Medical Fit Out claim under Security of Payment Law and major defects litigation avoided. Injunction and Supreme Court Declaration that no reference date meant Adjudication Determination was void.

The client was a medical professional who had engaged a builder to complete a commercial fit out of his new premises. The builder’s form of contract was poor. In addition, the builder had made pre-contractual representations to the effect that it had significant experience, would take care of everything and that the client didn’t need to worry about anything.

The contract did not contain any terms adequately dealing with the building approval process, contract variations or delays.

There were a number of variations to the scope of works, however, the builder did not charge the variations in the manner that had been verbally agreed.

Performance of the works was significantly delayed causing the client to suffer additional costs in the form of rent at his business’ former premises.

When the works were nearing completion the client realised that there were numerous significant defects. At this time the client also realised that despite the builder’s pre-contractual representations the builder had failed to obtain a Construction Certificate from Council authorising it to carry out the works. Consequently, even if the defects were rectified the client would have been unable to obtain an Occupation Certificate for the premises that was necessary for him to lawfully occupy and use the premises for his business.

A dispute arose in relation to the defects and the builder’s responsibility for obtaining a Construction Certificate. The client sought advice from another law firm around the same time the builder served what was a Payment Claim for approximately $215,000 under the Building & Construction Industry Security of Payment Act (“the SOP Act“). The other law firm failed to advise the client of the need to respond to the Payment Claim and the client failed to provide a Payment Schedule within the allowed time.

The builder was represented by a large Sydney law firm who promptly issued a letter of demand claiming a statutory right to payment under the SOP Act as a result of the client’s failure to provide a Payment Schedule in response to the Payment Claim.

The client sought advice from Roberts Legal. We were able to find a compelling argument to undermine the validity of the builder’s Payment Claim and asserted a cross claim under the law of misleading and deceptive conduct for breach of contract and that would be raised if the builder took any steps to enforce a statutory right to payment under Section 15(4) of the SOP Act. The initial correspondence deterred the builder from taking any action under the SOP Act which may have required the client to pay the sum of $215,000 to the builder or into Court.

Roberts Legal then coordinated a Building Defects Report and termination of the contract. In order to be able to obtain an Occupation Certificate for the premises, a separate Complying Development Certificate was obtained in relation to the necessary rectification works and works that would otherwise have been required by Council had the builder initially sought a Construction Certificate.

Consistent with the client’s duty to mitigate his loss, the builder was given an opportunity to perform the works under the Complying Development Certificate, however, failed or refused to complete all necessary work satisfactorily.

An up-to-date Building Report was obtained in relation to the remaining defects and incomplete works and a Quantity Surveyor engaged to determine the costs of completion as well as the proper cost of variations. The costs were approximately equal to the sum of $215,000 claimed by the builder and an offsetting claim was affirmed.

The builder ceased being legally represented and engaged a debt collector who purported to serve a new Payment Claim for $350,000.00. Roberts Legal responded denying the validity of the Payment Claim and in the alternate providing a detailed Payment Schedule offsetting the builder’s claim. The builder did not make any Adjudication Application in relation to the Payment Claim under the SOP Act.

Two (2) month’s later the builder, via the same debt collector, purported to withdraw the Payment Claim and serve a new Payment Claim now claiming $465,000.00. Roberts Legal again responded denying the validity of the Payment Claim and asserting that the purported withdrawal of the previous Payment Claim was an abuse of process and/or misleading and deceptive conduct in breach of Section 18 of The Australian Consumer Law exposing the builder to further liability as a result of the debt collector’s actions. The builder again did not make any Adjudication Application in relation to the Payment Claim.

Approximately three (3) months later the builder, this time unrepresented by a Solicitor or debt collector, purported to serve another new Payment Claim claiming $460,000.00 Roberts Legal again responded asserting the Payment Claim was invalid and in the alternate providing a Payment Schedule based on the previous Payment Schedules.

This time the builder lodged an Adjudication Application. Roberts Legal prepared an Adjudication Response on behalf of the client addressing issues relating to jurisdiction as well as the substantive issues in dispute. An important jurisdictional issue that arose from the latest Payment Claim was the interpretation of ‘reference dates‘ under the SOP Act in respect of the contract.

The Adjudicator accepted the majority of the offsetting claims in relation to the defective and incomplete works, however, found for the builder in relation to the dispute concerning how variations were to be charged. Significantly, the adjudicator found that despite the contract making express provision for progress claims to be claimed upon the works reaching certain milestones, the builder was also entitled to claim a progress payment by virtue of a clause relating to interest on overdue payments and that, therefore, there was an available reference date in relation to the builder’s third Payment Claim following completion. The Adjudicator issued an Adjudication Certificate providing that the client was liable to pay $210,000.00 to the builder.

Roberts Legal gave advice concerning the validity of the Adjudication Determination and was instructed to seek an Urgent Injunction in the Supreme Court staying enforcement of the Adjudication Certificate and an Order declaring the Adjudication Determination void.

The Injunction was granted and the builder finally sought legal advice from an experienced building lawyer. Within seven (7) days Consent Orders were negotiated granting the relief sought together with costs in favour of the client.

The Costs Order was also promptly negotiated and the sum of $18,000.00 recovered from the builder.

The client maintained a total offset of his losses and reserves his rights generally.

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Our Building & Construction Team is headed by an Accredited Specialist in Commercial Litigation and author of our popular Security of Payment Guide. Read More…

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