When adjudication certificates meet statutory demands

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Parties to a payment dispute in the commercial building industry may utilise the Building and Construction Industry Security of Payment Act 1999 (NSW) (the ‘SOPA’) to resolve the matter.

The Act provides an efficient means of recovering money owed for construction work by invoking a statutory right for a contractor to receive progress payments under a contract.

Disputes are usually resolved quickly by an adjudicator. A determination is made which, in most cases, requires a respondent to pay the claimant a specified amount within the statutory timeframe. The determination is enforceable but without prejudice to the common law rights of either party. If the respondent fails to pay, the claimant may apply for an adjudication certificate which can be filed in Court to obtain judgement against the respondent.

When additional attempts are made under other legislation to enforce payment of the debt the matter can become complex.

Powerpark Systems Pty Ltd [2018] NSWSC 793 considers the interplay between the state-based SOPA and the issue of a statutory demand under the Commonwealth’s Corporations Act 2001. The case recognises the policy supporting the adjudication process and emphasises the need for parties to act quickly if they wish to challenge a determination.

The case and the decision

Powerpark Pty Ltd (Powerpark) retained Shoemark Electrical Pty Ltd (Shoemark) to install solar panels at various sites. Shoemark invoiced Powerpark for $44,811.11 for services carried out in New South Wales and Queensland and subsequently issued a payment claim under the SOPA.

Powerpark responded to the claim by issuing a payment schedule complaining of Shoemark’s defective work at building sites, agreeing to pay $24,956.97, and threatening to pursue Shoemark for rectification costs if the defective work was not resolved.

Shoemark proceeded to have the claim adjudicated which was determined in its favour for $44,811.11. Relying on the adjudication certificate, Shoemark served a statutory demand on Powerpark under the Corporations Act 2001. (The effect of serving a statutory demand is that a company will be presumed insolvent if, after 21 days it fails to pay the debt or is unsuccessful in having the demand set aside by a Court.)

Subsequently, and pursuant to the SOPA, Shoemark obtained judgment against Powerpark from the Local Court for $48,230.74 being the amount determined under adjudication plus fees and interest.

Powerpark applied to the Supreme Court to have the statutory demand set aside on the following grounds:

  • There was a genuine dispute about the existence or amount of the debt due to a purported jurisdictional error affecting the adjudication certificate and judgment.

One of the contracts for which the adjudication was determined related to work performed in Queensland. Powerpark claimed that as the SOPA expressly excluded work performed outside of New South Wales, the adjudication was ‘beyond the jurisdiction of the adjudicator’. It followed that the judgement issued by the Local Court in reliance of the adjudication certificate should be void.

The Court rejected this argument. Although the SOPA does not apply to work performed outside of New South Wales that in itself, was insufficient to invalidate the judgement. Whilst a potentially erroneous decision is reviewable, once the adjudication certificate is filed the debt is nevertheless payable.

Although Powerpark may have applied for judicial review to stay the judgement for jurisdictional error, its’ time for commencing proceedings had expired and it failed to explain any reason for not commencing or delaying proceedings.

  • The jurisdictional error constituted ‘some other reason’ as to why the demand should be set aside in accordance with s 459(1)(b) of the Corporations Act 2001.

Powerpark was again unsuccessful on this argument. The Court has discretion regarding what may constitute ‘some other reason’ to have a statutory demand set aside however, ‘the pendency of curial proceedings’ was, without more, insufficient to establish ‘some other reason.’

  • Powerpark had an offsetting claim against Shoemark comprising the losses claimed due to defective work.

On this point Powerpark was again unsuccessful in having the statutory demand set aside. It did however convince the Court of its offsetting claim resulting in the amount of the statutory demand being reduced to $21,483.14 which took into account the defective works.

Key takeaways

  • A judgment arising from the filing of an adjudication certificate determines that the judgment debt is indisputably due and payable. The legislative policy supporting the SOPA is to facilitate payment of an adjudicated amount notwithstanding the potential of a ‘curial dispute’ which, if later established could be cured by restitution.
  • An offsetting claim (in respect of a statutory demand) may be ordered by a Court without disturbing the validity of an adjudication certificate or the statutory demand.
  • Once a judgment debt issues, the subject of an adjudication certificate, a respondent will face difficulties in challenging its validity. Obtaining early advice during any construction payment dispute is important to ensure the merits of the proceedings and relevant timeframes are considered.

If you or someone you know wants more information or needs help or advice, please contact us on +612 9248 3450 or email [email protected].

The Building Code of Australia – compliance issues

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The Building Code of Australia (‘BCA’) contains a series of technical provisions that dictate a range of minimum acceptable standards in respect of the design and construction of buildings and various other structures. It is produced and updated by the Australian Building Codes Board on behalf of the Commonwealth Government and all State and Territory governments.

The BCA is found in the first two chapters of the National Construction Code (‘NCC’) and has been in effect since 1 May 2011.

Why do we need a national building code?

The BCA was introduced as a means of ensuring that minimum construction standards around the country were consistent. Compliance with the BCA’s technical requirements is therefore mandatory in all States and Territories.

What does the BCA cover?

The BCA covers a broad range of building and construction related matters including standards for structural adequacy, fire resistance requirements, energy efficiency and sustainability, issues that affect the health and amenity of building occupants and matters concerning access and egress.

How do I know if my building complies with the BCA?

The technical requirements of the BCA are split into two volumes.

In order to ascertain whether your building is compliant, or the steps you need to take to ensure that it becomes compliant, the first thing you need to do is determine which volume your building comes under.

