NSW: Why Not Litigation?
Why would a claimant elect to go to court when the government has provided a speedy and cost effective alternative to value progress claims? Adjudication was introduced following lobbying from industry associations so their members could avoid the risks, costs, stress, delay and uncertainty of litigation.
Too often claimants go to court 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 there is an attractiveness about applying to the court of applicable jurisdiction to obtain summary judgement for the statutory debt. Unfortunately there are potential hurdles to overcome.
A number of claimants have been frustrated in attempts to obtain summary judgement and have 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 longer. Where the claimant is in financial hardship, possibly due to these same unpaid debts, the delay resulting from a defended application for summary judgement can result in insolvency.
For the respondent (in a court the respondent is known as "defendant"), there is the opportunity to place unreasonable pressure on the claimant to accept a financial settlement for less than may be realised by adjudication, simply to avoid financial hardship or worse. However for the respondent with its own financial problems litigation can be attractive, even if ultimately expensive and unsuccessful, as it allows it to continue trading with the claimant's money.
If the claimant chooses adjudication, the determination is available within 10 business days (unless the parties agree to an extension of time) from when the adjudicator notifies the parties of acceptance of the adjudication application. Generally this is about 15 business days from the date of service of the adjudication application. Any determined amount 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 that the respondent seeks to have the adjudication set aside, the respondent must pay the adjudicated amount into the court before the application can proceed. Therefore the incentive for the respondent to delay court proceedings is gone. Also there are only limited legal grounds available for 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 or the respondent was not a party to the construction contract. Simple adjudicator error on the facts of the dispute is not an accepted ground.
Before choosing to take the litigation path, legal advice should be obtained.
Regardless of whether the claimant chooses adjudication or litigation, the statutory right to suspend work is available.
The great majority of claimants choose adjudication but, before the process can be commenced, the respondent must be given a second opportunity to serve the payment schedule (response).