Enforcement

The recovery of money owing can be a slow and costly exercise. While the Act provides for the speedy resolution of disputes arising under construction contracts and clarity in relation to the right to recover monies due and owing pursuant to an adjudicator’s determination, and the process to be followed for that purpose, the basic court processes that must be relied on in the event of default and failure to pay on the part of a debtor remain slow and unchanged.

When deciding which process to use for the recovery of money owed, consideration needs to be given to a number of relevant factors including: the amount of the determination; urgency, including the likelihood of the respondent going into liquidation; whether the contract is finished or work is still being completed; and whether there is an entitlement to a charging order in respect of the construction site.

The Building Disputes Tribunal strongly encourages any party seeking to enforce an adjudicator’s determination to promptly seek independent legal advice from a lawyer experienced in the processes for enforcement and recovery of monies due under an adjudicator’s determination, before taking any steps towards recovery.
 

For construction contracts entered into before 1 December 2015

An adjudicator’s determination that a party to the adjudication is liable to meet a payment under the construction contract is enforceable.

If an adjudicator determines that any of the parties to an adjudication are liable to make a payment under the relevant construction contract, such payment must be made within two working days from the date of receipt of the adjudicator’s determination, unless a later date for payment is specified in the determination.

If a party fails to pay the whole, or any part, of the amount determined by an adjudicator before the end of the relevant period (whether two working days or any other period specified in the determination), a claimant in an adjudication relating to a commercial construction contract may proceed to enforce the determination as a debt due in any court together with the actual and reasonable costs of recovery or, by entry as a judgment in the District Court.

A party to a commercial construction contract seeking payment of any costs or expenses incurred in the adjudication that the adjudicator has determined is payable by another party may apply for that determination to be enforced by entry as a judgment in the District Court.

The right to enforce a determination by entry as a judgment does not apply to residential construction contracts.

If a defendant wishes to oppose an application for enforcement of the adjudicator’s determination by entry as a judgment, the respondent must, within 15 working days after the date on which the defendant is served a copy of the application, apply to the District Court for an order that entry of the adjudicator’s determination as a judgment be refused.

A determination solely relating to questions in dispute about the rights and obligations of the parties under a construction contract is not enforceable, however, in any proceeding to enforce that party’s rights under the contract, the court must have regard to the adjudicator’s determination but is not bound by it.

A party who carries out construction work under a construction contract who is entitled to be paid an amount of money pursuant to an adjudicator’s determination in respect of a commercial construction contract, has the right to suspend work after giving proper notice under the Act, if the party liable to pay that amount has not done so by the end of the relevant period.
 

For construction contracts entered into or renewed from 1 December 2015

An adjudicator’s determination that a party to the adjudication is liable to meet a payment under the construction contract, or about the parties’ rights and obligations under that contract, is enforceable.

If a party fails to pay the whole or any part of the amount determined by an adjudicator before the end of the relevant period (whether two working days or any other period specified in the determination), a claimant may proceed to enforce the determination as a debt due in any court together with the actual and reasonable costs of recovery, or by entry as a judgment in the District Court.

A party seeking to enforce an adjudicator’s determination in respect of rights and obligations under the contract may apply to the District Court to have the determination enforced by entry as a judgment.

If a defendant wishes to oppose an application for enforcement of the adjudicator’s determination by entry as a judgment, the respondent must, within five working days after the date on which the defendant is served a copy of the application, apply to the District Court for an order that entry of the adjudicator’s determination as a judgment be refused.

A party who carries out construction work under a construction contract who is entitled to be paid an amount of money pursuant to an adjudicator’s determination, has the right to suspend work after giving proper notice under the Act if the party liable to pay that amount has not done so by the end of the relevant period.

Each of the enforcement options is discussed in more detail below.
 

Suspending work

Suspension of work is often a very effective means of enforcing compliance with an adjudicator’s determination if the works are ongoing and time for completion is critical.

 

For construction contracts entered into before 1 December 2015

Section 72 of the Act permits a party to a commercial construction contract to suspend work if an adjudicator’s determination has not been complied with, but care must be taken to ensure that proper notice has been issued and that all the relevant information required by section 59(2)(b) and (3) has been included.

The Act does not provide a right to suspend work under a residential construction contract and accordingly the right to suspend work will only exist in relation to a residential construction contract when that right is specifically conferred by the express terms of the construction contract.

 

For construction contracts entered into from 1 December 2015

Section 24A of the Act permits any party who carries out construction work under a construction contract to suspend work if an adjudicator’s determination has not been complied with, but care must be taken to ensure that proper notice has been issued and that all the relevant information required by section 59(2)(b) and (3) has been included.

If a party properly exercises the right to suspend work under the Act, that party:

  • is not in breach of the construction contract;

  • is not liable for any loss or damage suffered by any party;

  • is entitled to an extension of time to complete the works; 

  • keeps its rights under the contract including any right to terminate the contract; and

  • may lift the suspension at any time even if the amount has not been paid in full.

The right to suspend work ceases when the determination is complied with and payment is made in full. If a party failed to return to site after the determination was complied with, it would not be able to rely on the protections of the Act and may be held to be in breach of contract and liable for damages for loss.
 

Recovery of the unpaid amount as a debt due in Court

A party seeking to recover the unpaid amount of an adjudicator’s determination as a debt due in court would need to commence summary judgment proceedings, issue a statutory demand if the debtor is a company, or issue bankruptcy proceedings if the debtor is an individual, for the amount of the unpaid debt.

The Act expressly entitles a party to recover the unpaid portion of any amount determined payable by an adjudicator and the actual and reasonable costs of recovery from the defaulting party (s59(2)).

In short, the process involves filing the requisite evidence of the debt together with an explanatory statement giving the debtor the opportunity to respond and the court issuing a judgment.

