Snapshot
Judgment debts and adjudication can be complex territory – especially when there’s a dispute over payment and defects.
Consider this scenario: you withhold payment from a builder because you believe their work is defective. The builder takes the dispute to adjudication, and the adjudicator determines that you actually do owe the builder money.
You strongly disagree with that outcome and decide to challenge it in court.
But what happens to the adjudicated debt in the meantime? Do you still have to pay? Can enforcement of your amount due proceed while you dispute it?
These are common and important questions for both builders and principals navigating the Security of Payment process. The answer lies in how adjudication decisions interact with court proceedings – and whether enforcement can be paused while the dispute continues.
The court has clarified a key point in McDonald v MAK Constructions and Building Services Pty Ltd [2024] NSWCA 63: the owner did not need to pay an adjudicated debt before continuing with a court case against the builder. The case explores whether a builder can stop court proceedings until the debt is paid or if the owner can still pursue their claim despite the debt being unpaid.
Facts
In 2022, a contract for residential construction was formed between the owner and MAK Constructions and Building Services Pty Ltd (MAK). After a termination by the owner claiming breaches committed by MAK, adjudication was sought to rectify payment disputes between the parties under s22 of the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act).
The owner subsequently initiated proceedings in the NSW Civil and Administrative Tribunal (NCAT), seeking to recover over $500,000 for alleged defects caused by MAK. While these proceedings were happening in NCAT, an adjudication determination was made in the adjudication proceedings, ordering the owner to pay MAK more than $240,000. This determination was filed by MAK with the NSW District Court for enforcement, converting it into a judgment debt under section 25 of the SOPA. Subsequently, the owner’s proceedings against MAK were transferred to the District Court.
During the course of the proceedings in the NSW District Court, MAK did not take any effective action to enforce the judgment debt against the owner. MAK applied to stay the proceedings in the court until the judgment debt and legal costs were fully paid by the owner, citing insufficient funds to proceed without payment. Such payment, the owner claimed, would leave her financially destitute and unable to continue the case, and therefore, granting a stay would effectively create a final decision in the case.
Decision
NSW District Court grants MAK’s stay in proceedings
The Court granted MAK’s application for stay. The judge found that under s32 of the SOP Act, the owner was only entitled to bring a court proceedings after the adjudication amount had been paid. The owner appealed this to the NSW Supreme Court of Appeal (NSWCA).
Issue
can a court case progress if a simultaneous adjudication debt on the same matter remains unpaid?
The core issue in this appeal was if, when an adjudication amount is issued against the owner and remains unpaid, the owner’s court action for defects against the builder can move forward, or if the adjudication amount must be paid first for the court proceedings to move forward.
Appellate Decision
NSWCA sides with owners
The court ruled on the owner’s side and found that the original trial judge had erred on point of law in granting MAK’s application for a stay. It found that:
- One does not need to pay the required adjudication debt before commencing proceedings to uphold their contractual rights
- The court’s right to grant a stay in proceedings must be exercised with great caution if it so happens that an interim determination may have the result of creating a final outcome (as explained above with regards to the owner’s potential destitution lest she pay everything during the stay);
- MAK’s lack of enforcement of the judgment debt and requesting a stay caused a six-month payment delay, which weighed against him here.
Implications for Victoria
Persuasive precedent but highly useful
Since this decision involves NSW case law and legislation, it is only persuasive in the context of Victorian law. However, it could influence the interpretation of section 47 of the VIC SOPA, suggesting that in similar circumstances, a party may not need to pay the adjudication debt before initiating proceedings to enforce their rights. Additionally, it highlights that builders awarded an adjudication amount should promptly take steps to enforce it.
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