Section 1: The scenario
You have carried out work on a construction project and have not been paid, or the client has refused to pay you the full amount owed. What do you do?
It is important to understand that your right to be paid comes from your contract and you need to follow the payment process set out in your contract. If the contract is not in writing, the Act includes a schedule of payment terms that are implied in your verbal contract.
From time to time you may be involved in a dispute with a client over payment for work you have done on a construction project. The customer or client may be refusing to pay you, withholding security, or disputing the amount they owe.
If you find yourself in this situation, acting quickly to determine your options is the vital first step in ensuring you get paid for the work you’ve done.
The first option should always be to discuss payment with the client directly. This could be an informal verbal discussion to identify and resolve the reasons for withholding payment, or a formal letter demanding payment.
However, if this fails to resolve the dispute then you need to consider other options.
Option 1: Using a mediation service
Mediation is a form of dispute resolution where parties voluntarily come together to discuss a dispute with the help of an independent mediator. Mediation is interest based and not rights based. It is a way of engaging in a negotiation with the help of an independent mediator to identify and work through options to resolve the dispute, rather than enforcing the legal rights of a contract.
Mediation is a good first option where you and the client wish to maintain a good business relationship and agree that an independent party may assist in working through the issues. It is likely to be quick and cost-effective and may be used prior to, or in conjunction with, other forms of dispute resolution.
There are a number of organisations in Western Australia who provide a mediation service. Alternatively, if you operate a small business or your client is a small business, you can access the subsidised mediation service provided by the Small Business Development Corporation.
The Small Business Development Corporation can be contacted on 13 12 49. Details on the mediation service can also be found on the website at www.smallbusiness.wa.gov.au/i-am-in-dispute/what-happens-at-mediation.
Option 2: Using the dispute resolution clause in your contract
Most written contracts for construction work contain what are often called ‘dispute resolution clauses’. These clauses provide the method in which the parties agree to resolve disputes under the contract, including any disputes over payment. There are many different types of dispute resolution clauses that prescribe the methods the parties will use to resolve disputes, which may include mediation, expert determination or arbitration.
Generally, you will need to first notify the other party of the nature of the dispute, and the resolution will then proceed based on the chosen method of dispute resolution.
For example, the Australian Standards AS2124-1992 General Conditions of Contract and AS4906-2002 Minor Works Contract Conditions, both prescribe that the parties will notify each other of the details of the dispute and then proceed to formal negotiation and arbitration (see generally clause 47 of AS2124-1992 and clause 27 of AS4906-2002).
Where a contract contains a dispute resolution clause the courts will normally enforce these provisions by staying proceedings until the dispute resolution method has been observed.
But before using the dispute resolution clause in a contract, it is important to be aware of:
- the rules that may apply to the chosen method of dispute resolution;
- whether a particular person or organisation has been nominated to act as the ‘independent umpire’; and
- what timelines apply to the resolution process.
In many instances, the timelines under dispute resolution clauses can be lengthy, so it is important to also consider what impact this delay may have on your business or cash flow.
Even where there is no contract or dispute resolution clause in the contract, the parties can by mutual consent enter into an arbitration process.
Option 3: Court action
Where you do not have a written contract with the customer or client, or where the dispute resolution clause in your contract allows, another option may be to commence court proceedings to recover the money owed to you.
Before commencing court action you should seek legal advice to determine the likelihood of success, the costs involved, and the time it may take to complete the court proceedings.
For claims less than $10,000, the Magistrates Court provides a ‘minor case’ process, where parties are generally not permitted to have legal representation during the court proceedings. Otherwise claims up to $75,000 may be heard in the Magistrates Court civil registry.
The Magistrates Court can be contacted on (08) 9425 2222. Details on the minor case process and commencing civil proceedings can be found on the Magistrates Court website at www.magistratescourt.wa.gov.au/C/civil_matters.aspx.
For claims up to $750,000 (not including interest), court action must be commenced in the District Court. Claims above $750,000 need to be commenced in the Supreme Court. The District Court can be contacted on (08) 9425 2128. The Supreme Court can be contacted on (08) 9421 5333. Details on commencing civil proceedings can be found on the District and Supreme Court website at www.districtcourt.wa.gov.au or www.supremecourt.wa.gov.au.
Option 4: Rapid adjudication under the Act
Sometimes it may be too costly or lengthy to go to court or use arbitration. This is where ‘rapid adjudication’ may assist in resolving your dispute or you just need the money now.
Rapid adjudication is a dispute resolution process designed to help resolve disagreements between parties over payments for construction work. It’s quick, cost effective and may be an alternative to going to court or arbitration. Rapid adjudication under the Act operates in addition to your contractual and legal rights. A determination under the Act may be accepted by the parties to a contract, and the dispute is resolved. However if either party wishes, the dispute can still be dealt with more formally under the dispute resolution process in the contract, or through the courts. In this case a determination under the Act makes a payment “on account” pending the outcome of the formal process.
It doesn’t matter whether your contract is for carrying out construction work or supplying goods and services to the construction industry, or if you have a written or verbal agreement with the customer or client, provided it is for work carried out in Western Australia, or goods and services related to construction work carried out in Western Australia, you may be able to use the adjudication process under the Act.
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