Building and Construction Industry Security of Payment Act 1999 (NSW) – Right of Party to the Contract to proceed under Section 22 of the SOP Act to commence and prosecute proceedings seeking to enforce contractual rights notwithstanding that the party has not paid amount due under adverse Adjudication Determination

20/01/2021

In a recent case of Lindvest DM Pty Limited v CPDM Pty Limited [2020] NSWSC 1290 Justice Stevenson in the Supreme Court of New South Wales considered the matter. 

Brief Facts:

1. Lindvest DM Pty Limited (“Lindvest”) entered into a Contract with CPDM Pty Limited (“CPDM”) as subcontractor by which CPDM provided development services.
2. On 11 December 2019 CPDM issued an invoice to Lindvest for $109,725.
3. On 15 February 2020 CPDM obtained an Adjudication Determination in its favour for $104,000 pursuant to Section 22 of the SOP Act.
4. On 13 March 2020 based on the Adjudication Certificate CPDM obtained judgment in the District Court of New South Wales against Lindvest in the sum of $110,154.75.
5. Lindvest did not seek a stay of the Judgment or set aside that Judgment or dispute the Adjudication Determination. 
6. CPDM proceeded to issue a Garnishee Order and applied for a Writ of Levy or Property against Lindvest.
7. On 24 June 2020 Lindvest commenced proceedings against CPDM based on contractual rights which claim is preserved by Section 32 of the SOP Act.

The issue in this case:

Was the commencement of proceedings by Lindvest an abuse of process in circumstances where Lindvest did not seek to stay or set aside the Judgment issued following an Adjudication Determination.  Lindvest and did not pay the amount of the Judgment into Court.

CPDM submitted that Section 25 (4) of the Security of Payment Act may apply.  However section 25(4) applies in the circumstances where the Respondent Lindvest commenced proceedings to have the Judgment set aside.  In those circumstances Lindvest would have been required to pay into Court as security the unpaid portion of the Adjudicated Amount pending the final determination of those proceedings.

The question was considered by Stevenson J who found that it was not an abuse of the process of the Court to commence and prosecute proceedings against a Judgment Creditor seeking to vindicate its alleged rights under the underlying construction contract in exercise of rights preserved by Section 32 of the Building and Construction Industry Security of Payment Act 1999 (NSW) without paying into Court the amount of the Judgment.

If a party to an Adjudication Application (usually the Respondent) to the Application or the party who is resisting making payment to the Applicant in accordance with an Adjudication Determination that party must pay into the Court the balance of unpaid Adjudicated Amount as a condition of being entitled to make Application to set aside the Adjudication Determination.  No such application to set aside the Adjudication Determination was made in this case.

The particulars in this case were different in that there was no challenge to the Adjudication Determination and no challenge to the Judgment obtained on the basis of the Adjudication Determination. 

The Plaintiff Lindvest Pty Limited was not challenging the Adjudication Determination but rather made an Application pursuant to Section 32 of the SOP Act. 

Section 32 of the SOP Act provides that nothing done under part 3 of the SOP Act (Procedure for Recovering Progress Payments) affects civil proceedings arising under a Construction Contract or under part 3 otherwise as provided in Section 32 (3).

Section 32(3) states that in proceedings before the Court or Tribunal arising under a Construction Contract the Court or Tribunal must allow for any amount paid pursuant to an Adjudication Application and may make such order as it considers appropriate for restitution of any amounts paid and such other order as it considers appropriate having regard to its decision in the proceedings.  In other words the Court will deal with the matter based on the Construction Contract and an adjustment would be made if there has been an overpaid as a result of an Adjudication Determination.

The Supreme Court reviewed a few cases in relation to the abuse of process of the Court and generally as the High Court of Australia said in Tomlinson v Ramsay Food Processing Pty Limited:

“Although unsusceptible of a formulation which comprises closed categories abuse of process is capable of application in any circumstances in which the use of a Court’s procedure would be unjustifiably oppressive to a party or would bring the administration of justice into disrepute”.

The Supreme Court held that the Application by Lindvest was not an abuse of the Court’s process.  Accordingly the claim by Lindvest notwithstanding it had not paid the Adjudication Amount could proceed.

In the circumstances in this case, it was open for the Defendant to ask the Plaintiff to provide security for costs.  In this case His Honour agreed with the Defendant’s estimated costs and ordered security in the said sum of $50,000 such to be paid by 3 instalments as set out in the Judgment. 

Watson & Watson are experienced in Building and Construction law including processes under the Building and Construction Security of Payment Act.  If you have any issues arising either in receiving payment or defending a claim please contact our experienced lawyers by contracting Richard Watson Accredited Specialist Building and Construction or Shereen DaGloria his Personal Assistant to discuss your matter and seek appropriate advice.

This is only a preliminary view and is not to be taken as legal advice without first contacting Watson & Watson Solicitors on 9221 6011.