Ceerose Pty Limited v A-Civil Aust Pty Ltd (No 5)

These proceedings concern two adjudication determinations obtained by the defendant subcontractor (A‑Civil) against the plaintiff builder (Ceerose) under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act) in respect of work done on two projects, one in York Street, Sydney and the other in Greenknowe Avenue, Elizabeth Bay.

In relation to the York Street project, the adjudicator determined that the amount of $2,045,457.97 was payable by Ceerose to A‑Civil. In relation to the Elizabeth Bay project, the adjudicator determined that an amount of $349,324.36 was payable by Ceerose to A‑Civil. The former determination was made on 2 August 2022. The latter was made on 11 July 2022.

Ceerose sought in these proceedings orders quashing the two adjudication determinations on the ground that they were affected by jurisdictional error. It also sought final injunctions restraining A‑Civil from seeking to enforce the adjudication determinations.

The proceedings were heard by Darke J. In judgments delivered on 20 March 2023 (Ceerose Pty Ltd v A‑Civil Aust Pty Ltd [2023] NSWSC 239) and 20 April 2023 (Ceerose Pty Ltd v A‑Civil Aust Pty Ltd (No 2) [2023] NSWSC 401), his Honour held, in respect of the adjudication determination concerning the York Street project, that an adjudicated amount above $1,070,649.27 together with the apportionment of the adjudicator’s fees and expenses were affected by jurisdictional error and, in respect of the adjudication determination concerning the Elizabeth Bay project, that an adjudicated amount above $345,210.36 together with the apportionment of the adjudicator’s fees and expenses were affected by jurisdictional error. His Honour determined that pursuant to s 32A of the Act only that part of the determinations affected by jurisdictional error should be set aside and that the balance of the determinations should be affirmed. His Honour made orders to that affect.

As is common in such cases, at the time the proceedings were commenced, Ceerose obtained interlocutory injunctions restraining A‑Civil from taking steps to enforce the adjudication determinations. Those interlocutory injunctions were expressed to continue until further order. Consistently with s 25(4)(b) of the Act and the practice of the Court, it was a condition of obtaining those interlocutory injunctions that Ceerose pay the amount the subject of the determinations together with the adjudicator’s fees into Court, which it did.

The orders made by Darke J on 20 April 2023 did not deal with the money that had been paid into Court. Instead, his Honour listed the matter before the List Judge on 21 April 2023 to fix a date for a further hearing to deal with that issue and the question whether the orders made by the Court should be stayed pending an appeal and pending determination of proceedings that Ceerose indicated that it proposed to commence under the relevant construction contracts seeking in substance to recover the amounts the subject of the Court orders in these proceedings. Ceerose’s right to commence those proceedings is preserved by s 32 of the Act, which provides:

On 21 April 2023, the Court relevantly made the following orders by consent:

On 5 May 2023, the Court made orders for the payment out of Court to Ceerose of the amounts affected by jurisdictional error.

The hearing on 29 May 2023 could not proceed because A-Civil had applied for leave to appeal against a decision of Stevenson J not to set aside a notice to produce that had been served on A‑Civil in connection with the application for a stay. The notice to produce sought a broad range of financial documents from A-Civil. The application for leave to appeal was granted and the appeal was upheld by the Court of Appeal on 29 June 2023: see A‑Civil Aust Pty Ltd v Ceerose Pty Ltd [2023] NSWCA 144.

Following the resolution of that appeal, on 30 June 2023 the Court relevantly made the following order:

It is those matters that are the subject of this judgment. The reference to paragraphs 4 and 5 of notices of motion filed on 1 May 2023 is a reference to the following paragraphs of notices of motion filed by Ceerose:

Since those matters were set down for hearing, there have been two other relevant developments. First, the Court of Appeal has heard and has reserved its decision on an appeal and cross‑appeal from the orders made by Darke J. Second, on 3 August 2023, Ceerose commenced proceedings of the type referred to in paragraph 5 of the notices of motion. It will be convenient in this judgment to refer to those proceedings as the “Contract Proceedings”.

The issues before the Court have become unnecessarily complicated. They were variously framed as an application for additional final relief in the form of the final injunctions originally sought in the proceedings, an application to dissolve the interlocutory injunction granted at the commencement of the proceedings, an order for the balance of the funds held in Court to be paid to A-Civil and an application for a stay of Darke J’s judgment pending a determination of the appeal and the resolution of the Contract Proceedings. Any attempt to address the issues in those terms is apt to confuse rather than elucidate the real issues that remain between the parties and the principles applicable to their resolution.

