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 that 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:
- an individual who is occupying, or intends to occupy, wholly or mainly as a dwellinghouse, the premises that are the subject of a construction contract; or
- a family trust and occupied, or intended to be occupied, wholly or mainly as a dwellinghouse 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.