Woonona-Bulli RSL Memorial Club Ltd v Warrane-Design Construct Fit-Out Pty Ltd (No 2)

Medium Neutral Citation: Woonona-Bulli RSL Memorial Club Ltd v Warrane-Design Construct Fit-Out Pty Ltd (No 2) [2025] NSWSC 365

Hearing dates: 3 April 2025

Date of orders: 16 April 2025

Decision date: 16 April 2025

Jurisdiction: Equity - Technology and Construction List

Before: Rees J

Decision: Parties to bring in short minutes to effect payment of monies out

Catchwords: BUILDING AND CONSTRUCTION — RSL club engages builder, who engages subcontractor — subcontractor serves notices of claim on RSL club under Contractors Debts Act 1997 (NSW) — RSL club challenges adjudication determination in favour of builder — RSL club undertakes to maintain funds in bank account to pay notices of claim and pays the balance of the adjudicated amount into Court — RSL club fails — subcontractor still unpaid — whether monies in Court should be paid to the subcontractor, the builder or the RSL club.
CONTRACTORS DEBTS ACT 1997 — purpose – review — whether RSL club entitled to defend enforcement action by subcontractor outside the ’pay now, argue later’ regime established by Building and Construction Industry Security of Payments Act 1999 – harmonious operation of both Acts.

Legislation Cited: Building and Construction Industry Security of Payment Act 1999 (NSW), ss 4, 8, 16(1)(d), 23, 24, 25(1), (2), (3)
Contractors Debts Act 1997 (NSW), ss 3(3)(a) 5 6(1), 6(1)(b), 7, 7(1A), 8, 9(1), 11, 12, 13, 14, 16
Contractors’ Debt Act 1897 (NSW)
Uniform Civil Procedure Rules 2005 (NSW), r 43.7(2)(a)

Cases Cited: Woonona-Bulli RSL Memorial Club Ltd v Warrane-Design Construct Fit-Out Pty Ltd [2025] NSWSC 271
Warrane Design Construct Fit-Out Pty Ltd v Woonona Bulli RSL Memorial Club Ltd [2025] NSWSC 123

Category: Procedural rulings

Parties: All Civil Solutions Group Pty Ltd (Applicant)
Woonona-Bulli RSL Memorial Club Ltd (First Respondent)
Warrane-Design Construct Fit-Out Pty Ltd (Second Respondent)

Representation: Counsel:
D Weinberger (Applicant)
A Sivanathan (First Respondent)
G Campbell (Second Respondent)
Solicitors:
CCS Legal (Applicant)
Pigott Stinson (First Respondent)
APJ Law (Second Respondent)

File Number(s): 2025/68603

JUDGMENT

1. HER HONOUR: I gave judgment in this matter on 27 March 2025, dismissing the plaintiff’s claim to quash part of an adjudication determination made under the Building and Construction Industry Security of Payment Act 1999 (NSW): Woonona-Bulli RSL Memorial Club Ltd v Warrane-Design Construct Fit-Out Pty Ltd [2025] NSWSC 271. There are two further issues to be resolved:

(a) Should monies that were paid into Court by the plaintiff (the Club) as a condition of a stay now be paid out to the defendant builder or directly to its subcontractor, given a series of notices served by the subcontractor on the Club under the Contractors Debts Act 1997 (NSW)? (b) Should a portion of the monies in Court be repaid to the Club, given payments already made by the Club to the subcontractor in response to the notices?

2. The subcontractor sought to be joined as a party or, alternatively, to be heard on the first issue. I joined the subcontractor as a defendant under r 43.7(2)(a) of the Uniform Civil Procedure Rules 2005 (NSW), where the subcontractor was effectively making claim to monies paid into Court on an interpleader.