Although Darke J did not expressly address the final injunctions sought by Ceerose, his Honour made final orders disposing of the proceedings except to the extent that it was necessary to calculate the precise amount that was payable to A-Civil as a consequence of his Honour’s decision and the disbursal of the amount paid into Court consistently with that calculation. It appears that the parties reached agreement on the precise amount payable to A-Civil when they agreed on the amount that could be repaid to Ceerose. The question whether the balance should be paid to A-Civil was left to this hearing.

Similarly, although his Honour did not expressly deal with the interlocutory injunction, it would be normal to interpret an interlocutory injunction that was expressed to operate until further order as expiring at the time final orders are made: see Klewer v Official Trustee in Bankruptcy (No 2) [2010] NSWCA 258 at [6] per McColl and Campbell JJA and Sackville AJA.

Bearing those matters in mind, the real question is whether the judgment of Darke J in favour of A-Civil – and an order for the payment out of the money held in Court to A-Civil, which is a necessary consequence of that judgment – should be stayed either pending the determination of the appeal or pending a determination of the Contract Proceedings. Plainly, Ceerose bears the onus on that issue.

In this case, the question of a stay pending the determination of the appeal is complicated by two considerations. First, in the normal course of events, it would be usual for the Court which heard the proceedings at least initially to hear the application for a stay pending an appeal. However, that is in a context where usually no appeal has been commenced and the judge who heard the proceedings is in the best position to consider the matters relevant to the question whether a stay should be granted. Here, however, the appeal has not only been commenced but has been heard. It would have been open for Ceerose to apply for a stay from the Court of Appeal, which is now in a better position than this Court to determine whether a stay should be granted. Indeed, it seems inappropriate for this Court to consider the issue now that the Court of Appeal is seized of the matter. However, Ceerose made no application for a stay from the Court of Appeal.

Second, a partial stay is effectively in place because no order has been made for the payment of money out of Court. The stay is only partial since there is nothing to prevent A-Civil from seeking to enforce the judgment of Darke J in some other way. As I have said, an order for the payment out of the money held in Court is a natural consequence of the orders made by Darke J, which have not been stayed. But the position is complicated by the fact that the hearing of the Court of Appeal proceeded on the basis that the money remained in Court and presumably, as a result, no application for a stay was necessary.

In my opinion, having regard to what has happened, if one party or the other wishes to disturb the current state of affairs pending the determination of the appeal, it should make an application to the Court of Appeal to do so. In some respects that may be an unsatisfactory outcome for the reasons I have given. However, in the normal course of events, it is to be expected that the Court of Appeal will hand down its decision shortly, at which time the issue will be resolved. For this Court to make any other orders would involve a change in the circumstances on which the hearing of the appeal proceeded. It is not to appropriate for this Court to make an order that has that effect when the matter is before the Court of Appeal.

Mr Robertson SC, who appeared for Ceerose, submitted that the principles applicable to the resolution of this question were the same as the principles applicable to an interlocutory injunction. The Court should ask itself whether Ceerose had an arguable, or possibly seriously arguable case, in the proceedings on the merits (that is, the Contract Proceedings) and, if it did, whether the balance of convenience favours granting a stay. That is said to accord with the fact that, as s 32 of the Act makes clear, the judgment obtained under the Act is in substance an interim judgment pending the final determination of the merits of A-Civil’s case.

I do not accept that analysis. The effect of the Act is to permit the beneficiary of an adjudication determination to obtain a certificate from the authorised nominating authority to whom the adjudication application was made and to register that certificate as a judgment for a debt in any court of competent jurisdiction, at which time it becomes enforceable accordingly: see ss 24, 25 of the Act. The result is a final judgment in favour of the beneficiary of the adjudication determination.

The Court has an inherent power to stay the enforcement of such a judgment. But the exercise of that power does not depend on the operation of principles applicable to an interlocutory injunction. Rather, it depends on the application of the principles applicable to the stay of a judgment, although there are common themes that run through the two sets of principles.

