Construction

Practical Considerations: Challenging a creditors statutory demand

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On 21 March 2019, Justice Black considered an application to set aside a statutory demand: In the matter of Skylane Worldwide Enterprises Pty Ltd [2019] NSWSC 707.

The Court has power to set aside a creditor’s statutory demand under s 459H(1)(a) of the Corporations Act 2001 (Cth) where there is a genuine dispute between a company receiving a demand and the issuer of the demand, about the existence or amount of the debt to which the demand relates.

That threshold has been held to be rather low. It is nonetheless real.

The facts in the matter before Justice Black were of no interest to anyone other than the parties, and will not be rehashed, but Justice Black considered the standard authorities on the low threshold which are worth reviewing:

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Justice Black also referred to two of his own decisions: Re Wollongong Coal Pty Ltd [2015] NSWSC 1680; (2015) 110 ACSR 134 at [9]–[22] and Re Erma Properties Pty Ltd [2017] NSWSC 1748. 

In then setting aside the demand in question, Justice Black concluded that the plaintiff (recipient of the demand) had:

“not established a genuine dispute, involving more than mere bluster or assertion, being a dispute that has sufficient objective existence or prima facie plausibility to warrant further investigation and to require [the defendant] to proceed by way of contested proceedings, rather than by the issue of a creditor’s statutory demand which, if not complied with, will give rise to a presumption of insolvency.”

The case was dismissed with costs.

Lessons from the Case

The case highlights the need for:

  • A creditor, before issuing a demand, to make an objective assessment of whether there are grounds upon which the debtor may rely to assert a dispute or off-setting claim – if so, then suing for the debt may be the preferred option.

  • A debtor, upon receiving a demand, to make a proper assessment as to whether there are plausible grounds on which to seek to set it aside.

Whilst the threshold for raising a dispute is rather low, it is nonetheless real, and it will not be reached where the plaintiff does not rise above mere bluster or assertion.

Coutts can assist clients with advising clients as to both of the above steps, and represent clients in hearings on these matters, without needing to brief counsel to argue such cases.

For further information please don’t hesitate to contact:

Justin Conomy
Special Counsel
justin@couttslegal.com.au
1300 268 887

This blog is merely general and non specific information on the subject matter and is not and should not be considered or relied on as legal advice. Coutts is not responsible for any cost, expense, loss or liability whatsoever in relation to this blog, including all or any reliance on this blog or use or application of this blog by you.

Important changes to the laws in relation to construction payments

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Overview

The NSW parliament has recently passed the Building and Construction Industry Security of Payment Amendment Act 2018  which makes some substantial amendments to the Building and Construction Industry Security of Payment Act 1999 (the Act).  The Act sets out the legal framework for building contractors to recover instalment payments for the performance of construction work.

The changes will become effective later in 2019 once the drafting of the applicable regulations are finalised.

Changes to Payment Claims

The new sections of the Act provide that:

  • a payment claim may be served on and from the last day of the month in which the construction work was first carried out and on and from the last day of each subsequent named month (new section 13(1A) of the Act). This change is significant as it means that an entitlement to issue a payment claim will no longer be dependent on a “reference date” in the construction contract having been met;

  • if the construction contract makes provision for an earlier date for the service of a payment claim, the claim can be served on and from that earlier date (new section 13 (1B) of the Act);

  • the time period for a subcontractor to receive payment under a payment claim will reduce from a maximum of 30 business days to 20 business days;

  • payment claims, to be valid, must specifically state that they are made under the Act (this was an original requirement in the Act before the amendments in 2014);

  • in the case of a construction contract that has been terminated, a final payment claim can be served on and from the date of termination (new section 13(1C) of the Act). This overcomes the result in the recent case of Southern Han Breakfast Point Pty Limited (in liq) v Lewence Construction Pty Limited;

  • allowing the claimant to serve a single payment claim in respect of more than one progress payment or including an amount the subject of a prior payment claim.

 

Changes to Adjudication applications and procedures

The changes made to adjudication applications are not as extensive and include:

  • clarifying that an adjudication application can be withdrawn at any time prior to the appointment of an adjudicator. A withdrawal can also occur post appointment - but if the other party objects then the withdrawal will not be effective if the adjudicator is of the opinion that it is in the interests of justice to uphold the other party’s objection;

  • allowing an adjudicator 10 business days from the date on which the respondent lodges a response or, if a response is not lodged, the end of the period within which the response was required to be lodged, to determine the adjudication application. This change gives the adjudicator further time than the existing requirement of having to provide an adjudication determination within 10 business days from the date on which the adjudicator notifies the parties of his/her acceptance of the appointment;

  • allowing the Supreme Court to sever a discrete part of an adjudication determination that is subject to jurisdictional error - while confirming the validity of the balance of the adjudication determination.

