Property problems: My property, his builder: Do I have to pay?

Q: I own a property in Parnell, which my brother leases from me. He runs his company from the commercial office space on the property. Years ago when he was starting up his company, I provided him with some capital and I was made a director of the company. Since then I've really had no involvement in the company. A few months ago I agreed that my brother could do some renovation work to the office space and I think he engaged a local builder to carry out the work. I know that my brother was not happy with the quality of the builder's work and has been disputing the builder's accounts. To my great surprise, though, I have been served with a document called a Notice of Adjudication. It says that the builder is taking me, and my brother's company, to an adjudication and seeking payment as well as a charging order over my property. I've had no involvement with this builder and I never agreed to pay him. Can he do this?

A: The simple is answer is yes. The Construction Contracts Act 2002 introduced a fast-track mechanism known as adjudication for disputes arising under a construction contract. From what you have said, your brother's company engaged the builder to carry out renovations to the property, which would be construction work, and so is likely to be a construction contract covered by the act. The builder is therefore entitled to bring his claims for payment via the adjudication process.

From your point of view, the significant part of the act is that it enables an adjudication to be brought not just against the party who contracted the builder (your brother's company) but against the land owner if the land owner is an "associate" of the contracting party. In your case you would meet the definition of "associate" under the act because you are a director of the company that engaged the builder. You are therefore an associate of your brother's company.

If your brother's company is found in the adjudication to owe the builder a sum of money, you will be found to be jointly and severally liable with your brother's company to pay the amount owed to the builder. As well, the builder is likely to get approval from the adjudicator for the issue of a charging order over your property. The fact that you did not personally have any involvement with the builder is not something that the adjudicator will be permitted to take into account.

If the builder is successful in the adjudication he can enforce the determination of the adjudicator by entering it as a judgment in the court. You would then have a judgment against you for the amount of the adjudicator's determination. If your brother's company still did not pay the builder, you would have to, and then would have to recover that money from your brother's company yourself.

Because of all this, you would be unwise simply to ignore the Notice of Adjudication that has been served on you, and you may wish to seek legal advice about it. As a party to the adjudication you have the right to raise any defences to the claim by the builder. For example, if there are defects in the work or valid reasons for non-payment, you are entitled to present these reasons to the adjudicator and ensure that all the defences to the builder's claim are put forward.

Although your inclusion in this process may seem unfair when you have had no personal involvement with this builder or the work done, the act is designed to protect the builder who has not been paid for his work. In addition, as owner of the property you have had the benefit of the work done (and any increased value) to your property.

But to avoid any similar situation arising in the future, you may wish to consider resigning as director of this company, especially if you have no day-to-day involvement in it.