In brief - Developer's payment into court did not breach
Where a principal contractor pays money into court on account of
a disputed adjudication, this is not a voluntary payment and does
not discharge a principal contractor's obligation to retain
that money in respect of a payment withholding request to a
Dispute between property developer, builder and scaffolding
Developer's challenge to adjudication determination
Nahas served on Hanave a payment claim pursuant to the
Security of Payment Act for $1,469,510.87 excluding GST.
Hanave served a payment schedule indicating that it proposed to pay
$418,830.87. Hanave commenced proceedings to restrain Nahas from
taking any step to enforce the adjudication determination.
As part of those proceedings, Hanave was ordered to pay into the
court the amount under the adjudication determination of
$1,100,471.78, as security for the debt, which it did. Hanave's
challenge to the adjudication determination was dismissed and the
money paid into court was handed over to Nahas.
Next, Waco obtained an adjudication determination against Nahas
Scaffolding supplier serves developer with payment withholding
On 24 November 2011, Waco served on Hanave a payment withholding
request requiring Hanave to retain $292,155.26 out of the money
owed by Hanave to Nahas.
section 26A of the Security of Payment Act a claimant (like Waco) who has
made an adjudication application for a payment claim can require a
principal contractor (like Hanave) for the claim to retain
sufficient money to cover the claim.
Having been served with the payment withholding request, Hanave
was obliged to retain out of money owed to Nahas, the amount of
money to which Waco's payment claim relates until either (
Twenty business days elapse after the adjudicator's
determination was served on Hanave
Section 26C of the Security of Payment Act provides that if
Hanave discharges its obligation to pay money to Nahas (in
contravention of a requirement to retain the money for Waco), then
Hanave becomes jointly and severally liable with Nahas in respect
of the debt owed to Waco.
Developer argues it lost any interest in the money it paid into
During the proceedings, Waco submitted that when Hanave paid the
money into court, it breached section 26C of the Security of
Payment Act by not retaining the money for Waco.
The issues the court looked to determine included if upon
payment into court, Hanave retained any interest in the funds and,
if so, the nature of that interest.
Hanave submitted that it lost any interest in the money it paid
into court as it had no control over the money from the time it was
paid to the court.
The court did not accept Hanave's submission. This is
because the money paid in as security for the debt would have been
returned to Hanave had its challenge to the adjudication
determination with Nahas been successful.
The court determined that Hanave was powerless to stop the money
ultimately being paid over to Nahas (when the court found in favour
In deciding the case, the court made these key points about
Hanave's payment to Nahas:
It happened before Hanave received the notice from Waco
It was made by reason of a court order
It was not voluntary
Breach of section 26C would have required voluntary payment by
By bringing these proceedings, Waco attempted to prove that
Hanave had failed to take steps to prevent discharge of the
The only action taken by Hanave which could have been
interpreted as a discharge of the debt to Nahas was the original
payment made into court.
A breach of section 26C of the Security of Payment Act requires
a voluntary act by Hanave after having received the payment
Ultimately, the court found that there has been no breach by
Hanave, as the payment made to Nahas from the money paid into court
was not a voluntary payment.
Peter Sise explores how your contractual clause for recovery of legal costs might not do what you think it does.
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