Are construction work debts unstoppable?

McDonald v MAK Constructions and Building Services Pty Ltd [2024] NSWCA 63

Case Summary

The New South Wales Court of Appeal (NSWCA) addressed an important issue regarding the interplay between a builder's right to recover progress payments under the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act) and a homeowner's right to pursue contractual claims against the builder.

The case involved a residential building contract between the homeowner, Ms. McDonald, and the builder, MAK Constructions. After disputes arose, the builder obtained an adjudication certificate and a judgment debt against Ms. McDonald under the SOP Act. However, Ms. McDonald had also commenced proceedings against the builder, seeking damages for defective and incomplete work.

The primary judge granted a stay of Ms. McDonald's damages proceedings until she paid the judgment debt, effectively prioritising the builder's right to payment over her contractual claims. However, the NSWCA overturned this decision, holding that the primary judge had misconstrued and misapplied section 32 of the SOP Act, which preserves the parties' contractual rights.

The NSWCA emphasised that the SOP Act aims to facilitate prompt progress payments to builders while preserving the common law rights of both parties to a construction contract. Consequently, the Court allowed Ms. McDonald's appeal and declined to stay her damages proceedings, citing several reasons, including the builder's failure to promptly enforce the judgment debt and the strength of Ms. McDonald's case.

Key Takeaways

• The SOP Act's primary purpose is to ensure prompt progress payments to builders, but it does not override the parties' contractual rights under section 32.

• Courts should be cautious in granting stays that effectively turn interim progress payments into final judgments, thereby undermining the parties' ability to pursue contractual claims.

• Builders seeking to enforce progress payment judgments should act promptly and not delay enforcement efforts, as it may weigh against granting a stay of the owner's counterclaims or damages proceedings.

• The strength of the parties' cases and the potential for financial hardship should be considered when determining whether to grant a stay of proceedings related to contractual claims.

Overall, the decision highlights the need to balance the SOP Act's objectives with preserving the parties' contractual rights, ensuring that construction work debts are not treated as unstoppable at the expense of legitimate claims and defenses.