Contractors Debts Act 1997

3. It is convenient to consider the operation of the Contractors Debts Act 1997. The Act provides for the recovery of debts owed for work carried out, including under a construction contract within the meaning of the Building and Construction Industry Security of Payment Act 1999: long title; s 3(3)(a), Contractors Debts Act. The legislation was intended to update and rewrite the former Contractors’ Debt Act 1897 (NSW) in plain English, as part of a package of reforms to address the issue of security of payment in the building industry: Legislative Hansard, 22 October 1997. As Stevenson J observed in Warrane Design Construct Fit-Out Pty Ltd v Woonona Bulli RSL Memorial Club Ltd [2025] NSWSC 123, the Contractors Debts Act 1997 and Building and Construction Industry Security of Payment Act 1999 share a field of operation and appear to have been intended by parliament to operate side by side: at [1]. I agree.

4. Notwithstanding the longevity of the former and current Contractors Debts Act, I have found no caselaw. As a matter of history, the former legislation was enacted in response to problems being experienced by people working on the construction of the railway in New South Wales. The second reading speech in the Legislative Assembly on 21 February 1879 records:

“It had reached [my] knowledge that men who took Government contracts became indebted to workmen and never paid them. The money for work was paid by Government, and made away with before the men could get any of it. It might be said that contractors might be sued and the debt recovered, but in many cases they were not worth sueing. It was throwing good money after bad to sue such men. Therefore it was desirable that the money should not be paid to them while they were in debt to their men. … In consequence of frauds frequently taking place when work was in the hands of sub-contractors, men on some parts of the railway works were scarcely able to live.”

5. As the second reading speech to the Legislative Council explained on 20 May 1879, the purpose of the legislation was to enable servants and workmen who had earned wages to obtain those wages from the person for whom the work was done, even though the contractor who undertook the work and directly employed them should be unable or unwilling to pay. This was based on the principle that the work done was the meritorious cause of earning the money, and thus ought to have a first claim on the money.

6. Turning to the current form of the legislation, an “unpaid person” (here, the subcontractor) who is owed money for work carried out for a “defaulting contractor” (here, the builder) can obtain payment “in accordance with this Act” out of money that is payable or becomes payable to the defaulting contractor by the “principal” (here, the Club), where the work carried out by the unpaid person formed part of the work that the principal engaged the defaulting contractor to do: s 5, Contractors Debts Act.

7. The Act sets out the procedure which “must be followed” to obtain payment: s 6(1). The first step is to obtain a debt certificate from a court, after judgment is entered in favour of the unpaid person for the money owed: s 6(1), 7, Contractors Debts Act. (The court may issue a debt certificate in respect of judgment entered in respect of an adjudication certificate obtained under the Building and Construction Industry Security of Payment Act 1999: s 7(1A), Contractors Debts Act.) The second step is for the unpaid person to serve a notice of claim on the principal, in the approved form: s 6(1)(b), Contractors Debts Act. This procedure was followed by the subcontractor here.

8. Section 8 then provides: (emphasis added)

8 Notice of claim operates as assignment of debt

(1) Service of a notice of claim on the principal operates to assign to the unpaid person the obligation of the principal to pay the money owed under the contract to the defaulting contractor.

(2) The assignment is limited to the amount of the unpaid person’s certified debt.

…

9. After a notice of claim is served, “the principal must pay the money owed to the defaulting contractor to the unpaid person”: s 9(1), Contractors Debts Act. Section 9(2) provides: (emphasis added)

9 Payment of defaulting contractor’s debt by principal

…

(2) The principal must make the payments to the unpaid person as they become payable under the contract with the defaulting contractor until whichever of the following first occurs:

(a) the principal receives a discharge notice, or discharge notices, indicating that the certified debt has been fully discharged, or

(b) the payments are no longer payable under the contract.

10. The Act does not define when a debt is “discharged” but, fairly obviously, includes payment of the amount owing to the unpaid person, either in part or in full.

11. What is assigned is the defaulting contractor’s entitlement to be paid by the principal. The defaulting contractor also continues to be obliged to pay the unpaid person under the contract between the unpaid person and the defaulting contractor. Where the unpaid person may now be paid by either the principal or the defaulting contractor, s 12 provides:

12 Assignment ceases to operate on discharge of debt

(1) If the debt owed to an unpaid person by a defaulting contractor is discharged, … any assignment effected by operation of this Act in connection with that debt ceases to operate.

(2) If only part of the debt is discharged, the assignment effected in respect of that part of the debt ceases to operate.

