If a person fails to pay a debt, ultimately, only the courts can lawfully enforce payment. The courts have various mechanisms for enforcing payment. These mechanisms depend first upon a court declaring by way of a judgment that the debt is owed. Examples of enforcing payment include:
- Using the Sheriff to seize and auction off goods or property;
- Compelling creditors of the judgment debtor to pay the judgment creditor directly (attachment of debts);
- Issue of a debt certificate under section 33 of the Act;
- Taking instalments from wages; and as a last resort
- Bankruptcy or, in the case of a company, winding-up the company.
Prior to the application of the Building and Construction Industry Security of Payment Act 2002, a creditor had to prove a “cause of action” in order to obtain a court judgment in relation to an alleged debt. In the case of claims under construction contracts, this can be a very drawn out and costly process. It involves issuing and serving a summons on the debtor. If the summons is defended, it means proving that the work was done and has the value claimed while defending cross claims eg. for defective work. It involves a hearing with witnesses, cross examination and production of documents and usually involves considerable legal expense. The time, cost and difficulty of securing judgment has been used by respondents to delay or frustrate legitimate claims.
The Act is intended to make it very much easier for a claimant to obtain statutory entitlement to a payment on account. It is an entitlement which is created quickly and without the expense and formality involved in proving the debt before a court.
If a respondent wants to claim that they are not liable to pay the payment claim or any part because the work was defective or does not have the value claimed or because the claimant breached the contract, the respondent must do so in a payment schedule served within the strict time limits provided in the Act. Failure to follow this process denies the respondent the traditional defences in a court of law.
Serving of a payment schedule ensures that the validity of the respondent’s reasons for non-payment can be decided promptly, inexpensively and without formality by an adjudicator, instead of a court. If the respondent considers that the adjudicator is wrong, the respondent must still promptly pay the amount determined by the adjudicator to the claimant.
While the respondent can commence legal proceedings to recover an alleged overpayment as a result of an adjudication decision, it is the respondent that now must prove a cause of action and has the prospect of the delay, cost and expense involved in recovering the alleged overpayment.
Similarly, if the claimant considers that the amount determined by the adjudicator is too little, the claimant can sue for the balance, but that claim cannot be a claim under the Act. The cost and work involved in suing is such that after adjudication parties rarely continue with litigation.
There are three instances where the Act creates a statutory debt, namely:
- Where the respondent fails to serve a payment schedule within time, the whole amount of the payment claim becomes a statutory debt.
- Where the respondent provides a payment schedule and fails to pay the scheduled amount, the scheduled amount becomes a statutory debt.
- Where an adjudicator or review adjudicator determines the amount of the progress payment due, that amount becomes a statutory debt.
After the adjudicator issues the determination, if the adjudicated amount is not paid on time, a claimant must calculate the amount of the payment due and commence the simple process of enforcing the adjudicator's decision.
The amount of the payment due includes:
- The amount determined by the adjudicator;
- The respondent’s share, if any, of adjudication fees paid by the claimant; and
- Interest, if any, on the unpaid progress payment from the date due to the date of the certificate less any part payment already made.
In order to secure judgment for the adjudicated amount, the claimant should:
- Request Adjudicate Today (who nominated the adjudicator) to issue an adjudication certificate certifying the amount due; and
- File the adjudication certificate (with an affidavit of debt) in any court of competent jurisdiction.
Courts of competent jurisdiction are:
- Magistrates Court for amounts up to $100,000.
- County Court for amounts exceeding $100,000 with no upper limit.
- Supreme Court for amounts exceeding $200,000 with no upper limit.
Adjudicate Today prepares and issues the adjudication certificate. The claimant must prepare the affidavit of debt and swear the affidavit before a Justice of the Peace or a solicitor. Fees will be payable to Adjudicate Today and the court. The court will then give the claimant a certificate of judgment.
The advantages of this process include the fact that there is no need to issue a summons and, if the respondent wishes to stop enforcement of the judgment, the respondent must make an application to the court to set aside the judgment.
If the respondent makes such an application, the respondent must pay into court as security the unpaid portion of the adjudicated amount. This eliminates the advantage, which a respondent had when the respondent could retain the disputed amount while legal proceedings were in progress.
If the respondent makes application to set aside the judgment for the adjudicated amount, the claimant will usually need a solicitor to assist the claimant to oppose the application.
