A-Tech Australia Pty Ltd v Top Pacific Construction Aust Pty Ltd (No 2) [2019] NSWSC 624

Supreme Court New South Wales

Medium Neutral Citation: A-Tech Australia Pty Ltd v Top Pacific Construction Aust Pty Ltd (No 2) [2019] NSWSC 624 Hearing dates: 16 April; 9 May; 27 May 2019 Date of orders: 27 May 2019 Decision date: 27 May 2019 Jurisdiction: Equity - Commercial List Before: Parker J Decision: Judgment be entered in favour of the plaintiff in $487,324.38. The defendant's application for a stay of enforcement of the judgment be refused. The sum of $466,120.80 paid into Court by the defendant together with any interest accrued on that sum be paid out to the plaintiff. The defendant pay the plaintiff's costs of the proceedings on its claim. Catchwords: BUILDING AND CONSTRUCTION – construction contracts – Building and Construction Industry Security of Payment Act 1999 (NSW) – application for stay of enforcement of judgment entered in favour of the plaintiff – application opposed and orders sought for payment of monies previously paid into court pending determination of claim for judgment – where owner or head contractor is liable to contractor but has an offsetting claim against that contractor under the Building and Construction Industry Security of Payment Act 1999 (NSW) – principles for the grant of a stay of payment pending determination of claim – orders for stay of enforcement of judgment conceptually distinct from orders for release of monies paid into court - interim nature of entitlements under the Act relevant to application for stay where evidence establishes that payment will be final for practical purposes – evidence of $1 company does not itself establish that monies paid into court could not be later recovered from owner or head contractor – application for stay sought on further basis of prior agreement by consent that plaintiff's application for summary judgment be dismissed in return for monies to be paid into court – prior agreement compromised immediate application for summary judgment but did not prevent determination of contractor's claim and payment of judgment sum. Legislation Cited: Building and Construction Industry Security of Payment Act 1999 (NSW), ss 15(4)(b), 23, 25 Cases Cited: A-Tech Australia Pty Ltd v Top Pacific Aust Pty Ltd [2019] NSWSC 404 Greenwood Futures v DSD Builders (No 2) [2018] NSWSC 1471 Grosvenor Constructions (NSW) Pty Limited (in administration) v Musico & Ors [2004] NSWSC 344 Hakea Holdings Pty Limited v Denham Constructions Pty Ltd; Baptistcare NSW & Act v Denham Constructions Pty Ltd [2016] NSWSC 1120 Parist Holdings Pty Ltd v WT Partnership Australia Pty Ltd [2003] NSWSC 365 Veolia Water Solutions v Kruger Engineering [No 3] [2007] NSWSC 459 Texts Cited: New South Wales Legislative Assembly, Parliamentary Debates (Hansard), 12 November 2002 at 6541-6542 Category: Consequential orders (other than Costs) Parties: A-Tech Australia Pty Ltd (Plaintiff) Top Pacific Construction Aust Pty Ltd (Defendant) Representation: Counsel: FP Hicks SC/J Nathan (Plaintiff) F Santisi (Defendant)

Solicitors: Goh Lawyers (Plaintiff) KPL Lawyers (Defendant) File Number(s): 2018/295750 Publication restriction: Nil

