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Archive for July, 2014

Pay Now, Argue Later: Principals Must Follow an Adjudicator’s Decision
Tuesday, July 22nd, 2014

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By Craig Hollett, Director at Bowen Buchbinder Vilensky Lawyers

22 July 2014

One of the main purposes of Western Australia’s Construction Contracts Act 2004 (WA) is to make sure that progress payments keep flowing.  Historically, this has caused significant financial hardship to contractors who sometimes had to wait for years to be paid – in the meantime, having to finance the cost of running their own businesses themselves.

The Construction Contracts Act has a system of rapid adjudication if a payment dispute arises, which is conducted without any oral hearing, and in which the Adjudicator makes a determination.  That determination may require the principal to make payment to a contractor of disputed invoices, which means the debt is payable. The contractor may then enforce the determination under the Civil Judgments Enforcement Act 1004 (WA).

Alternatively, if the principal is a company, the contractor can issue a Creditors Statutory Demand.  The risk of a Creditors Statutory Demand can be the potential for a principal  to set it aside on the basis that a “genuine dispute” exists about the existence or amount of the debt.    In such an application, the principal must establish there is a bona fide dispute which is not spurious, hypothetical, illusory or misconceived.

The Western Australian Court of Appeal recently considered such a situation following two separate determinations by an Adjudicator under the Construction Contracts Act 2004 (WA).

The Court of Appeal drew an analogy to the way in which tax debts are treated – i.e., you may dispute the amount you owe the tax office, but you must pay first and argue later.  The Court of Appeal said that even though the principal had commenced District Court proceedings disputing the liability to pay the debts which were the subject of the adjudication, this did not give rise to a genuine dispute which would be capable of setting aside the Creditors Statutory Demand.

This case provides a clear direction to contractors who can take advantage of these provisions to receive payment, even while there may be a dispute continuing with the principal.  This is a very different situation from the one they’ve faced in the past when they had to wait until the conclusion of any Court proceedings before they can hope to see any payment, often with crippling financial consequences.

This case has important implications both for principals and contractors.  As always when signing contracts, seeking legal advice in the short term can save a great deal of financial and emotional energy later.

The full decision of Diploma Construction (WA) Pty Ltd v KPA Architects Pty Ltd [2014] WASCA 91 is available on the Supreme Court website (http://decisions.justice.wa.gov.au/supreme/supdcsn.nsf/judgment.xsp?documentId=5EE18FD9166D886E48257CC40013285E&action=openDocument&SessionID=DRZT6Y89A4).

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