SOPA’s Position on a Claimant in Financial Difficulty

The Building and Construction Industry Security of Payment Act 1999 (NSW) (SOPA) provides that once an adjudicator has determined that the respondent is to pay an adjudicated amount to the claimant, the respondent must pay this amount within 5 business days of serve of the determination on the respondent or by the due date of payment, whichever is the later (s23 of SOPA).

If the respondent does not pay the claimant the adjudicated amount in accordance with s 23 of SOPA, s 24 allows the claimant to receive an adjudication certificate from Adjudicate Today. This adjudication certificate can then be filed as a judgment for a debt in any court of competent jurisdiction and is enforceable accordingly (s25 of SOPA).

s25(4) of SOPA also entitles the respondent to commence proceedings to have the judgment set aside. Although the respondent cannot challenge the adjudicator’s determination, raise any defence in relation to matters arising under the construction contract, or bring any cross-claim against the claimant, the respondent can raise arguments to set aside the determination on a number of jurisdictional grounds.

Although a respondent may want to do this to avoid having a judgment debt registered against them as it can have an adverse impact on credit ratings, the respondent is typically driven to do this if they have a view to bring separate proceedings against the claimant for claims such as defects or contractual disputes. This is especially salient in circumstances where the claimant is in financial difficulty, in voluntary administration or has displayed a risk of going insolvent. If a respondent was to pay the adjudicated amount and then commence proceedings, there is a risk that the financially challenged claimant may not have enough money (or even be in operation) to pay back the adjudicated amount to the respondent if a Court finds that the respondent’s claim ultimately succeeded.

Section 32(B) of SOPA provides that a corporation in liquidation:

“(1)  …cannot serve a payment claim on a person under this Part or take action under this Part to enforce a payment claim (including by making an application for adjudication of the claim) or an adjudication determination.

(2) …has made an adjudication application that is not finally determined immediately before the day on which it commenced to be in liquidation, the application is taken to have been withdrawn on that day.”

On a reading of this provision, it seems that corporations not in liquidation, and still in voluntary administration, are entitled to the adjudication process and thus receiving the adjudicated sum by the respondent if so determined. This makes sense given that a company in liquidation is not entitled under s 8 of SOPA to a progress payment as by virtue of being in liquidation they cannot undertake construction work or to supply related goods and services.

However, the common law position has attempted to extend this to companies in voluntary administration and companies at risk at becoming insolvent.