Judgment – EX TEMPORE Revised and reissued 29 May 2019 1. On 12 April I delivered my principal judgment in these proceedings: A-Tech Australia Pty Ltd v Top Pacific Aust Pty Ltd [2019] NSWSC 404 ("J1"). This judgment assumes familiarity with that one and uses the same abbreviations. 2. In that judgment I concluded that: 1. ATA was entitled at the hearing to pursue its claim for judgment under the Act despite the earlier consent orders made on 7 December and the payment of money into Court pursuant to those orders; 2. both invoices issued by ATA which were the subject of the proceedings were valid payment claims under the Act; and 3. neither invoice was the subject of a payment schedule from TPC within the time allowed by the Act. 1. I adjourned the proceedings for the making of final orders and the hearing of a foreshadowed application by TPC for a stay. 2. It is common ground that, together with interest, the amount to which ATA is entitled pursuant to my judgment is $487,324.38. There will be judgment in favour of ATA for that amount. ATA will also receive an order in its favour for the costs of the proceedings up to and including the date of delivery of judgment. 3. As I have indicated, TPC sought an order that enforcement of the judgment be stayed. For its part, ATA opposed any stay and sought an order that the moneys previously paid into Court ($466,120.80, together with any interest which has accrued) be paid out to it. 4. Strictly speaking, the question of whether moneys in court should be paid out is separate from the question of whether a stay should be granted. In theory the Court could refuse a stay, but decline to order the money to be paid out. This would leave ATA to enforce the judgment against TPC in some other way. TPC did not, as I understood it, maintain this as a fall-back position. For practical purposes, the fate of the stay application will determine whether the money is paid out. 5. There was no further evidence led on the stay application. Counsel for TPC was content to refer to evidence which had been before me at the hearing. That evidence included a search of ATA. The search shows that the company was incorporated in February 2012 and has a paid up capital of $1. There was no further evidence before me of the company's financial position, nor of its trading performance. 6. Counsel for TPC relied in support of the stay application on the events surrounding the Court orders on 7 December to which I have referred. Those events are set out in my first judgment, in particular at [12]-[21]. My judgment also summarised the events which followed for making of the orders on 7 December up to the date the matter first came before me for hearing on 21 March, at [22]-[25]. 7. As I explained in my first judgment, TPC has pursued proceedings by way of cross-claim for damages for breach of contract against ATA. Those proceedings are still pending in this Court and are being case-managed in the usual way. Although in form they are cross-claim proceedings, they are in substance separate proceedings, and therefore do not infringe the prohibition in s 15(4)(b) of the Act. 8. It is well established that where an owner or head contractor is liable under the Act to make a payment to a contractor, but has a claim against that contractor, the Court may in some circumstances grant a stay of payment pending the determination of the claim. In Hakea Holdings Pty Limited v Denham Constructions Pty Ltd; Baptistcare NSW & Act v Denham Constructions Pty Ltd [2016] NSWSC 1120, Ball J summarised the principles on which the Court acts in an application for such a stay in the following way (at paragraphs [5]-[6]): 5. In determining whether to grant a stay or an injunction, the court must balance two competing policies of the SOP Act. One is that contractors should be paid promptly for the work that they have done. The other is that any payment under the Act is not intended to affect the rights of the parties under the relevant construction contract. To give effect to the second of these policies, the SOP Act specifically provides in s 32 that the court or tribunal hearing a dispute under the relevant construction contract may make such orders as it considers appropriate for the restitution of any amount paid as a result of an adjudication determination. That right may prove to be worthless if the contractor is or becomes insolvent. 6. The factors that the court will take into account in balancing the competing policies include the following: (a) the strength of the applicant's claim: see Veolia Water Solutions v Kruger Engineering Australia Pty Ltd (No 3) [2007] NSWSC 459 at [73]; Romaldi Constructions Pty Ltd v Adelaide Interior Linings Pty Ltd (No 2) [2013] SASCFC 124 at [95] (where Blue J (with whom Sulan and Stanley JJ agreed) described the factor as "an important criterion"); RJ Neller Building Pty Ltd v Ainsworth [2008] QCA 397 at [19], [36] per Keane JA (with whom Fraser JA and Fryberg J agreed); (b) the basis of the applicant's claim. Obviously, an important factor is whether the applicant challenges the adjudicator's determination. Another important factor is whether the applicant challenges the debt the subject of the adjudication determination. The absence of a challenge to the debt is a powerful factor against the grant of a stay: Romaldi at [110]; (c) the likelihood that the contractor will be unable to repay the amount the subject of the determination. It is accepted in this context that the policy of the Act is generally to place the risk of insolvency on the applicant: R J Neller at [40]. However, where there are strong reasons for believing that the applicant will be unable to recover any amount paid, that fact favours granting a stay: Veolia at [36]-[39]; (d) the risk that the contractor will become insolvent if a stay is granted: Romaldi at [101]. 1. As Ball J noted at [6(c)], the policy of the Act is, as a general rule, to place the risk of the contractor's insolvency on the applicant. The background to this policy is instructive. 2. The Act was originally passed in 1999. The original version of the Act provided in s 23 that if the contractor was successful in an adjudication the owner or head contractor could either pay the amount of the adjudication or give security for that amount. When the Act was amended in 2003 this changed. A replacement provision, s 25, provides that if the contractor is successful in an adjudication, an adjudication certificate may be obtained and filed in any court of competent jurisdiction where it is enforceable as a judgment. Any owner or head contractor seeking to have such a judgment set aside must pay the unpaid portion of the adjudicated amount into court. 3. The reason for this change is set out in the Second Reading Speech by the responsible Minister, Mr Iemma. He said: … Cash flow is the lifeblood of the construction industry. Final determination of disputes is often very time consuming and costly. We are determined that, pending final determination of all disputes, contractors and subcontractors should be able to obtain a prompt interim payment on account, as always intended under the Act. To reinforce this determination, the bill provides that after an adjudication the respondent must pay the claimant the adjudicated amount. The existing legislation gives the respondent the options of paying the adjudicated amount or providing security for payment of the amount. Experience has shown that where respondents have taken the security option, they have then not taken steps to expedite the final resolution of the dispute. The result is that cash flow to the claimant does not occur, and the claimant has achieved little through the adjudication process. Removing the security option will overcome this situation and ensure that a reasonable interim payment, assessed by an independent party, is made within a short time frame. … 1. It is clear from what the Minister said that since 2003 the reference to security of payment in the title of the Act has been something of a misnomer. The Parliament has clearly and deliberately adopted the policy that, in general, the owner or head contractor must actually pay the amount due under the Act. Merely providing security for the payment pending the resolution of legal proceedings to determine the validity of the claim against the contractor is not enough. 2. In the present case, as I have found, no payment schedule was served in time and, therefore, there was no adjudication. The case comes before the Court as an application for judgment under s 15(4) of the Act, but the Court's decision on whether to stay such a judgment must be governed by the same principles as would apply if there had been an adjudication and the adjudication certificate had then been filed in the Court as a judgment under the Act. 3. Returning to the factors identified by Ball J in Hakea at [6], factors (a) and (b) both relate to the claim by the applicant, here TPC, factors (c) and (b) both relate to the financial position of the contractor, here ATA. It is convenient to deal with each pair of factors together.