Technical requirements in the BCA depend on which class of building is involved. There are 10 possible classes of buildings and these are divided between the BCA volumes as follows:

  • Volume One – Commercial Buildings – covers requirements for all Class 2 to 9 buildings (commercial buildings) as well as access requirements for persons with a disability (Class 1b and 10a buildings) and Class 10b swimming pools which all have access requirements for people with a disability; and
  • Volume Two – Housing provisions – includes Class 1 and 10a buildings (save and except for access requirements for persons with a disability in Class 1b and 10a buildings), specified Class 10b structures (again, other than access requirements for persons with a disability in Class 10b swimming pools) and Class 10c private bushfire shelters.

Do the same standards apply to domestic and commercial dwellings?

Not surprisingly, the BCA provisions for housing differ significantly from those that apply to commercial buildings. If you are in any doubt as to what volume your construction will be covered by, especially if you are considering a mixed use development, then it is always prudent to seek legal advice prior to embarking on any construction rather than waiting and finding out at the end of construction that minimum standards have not been met.

Does the BCA prescribe all aspects of a build including mandatory materials?

The aim of the BCA is not to dictate that only certain materials or building methods will be permitted to be used if a building is to be compliant. Rather, the BCA is a performance-based building code. This means that the use of alternative materials, designs and even construction methods may be permitted provided the minimum standard requirements of the code are met.

In this way innovative materials and new construction methods can be allowed with designs being tailored to suit a particular build and flexibility of design is allowed provided the intent of the BCA is met. The aim of the BCA is to set minimum standards not to dictate what materials or designs can be used to achieve those standards.

How is compliance with the BCA assessed?

Just as no single building method or material is prescribed as being mandatory by the BCA there is also no single method of assessment applied to determine compliance. Under the BCA there are several acceptable assessment methods available including:

  • Evidence based assessment – which allows for the provision of a report from Registered Testing Authority, a current Certificate of Accreditation or Certificate of Conformity, a certificate prepare by either a professional engineer or some other appropriately qualified person, a current certificate issued by a product certification body provided that body has been accredited by the Joint Accreditation System of Australia and New Zealand or any other form of acceptable documentary evidence that is able to adequately demonstrate suitability for use;
  • Verification methods – including calculations or mathematical models or tests using a technical operation either on site or under suitable laboratory conditions;
  • Alternative method (sometimes referred to as any other method) – alternative methods may be used provided the relevant authority is satisfied that compliance with the BCA has been achieved. In making such a decision an approval authority may have regard to relevant deemed-to-satisfy provisions or verification methods provided for in the BCA;
  • Expert judgment – in situations where tests or modelling calculations are not available the opinion of a technical expert may be acceptable; and
  • Comparison – a comparison is made between the proposed building method and the ‘deemed-to-satisfy’ method set out in the BCA. Provided that it can be demonstrated to the approval authority that the proposed building solution is either equivalent or superior to the ‘deemed-to-satisfy’ provision, then the proposed method or material may be deemed to meet the relevant performance standard.

Although the BCA is designed as a plain English document navigating your way around the BCA does require a certain degree of prior knowledge and skill. If you have any questions or would like assistance in understanding the BCA or ensuring your building complies with the BCA requirements we would be happy to assist.

If you or someone you know wants more information or needs help or advice, please contact us on +612 9248 3450 or email [email protected].

Building Defects – Damage to Balconies

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Due to the widespread construction of high density apartments and townhouses there has also been an increase in the construction of balconies. Balconies are susceptible to water damage which can lead to damage to the internal elements of the building.

The defective construction of balconies has become an increasingly common dispute affecting owners’ corporations.

In this article we look at some common defects and a case that illustrates the issues facing owners and builders if a dispute arises.

Causes

Defects with balconies can arise as a result of poor architectural design, defective construction by builders or maintenance issues.

For example, an inadequate slope that does not drain water properly, or drains it toward the building can lead to water ponding on the balcony.

When water ponds on a balcony it might bring to light issues with the waterproofing membrane at the door threshold or on the balcony itself. For example, waterproof flashing may have been omitted or damaged during the construction of the balconies.

Finally, balcony leaks might be caused by issues such as render cracking caused by foundation movement as a result of lack of property maintenance.

Disputes in relation to balcony defects can be complicated due to the technical nature of the disputes and often cannot be satisfactorily resolved without expert evidence as to the cause of the defects.

Case Study

The case of Guney & Ors v CFM Property Group Pty Ltd (Domestic Building) [2013] VCAT 514, involved a dispute between 4 owners of townhouse units and the builder of those units, regarding the alleged defective construction of the balconies. The owners alleged that water leaks in the balconies and exterior cladding had occurred.

The parties reached a settlement of the dispute at mediation whereby it was agreed that the builder would rectify the defective balconies within a certain timeframe. The builder failed to undertake the rectification works, stating that he was unable to complete those works due to inclement weather.

The owners pursued their claim before the Victorian Civil and Administrative Tribunal. And each party retained a building consultant who provided expert evidence before the Tribunal.

The Tribunal found that the owners had given the builder ample opportunity to rectify the defective balconies and that it would be unreasonable to require the owners to give the builder a further opportunity. Instead, the Tribunal assessed the owners’ damages as the costs they would incur in engaging an alternative builder to attend to the rectifications.

Conclusion

Building defects can have serious detrimental effects on the use, enjoyment and value a property. It can often be difficult to identify the party responsible for rectifying balcony defects. Without expert legal advice, it is possible that the costs of the defect will be unfairly borne by an incorrect party.

If you or someone you know wants more information or needs help or advice, please contact us on +612 9248 3450 or email [email protected].