Concurrent pursuit of litigation and adjudication: an abuse of process?

Canterbury-Bankstown Council v Payce Communities Pty Ltd [2019] NSWSC 1419

A common dispute resolution mechanism in the construction industry is adjudication. Where legislation allows, a dispute (such as a disagreement on a payment claim) may be referred to an adjudicator (an independent third party and usually an expert in the field), who will determine the dispute. This determination is then, in the usual course, binding. Contracting parties often agree to include adjudication as a dispute resolution process because it provides a cost effective and efficient way of having a dispute decided by an impartial party without the high cost and procedural obstacles of arbitration and litigation.

Is it an abuse of process to seek an adjudication for a claim whilst simultaneously pursing the same claim in a court? This issue was addressed in Canterbury-Bankstown Council v Payce Communities Pty Ltd [2019] NSWSC 1419.

Background facts

The Dispute

Canterbury-Bankstown Council (Council) had an agreement with Payce Communities (Payce) for the fit out of a library and senior citizens community centre. At the time of practical completion, Council and Payce were in dispute over the extent and value of variations to the originally contracted scope of works.

First Adjudication and Court Proceedings

In October 2018, Payce served a payment claim on Council under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the SOP Act), seeking $1.772 million in respect of 41 items of variation works, to which Council responded with a payment schedule of nil. Payce referred the matter to adjudication where it was determined that Payce was not entitled to any amount, as there was no reference date available in respect of the payment claim. The adjudicator, however, did not make any determination concerning the merits of Payce's claim or Council's response.

Payce did not challenge the adjudication determination.

In April 2019, Payce commenced proceedings in the Supreme Court of New South Wales (the Court Proceedings), claiming $1.748 million in respect of 44 items of variation works, including the previously disputed variations. Council asserted that Payce was not entitled to any amount for the claimed variations.

Final Payment Claim and Adjudication Application

Whilst in the midst of proceedings, Payce served its final payment claim under the SOP Act for payment of items of variation works that included the previously disputed variations.

After responding again with a payment schedule of nil, Council subsequently brought separate proceedings in the Supreme Court (the proceedings the subject of the balance of this note) seeking to restrain Payce from lodging an adjudication application whilst there was an ongoing Court proceeding concerning the same items of variation works. The Council claimed that it would be an abuse of process for Payce to pursue both the Court Proceedings and an adjudication at the same time.

Was it an abuse of process to seek adjudication while litigating?

Council argued that it was the overall impact of a number of factors that resulted in the abuse of process, namely:

  • the Court Proceedings being commenced by Payce at a time when Payce knew they would not be heard and determined before the expiry of the period in which Payce could serve its Final Payment Claim;
  • Payce preparing its evidence in the Court Proceedings with the benefit of Council’s defence documents;
  • Payce using Council's defence documents in support of its final payment claim, and so obtaining a forensic advantage in the adjudication process; and
  • Payce serving its evidence in the Court Proceedings late and in breach of the Court timetable, and then serving its final payment claim towards the end of the period in which it was entitled to do so, with the result that Council was required to serve its response to the final payment claim prior to finalising its evidence in the Court Proceedings.

The Court rejected each of Council's arguments. It found that invoking the adjudication process under the SOP Act concurrently with the Court Proceedings did not, in and of itself, constitute an abuse of process. For abuse of process to be established, there would need to be an "improper or illegitimate purpose" or the use of process must be "unjustifiably oppressive". The above factors argued by Council did not meet those standards.

In particular, the Court found:

  • the SOP Act governs the timing by which payment claims, responses and resulting adjudications must take place. The timing of service of Payce's final payment claim was mandated by the SOP Act and not able to be amended or extended by any of Payce, Council, or the Court. At the same time, it was forensically and legally open to Payce to commence the Court Proceedings to pursue its claim as stated. Doing so, was not an abuse of process per se;
  • the evidentiary issues raised by Council were the product of a timing issue which arose from the operation of the SOP Act and the 'usual course' of litigation. The Court was of the view that delay in complying with Court timetables is not acceptable, but the Court was satisfied by Payce's evidence as to the reasons for those delays; and
  • the Court accepted that there was a time burden imposed upon Council given the requirements of the SOP Act. However, Council was well aware of the SOP Act timeframe and, given Payce had provided its evidence in the Court Proceedings in tranches, was on notice of the likely nature of Payce's final payment claim. Further, Council failed to demonstrate that Council's defence documents provided a forensic advantage to Payce in the SOP Act process.

The Court found that there was no abuse of process by Payce and, in doing so, dismissed Council's claim and ordered it to pay Payce's costs of the proceeding.

Key Takeaways

The Court's decision in this case demonstrates that running concurrent adjudication and litigation processes will usually not, in and of itself, constitute an abuse of process. Particularly when one of those processes is mandated by legislation and incorporated by consensus into an agreement between parties.

The party applying to prevent or restraint such concurrent processes will need to evidence additional prejudicial or oppressive circumstances for there to be an abuse of process. The Supreme Court of New South Wales has confirmed, in this case, that it is a heavy evidentiary burden to be satisfied by the party seeking to establish an abuse of process.

Contracting parties should be on notice that a court's view will likely be that the risks associated with concurrent processes are very much ones accepted by the parties in circumstances involving legislated adjudication processes. In such circumstances, it is not open to the parties or the courts to alter the legislated processes, so parties ought to factor that into their thinking when they are entering into such contracts. [i]

[i] [Note: The above material provides a summary only of the subject matter covered, without an assumption of a duty of care by Resolution Institute or Clayton Utz. The material is not intended to be nor should it be relied upon as a substitute for legal or other professional advice. Copyright in the material is owned by Clayton Utz.]