Debt dilemma: Interplay between Contractors Debts and Security of Payment legislation
Andrew Hales | Emily Miers | Conor Bates
Key takeouts
- This judgment highlights the interplay between the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act) and the Contractors Debts Act 1997 (NSW) (CDA). It underscores the Court’s willingness to construe the SOP Act and CDA in a way that achieves their harmonious interaction.
- When a party assigns the principal’s obligation to pay the contractor to a subcontractor under the CDA, this assignment must be considered when assessing the amount due between the principal and the contractor, even after an adjudicator’s determination and entry of a judgment debt under section 25 of the SOP Act.
Facts
On 7 December 2023, Woonona Bulli RSL Memorial Club Ltd (club) engaged Warrane Design Construct Fit-Out Pty Ltd (builder) to convert a bowling green into a car park and upgrade an existing car park. On 11 December 2023, the builder subcontracted the works to All Civil Solutions Group Pty Ltd (subcontractor).
Between 16 August 2024 and 13 February 2025, the subcontractor served 3 debt certificates on the club pursuant to section 6 of the CDA. Part 2 of the CDA (including sections 5 to 13) establishes a process that allows an ‘unpaid person’ who is owed money for work carried out for (or materials supplied to) another person, being the ‘defaulting contractor’, to obtain payment of the unpaid amount from a ‘principal’ who engaged the defaulting contractor to carry out or supply those works. The CDA provides that this process operates to assign to the unpaid person (the subcontractor) the obligation of the principal (the club) to pay the money owed under the contract to the defaulting contractor (the builder).
In accordance with the CDA, the club paid amounts to the subcontractor that it otherwise would have paid to the builder for the works under the contract. At the date of judgment, a balance of $1,200,670 was owing by the club to the subcontractor. The club had no outstanding amounts owing to the builder under the contract.
The builder obtained an adjudicator’s determination under section 22 of the SOP Act on 25 January 2025 for $2,094,018 (determined amount) . The club did not pay the determined amount to the builder, leading to the builder filing an adjudication certificate in the Supreme Court and obtaining judgment for the determined amount under section 25 of the SOP Act on 3 February 2025 (judgment). The assignment of the club’s obligation to pay the builder to the subcontractor was not addressed before the adjudicator or in the application for judgment.
The builder applied for an order attaching any credit balance in the club’s Commonwealth Bank of Australia bank account until the judgment debt was paid to the builder and a garnishee order in respect of the attached money. On 20 February 2025, the Court made those orders.
In separate proceedings, also filed on 20 February 2025, the club applied to have the adjudicator’s determination quashed to the extent of $1,030,281 (SOP Proceedings).
In the present proceedings, the club sought to stay the judgment, arguing that the amount due to the builder was overstated in the adjudicator’s determination due to the statutory assignment of debts to the subcontractor under the CDA.
Decision
The Court agreed with the club’s argument that the judgment overstated the amount due by the club to the builder by $1,200,670 following the statutory assignment of debts under the CDA. This meant the maximum amount payable by the club to the builder under the adjudicator’s determination was $941,110.
In this circumstance, the Court stayed the judgment made in the builder’s favour to $1,200,670, set aside the attachment and garnishee orders, ordered the club to pay into the Court $941,110 pending a final hearing of the SOP Proceedings, and consolidated the proceedings with the SOP Proceedings.