Companies in liquidation

The changes will stop any company in liquidation from serving a payment claim or taking any action to enforce a payment claim or taking any further steps in relation to the making of an adjudication determination.

Increased fines for Companies

The new laws introduce substantial increases in the maximum penalties for companies serving non-compliant payment claims, including payment claims which include false or misleading statements (a five fold increase for companies in the maximum penalties per breach from $22,000 to $110,000 per breach). 

Personal liability of directors

Directors and corporate officers can also now be held personally liable as accessories to companies who have breached the Act.

New investigation and enforcement powers

A much stronger investigative regime has been introduced to ensure compliance with the provisions of the BCISP Act including search and seizure and information gathering powers.

 

Key Take-Aways from the changes

The changes to the Act include some significant wins for construction contractors. Contractors will no longer be hamstrung by requirements in construction contracts which delay the dates on which they can issue payment claims. Subcontractors will also enjoy a shorter time period for payment once payment claims are issued. It is important that all construction industry participants are aware of these changes when they commence and make the necessary adjustments to their contractual documentation and procedures.  This area of law is highly technical and it is important that expert legal advice is obtained at the outset to avoid the potential for non-compliance with the new laws.

For further information please don’t hesitate to contact:

Justin Conomy
Special Counsel
justin@couttslegal.com.au
1300 268 887

This blog is merely general and non specific information on the subject matter and is not and should not be considered or relied on as legal advice. Coutts is not responsible for any cost, expense, loss or liability whatsoever in relation to this blog, including all or any reliance on this blog or use or application of this blog by you.

Is Alliancing Contracting Back In Vogue?

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I first heard about alliancing contracting way back around 2004 as it was gaining attention then as a new and improved contracting model, back then, allocating risk and responsibility to the party to the contract that was most suited and able to bear that risk, among other things. 

 

Alliancing contracting is largely for the building and construction areas but arguably with application to other projects more generally for its fundamental principles. 

The ideas underpinning alliance contracting including mutual acceptance and sharing of project risks, project issues, project completion and project records and resources was fairly new and forward thinking back in 2004 when I first really took alliancing contracting on board for genuine consideration as a contracting model. 

 

Fast forward to 2018 and it would appear that these forward thinking ideas of alliancing contracting are indeed back in fashion and up for genuine consideration once again. 

 

So what is alliancing contracting and how is it fundamentally different to more traditional contract forms?

Using a risk allocation process to properly allocate risks between the parties, explore likely risks and test them against the contract (and with the other party) and really think about “worst case scenario” and deal with it have all been fundamental steps in contract preparation.

 

Because the above steps are critical for any well prepared contract, it is always essential that parties understand each other’s needs, appetite for risk and skill set. 

 

The alliancing method still encompasses these fundamentals to a degree and rightly so. However, the key difference is that explored risks are typically allocated to all parties. “Worst case scenarios” are explored but allocated to all parties with shared responsibility. The alliancing contract generally provides for mutual risk sharing, pain shared equally, gains shared equally. 

 

The underlying principle under all this sharing is that parties must act in good faith and in line with the also entrenched principle that there are no disputes under the alliancing framework. Problems are solved together, often with “outside the box” thinking. The parties are committed to making things work, once again based on the key principle of shared risk, responsibility, shared pain, shared gain. 

 

There is a further key principle that during the project phase, there is no fault on either party and therefore no single party that has caused any particular liability. For any issues that arise during the actual project, the parties work towards mutually dealing with those issues and reallocating risk and responsibility for those issues based on consensus, agreed decision making.  

 

Parties to the alliancing framework are transparent and open. Record keeping is fundamental for both parties as is mutual access to those records. 

 

Defect responsibility is shared. Defect rectification in terms of time and cost is shared between the parties.  Parties mutually share control of the project, again agreeing on all project aspects. 

 

The National Alliancing Contracting Guidelines template provides a useful framework for an alliance and sample agreement.   It clearly requires all parties are committed to the project, committing people and resources, engaging within the alliance, working through the project, issues, actual and potential disputes, project changes and responsibilities as a shared group comprising different parties. 

 

It will be interesting to see how existing Government projects using alliancing contracting stack up long term. It will also be interesting to reflect back on alliancing contracting and see how alliancing can apply best to the private sector. 

Please contact Alexandra Johnstone if you require legal assistance or have questions pertaining to alliancing contracting. We are here to help!

Alexandra Johnstone
Partner
alexandra@couttslegal.com.au
02 4607 2110

This blog is merely general and non specific information on the subject matter and is not and should not be considered or relied on as legal advice. Coutts is not responsible for any cost, expense, loss or liability whatsoever in relation to this blog, including all or any reliance on this blog or use or application of this blog by you.