(3) This section does not affect any payment or dealing that is made by a principal in good faith before the principal receives notice, and sufficient evidence of, the discharge of the debt or the setting aside of the judgment or order. To the extent necessary to give effect to such a payment or dealing, the assignment effected by operation of this Act is taken to continue in force.

Note—

If a principal makes a payment to an unpaid person (as required by section 9), instead of paying the defaulting contractor, without knowing that the debt owed to the unpaid person has been discharged by the defaulting contractor, this section protects the principal from being required by the defaulting contractor to make the payment to the defaulting contractor.

12. This provision was probably that referred to in the Legislative Hansard, when describing the Contractors Debts Act 1997 as providing “a dedicated mechanism for recovering money for the cost of … work … from the party who will ultimately benefit from this work – although that party is protected from having to pay for that cost more than once”. Consistently with this, a penalty is imposed on an unpaid person who does not promptly issue a discharge notice. Section 13 provides:

13 Unpaid person required to provide discharge notice

(1) If a defaulting contractor or principal makes a payment to an unpaid person in partial or full discharge of the debt owed to the unpaid person, the unpaid person must, on the request of the person making the payment, give that person a discharge notice in respect of the payment.

(2) A discharge notice is a notice in an approved form that acknowledges the payment of the amount paid and is signed by the unpaid person.

(3) If the unpaid person does not give the notice within 7 days of such a payment and request, the unpaid person is to forfeit and pay to the person who made the payment a sum equal to the amount paid. The penalty is recoverable by the person who made the payment as a debt in a court of competent jurisdiction.

13. The Contractors Debts Act provides other mechanisms for an unpaid person to recover monies owed, which becomes relevant in considering the Club’s submissions. Section 11 provides: (emphasis added)

11 Right of recovery if principal fails to pay

(1) An assignment effected by operation of this Act is valid at law.

(2) Accordingly, if the principal fails to make any payment required to be made by this Act, the unpaid person may sue for and recover the debt assigned to the unpaid person, in the unpaid person’s own name.

(3) Proceedings for recovery of the debt may be taken in any manner in which the defaulting contractor might have taken them had there been no assignment.

(4) An unpaid person’s right of recovery under this section is subject to any defence that the principal would have had against recovery of the debt by the defaulting contractor had there been no assignment, other than a defence based on something done by the principal after the notice of claim was served on the principal.

14. If the unpaid person takes proceedings against the principal under s 11, the unpaid person may also make use of the Act to obtain payment from money that is payable to the principal: s 16.

15. Finally, if the unpaid person (here, the subcontractor) commences proceedings against a defendant (here, the builder) to recover money owed for work carried out, then the unpaid person may also seek an attachment order against any other person from whom they may be entitled to recover the debt under the Contractors Debts Act 1997: s 14. The effect of the attachment order is that the money owed by the principal to the defaulting contractor is frozen pending judgment being given in the proceedings between the unpaid person and the defaulting contractor, thereby protecting the fruits of any judgment in the event that the unpaid person proves to be successful in the proceedings: Legislative Hansard. This provision finds its parallel in Division 2A of the Building and Construction Industry Security of Payment Act 199**9, which enables a claimant who has made an adjudication application for a payment claim to require a principal contractor to retain sufficient money to cover the claim out of money that is or becomes payable by the principal contractor to the respondent to the payment claim.

Facts

16. Turning then to the application of the Contractors Debts Act 1997 to the case at hand, in December 2023 the Club and builder entered into a head contract. In January 2024, the builder and subcontractor entered into a subcontract. There followed a series of payment claims and adjudication determinations under the Building and Construction Industry Security of Payment Act 1999 between the subcontractor and builder, on the one hand, and between the builder and the Club, on the other hand.

