Challenge to Adjudication Determination Under Security of Payment Act

The court considered a challenge to an adjudication determination under the Security of Payment Act, ruling on the disposition of funds paid into court and the costs associated with the challenge.

Supreme Court New South Wales

Medium Neutral Citation: Cobar Shire Council v [COMPANY] [2017] NSWSC 86 Hearing dates: 15 February 2017 Decision date: 15 February 2017 Jurisdiction: Equity - Technology and Construction List Before: Stevenson J Decision: Funds in Court to be paid out to defendant; plaintiff to pay costs on indemnity basis from date of Calderbank offer Catchwords: BUILDING AND CONSTRUCTION – challenge to adjudication determination – money paid into court as price for interlocutory injunction – application not pursued – proceedings to be instituted in District Court – whether funds in court should be paid to party with benefit of determination; PRACTICE AND PROCEDURE – funds in court – whether should be paid out to defendant; COSTS – Calderbank offer – whether unreasonable of plaintiff to not accept offer Legislation Cited: Building and Construction Industry Security of Payment Act 1999 (NSW) Competition and Consumer Act 2010 (Cth) Corporations Act 2001 (Cth) Cases Cited: Filadelfia Projects v EntirITy Business Services [2010] NSWSC 473 [COMPANY] v [COMPANY] (Supreme Court (NSW), Einstein J, 21 April 2006, unrep) [COMPANY] v [COMPANY] (No 2) [2016] NSWCA 382 [COMPANY] v [NAME] (No 3) [2007] NSWSC 459 Category: Procedural and other rulings Parties: Cobar Shire Council (Plaintiff) [COMPANY] (First Defendant) [COMPANY] (Second Defendant) [NAME] (Third Defendant) Representation: Counsel: [redacted] [NAME] (First Defendant)

Solicitors: [redacted] [NAME] (First Defendant) File Number(s): SC 2016/328403 Publication restriction: SC 2016/328403

Judgment 1. In June 2015, the plaintiff, Cobar Shire Council, entered a contract with the first defendant, [COMPANY], for the construction of the Cobar Rural Fire Service Station.

2. On 18 October 2016, [NAME] obtained a determination under s 22 of the Building and Construction Industry Security of Payment Act 1999 (NSW) ("the Act") that the Council pay it a progress payment of $171,120.90. 3. [NAME] obtained an adjudication certificate under s 24 of the Act in respect of that determination and, on 2 November 2016, caused that adjudication certificate to be filed in the District Court of New South Wales as a judgment.

4. The following day, 3 November 2016, the Council commenced these proceedings seeking an order in the nature of certiorari quashing the determination.

5. On 8 November 2016 Bergin CJ in Eq made an order restraining [NAME] from enforcing the District Court judgment conditional upon the Council paying $28,292 to [NAME] and paying $152,522.69 into Court. That was done.

6. The matter was listed for hearing before me today. 7. [NAME] appeared for the Council and informed me that the Council wished to discontinue the proceedings. 8. [NAME] appeared for [NAME] and submitted that, as the Council did not propose to prosecute the proceedings, they should be dismissed.

9. I accepted [NAME]'s submission and, earlier today, ordered that the proceedings be dismissed with costs.

10. Two issues remain.

11. The first is what is to happen to the funds in Court.

12. The second is whether there should be a special order for costs by reason of the service by [NAME] on the Council of a Calderbank offer on 30 November 2016.

The funds in Court 1. Section 25(4)(b) of the Act provides that if, in circumstances such as I have described, a party in the position of the Council commences proceedings to have a judgment entered against it by reason of an adjudication certificate set aside, that party: "[I]s required to pay into the court as security the unpaid portion of the adjudicated amount pending the final determination of those proceedings."

1. If, as in this case, a respondent to an adjudication determination does not seek to have any such judgment set aside, but, rather, seeks to invoke the supervisory jurisdiction of this Court to quash the determination for jurisdictional error, it is the practice of the Court, by analogy with s 25(4)(b), to require such a party to pay the amount of the determination into Court to abide the outcome of the application.

2. In that regard [NAME] drew my attention to the following observations of McDougall J in Filadelfia Projects v EntirITy Business Services [2010] NSWSC 473 at [11] as follows: "In the ordinary way injunctive relief would be granted on condition that the amount in dispute, including the cost of the adjudication and some allowance for interest, be paid into Court pending a final resolution of the dispute. That is generally done firstly where s 25(4) of the Act applies, simply because that is a requirement of the section. Where (as here) s 25(4) does not apply in terms (and it does not apply in terms because there has been no adjudication certificate, and hence no judgment for a debt) the Court nonetheless, taking into account the clear objects of the Act and its underlying policy, generally orders payment into Court by analogy with s 25(4)."

1. Thus, by analogy with s 25(4)(b) of the Act, it is the practice of the Court to treat the monies so paid into Court as being security for the unpaid portion of the adjudicated amount pending the determination of the proceedings in this Court.

