Andrew Hales  |  Mark Glynn  |  Joel Dueck

In the matter of Nicolas Criniti Pty Ltd (in Liquidation) [2022] NSWSC 1149

Key takeout

The amount of a progress claim which has been disputed by a principal (or head contractor as the case may be) for reasons set out in a payment schedule is not an enforceable debt arising under the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act) until an adjudicator has made a determination of the disputed amount.

Accordingly, an amount disputed under the SOP Act is only admissible as proof of a debt in a winding up under the Corporations Act 2001(Cth) if:

• it has been determined by an adjudicator; and
• that determination was made before the relevant date, being the day on which the winding up is taken to have commenced under the Corporations Act.

Otherwise, a claimant must rely on the relevant construction contract, as opposed to the SOP Act, to prove its debt.

Facts

Zadro Constructions Pty Ltd (builder) was contracted by Nicolas Criniti Pty Ltd (developer) in May 2017 to construct a residential apartment building in Westmead NSW. During construction, the builder made an adjudication application under the SOP Act, and the following events occurred:

The liquidator of the developer wholly disallowed the builder’s proof of debt on the basis that as at the relevant date of the winding-up, there was no valid debt created by the SOP Act for the purposes of section 553 of the Corporations Act. The builder then commenced proceedings to appeal the liquidator’s rejection of its proof of debt.

Parties’ positions

The parties agreed that the relevant date in this case was 22 November 2019 (the date the developer entered voluntary administration), which preceded the 4 December 2019 adjudicator’s determination. However, the parties disagreed on the effect of this timing, as:

• the liquidator alleged that the only circumstance giving rise to a debt under the SOP Act is the adjudicator’s determination itself (and therefore there was no debt at the relevant date); but
• the builder alleged that the circumstances giving rise to the debt occurred when:
  • the parties entered the construction contract (as the builder was from that point entitled to receive a progress payment by operation of section 8 of the SOP Act); or
  • in the alternative, the payment claim and payment schedule were served and the adjudication application was made. 

Decision

The appeal was dismissed and it was held that as at the relevant date of the developer’s winding-up, the circumstances giving rise to the debt had not arisen because the adjudicator’s determination had not been made.  

The court reviewed the object and operation of the SOP Act and determined:

1. serving a payment claim and payment schedule and making an adjudication application are merely pre-conditions to an adjudicator’s determination and do not give rise to a debt; and
   
2. the adjudicator’s determination itself is the circumstance which gives rise to an enforceable debt under the SOP Act.

Accordingly, while section 8 of the SOP Act provides a statutory entitlement for a builder to receive a progress payment, the right for a builder to recover a progress payment under the SOP Act (and thus have an enforceable debt) does not arise until the progress payment is determined by an adjudicator.   

The court also noted that the builder’s statutory entitlement under the SOP Act is distinct from its rights under the relevant construction contract, and therefore the builder could have and remained entitled to prove in the developer’s winding-up for a debt arising under the relevant construction contract.