17. In parallel, the subcontractor served notices of claim on the Club under the Contractors Debts Act 1997. The Club made some payments to the subcontractor in respect of these notices. What follows is summarised in the following table:

| Date | Payable under head contract | Paid to subcontractor | Notice of claim | Balance of notices | | 6.12.24 | $81,978.47 | | | | | 18.12.24 | - | $81,978.47 | $1,102,958.87 | $1,020,980.40 | | 24.1.25 | $284,318.94 | | | | | 31.1.25 | - | $284,318.94 | | $736,661.46 | | 3.2.25 | $2,141,780.73 | | | | | 17.2.25 | | | $464,008.78 | $1,200,670.24 |

18. Specifically, on 29 November 2024, the builder submitted Progress Claim 13 to the Club in the amount of $2,203,564.59. On 6 December 2024, the Club served a payment schedule in the scheduled amount of $81,978.47. The Club was obliged to pay the scheduled amount on or before the due date for the progress payment to which the payment claim related: s 16(1)(d), Building and Construction Industry Security of Payment Act 1999.

19. On 18 December 2024, the subcontractor served a certificate on the Club under the Contractors Debts Act 1997 in the amount of $1,102,958.87. Service of the notice on the Club operated to assign to the subcontractor the Club’s obligation to pay money owed under the head contract to the builder up to the amount of the certified debt: s 8(1), (2), Contractors Debts Act 1997. The Club paid $81,978.47 to the subcontractor, being the scheduled amount in respect of the builder’s Progress Claim 13. This amount was paid to the subcontractor under s 9(1) of the Contractors Debts Act 1997. This left $1,020,980.40 of the certified debt unpaid.

20. On 20 January 2025, the builder obtained an adjudication determination in its favour against the Club in the adjudicated amount of $2,094,018.14. Section 4(1) of the Building and Construction Industry Security of Payment Act 1999 contains the following definitions:

adjudicated amount means the amount of a progress payment that an adjudicator determines to be payable, as referred to in section 22.

...

scheduled amount means the amount of a progress payment that is proposed to be made under a payment schedule, as referred to in section 14.

21. As I read these definitions, the “adjudicated amount” include**s the “scheduled amount”. As the Club had already paid $81,978.47 of the adjudicated amount (to the subcontractor), it was obliged to pay the remaining $2,012,039.67 within five business days: s 23, Building and Construction Industry Security of Payment Act 1999. The $2,012,039.67 became an “obligation of the principal to pay the money owed under the contract to the defaulting contractor”: s 8(1). The obligation to pay a portion of that amount had been assigned to the subcontractor, sufficient to discharge the remaining certified debt of $1,020,980.40. That left a surplus of $991,059.27 payable to the builder.

22. On 24 January 2025, the Club and the builder agreed that the Club would resolve the builder’s next payment claim, Progress Claim 14, in the amount of $284,318.94. This increased the “obligation of the principal to pay the money owed under the contract to the defaulting contractor” to $2,296,358.61. As mentioned, the obligation to pay a portion of that amount was assigned to the subcontractor, sufficient to discharge the remaining certified debt of $1,020,980.40. That left $1,275,378.21 available to be paid to the builder.

23. On 31 January 2025, the Club paid the subcontractor $284,318.94, this being the amount that the Club accepted that it owed the builder under the head contract in respect of Progress Claim 14. This reduced the amount owing under the notice of claim served on the Club under the Contractors Debts Act 1997 to $736,661.46. It also reduced the “obligation of the principal to pay the money owed under the contract to the defaulting contractor” by the same amount, back to $2,012,039.67. The obligation to pay a portion of that amount had been assigned to the subcontractor, sufficient to discharge the remaining certified debt of $736,661.46. That (still) left $1,275,378.21 available to be paid to the builder.

24. The Club failed to pay the adjudicated amount to the builder, entitling the builder to obtain an adjudication certificate and obtain judgment in this Court for the unpaid portion of the adjudicated amount: ss 24(1), 25, Building and Construction Industry Security of Payment Act 1999. On 3 February 2025, judgment was entered against the Club in respect of the adjudicated amount, in the sum of $2,141,780.73. The sum no doubt included interest and a portion of the adjudicator’s costs.

25. The evidence in these proceedings does not reveal whether the judgment sum included or excluded $81,978.47 of the adjudicated amount already paid by the Club (to the subcontractor). Presumably, the judgment sum did not include the $81,978.47, where s 25(2) and (3) of the Building and Construction Industry Security of Payment Act 1999 provides:

25 Filing of adjudication certificate as judgment debt

…

(2) An adjudication certificate cannot be filed under this section unless it is accompanied by an affidavit by the claimant stating that the whole or any part of the adjudicated amount has not been paid at the time the certificate is filed.

