Key Takeaways:
For property developers, contractors, and subcontractors operating in New South Wales, this decision provides important clarity on a previously untested question. A party that has been subject to an unfavourable adjudication determination is not without recourse. Section 32 of the Security of Payment Act preserves the right to have the underlying contractual dispute resolved on its merits in court proceedings, even where a judgment has been entered and enforcement steps have been taken. Parties facing adjudication determinations they consider to be legally incorrect should seek legal advice promptly on their options under section 32.
Date: 30 September 2020
Case Overview
This case determined a novel question of law in the Building and Construction Industry Security of Payment Act 1999 (NSW) context: whether it is an abuse of process for a party to commence civil proceedings seeking to enforce its contractual rights while an unsatisfied adjudication judgment remains outstanding against it. The New South Wales Supreme Court held that it is not.
The client, Lindvest, a property developer, engaged the defendant to provide project management services in connection with a development in Lindfield, New South Wales. Lindvest terminated the agreement pursuant to a contractual termination for convenience clause. Following termination, the defendant issued an invoice and successfully obtained an adjudication determination and consequent District Court judgment against Lindvest under the Security of Payment Act.
Lindvest did not seek to stay or set aside the judgment. Instead, it commenced civil proceedings in the Supreme Court under section 32 of the Act, seeking a declaration that the defendant had not been entitled to the payment in the first place, contending that the adjudicator had made an error of law in finding that the milestone payment was owing at the time of termination. The defendant moved to dismiss or stay those proceedings on the basis that they constituted an abuse of process.
The central question, acknowledged by the Court to be one on which there was no prior authority, was whether a party could pursue its contractual rights under section 32 of the Act in concurrent civil proceedings while an unsatisfied adjudication judgment remained outstanding against it, without first paying the adjudicated amount into court.
The Court’s Decision
The Court dismissed the defendant’s motion and held that the proceedings were not an abuse of process. The reasoning turned on the scheme and structure of the Security of Payment Act itself. The adjudication process is designed to provide a quick, interim determination of payment rights, described by the courts as a ‘pay now, argue later’ regime. Section 32 of the Act expressly preserves the contractual rights of all parties, and section 32(3)(b) contemplates that a court may order restitution of any amount found to have been overpaid following a final determination of the parties’ rights.
The Court found that the Act expressly contemplates concurrent or consecutive proceedings and the possibility of inconsistent judgments. Commencing the section 32 proceedings did not deny or subvert the operation of the Act; the defendant remained free to enforce its District Court judgment in parallel. The proceedings were not unjustifiably oppressive, had not been brought for an improper purpose, and did not bring the administration of justice into disrepute. The Court ordered Lindvest to provide security for costs of $50,000, payable in instalments, and awarded costs of the motion to Lindvest.
Disclaimer
This article does not give legal advice. It is intended to provide general information in summary form on legal topics, current at the time of first publication, for general information purposes only. The contents do not constitute legal advice, are not intended to be a substitute for legal advice and should not be relied upon as such. Formal legal advice should be sought in particular matters.