As the cases make clear, in the case of the stay of a judgment based on an adjudication determination, the critical question is whether a stay best gives effect to two competing policies of the Act. One policy of the Act is that contractors should be paid the amount of an adjudication determination immediately as a means of ensuring that they are paid promptly for the work that they have done. That policy is evident from the fact that the adjudication process leads to a final judgment of a court of competent jurisdiction. It is reinforced by s 25(4) of the Act, which states:

Another policy of the Act, encapsulated in s 32, is that the respondent should be entitled to recover any amount it has paid as a consequence of an adjudication determination if it is subsequently found that the amount was not properly payable under the relevant construction contract. That right will be rendered nugatory if the financial position of the party from whom the money is sought to be recovered is such that it cannot afford to repay the relevant amount.

In balancing these competing considerations, courts have suggested that a number of factors are relevant, including the strength of the claim to recover the amount that has been paid, the basis of the claim, the likelihood that the contractor will be unable to pay the claim and the consequences for the contractor if a stay is granted: see Hakea Holdings Pty Limited v Denham Constructions Pty Ltd [2016] NSWSC 1120 at [6] per Ball J.

However, in the usual case, critical to a conclusion that the Court should grant a stay is a finding that it is likely that the proceedings in which the respondent to the adjudication application seeks to vindicate its contractual rights will be rendered nugatory because the beneficiary of the adjudication determination will not be able to repay the adjudicated amount if ordered to do so. As Keane JA explained in R J Neller Building Pty Ltd v Ainsworth [2009] 1 Qd R 390; [2009] QCA 397 at [40] (with whom Fraser JA and Fryberg J agreed), in a frequently cited passage:

As the Court of Appeal has recently explained in A-Civil Aust Pty Ltd v Ceerose Pty Ltd [2023] NSWCA 144 at [31], that conclusion is reinforced by the insertion into the Act in 2018 of s 32B, which makes it clear that the benefits of the Act are denied to a company in liquidation and not otherwise:

Ceerose’s claim that a stay would be justified in this case rests principally on two sets of accounts of A-Civil, the report of administrators of A-Civil Contracting Pty Limited (A-Civil Contracting), an associated company of A‑Civil, the sole function of which was to provide staff to A-Civil, and an affidavit sworn by Mr John Melluish, an expert accountant and registered liquidator. A‑Civil Contracting is now the subject of a deed of company arrangement.

The first set of accounts, which were prepared by A-Civil’s accountants on the basis of information provided to them by its directors, are for the financial year ended 30 June 2022. Those accounts show that A-Civil earned net profit after tax of $2,122,587 compared to $1,842,245 in the previous year and had total equity, consisting largely of retained earnings, of $5,319,568, compared to an amount of $3,196,981 in the previous financial year. The second set of accounts consists of a draft balance sheet for A-Civil as at 30 September 2022 which was produced in response to a subpoena served by Ceerose on the administrators of A-Civil Contracting. That balance sheet shows total equity of $993,173.17 including $97,424.23 in respect of current year earnings.

The report of the administrators of A-Civil Contracting to creditors relevantly states:

Mr Melluish expresses the following conclusions in his affidavit:

Those opinions are based on several matters. The first is apparent discrepancies between quarterly ATO Activity Statements lodged by A-Civil for the period 1 April 2021 and 30 September 2022, which show the instalment rate as zero, and the accounts for the year ended 30 June 2022. Mr Melluish accepts that the accounts are broadly consistent with a tax return that had been supplied to him. However, he says that he has seen no evidence that the tax return has been lodged or the tax paid. A second matter is the fact that it appears that A-Civil Contracting did not pass on to A-Civil its full costs, including its own tax liability, even though it was a special purpose company established for the sole purpose of providing staff to A-Civil. Consequently, it may be inferred that A-Civil’s real costs were substantially more than those stated in the accounts. A third matter is that a comparison between the 2022 accounts and the draft balance sheet for the quarter ended 30 September 2022 suggests that A-Civil incurred a loss of $5,441,143 in the three month period ending 30 September 2022. Mr Melluish expressed the view that these matters indicated that the accounts could not be relied on.

Relying on the maxim stated by Lord Mansfield in Blatch v Archer (1774) 1 Cowp 63; 98 ER 969 that “all evidence is to be weighed according to the proof which it was in the power of one side to produce, and in the power of the other to have contradicted”, Ceerose submits that the Court should draw inferences unfavourable to A-Civil, since A-Civil’s financial position is something peculiarly within its knowledge but it has made no attempt to refute the natural inferences that arise from the evidence relied on by Ceerose.

