Breach Notices and Notices of Termination
Standard commercial building contracts generally provide rights to the parties in the event that the other party breaches the contract. For most breaches, the breaching party must be given a notice of breach providing notice of the alleged breach and timeframe within which to remedy the breach.
Termination rights are also usually set forth in the contract and again, notice is generally required.
Care must be taken when drafting and serving these notices, as a defective notice may result in you yourself wrongfully terminating the contract. Wrongful termination by the developer can have the serious effect of releasing the builder from the obligation to complete the work and also may allow the builder to claim a sum for the works already performed which is in excess of the contractual price.
Wrongful termination by the builder can have the serious effect of releasing the developer from the obligation to complete the work and also may allow the builder to claim a sum for the works already performed which is in excess of the contractual price.
Dispute Resolution Clauses
Most commercial construction contracts contain a dispute resolution clause.
Even where the clause does not state that the dispute resolution process must be engaged before initiating court proceedings, the Courts have been demonstrating an increasing readiness to stay proceedings that are issued where a dispute resolution clause exits, particularly once one party has started the contractual dispute resolution process.
Given this, and the expense of conducting litigation, it is advisable that you consider using alternative dispute resolution procedures (even if not compulsory) in an attempt to resolve the matter.
Choice of Jurisdiction
The amount in dispute, will determine where you are able to issue proceedings. Where the claim is for $100,000.00 or less, then you may issue proceedings in the Magistrates’ Court or VCAT.
The main difference is that the losing party in the Magistrates’ Court is generally ordered to pay some of the winning party’s costs, whilst there is no guarantee that this will occur at VCAT.
If the amount in dispute exceeds $100,000.00, then you may issue proceedings in the County Court of Victoria, the Supreme Court of Victoria or VCAT.
Given the significant amount of money involved and the fact that the Supreme Court of Victoria has a specialist Technology, Engineering and Construction List (“the TEC List”), we would ordinarily recommend issuing disputes of this magnitude in the Supreme Court of Victoria.
The TEC List has established procedures for the efficient resolution or determination of commercial building disputes, including the procedure for registering debt certificates under the SOP Act and the appointment of expert assessors, referees and mediators.
Security of Payment Legislation
The Building and Construction Industry Security of Payment Act 2002 (Vic) (“the SOP Act”) provides a quick and relatively inexpensive method for builders to recover payments from developers under construction contracts.
The SOP Act provides that “paid when paid” and “paid if paid” clauses have no effect against a payment claim made under the SOP Act, and if the contract does not provide a date for progress payments, then the SOP Act will supply these dates.
The process involves the builder submitting a payment claim. If the developer does not submit a payment schedule within the required time (usually 10 business days from receipt of the payment claim) then the amount claimed becomes due and payable. If not paid, then notice can be served on the developer allowing the builder to suspend works.
If the developer submits a payment schedule disputing all or part of the payment claim then the builder may make an adjudication application.
An adjudicator is then appointed, either by agreement between the developer and the builder or by an authority nominated under the SOP Act, and he or she determines the application after receiving an adjudication response from the developer and any other information that he or she requests relating to the application.
An adjudication decision is binding on the developer and the builder, and only limited review rights exist.
Additionally, in certain circumstances a sub-contractor can recover moneys, owing to it under a payment claim against the builder, directly from the developer if it owes moneys to the builder under the head contract.
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