Independent legal advice should be sought before commencing any recovery proceeding.

 

Entry as a judgment

 

For construction contracts entered into before 1 December 2015

The Act provides that a party to a commercial construction contract seeking to recover the unpaid amount of an adjudicator’s determination may apply to the District Court to have the determination entered as a judgment.

A defendant is entitled to oppose the application for enforcement within 15 working days after the date on which the defendant is served with a copy of the application.

 

For construction contracts entered into or renewed from 1 December 2015

A party to any construction contract entered into or renewed from 1 December 2015 may seek to recover the unpaid amount of an adjudicator’s determination or to enforce an adjudicator’s determination in respect of rights and obligations under the contract by applying to the District Court to have the determination entered as a judgment.

A defendant is entitled to oppose the application for enforcement within five working days after the date on which the defendant is served with a copy of the application.

To obtain entry of the adjudicator’s determination as a judgment, the steps in Subpart 2 of Part 4 of the Act need to be carefully followed. First, a party needs to make an application to the District Court in the manner provided by the rules (if any) and must serve the application on the defendant along with a statement setting out the consequences for the defendant if the defendant takes no steps in relation to the application.

Any application to oppose entry as a judgment by the Court may only be made if the defendant can establish:

  1. that the amount payable under the determination has been paid in full to the plaintiff;

  2. that the contract to which the determination relates is not a construction contract to which the Act applies; or

  3. that a condition imposed by the adjudicator in his or her determination has not been met.

f the defendant does not take any steps to oppose the entry of the determination as a judgment within the permitted time (either 15 or five working days) or the grounds for opposition do not fall into any of the above categories, the District Court must enter the determination as a judgment.

If the adjudicator has approved the issue of a charging order in respect of the construction site and the plaintiff has applied to the Court for the issue of a charging order, the Court must immediately issue a charging order in respect of the construction site if the adjudicator’s determination is entered as a judgment.

Once the determination is entered as a judgment, the plaintiff can then enforce the judgment in accordance with the District Court Rules by means of an order for financial assessment, attachment order, or a distress warrant. An order for financial assessment requires the debtor to appear before the Court Registrar to be examined as to the debtor’s financial situation to see if the debtor is able to pay the debt. If the Court determines that the debtor is able to pay, the Court will make an order for payment.

An attachment order directs the employer of the debtor to make deductions from the debtor’s wages or salary, or from benefits, and to pay the money directly to the creditor. The amount to be deducted will be decided by the Court after consideration of the circumstances.

A distress warrant permits a collections officer from the District Court to seize goods from the debtor to the value of the debt. These goods are generally held for five days and then sold with the proceeds being paid to the creditor, less the expenses incurred in the seizure and sale of the goods.

 

Charging Orders

An Adjudicator may, in certain circumstances, approve the issue of a charging order in respect of the construction site owned by a party to the construction contract against whom a claim is made in an adjudication or an associate of that person.

The term ‘charging order’ refers to an order that may be obtained against land that prevents a party dealing with or disposing of the property until all of the debts against the property are paid in full.

The Construction Contracts Act 2002 expressly provides that a claimant may request approval from an adjudicator for the issue of a charging order in respect of the construction site owned by a respondent, or by an owner who is an associate of a respondent (as defined in s7 of the Act ie a spouse, child, parent, partner or related body corporate) in the notice of adjudication.

It is important to note that an adjudicator does not have the ability to issue the charging order itself in respect of the construction site. It is only the Court which can issue a charging order upon application of the plaintiff for enforcement of the adjudicator’s determination by entry as a judgment under sections 73 – 76. If the adjudicator’s determination is entered as a judgment, the Registrar of the District Court must immediately issue a charging order in respect of the construction site.

In order to obtain approval for the issue of a charging order, a claimant must first, refer a dispute about whether an amount of money is payable by a respondent to adjudication, second, seek in the notice of adjudication, approval for the issue of a charging order in respect of the construction site owned by a respondent or a determination of a non-respondent owner’s liability where approval for the issue of a charging order is sought in respect of a construction site owned by an associate of the respondent, and third, ensure that the adjudicator is appointed by an Authorised Nominating Authority such as the Building Disputes Tribunal.

If a claimant has satisfied the criteria under which an adjudicator may approve the issue of a charging order and the adjudicator has determined that the respondent is liable to make a payment to the claimant under the construction contract, the adjudicator must approve the issue of a charging order in respect of the construction site owned by the respondent or, if the adjudicator has determined that the owner is jointly and severally liable with the respondent to pay, the adjudicator must approve the issue of a charging order in respect of the construction site owned by the owner.

While a charging order is a very powerful tool to force a respondent to pay an amount determined as due and owing in an adjudication, it does have some limitations including that it ranks behind advances made under pre-existing charges registered against the property, such as mortgages, and is subject to the normal rules of priority in the event that a sale is forced.

However, if a charging order is lodged against the construction site, it generally constitutes a breach of a borrower’s covenants under standard loan documentation and most lenders refuse to continue to make advances until the charging order is removed (ie the debt is paid).

An adjudicator cannot grant approval for the issue of a charging order in respect of a construction site owned by:

  1. an individual who is occupying, or intends to occupy, wholly or mainly as a dwelling house, the premises that are the subject of a construction contract; or

  2. a family trust and occupied, or intended to be occupied, wholly or mainly as a dwelling house by any beneficiary of the trust.

A plaintiff must apply to the District Court for enforcement of the adjudicator’s determination before the charging order is issued against the title and there is a risk that the Court may refuse to enter the determination as a judgment (and thus issue a charging order) in all the circumstances.

See also the following flowcharts setting out your enforcement options:
For a copy of District Court Form 104: application for adjudicator's determination to be enforced by entry as judgment, see our Forms and Precedents library.
 
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