TPC's claim 1. On my findings, there can be no challenge to ATA's entitlement to payment of the amounts of the invoices together with interest under the Act. I have concluded that valid payment claims were made and payment schedules were not served in time to contest those claims. 2. TPC's claim is an offsetting one. TPC alleges that the works in question were completed late and that work was done defectively. TPC also alleges that defective work was done under other contracts. Presumably TPC relies upon some sort of set-off. 3. There may well be an issue about whether, even if TPC is able to establish breach of the other contract, that would give rise to a right of set-off against ATA's claims under the contract which is the subject of these proceedings. But it is not necessary for me to consider that for present purposes. What is clear is that the outcome of TPC's claim will depend upon disputed issues of fact. These disputed issues will certainly involve a debate about the quality of the work that was done and may involve other questions as to the terms of the contractual relationships between the parties. It is not possible at this point to make any sensible assessment of the likely outcome. 4. Counsel for ATA criticised the form of TPC's Technology and Construction List Statement in its cross-claim. On the face of it, some of these criticisms appear to be justified. It may be that an application will be made in due course by TPC to strike out the claims in whole or in part, but, again, on the view I take, it is not necessary to go into this question. 5. In my view, there is nothing compelling about TPC's claim in the context of this application. The claim raises ordinary disputes about quantum. The amount claimed is alleged to exceed the amount to which I have found that ATA is entitled under the Act, but there is nothing unusual about that. From what I can see, the claim gives rise to the very sort of case to which the policy of the Act is directed.

