On a Proper Construction Issue 8: Adjudication – You Won but the Other Side Won’t Pay, What Next?

Introduction

In his 2011 book The Better Angels of our Nature Steven Pinker makes an argument that despite our impressions, over time human violence towards other humans has actually declined.

One can then easily imagine the devastation that must have befallen King Epirus during the battles, including those using war elephants, creatures not renowned for subtlety, of the Pyrrhic War against the Romans in 280-275 BC to prompt the philosopher Plutarch to write: “If we are victorious in one more battle with the Romans, we shall be utterly ruined“.

While Construction disputes are not all out war, there is a certain trail of destruction left in their wake so that winning an adjudication can sometimes feel like a “pyrrhic victory”. Especially when the other side refuses (or is unable) to pay. The rapid nature of the dispute resolution rapidly (pun intended) falls away as the parties get bogged down into procedural skirmishes about the enforcement or jurisdictional challenges to the determination.

In these moments, the “pay now, argue later” nature of the adjudication process seems to become “argue now, argue (again) later”.

So, what can you do if an unsuccessful party does not pay the amount determined?

This issue of on a proper construction focuses on enforcement options available in Western Australia to a party under the Civil Judgment Enforcement Act 2004 (WA) (CJEA) who is entitled to be paid an amount under an adjudication determination, in the event that the other party does not pay.

The enforcement options available to you

The first step for a successful adjudication applicant should be to utilise the procedure outlined in section 43 of the Construction Contracts Act 2004 (WA) (CCA) to turn the adjudicator’s determination into an order of the Court. Since the 2016 amendments to the CCA there is no longer any need for judicial oversight of this process. It is merely an administrative matter to turn your favourable determination into an order of the court.

Savvy successful parties should take this step straight away upon receiving the determination. A speedy registration of the determination as an order of the court might be a deterrent to a disgruntled party who is considering making a judicial review application in respect of the jurisdictional decision making by the adjudicator.

A quick registration as an order of the court also means that the determination may, quickly, be enforced using the same court processes that are available to any other successful litigant under Part 4 of the CJEA (but without going through the long and costly process of obtaining a judgment in the “usual way”).

Assuming the other party is a corporation, those enforcement options include:

1. Obtaining a Property (Seizure and Sale) Order (for a sheriff to seize and sell the other party’s real estate property or personal property as necessary to pay the debt);¹
2. Obtaining a Debt Appropriation Order (an order seeking payment from third parties in order to satisfy a debt the third party owes the other party);²
3. Requiring the other party to attend a hearing called a Means Inquiry at which the losing party will be required to answers questions about its assets and liabilities in order for the court to assess its capability to pay the debt;³ or
4. Only after (c), obtaining a:

• • Time for Payment Order (requiring the party to pay the debt by a certain date);⁴ or
  • Instalment Order (requiring the party to pay the debt by instalments of particular amounts at particular times).⁵

Parties to an ongoing project may have the advantage of knowing the status of the other party’s current or future debts or available assets or what properties the other party may have to seize. That can be particularly helpful in the debt appropriation order process.

The debt appropriation process can be particularly useful way to obtain prompt recovery in construction projects. For instance, a subcontractor may be aware that the principal is still paying (and obliged to pay) the contractor under the head contract. The monies payable by the principal to the contractor under the head contract could be appropriated in the following way:

1. The subcontractor wins an adjudication application;
2. The contractor does not pay the amount determined;
3. The subcontractor obtains a judgment under s 43 of the CCA in respect of the adjudication determination; or
4. The subcontractor (being a judgment creditor) applies to the court for a debt appropriation order under s 49 of the CJEA requiring the principal to pay to it an “available debt” that would otherwise be paid to the contractor (being a judgment debtor).

Outside of the CJEA, other options available to a successful adjudication applicant who has not been paid include:

1. Issuing a statutory demand (a statutory presumption of insolvency arises if the statutory demand is not complied with and an application is not made to set it aside within 21 days after service); or
2. Seeking to settle the matter by agreeing to an enforcement/settlement agreement rather than utilising the court system.

Of course, the best enforcement mechanism(s) to use will depend on the particular circumstances of the case.

The New Regime

It is anticipated that the current Western Australian government will soon legislate to bring the CCA into line with the East Coast adjudication model. While it has not been circulated publically, some organisations (such as the Society of Construction Law Australia) have been asked to comment on an early exposure draft of the Building and Construction Industry (Security of Payment) Bill 2020 (WA).

If that legislation is passed it will be a seismic shift in the way construction adjudications are run in Western Australia. However, it will probably not change successful parties’ access to the CJEA’s enforcement options.

It is likely that the new regime (which is expected to substantially mirror the corresponding section of the NSW Security for Payment Act)⁶ will:

1. Provide that the certified adjudicator’s determination will only be enforceable under the CJEA if the application for an enforcement order has a supporting affidavit of the applicant which confirms that the adjudicated amount is unpaid; and
2. Expressly restrict the losing party’s ability to bring any cross-claims, raising any defences and challenging the certified adjudicator’s determination.

The industry eagerly awaits more details of the foreshadowed legislation.

If you would like assistance with the adjudication process, or would like some more information on the enforcement options that might be available to you, please contact the authors of this article or any member of the HWL Ebsworth Lawyers Construction team.

This article was written by Dave Ulbrick, Partner Kate Morrow, Special Counsel and Michael Harris, Associate. 

1. CJEA s 59.
2. Ibid s 49.
3. CJEA Pt 4 Div 2.
4. Ibid ss 31(2)(a), 32.
5. Ibid ss 31(2)(b), 33.
6. Building and Construction Industry Section of Payment Act 1999 (NSW) s 25(4).