Australia: Adjudications under the Security of Payment legislation must be taken seriously: "interim" does not necessarily mean interim

Last Updated: 3 October 2013
Article by Jeffrey Wilson

The case of Nigro v EVS Group Pty Ltd [2012] NSWSC 1545 was in connection with two related companies involved in the development of a site in NSW which involved the construction of multiple residential units. The two developer companies had a common director (the Respondent). The Claimant was a provider of security personnel services at the site but there was disagreement as to whether one of the developer companies or the Respondent personally contracted with the Claimant to provide the security services at the site in question.

Because such security services came within the definition of "related goods and services" under the Security of Payment legislation, the Claimant was entitled to serve a payment claim under the legislation on the other party to the construction contract.

After it issued a payment claim to the Respondent the Claimant commenced an adjudication against the Respondent under the Security of Payment legislation. In the adjudication, the Respondent said that he was not the party to the construction contract and instead it was one of the developer companies that contracted with the Claimant. The adjudicator's decision was that the construction contract was with the Respondent and that he had to pay the Claimant some $44,000 on account of the security personnel services provided.

When that amount was not paid, the Claimant pursued its rights under the legislation to get an adjudication certificate and then proceed to file that as a judgment in court, and, then obtain an order from the court (called a garnishee order) entitling the Claimant to obtain moneys out of the Respondent's bank account in part payment of the adjudication determination.

At this point the Respondent had a possible remedy of applying to the court to set aside the adjudicator's determination. That would have been on the basis that the adjudicator had no jurisdiction under the legislation to make the determination as the relevant construction contract was not between the Respondent and the Claimant but rather between one of the developer companies and the Claimant.

However, the Respondent chose not to make that type of application but instead issued different court proceedings relying on s.32 of the NSW Security of Payment legislation to seek restitution of the amount paid together with interest and costs on the basis that the respondent was not a party to the construction contract.
Section 32 provides that:

"...nothing in this Part [of the Security of Payment legislation] affects any right that a party to a construction contract:
  1. may have under the contract, or
  2. may have under Part 2 [of the Security of Payment legislation] in respect of the contract, or
  3. may have apart from [the Security of Payment legislation] in respect of anything done or omitted to be done under the contract"

Earlier court decisions interpreting s.32 had stressed the interim nature of adjudication determinations, for example, an earlier decision of the court said in respect of s.32 that:

"its place in the scheme of the Act is to reinforce the interim nature of adjudication determinations, and to provide that parties' legal rights (as decided by a court or tribunal) are given full effect notwithstanding what may have been determined by an adjudicator and what may have been done in pursuance of, or obedience to, that determination...The legislature intended the process of dealing with progress claims to be speedy. In many human activities, speed and error are natural companions. S.32 is the legislative recognition of the potential application of that truism to the scheme of adjudication of disputes."

However, the Respondent failed to recover from the Claimant the amounts that the Claimant obtained out of the Respondent's bank account.

This was because the rights in s.32 were rights of a party "to a construction contract". Therefore, before a party could exercise the rights provided by s.32 it required as an essential prerequisite the existence of a construction contract between the parties to the court proceeding. The court determined that as "the foundation of the Respondent's case is that he was not a party to a construction contract" he could not rely on s.32.

Nigro v EVS Group Pty Ltd is a reminder that payment claims and adjudications under the Security of Payment legislation need to be taken seriously. Although a party who is dissatisfied with an adjudication determination has rights to challenge it, the method of challenge needs to be carefully considered so that it is appropriate to the facts of the case. Although this was a NSW case, the Security of Payment legislation in the other states and territories (apart from the Northern Territory and Western Australia) all have substantially similar wording on this issue.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Jeffrey Wilson
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