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This article appeared in the October 2019 issue of ClubLIFE Magazine

A club that enters into a Construction Contract or ‘Letter of Understanding’ can experience a financial and commercial crisis if it is unable to pay the builder monies owed.

In such circumstances, the club could be at risk of being wound-up for insolvency within a short period of time due to the relatively quick and cheap processes that are available to a builder to obtain a judgment for the debt against a club under the Building and Construction Industry Security of Payment Act 1999 (NSW) (Act).

Under the Act, every builder undertaking commercial construction work in NSW is accorded the right to make regular ‘payment claims’ to the club and to legally oblige the club to promptly pay those claims unless validly contested by the club in accordance with the Act.

If a club has grounds to contest a payment claim and wishes to dispute that payment claim, the club must do so by way of serving a ‘payment schedule’ on the builder within 10 business days of receiving the payment claim. The payment schedule must comply with the Act and clearly set out the reasons the club is proposing to withhold payment.

If the club and the builder cannot resolve the payment dispute and the club does not pay the amount of the payment claim, then the builder can proceed to ‘adjudication’ under the Act.

Adjudication involves an independent third party adjudicator making a determination that binds both parties by way of the issue of an ‘adjudication certificate’.  The adjudicator can only take account of the club’s submissions to the extent that those submissions are addressed in a payment schedule which means it is vital for clubs to get this right in the first instance.

The Court will grant the builder a judgment for the amount of the adjudicated debt if the builder lodges the adjudication certificate with the Court. The judgement debt is then enforceable in the same way as any court judgement in New South Wales.

Given the potential serious exposure to a club under the Act, a club should take all steps necessary to mitigate its risk, including by ensuring that:

      • it has the funding to pay for the entire project. If not, the club may need to consider taking steps to mitigate its exposure, including by inserting relevant provisions into the Construction Contract;
      • the plans and specifications and all financial terms are fully and comprehensively documented in the Construction Contract to ensure that the club is placed in as strong a position as possible should a commercial dispute evolve with the builder (especially as under the Act there may be an independent adjudicator who makes a binding decision from reading the plans and specifications and provisions of the Construction Contract); and
      • the club engages an expert before it enters into the Construction Contract – to assist in administering, assessing and managing payment claims.

 

For more information, please contact one of our Clubs & Hospitality or Property specialists:

Ray Travers

Bruce Gotterson

Brent Wilson

John Ralston

Michael McCluskey

Matt Goodwin

Victoria Balis

 

 

This article is intended to provide general information in summary form on a legal topic, current at the time of publication.  The contents do not constitute legal advice and should not be relied on as such. Formal legal advice should be sought in specific circumstances.