, entitled  -

(i)              to bring any cross-claim against the claimant, or

(ii)             to raise any defence in relation to the matters arising under the construction contract.”

Sections 16 of the SOP Act which relates to the Respondent failing to pay the amount admitted by the Respondent to be payable under a Payment Schedule, has a similar effect as Section 15.

In those circumstances, the Claimant for example, the Builder under Section 15(2)(a)(i) may recover the unpaid portion of the claimed amount from the Respondent for example, the Homeowner as a debt due to the Claimant in any Court of competent jurisdiction.  If such an Application is made, the Respondent if he has been provided with the Payment Claim in accordance with the Building and Construction Industry Security of Payment Act has restrictive rights in relation to such case.

No cross-claim or defence in relation to matters arising under the construction Contract

Pursuant to s 15(4)(b) or s 16(4)(b) of the SOP Act, the Homeowner is:

(a)      Not entitled to bring any cross-claim against the Builder; and

(b)      Not entitled to raise any defence in relation to matters arising under the Contract,

in response to the court proceedings commenced by the Builder to recover either the unpaid progress payment or the unpaid scheduled amount against the Homeowner.

Section 15 4(b) of the SOP Act does not restrict defences that may be possible other than “in relation to the matters arising under the Contract.”  There are some possible defences which do not relate to “matters arising under the Contract” and could be raised as a defence to the Claimant’s claim.

One possible issue is whether misleading or deceptive conduct under the Australian Consumer Law (“ACL”) can be raised as a defence to a Payment Claim under the Building and Construction Industry Security of Payment Act 1999.

There are numerous different factual matters that have been raised to attempt to enliven Section 18 of the ACL to raise it as a defence to a Payment Claim.

This was considered recently in the case of Marques Group Pty Limited (Marques Group) v Parkview Constructions Pty Limited (Parkview) [2023] NSWSC625 in June 2023 to which we refer in a further article. The Plaintiff, Marques Group was the subcontractor to the Contractor namely, Parkview.  Marques Group was claiming “outstanding moneys” from Parkview.

There are significant consequences adverse to the Homeowner if there is a Judgment against the Homeowner resulting in the Homeowner being required to make payment to the Builder.

What option is available to the Homeowner if Judgment is entered against the Homeowner in the proceedings by the Builder against the Homeowner for unpaid progress claim under SOP Act

In a case in the Supreme Court of New South Wales Court of Appeal, the Court stated in effect that the payment made by the Homeowner to the Builder pursuant to the Judgment in a Builder’s proceedings against a Homeowner for unpaid progress claim under SOP Act, is a “provisional sum” in that the Homeowner may in later proceedings, seek a determination by the Court as to the final entitlements of the parties in relation to the Building Contract.

Key takeaways for Homeowners and Builders

1. In the event that the Homeowner has signed a Contract on or after 1 March 2021 for residential building works, the Homeowner should be aware of the possibility of a claim under the Building and Construction Industry Security of Payment Act 1999 and prepare for such a claim.
2. Homeowners should take steps to obtain advice so they are aware of the stages to protect themselves.  Such advice will be utilised by the Homeowner to prepare, without pressure of the strict limitation periods that apply after you have receive a Payment Schedule.
3. If the Homeowner is served with a Payment Claim, the Homeowner should prepare and provide to the Builder, a Payment Schedule in accordance with SOP Act.
4. In the event that Builder initiates proceedings against Homeowner for unpaid progress claim under SOP Act pursuant s 15(2)(a)(i) or s 16(2)(a)(i), there are only limited defences available to the Homeowner.  It does not include a defence in relation to matters arising out of the Contract.
5. Even if judgment is entered against the Homeowner in proceedings commenced by the Builder against the Homeowner, the Homeowner may in a later proceeding, seek adjustments to the final entitlements of the parties in relation to the Building Contract determined by the Court.

If you as an Owner has entered into a Building Contract on or after 1 March 2021, please contact Richard Watson of Watson & Watson experienced Building, Construction and Strata Lawyers in relation to various rights of Builders and of Owners in relation to such claims.

You should not delay if you are an Owner who believes that you have overpaid the value of the work that has been undertaken.  If you fail to respond to a Payment Claim, you can be pursued by the Builder pursuant to either the Adjudication Application process or the separate available process, under Section 15 or 16 of the Building and Construction Industry Security of Payment Act.

If you are a Builder then you should consider the options available for example, between making an Adjudication Application or a claim in a Court under Sections 15 and 16 of the SOP Act, or in an authorised jurisdiction for example, proceedings issued out of the NSW Civil and Administrative Tribunal (NCAT) or a Court of competent jurisdiction.

It appears that a claim by way of an Adjudication Application would be more cost effective however as a Builder, you should consider the representational risks associated with taking such action. As in all disputes, one needs to carefully consider the factual matters and the law to ascertain your prospects of success or failure and whether there are any other alternatives available.

If you are in a dispute as a Homeowner with the Builder or a Builder in dispute with a Homeowner, do not delay.  Please contact Richard Watson an Accredited Specialist by the Law Society of New South in the stream of Building and Construction by contacting his Personal Assistant Shereen Da Gloria to discuss your matter and seek appropriate timely advice.

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