NSW: Payment Schedule NOT Served - Claimant NOT Paid
If a repondent fails to provide a payment schedule within 10 business days, or earlier time if provided by the construction contract, and does not pay the full or any part of the claimed amount by the due date for payment, a statutory debt is created which the claimant is entitled to recover upon demonstrating the work was performed under a valid construction contract between the parties.
The claimant may now decide from the following possibilities.
- Seek to recover payment by giving notice of adjudication; or
- Make application to the court; and
- Suspend work on giving 2 business days' notice.
Seek to recover payment by giving notice of adjudication
Almost all claimants choose to go to adjudication as this avenue avoids the risk of lengthy and expensive litigation. Often claimants also give 2 business day's notice of suspension of work. Adjudication is a quick and informal process introduced by government to "keep the money flowing in the building and construction industry". It represents an alternative to the slow, expensive and difficult process of going to court.
The right to make an adjudication application or to suspend work only arises after the due date for payment has passed. A common reason for an adjudication application not being properly made is that the claimant gives notice of adjudication either too early or too late because they have wrongly calculated the due date for payment. We have prepared a flowchart to assist parties calculate the due date for payment under a contract. Click here to go to the due date for payment flowchart.
Make application to the court
Why would a claimant to go to court when the government has provided a speedy and cost effective alternative for the valuation of progress claims?
Too often claimants still go to courts because their legal advisers are unfamiliar with the Act and don't know better. However, in some cases, there may be reason to pursue litigation over adjudication.
Failure to provide a payment schedule within time and pay by the due date for payment creates a statutory debt for the claimed amount which the claimant is entitled to recover upon demonstrating the work was performed under a valid contract between the parties. Therefore it may seem attractive to apply to the court of applicable jurisdiction for summary judgement. Unfortunately there are potential hurdles to overcome.
A number of claimants have been frustrated in attempts to obtain summary judgement and been forced to spend considerable sums on litigation. For example, a respondent may choose to argue that the work was not performed under a valid construction contract and thereby avoid paying the debt until judgement - a process that can take many months or years during which period the respondent continues to hold the money. Where the claimant is in financial hardship, possibly due to these same unpaid debts, the delay resulting from a defended application for summary judgement may result in insolvency.
In court, the respondent (in a court the respondent is known as "defendant"), can place unreasonable pressure on the claimant to accept a financial settlement for less than may be realised by adjudication, simply to avoid financial hardship and end the conflict. However for the respondent with its own financial problems, litigation can be attractive, even if ultimately expensive and unsuccessful, as it allows them to continue trading with the claimant's money.
If the claimant chooses adjudication, the determination is available within 10 business days from receipt of the parties receipt of the adjudicator's notification of acceptance (about 15 business days from the date of service of the adjudication application) and any money payable determined by the adjudicator must be paid to the claimant before the respondent can pursue other dispute resolution remedies available under the construction contract or at law.
In the rare event the respondent seeks to have the adjudication overturned in court, the respondent must pay the adjudicated amount into the court before the application can proceed. Therefore the incentive for the respondent in delaying judgement is gone. Also there are very limited legal grounds available for such applications to set adjudication determinations aside, including that the work was not performed in the building and construction industry or the adjudication application was made out of time. Simple adjudicator error on the facts of the dispute is not an accepted ground.
Before choosing the litigation path, legal advice should be obtained. We strongly recommend that you take advice from a lawyer practicing in building and construction law and who is familiar with the Act. Unfortunately we have witnessed many occasions when claimants have blindly accepted advice from their neighborhood solicitor who is unfamiliar with the industry and Act. The results can be disastrous for claimants.
Suspend work on giving 2 business days' notice
Regardless of whether the claimant chooses adjudication or litigation, there is a statutory right to suspend work on giving 2 business days' notice to the respondent.
Please move to the next step on the NSW flowchart "Claimant chooses adjudication as faster and cheaper alternative to court action".