(3) If the affidavit indicates that part of the adjudicated amount has been paid, the judgment is for the unpaid part of that amount only.

26. Either way, as Stevenson J later observed, although the judgment was obtained regularly under the procedure set out in the Building and Construction Industry Security of Payment Act 1999, it overstated the amount due by the Club to the builder under the head contract, as it did not account for the assignment of the Club’s obligation to pay the builder: Warrane Design at [17].

27. On 17 February 2025, the subcontractor served another certificate on the Club under the Contractors Debts Act 1997 in the amount of $464,008.78. This increased the amount owing under the notices of claim served on the Club under the Contractors Debts Act 1997 to $1,200,670.24. Of the judgment sum owing to the builder, being $2,141,780.73, the portion of that amount assigned to the subcontractor also increased, sufficient to discharge the remaining certified debt of $1,200,670.24. That left $941,110.49 available to be paid to the builder.

28. The builder filed a motion seeking garnishee orders to enforce the judgment. On 20 February 2025, the Club commenced these proceedings, seeking to set aside the adjudication determination in part; no challenge was made in respect of $1,111,498.94 of the judgment sum. (If the Club had then paid the unchallenged amount of the adjudication determination to the subcontractor, only $89,171.30 of the certified debt would have remained unpaid.) On 25 February 2025, Stevenson J granted leave to the Club to file a motion for a stay. His Honour stayed enforcement of the judgment and suspended the operation of the garnishee orders, on the Club’s undertaking to maintain its bank account with a credit balance of not less than the judgment sum of $2,141,780.13.

29. On 27 February 2025, Stevenson J heard the Club’s application for a stay. His Honour traced the various certificates which had been served by the subcontractor on the Club, and partly paid. His Honour observed that the effect of these payments was that the judgment overstated the amount due by the Club to the builder under the head contract; presumably the subcontractor would take such action as it considered to be in its interests to recover the $1,200,670.24 from the principal: Warrane Design at [22].

30. Stevenson J considered that the Building and Construction Industry Security of Payment Act 1999 and Contractors Debts Act 1997 should, if possible, be construed in a way that achieved their harmonious interaction: Warrane Design at [19]. His Honour stayed the judgment to that extent to achieve a harmonious interaction between the Acts such that the balance of the judgment, which remained owing by the Club to the builder, was $941,110.49: Warrane Design at [19]-[20]. The Club was ordered to pay that amount into Court to abide the outcome of these proceedings.

Submissions

32. The builder and the Club both submitted that the subcontractor had no claim to the funds in Court. The subcontractor was simply the assignee of the Club’s obligation to pay the builder. The Contractors Debts Act had no operation in respect of the money paid into Court.

33. The subcontractor, effectively, accepted this. However, the subcontractor submitted that the builder should not be permitted to “outflank” the Contractors Debts Act simply because money had been paid into Court, being money the subject of the assignment to the subcontractor. In the ordinary course, the monies would be in the Club’s bank account and would make its way to the subcontractor. The builder should not get any money from the Club until such time as the value of the debt certificates have been entirely extinguished, that is, the subcontractor had received the full value of the assignment. To do justice, and to give effect to the intended operation of the Contractors Debts Act, the subcontractor should get the money. Otherwise, there was a risk that the legislation would be subverted by reason of the fact that the money had been paid into Court.

34. The builder and the Club disagreed as to whether the whole of the monies in Court should be paid to the builder or only part.