ATA's financial position 1. In support of the application for a stay counsel for TPC referred to decisions of this Court which have emphasised that a judgment under the Act, although enforceable, is interim in the sense that it does not finally determine the legal entitlements of the parties. Counsel referred in particular to the judgment of Nicholas J in Parist Holdings Pty Ltd v WT Partnership Australia Pty Ltd [2003] NSWSC 365 at [19]. 2. In my view, earlier authorities must be considered with some caution in view of the subsequent amendments. In Parist Holdings, Nicholas J referred to the original Second Reading Speech from September 1999 and not to the Second Reading Speech for the amendment Act. (It may be that the case was argued before his Honour on the Act in its original form). 3. This does not mean that the interim nature of the entitlements created by the Act is irrelevant to a stay application. Where the evidence establishes that if payment is made, it will for practical purposes be final, then the interim nature of the procedure is a significant factor. 4. I think this can be discerned from cases where stays have been granted under the Act. In Grosvenor Constructions (NSW) Pty Limited (in administration) v Musico & Ors [2004] NSWSC 344, a decision referred to specifically by counsel for TPC, the contractor was in administration. In Veolia Water Solutions v Kruger Engineering [No 3] [2007] NSWSC 459 the contractor had been under administration and was operating under a Deed of Company Arrangement. In both of these cases it was clear that, once payment was made, if the claims against the contractor were later to succeed, the applicant's recovery would only be cents in the dollar. 5. In Greenwood Futures v DSD Builders (No 2) [2018] NSWSC 1471 the contractor company was not in administration or liquidation, but the evidence before McDougall J showed that those in control of the company had engaged in the past in a pattern of phoenix trading and there was reason to doubt whether the contractor company would continue to be able to trade profitably. 6. In Hakea, Ball J found that, having regard to the contractor company's declining trading business, there was a substantial risk that it would be wound up in the near future and that it would prove to be insolvent, whether or not the moneys owing under the Act were paid. His Honour was satisfied that on the facts there was little prospect that the applicants would be able to recover any amount which they paid to the contractor. 7. There is nothing like that in the present case. There is no evidence that ATA is trading other than normally; all there is evidence of is that it is a $1 company. That, without more, does not establish that if the money was paid to ATA it would be unable to repay it. That is the relevant risk, and it depends upon the actual facts concerning the company's financial position and trading prospects. There is simply no evidence on those questions before the Court.

Consent Orders 1. It remains to consider the significance for present purposes of the consent orders made on 7 December. It is true that on the evidence before the Court the legal representatives of the parties seem to have contemplated on that occasion that ATA's claim for judgment and TPC's cross-claim would be dealt with together. But there are I think three significant factors to take into account. 2. The first is that what was before the Court was an application for summary judgment. As I said in J1 at [28]-[29], the outcome involved an element of compromise on TPC's part, but what ATA was compromising was an opportunity to obtain judgment on the spot. 3. The second point is related. All the parties actually agreed was the dismissal of the application for summary judgment in return for payment into court. There was no express agreement that ATA's claim and TPC's cross-claim were to be heard together and that ATA would be unable to return to court to seek payment in the meantime. 4. The third point is that TPC cannot blame ATA for the current position. TPC did not file its application to amend the cross-claim in accordance with the timetable back in January this year. The order for separate hearing of ATA's claim was not opposed by TPC (because it was not represented at the directions hearing before Justice Hammerschlag when the hearing date was fixed). If, after December 7, TPC had moved promptly to pursue its claim and to have it heard together with ATA's claim, the case would probably now be close to final hearing. Final hearing might even have occurred. Instead TPC's claim is still at the case management stage. 5. Considering these factors together, I decline in the exercise of my jurisdiction to grant a stay. TPC's application for a stay will be dismissed. As already explained, I will also order that the moneys in Court be paid out. 6. The orders of the Court are: 1. Order that judgment be entered in favour of the plaintiff in $487, 324.38. 2. Order that the defendant's application for a stay of enforcement of the judgment be refused. 3. Order that the sum of $466,120.80 paid into Court by the defendant together with any interest accrued on that sum be paid out to the plaintiff. 4. Order that the defendant pay the plaintiff's costs of the proceedings on its claim.

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