Subcontractor Recovers from Principal in Excess of $390,000 after Liquidator Appointed to Contractor

13/04/2016

Watson and Watson received instructions from a Subcontractor who provided formwork and other associated works to a Contractor who was undertaking civil works for the Principal.

Watson and Watson’s client provided by way of rental, formwork and sheet piles as a Sub-Contractor to enable the Contractor to undertake part of the civil works which the Contractor agreed to undertake on behalf of the Principal.

Following the appointment of a Liquidator to the Contractor the Principal had the benefit of the supply of the formwork and sheet piles in connection with the carrying out of the civil construction work. 

Following review of the factual matters by Richard Watson and in accordance with advice from Richard Watson to the Subcontractor; a Payment Claim pursuant to the Building and Construction Industry Security of Payment Act was issued by the Subcontractor directly to the Principal.  The Payment Claim was based on discussions between representatives for the Subcontractor and representatives of the Principal.

Shortly after the appointment of the Liquidator there were discussions between representatives of the Subcontractor and the Principal in accordance with recommendations of Richard Watson an experienced Solicitor in connection with Building and Construction issues.  The Principal was offered various alternatives including that

1.  the Principal could purchase the material that was insitu at the site
2. the Principal could enter into a Hire or Rental Agreement for the equipment that was being utilised on site; or
3.  the Principal could return the equipment including insitu formwork to the Subcontractor.

Further the Subcontractor advised the Principal if the Principal continued to use the sheet piles and formwork and did not purchase them there would be an ongoing hire fee at the existing rates being charged by the Subcontractor to the Contractor for such hire. 

There was no written agreement between the Subcontractor and the Principal. 

The Principal rejected the option whereby the formwork would be returned and the formwork and sheet piles were retained.  There was further correspondence and issues arose as to the ownership of the formwork.  After some considerable time the formwork materials were returned by the Principal to the Subcontractor. 

The Subcontractor issued a Payment Claim under the Building and Construction Industry Security of Payment Act to the Principal for the rental payable for the formwork materials.

A Payment Schedule from the Principal was served in which:

1. The Principal asserted that there was no Construction Contract between the Principal and the Subcontractor and in effect that the Contract by which the materials were supplied was the Contract between the Subcontractor and Contractor (which had gone into Liquidation after the initial supply).
2. The claims made were excessive in that the claims based on the claimed “rental rate” exceeded the sum that the Subcontractor offered to sell the formwork materials to the Principal after the company Contractor had gone into Liquidation. 

The Agreement relied upon by the Subcontractor was primarily the oral discussion supported by a few emails. 

The Adjudicator appointed accepted the Subcontractors submissions by Watson and Watson that Section 4 of the SOP Act defined the Construction Contract to include a Contract or other arrangement under which one party undertakes to carryout construction works or to supply related goods and services for another party.

There was some argument raised by the Principal that the Subcontractor was not the owner for the sheet piles and materials and that somehow that ownership had passed the Contractor.  The Principal eventually in the Adjudication Application did not dispute this issue.

In the discussions on behalf of the Subcontractor there was an offer that the Principal could return the materials.  Some of the materials were insitu as formwork and apparently may have been the reason that the Principal did not return the items for months until they were removed from the structure. 

The mere fact that it was difficult to remove the formwork at the time or shortly after the appointment of the Liquidator to the Contractor or that it would be very expensive to remove the formwork material owned by the Subcontractor which, supported the structure in another way did not have any bearing on the Contract or arrangement in connection with the provision of those formwork materials following the appointment of the Liquidator to the Contractor. 

As it happened there were numerous factual issues as to who (the Contractor or the Liquidator or the Principal) failed to return the formwork at the time that option was given to the Principal.

Watson and Watson prepared the subsequent Adjudication Application, evidence in support of the Adjudication Application and submissions.

In the Adjudication Application the Principal denied the arrangement and asserted whatever the arrangement it was not covered by the Building and Construction Security of Payment Act.  The Principal further denied that there had been request by the Principal for the material to remain and raised many other issues as to who was undertaking the works after the Contractor was placed in Liquidation. 

The Principal engaged one of the large legal firms in Sydney.  The Principal had in effect unlimited resources to litigate the matter and utilised their legal team from one of the “top tier” firms well versed in construction issues. 

The Adjudicator Subcontractor determined that the Principal pay in excess of $390.000 being the sum claimed based on the arrangement and the rates charged by the Subcontractor.

The Principal did not seek to have the Adjudicator’s determination reviewed. 

If you have any issues arise in relation to any aspects of the Building and Construction Industry Security of Payment Act (SOP Act) or litigation relating thereto please telephone Richard Watson or his Personal Assistant Shereen DaGloria to make arrangements for a discussion concerning your rights and any defences to any claims that may be made.