35. The Club contended that $574,813.08 of the monies in Court should be paid to the builder, and the balance should be returned to the Club to reflect the $81,978.47 and $284,318.94 already paid. The Club submitted that the effect of the certificate served by the subcontractor in December 2024, in the amount of $1,102,958.87, was to assign to the subcontractor all extant and future debts owed by the Club to the builder, to the extent of the certified amount. Thus, the amount owed to the builder under the judgment was reduced by the assignment to $1,038,821.86 ($2,141,780.73 - $1,102,958.87). The effect of the certificate served by the subcontractor in February 2025, in the amount of $464,008.78, was to further reduce the amount payable to the builder under the judgment to $574,813.08 ($1,038,821.86 - $464,008.78). The balance of $366,297.41 ($941,110.49 - $574,813.08) was money in respect of which the builder had no claim and should be paid out to the Club. Section 12 of the Contractors Debts Act did not have the effect of reviving an indebtedness by the Club to the builder but was designed to avoid double recovery by the subcontractor. To the extent that the subcontractor may have been paid by someone else, such as the builder, the assignment ceased to operate. But it did not increase the amount payable to the builder, as the debt had been assigned. To the extent that the Club made payments of the assigned debt, then the debt was reduced and the Club did not pay the debt twice.

36. The builder contended that all of the monies in Court should be paid to it, where Stevenson J had already factored in the debt assigned to the subcontractor in fixing the amount to be paid into Court. The builder said the Club’s calculations were in error as they ignored s 12(2) of the (NSW). The amounts of $284,318.94 and $81,978.47 owed by the Club to the builder were paid by the Club directly to the subcontractor in discharge of the certificates served under the in the amount of $1,102,958.87: at [7]-[8]. Those payments were made as a result of an agreement between the builder and the Club that the amounts owing to the builder would go instead to the subcontractor; those amounts should operate through s 12(2) to discharge that debt. By operation of s 12(2) of the , those payments served to reduce the assignment the subject of that certificate from $1,102,958.87 to $736,661.46. Once this reduction in the assignment was taken into account, the amount outstanding of the judgment that should be paid to the builder; when both outstanding certificates were considered, remained at $941,110.49 as determined by Stevenson J: at [20].

Conclusion

37. The problem arises because the Club has not paid either the subcontractor under the Contractors Debts Act 1997 or the builder under the Building and Construction Industry Security of Payment Act 1999, notwithstanding an interlocutory regime which rather pre-supposed that the Club would pay someone.

38. As to why the Club may not have paid the subcontractor, the Club suggested that, should the subcontractor take steps to enforce its rights against the Club under s 11 of the Contractor**s Debts Act 1997, then the Club will raise in its defence all of the matters which it could raise if the suit was brought by the builder: s 11(4). As I understood it, and I confess that I may not have, the Club was of the view that the ‘pay now, argue later’ regime enshrined in s 32 of the Building and Construction Industry Security of Payment Act 1999 would not preclude the Club in that scenario from raising in its defence all matters which it could raise in answer to substantive proceedings brought by the builder under the head contract.

39. As earlier mentioned, s 11(4) of the Contractor**s Debts Act 1997 provides that an unpaid person may sue the principal and recover the assigned debt in their own name but, effectively, ‘standing in the shoes’ of the defaulting contractor. In any such debt recovery proceedings, the unpaid person’s right of recovery “is subject to any defence that the principal would have had against recovery of the debt by the defaulting contractor had there been no assignment”. It is important to bear in mind the nature of the debt recovery proceedings which the defaulting contractor could have taken, absent the assignment, but which the unpaid person may now take instead: s 11(3), Contractor**s Debts Act 1997.

40. Once an adjudication certificate has been filed as a judgment, it is “enforceable accordingly”: s 25(1), Building and Construction Industry Security of Payment Act 1999. The subcontractor is now entitled to take such enforcement action, at least to the extent of the unpaid person’s certified debt: s 8(2), Contractor**s Debts Act 1997. I do not accept that the Club would be entitled to defend any enforcement action brought by the subcontractor on the basis of, say, alleged defects in the construction work. Consistently with this, the Club’s ability to resist enforcement of the judgment by having the judgment set aside is circumscribed by s 25(4) of the Building and Construction Industry Security of Payment Act 1999: the Club is not entitled to bring a cross-claim against the builder, or raise any defence in relation to matters arising under the construction contract, or to challenge the adjudicator’s determination. Where the Club has now failed in its application to set aside the judgment, it is hard to see how it could seek to do so again in answer to enforcement action brought by the subcontractor.

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