By Telise Kelly - 31 Jan 2019
Payments in advance (down-payments or deposits) are common
in the construction industry. When you place a custom order or hire
a builder to commence work on your property, the initial credit
risk to the supplier is significant - if you don't pay, they've
already shelled out for raw materials and spent time which is
irrecoverable. Hence, particularly with expensive designer joinery,
appliances or finishes, payment in advance is the norm. But what
happens if you don't get what you paid for?
In the most extreme cases, the builder or fabricator can take
your deposit money and run, or go bust, before you have anything to
show for your money. More commonly, extraneous circumstances can
arise which result in the job not being completed, or not completed
to the standard required. Illness, death and divorce of the
supplier or tradesperson you have relied on, commonly get in the
way of finishing the product you've ordered. This can happen with a
new supplier, or even one that you've been dealing with for
years.
You would expect they would refund your money in that instance,
but it is surprising how often that doesn't happen - particularly
when a supplier has gone into liquidation or been bankrupted.
If the supplier is simply mucking you around, then you can go to
court to either force them to honour the contract (you will
eventually get the product you ordered) or sue them for damages
(they owe you money instead). But either way, that involves
expensive and protracted litigation with no guarantee of success,
against a supplier who might well be insolvent by the end.
If the supplier has already gone bust, then court may not be a
viable option. Often, you simply have to hope that you get
something back after the secured and preferential creditors have
had their fill. In more cases than not, full recovery is hopeless.
You would be better off terminating the contract, grabbing what you
can off them and finding someone else to finish the job. To be able
to do this, you might be able to establish that ownership of the
partially made product has already passed to you, under our sale of
goods laws, but it is far simpler and more expedient to detail this
in the contract from the outset. Similarly, you can agree to have a
security interest registered in respect of your goods during
manufacture so that if the supplier becomes insolvent, you can
trump other creditors and extract your partially completed goods
from the liquidator's hands.
Ultimately, securing your money or the product you have paid for
is best achieved before you sign the contract, rather than after.
There are many mechanisms that can be built into a contract to
protect you before it is signed. It is much better to understand
your risks and minimise them at the beginning, rather than scramble
over the pieces when things come to an unexpected end.
If you are concerned about paying a deposit to a supplier or you
are already having difficulty with them, you can contact Telise Kelly or
any of our construction team to discuss your options.