Building and Construction Security of Payment Act – Enforcement of Adjudication Determination by Garnishee - Obligation on a Claimant?

21/09/2017

The Court of Appeal of the Supreme Court of New South Wales recently considered the obligations of a Claimant who had an Adjudication Determination in its favour for approximately $11 million in garnisheeing the Developer’s Bank Account.

The Builder took steps and obtained approximately $11 million by way of garnishee.

Prior to the Adjudication Certificate being filed which is a pre-requisite to obtain a garnishee order, the Developer Fitz Jersey Pty Limited had commenced proceedings in the Supreme Court of New South Wales challenging the validity of the Adjudication Determination.

The Developer did not seek a stay of the Determination or pay the amount as determined to the Supreme Court. The Developer did not seek any undertaking from the Builder to refrain from enforcing the Adjudication Determination.  The Builder Atlas Construction Group Pty Limited went through the processes and garnisheed the bank account of the Developer and obtained payment.

The Court of Appeal dealt with this in the matter of Fitz Jersey Pty Limited v Atlas Construction Group Pty Limited in which the Developer sought an order to set aside the Garnishee Order and repayment of the amount paid under the Garnishee.

In the circumstances of that particular case, firstly the Supreme Court of New South Wales and secondly the Court of Appeal of the Supreme Court of New South Wales determined that the Builder had done nothing wrong and was entitled to act as it did.

As a consequence the Builder received $11 million and was paid its claim. It was thereafter up to the Developer as to whether the Developer would commence proceedings for recovery of any of that amount.  Under the Security of Payment Act the Developer would have that right.

One of the difficulties that arise in such a case is that often the Builder does not have sufficient funds to meet a Judgment.

The Developer could have taken various steps to protect its position pending resolution of the Application that had been made by the Developer seeking an order that the Adjudication Determination be set aside by saying it was void.  Such an Application was not made by the Developer.

The first issue for the Court of Appeal was decided in favour of the Builder.  The Court determined that the Builder was not required to notify the Developer that the Builder had made an Application and obtained a Judgment (based on the Adjudication Certificate) before taking steps to enforce it.  This clarifies the issue that has not previously been dealt with at the Court of Appeal level.

In this particular case the Builder was aware that the Developer had commenced proceedings in the Supreme Court of New South Wales to set aside the Adjudication Determination.

What information is required to be provided to the Court when the Builder made the Application for the issue of the Garnishee Order?  Such an Application is made ex parte without the presence of the other party and there is a question as to what is the duty of candour required.  However the Court held that the Builder’s knowledge that the Developer had made an application to the Supreme Court to set aside the Adjudication Determination was not a matter that the Builder was required to notify the Court in making an ex parte Application for the issue of the Garnishee Order. The Developer could have made an application for a stay so the Builder could not enforce the amount of the Adjudication Determination.  Usually the stay is granted if the Adjudicated amount is paid into Court pending the determination of the Application that had been filed by the Developer.

Even though it was not required to be decided by the Court in this case the Judge said if the Developer had made an Application for a Stay but it had not been determined then that fact should have been disclosed to the Court by the Builder when making an application for a garnishee order.  The Court also indicated that other circumstances such as discussions between the parties even if no agreement had been reached may have been required to be disclosed to the Court.

In those circumstances it is critical that one considers all options available and all circumstances and in particular the principles referred to in this very important case.  Extreme care is required by each of the parties.

If the Developer had in this case taken some steps when filing the Application and had sought an injunction or had paid the disputed amount into the Supreme Court (which is the usual order required by the Supreme Court in such an Application), the Builder would not be entitled to have a Garnishee Order against the Developer without disclosing the relevant facts and possibly there would not have been $11 million in the bank account to be garnished.  .

If the Builder did not disclose those relevant facts the Supreme Court would have significant powers to make orders for the repayment of the funds and other appropriate orders to right the wrong.

It is important that when dealing with matters such as Adjudication Determinations and enforcement which have a very short timetable, you engage experienced legal representatives to assist in obtaining appropriate advice in circumstances that you find yourself.

It is also critical that having regard to the time limits in relation to Applications under the Builder and Construction Security of Payment Act that you seek our advice before you take steps as an Applicant or as soon as you are aware if you are a Respondent to any such Application.

Please do not hesitate to contact Richard Watson or his Personal Assistant Shereen DaGloria if you have any concerns or queries regarding an Adjudication Application and/or Adjudication Determination to obtain advice in relation to such important and consequential matters.

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