What is a “Statutory Debt” Under the Building and Construction Industry Security of Payment Act?
The Building and Construction Industry Security of Payment Act 1999 (NSW) (Act) provides a powerful tool to construction companies to ensure that they get access to prompt and regular payments for construction work and/or related goods and services.
The Act provides construction companies with a statutory right to issue payment claims and receive payments, even if the contract has no provision for progress payments (see our article What is the Building and Construction Industry Security of Payment Act? for more details). Apart from the adjudication process implemented by the Act, in certain circumstances, a claimant is also entitled to recover the amount claimed as a debt due to the claimant in Court. This is known as a “Statutory Debt”.
When does the Statutory Debt arise?
The Statutory Debt will crystalise in 3 scenarios:
- A valid payment claim has been served on a respondent and they fail to provide a valid payment schedule within 10 business days; or
- A valid payment claim has been served on a respondent and they did issue a valid payment schedule within 10 business days but then failed to pay the scheduled amount by the due date; or
- An Adjudicator has issued an adjudication determination determining that the claimant is entitled to a sum of money and the respondent fails to pay the adjudicated amount by the due date.
What happens once the Statutory Debt crystalises?
Firstly, a claimant may suspend works under SOPA. Secondly, they may immediately sue in Court to recover the Statutory Debt.
How is suing for the Statutory Debt in Court any different from a normal Court case?
Because the debt being claimed is one created by statute, the legislation itself limits what defences a respondent can argue to resist the law suit. Specifically, a respondent cannot bring any cross-claim or file a defence relating to matters arising under the contract. The types of defences which “arise under the contract” include that the work was defective, that the work was not approved, that the work is incomplete or that the value of the work is too high. All of these defences are statute barred.
How long does suing for the Statutory Debt take?
Given the limitation on filing cross-claim and defence, when commencing court proceedings for statutory debt, a claimant would normally file an application for summary judgment.
Summary judgement will be granted when the Court reviews a matter and is satisfied that a defendant has no arguable defence. Typically, in proceedings suing for the Statutory Debt, the process from filing in Court to obtaining summary judgement takes 8 – 12 weeks.
Practically speaking, the Act provides a fast track and low costs option for a claimant to obtain a judgment to recover construction debts. When it comes to recovery, companies undertaking construction works should take advantage of the statutory debt scheme offered under the Act.
There are statutory debt provisions similar to the NSW Act in most states and territories. If you need further assistance or have any questions, please get in touch with our building and construction team.
Butlers Business Lawyers and Chamberlains Law Firm have merged!
Joining forces with the Chamberlains Team has expanded our capabilities beyond what we thought possible. This means introducing a new cast of talented legal practitioners along with a massive expansion in expertise areas such as Building & Construction, Insurance Law, Private Wealth Law and more. This alliance will ensure that new and existing clients will experience a higher calibre of legal support in a variety of areas with the help of some new faces. Learn more about Chamberlains Law Firm here.