Lindvest DM Pty Ltd v CPDM Pty Ltd

Background

1. Lindvest is a property developer. The defendant, CPDM Pty Ltd is a provider of project management services.
2. By a Development Services agreement made between Lindvest and CPDM on 17 November 2017, CPDM agreed to provide Lindvest with project management services in relation to a property development at Lindfield.
3. Under the agreement, fees were payable to CPDM on reaching certain milestones, one of which was the obtaining of development approval from the local council; described as "Item 3".
4. On 16 October 2019 Lindvest gave CPDM 60 days' notice of termination of the agreement pursuant to cl 8.3, which made provision for termination without cause. The parties agree that the effect of this notice was to cause the agreement to come to an end on 16 December 2019.
5. On 11 December 2019, CPDM issued an invoice to Lindvest for $109,725, said to be for 95% of the works completed under Item 3.
6. On 15 February 2020 CPDM obtained an adjudication determination in its favour for $104,000 pursuant to s 22 of the Act.
7. On 13 March 2020, based on the consequent adjudication certificate, CPDM obtained judgment in the District Court of NSW against Lindvest in the sum of $110,154.75.
8. As I have said, Lindvest has not sought a stay of that judgment, nor to set it aside. CPDM has endeavoured to enforce the judgment.
9. On 25 March 2020 CPDM procured the issue of a garnishee order. The garnishee was served on one of Lindvest's banks which, on 6 April 2020, paid CPDM $5,617.55.
10. On 17 July 2020 CPDM applied to the District Court for a writ for levy of property against Lindvest. A writ was issued. On 9 September, 2020 the writ was returned unsatisfied. Accordingly Lindvest is now prima facie presumed to be insolvent. [2]

These proceedings

1. On 24 June 2020 Lindvest commenced these proceedings. Lindvest seeks, amongst other things, a declaration that at the date of termination of the agreement CPDM was not entitled to any payment of the Item 3 works. Lindvest contends that the adjudicator, in concluding that CPDM was entitled to payment under the agreement for the Item 3 milestone, made an error of law, albeit within jurisdiction. It now wishes to establish in these proceedings what it contends to be the correct legal position.
2. By notice of motion filed on 19 August 2020, CPDM seeks an order dismissing or staying the proceedings on the basis that their prosecution is an abuse of process.
3. If the proceedings are not dismissed or stayed, CPDM seeks security for costs.

The objects of the Act

1. Section 3 of the Act states that its objects include to ensure that a person undertaking construction work is able to recover progress payments in relation to that work. The means by which the Act achieves that result is a procedure which includes "payment of the progress payment so determined".
2. Section 23(2) of the Act provides that: 23 Respondent required to pay adjudicated amount … (2) If an adjudicator determines that a respondent is required to pay an adjudicated amount, the respondent must pay that amount to the claimant on or before the relevant date.
3. The Act then makes provision for the provision of an adjudication certificate, the filing of the adjudication certificate and a judgment in a court of competent jurisdiction: ss 24 and 25.
4. On the other hand, a claimant's statutory entitlement to a payment under the Act is "determined informally, summarily and quickly, and then summarily enforced without prejudice to the common law rights of both parties which can be determined in the normal manner". [3]
5. Section 32(1) provides that nothing in the Act affects the right of any party to a construction contract under that contract.
6. Section 32(3)(b) provides that in any proceedings before a court arising out of a contract, the Court: … may make such orders as it considers appropriate for the restitution of any amount so paid, and such other orders as it considers appropriate, having regard to its decision in those proceedings.
7. Subparagraph 32(3)(b) has the effect that a judgment entered under s 25 is provisional in the sense that the judgment entered can, in the proceedings contemplated by s 32, challenge the claimant's right to the amount awarded by the adjudicator and obtain restitution of any amount overpaid.

Abuse of process of the Court?