2. As was common ground before me, it is the usual practice of the Court in matters such as this that money paid into Court in these circumstances abides the event. That is, if the determination is successfully challenged, the funds are returned to the applicant. Otherwise the funds are paid out to the party with the benefit of the determination under the Act.

3. The Council has foreshadowed that it is about to commence proceedings in the District Court against [NAME] seeking damages, on various bases, including alleged breach of the construction contract, alleged breach of a duty of care and misleading or deceptive conduct for the purposes of the Australia Consumer Law (set out in Sch 2 of the Competition and Consumer Act 2010 (Cth)).

4. In those circumstances, [NAME] submitted that I should not follow the usual practice in this case and that, instead, I should either order that the funds remain in this Court pending determination by the District Court of the foreshadowed proceedings, or, alternatively, make an order the effect of which would be that either the funds in this Court be transferred to the District Court or that the Council deposit a corresponding sum in that Court. 5. [NAME] submitted I should take this course because the evidence shows that there is reason to doubt that [NAME] will be able to "repay" the funds presently in Court, should the Council succeed in its foreshadowed proceedings. 6. [COMPANY] v [COMPANY] (Supreme Court (NSW), Einstein J, 21 April 2006, unrep) at [5] is authority for the proposition that the Court will intervene to protect a party in a position analogous to that of the Council where a party in the position of [NAME]: "[W]ill not be in a position to repay those moneys should it ultimately fail when the parties legal rights inter se are finally adjudicated or that the risk is very high". (See also [COMPANY] v [NAME] (No 3) [2007] NSWSC 459 at [33] to [39] (McDougall J).

1. However, in this case, I am not able to reach any reliable conclusion as to [NAME]'s financial position. I certainly cannot conclude that the risk of [NAME] being unable to pay the Council any amount ultimately determined to be due to it is "very high". 2. [NAME] relied upon a document created by the Australian Securities and Investments Commission which stated that it "proposes to deregister" [NAME] under s 601AB of the Corporations Act 2001 (Cth).

3. However, [NAME], a director of [NAME], has produced a document from [NAME]'s accountants which suggests that [NAME]'s proposal to deregister [NAME] was as a result of fees which were outstanding by reason of "an incorrect address which…has been resolved", that the outstanding fees have now be paid, and that [NAME]'s records will be updated shortly. 4. [NAME] also pointed to records of [NAME] that state that a number of default judgments have been entered against [NAME] throughout 2016.

5. However, there is no evidence before me as to the circumstances in which those judgments were entered or, indeed, as to whether those amounts remain unpaid. Nor am I able to make any assessment as to whether the non-payment by the Council to [NAME] of the adjudicated amount has led to any default judgments being entered against [NAME].

6. In that regard [NAME] stated in an affidavit sworn today that: "[NAME] is reliant on payment of the Adjudicated Amount to pay its subcontractors and for the ongoing operation of the company".

1. Finally, [NAME] relied upon evidence given by his instructing solicitor of conversations with a number of creditors of [NAME] which suggest that they have remained unpaid since November last.

2. However, in his affidavit, [NAME] states that there is a dispute in relation to each of those claims.

3. I am not able to make any determination of the merits or otherwise of those matters.

4. In these circumstances, I see no reason why the usual practice of the Court should not be followed.

5. I propose to order that the funds in Court be paid out to [NAME].

Costs 1. On 30 November 2016, [NAME]'s solicitors forwarded to the Council's solicitors a Calderbank offer offering to resolve the matter upon the basis of the Council paying [NAME] $122,000 on account of the adjudicated amount and each party paying its own costs of the proceedings. 2. [NAME] has achieved a result significantly better than this offer. It is to be paid the whole of the adjudicated amount and to have its costs of the proceedings.

3. I am also satisfied that the offer constituted a genuine compromise of the proceedings. [NAME] did not contend otherwise. 4. [NAME] did submit was that it was not unreasonable for the Council to not accept the offer in view of what [NAME] described as the then uncertain state of the law so far as concerns non-jurisdictional error by an adjudicator (now clarified by the Court of Appeal in [COMPANY] v [COMPANY] (No 2) [2016] NSWCA 382, handed down on 23 December 2016, some three weeks after the date of the Calderbank offer).

5. However, as [NAME] pointed out, the Council made no complaint in its Technology and Construction List Statement of non-jurisdictional error. It alleged jurisdictional error, only.

6.

Accordingly, I do not accept the pendency of the Court of Appeal's decision in Shade Systems as touching on the reasonableness of the Council's decision not to accept the 30 November 2016 offer.

7. As [NAME] offered no other submission on this subject, my conclusion is that it was unreasonable of the Council not to accept the offer.

8.

Accordingly, I propose to order that the Council pay [NAME]'s costs of the proceedings on the ordinary basis to 30 November 2016 and thereafter on an indemnity basis.

9. I invite counsel to confer and agree on the orders needed to give effect to these reasons.

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Amendments 22 February 2017 - Case citation in coversheet and [36] corrected DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 22 February 2017