Full Recovery by Subcontractor of Adjudicated Amount under Security of Payment Act

27/06/2016

In early 2016 Richard Watson received a telephone call from a major Subcontractor client in relation to installation of facades on commercial properties. The Subcontractor had undertaken building works, and obtained a ‘favourable’ Adjudication. The Subcontractor received a demand from a well known Building and Construction Lawyer demanding that the Subcontractor undertake not to enforce the Adjudication Determination in its favour.

The lawyer for the Head Contractor as is a common claim, asserted that the Adjudicator had made a jurisdictional error. The Lawyer threatened to approach the Supreme Court for an Order that the Adjudication be set aside in the event that the Subcontractor did not agree to “not enforce or act upon the Adjudication Determination” in favour of the Subcontractors.

Previously the Subcontractor had prepared its Payment Claim and had received a Payment Schedule from the Head Contractor.  The Subcontractors had made an Adjudication Application and had received a favourable Adjudication in excess of $140,000.00 in relation to a progress claim.

The Head Contractor through its Lawyer made numerous demands and threatened proceedings etc.

For a proper consideration of the demands there would be significant costs associated with considering the Adjudication Application, the Payment Claim, the Payment Schedule and the evidence before the Adjudicator and the Adjudication Determination.

After careful consideration (without undertaking a costly and complete review of all the documents) Richard Watson on behalf of the Subcontractor wrote to the Solicitor for the Head Contractor setting out that the Subcontractor would not succumb to the demand and that there were numerous issues which had to be resolved which required a Court Determination even if the Head Contractor’s Solicitor was correct (which was denied).

On the limited information it was our view that the Subcontractor would have reasonable prospects of defending the Head Contractor’s claim.  In the same circumstances the Head Contract would have some prospects of obtaining an Order from the Supreme Court setting aside the Adjudication Determination.

Notwithstanding, Richard Watson pointed out to the experienced Solicitor for the Head Contractor the difficulties that arose in relation to these circumstances.  These difficulties including technical difficulties which are rarely if at all raised even by other experienced Building and Construction Lawyers.  Following the correspondence there was further “huffing and puffing” however no Application was made the Supreme Court.

After a reasonable time elapsed an Application was made for a Certificate of Judgment. Appropriate enforcement of the Judgment was made which resulted in the full adjudicated sum being paid immediately to the Subcontractor.

This approach saved the Subcontractor (and incidentally the Head Contractor) significant fees to debate the issue in the Supreme Court (in excess of $30,000.00 each).  The Subcontractor recovered the full amount determined by the Adjudicator.  This is in accordance with the spirit of the Security of Payment Act. 

Notwithstanding the spirit of the Security of Payment Act, many Head Contractors use the threat of Supreme Court proceedings to encourage the Subcontractor who has the benefit of an Adjudication Determination not to proceed with any enforcement of that adjudicated amount. 

There are unintended adverse consequences to a Subcontractor who gives the undertaking not to enforce an adjudicated amount.

If you find yourself in these circumstances of having received a favourable Adjudication Determination, however a request comes from the person (Head Contractor or Owner) who is required to make payment that you do not take enforcement proceedings, then be very careful. 

Please contact Richard Watson or his Senior Secretary to make arrangements for a consultation with Richard Watson the experienced Building Construction Solicitor and the Head of the Building Construction team at Watson and Watson.