1. In Tomlinson v Ramsey Food Processing Pty Ltd [4] the High Court stated: "Although insusceptible 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 procedures would be unjustifiably oppressive to a party or would bring the administration of justice into disrepute." [5]
2. In UBS AG v Tyne, [6] Bell and Keane JJ applied the passage set out in the previous paragraph. In the same case, Gordon J, although in the minority, noted that "the onus of satisfying the court that a proceeding is an abuse of process is 'a heavy one'." [7]
3. Proceedings might also constitute an abuse of process if they are brought for an improper purpose. [8]
4. I fail to see how it can be said that Lindvest has abused the Court's process by commencing these proceedings.
5. They are not unjustifiably oppressive. Nor can I see how they could be characterised as being instituted for an improper purpose or bringing the administration of justice into disrepute.
6. I think Mr Lees, who appeared for Lindvest, was correct to submit that: "It cannot be said that Lindvest has abused the court's processes by filing a summons seeking final relief in relation to its contractual rights, while an adjudication judgment is unsatisfied, when s 32 of the Act expressly reserves that right to Lindvest. Further, Lindvest has not directly or indirectly sought to avoid the operation of s 25(4) of the Act, which deals with these circumstances."
7. An adjudication judgment is provisional. The scheme of the Act contemplates either concurrent or consecutive proceedings on the adjudication judgment and under the contract, and of there being inconsistent judgments arising from these proceedings.
8. Lindvest's institution of these proceedings does not deny the operation of the Act or subvert its operation. CPDM remains free to enforce the District Court judgment. Indeed, it now has the presumption of presumed insolvency by reason of the writ of levy of property being returned unsatisfied.
9. It may be that CPDM will now incur further costs defending these proceedings. However, that matter will be substantially addressed by Lindvest giving security for costs, a question to which I will now turn.

Security for costs

1. Lindvest accepts that it must provide security for costs.
2. There is a dispute between the parties as to the quantum of security that should be provided.
3. CPDM contends that security should be provided in the sum of $50,000 being around two-thirds of the actual costs that CPDM anticipates incurring in these proceedings.
4. Lindvest contends that the figure should be somewhat less, substantially upon the basis of its contention that the proceedings do not warrant the engagement of senior counsel; although Lindvest would allow a one-third uplift on the junior counsel's fees in those circumstances.
5. I am satisfied that CPDM's estimate of costs is reasonable and propose to order security in the sum of $50,000.
6. Lindvest seeks time to provide security and proposes that security be provided by three instalments: 1. First instalment in 14 days of these orders; 2. Second instalment 14 days prior to the date that CPDM is to serve its evidence; and 3. Third instalment 14 days prior to the date set down for final hearing.
7. I propose to order that security be provided by such instalments, save that the third instalment should be within 14 days of the date on which a hearing date is allocated.
8. As the significant matter in controversy before me has been whether the proceedings be struck out or stayed, and as Lindvest has achieved success on that question, I propose to order that CPDM pay Lindvest's costs of its notice of motion of 19 August 2020.
9. The parties should confer and agree on the orders necessary to give effect to these reasons.

Endnotes

1. Eg Tombleson v Dancorell Constructions [2007] NSWSC 1169 at [18]-[19] (Bergin J); Filadelfia Projects Pty Limited v EntirlTy Business Services [2010] NSWSC 473 (McDougall J); Nazero Group Pty Limited v Top Quality Construction Pty Limited [2015] NSWSC 232 (Hammerschlag J)
2. Section 459C(2)(b) Corporations Act 2001 (Cth).
3. Falgat Constructions Pty Ltd v Equity Australia Corp Pty Ltd (2005) 62 NSWLR 385; [2005] NSWCA 49 at [22] (Handley JA; Santow JA and Pearlman AJA agreeing); approved in Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd (2018) 264 CLR 1; [2018] HCA 4 at [44] (Kiefel CJ, Bell, Gageler, Keane, Nettle, Gordon, Edelman JJ).
4. 256 CLR 507; [2015] HCA 28.
5. Ibid at 519 [25].
6. (2018) 265 CLR 77; [2018] HCA 45 at [1] (Kiefel CJ, Bell, Gageler, Keane, Nettle, Gordon, Edelman JJ).
7. Ibid at [136] citing Williams v Spautz (1992) 174 CLR 509; [1992] HCA 34 at 529.
8. See Batistatos v Roads and Traffic Authority of NSW (2006) 226 CLR 256; [2006] HCA 27 at [14]-[15] (Gleeson CJ, Gummow, Kirby, Hayne, Callinan, Heydon, Crennan JJ). 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 September 2020