In my opinion, there two difficulties with that submission.

First, the submission overlooks the procedural history of the matter. On 30 June 2023, at the time the outstanding issues were set down for hearing, the Court made the following orders:

Despite that, Ceerose served Mr Melluish’s affidavit on 28 July 2023. It did not apply for leave to rely on the affidavit. Instead, the matter was relisted by A-Civil on 2 August 2023, at which time I stood any application for leave to rely on the affidavit over until 7 August 2023. At that time, Mr Hicks SC, who appeared for A-Civil, indicated that A-Civil may be able to serve evidence from an expert accountant in response to the evidence given by Mr Melluish. Consequently, I stood the application to rely on Mr Melluish’s evidence over to the hearing of the outstanding issues. At that time, A-Civil filed an affidavit from Mr Anthony Elkerton, an expert accountant and registered liquidator, who attached an expert report expressing opinions on what conclusions could be drawn from the material provided to Mr Melluish. In the light of that evidence, I admitted both affidavits, although I indicated that the weight that I would place on them would be affected by the circumstances in which they were prepared and served.

In considering what inferences the Court should draw from the absence of evidence from A-Civil, it is necessary bear in mind the limited time it had to respond to the evidence of Mr Melluish and the obvious unacceptability of an application for an adjournment to permit it to do so given the inordinate time the proceedings have already taken.

Second, and more significantly, it is important to pay careful attention to the inferences that are said to arise from the evidence relied on by Ceerose. There is a suggestion in some of the submissions made by Ceerose that the issue before the Court is whether A-Civil is solvent, that A-Civil had ample time to lead evidence on that issue but chose not to and that the Court could draw adverse inferences concerning A-Civil’s financial position from that fact. However, put like that, the submission reverses the onus of proof. It was for Ceerose to prove the facts on which it relied to justify a stay. To the extent that those facts were peculiarly within the knowledge of A-Civil and A-Civil did not lead evidence in relation to those facts, the Court can more readily draw inferences from the evidence led by Ceerose (subject to the qualification concerning late service already mentioned). But in that case, the inferences are the inferences reasonably available from the evidence.

In the present case, it is not entirely clear what inference Ceerose seeks to draw from the evidence it has led. One seems to be that the financial statements of A-Civil are unreliable. The other is that there was a rapid deterioration in A-Civil’s financial position as a consequence of adjustments made to the draft balance sheet as at 30 September 2022. Those inferences are not entirely consistent, since the second appears to depend on the accuracy of the financial statements, whereas the first suggests that they are not accurate. In any event, at most, the absence of evidence from A-Civil permits one of those two inferences to be drawn. It does not permit the Court to infer that A-Civil is or is likely to become insolvent.

Mr Melluish expresses the opinion that, in the light of the material available to Ceerose, there is “considerable uncertainty” that A-Civil would be able to repay the amounts payable to it as a result of the judgment of Darke J or a “substantial risk” that it would unable to repay those amounts. Mr Melluish appears to treat the quoted phrases as synonyms; and the upshot of his report seems to be that, without more information, it is not possible to be confident that A-Civil will be able to repay the amounts in question. That much may be accepted. But the absence of more information from A-Civil does not permit some different inference to be drawn. And the inference that can be drawn is not sufficient. What is necessary is evidence from which it can be concluded that it is at least more likely than not that A-Civil will not be able to repay the amount it receives if ordered to do so in the Contractual Proceedings. The evidence falls short of proving that and consequently falls short of providing a proper basis for a stay.

It was suggested by Ceerose that a further discretionary reason for granting a stay was the strength of its case in the Contractual Proceedings. There is certainly some authority that suggests that that is an important consideration: see Romaldi Constructions Pty Ltd v Adelaide Interior Linings Pty Ltd (No 2) [2013] SASCFC 124 at [95] per Blue J. However, the position in New South Wales appears to be that that consideration carries limited weight, except to the extent that it is relevant to the question whether there is at least a real risk that prejudice will follow if a stay is not granted: see Veolia Water Solutions v Kruger Engineering [No 3] [2007] NSWSC 459 at [73] per McDougall J. See also A‑Civil Aust Pty Ltd v Ceerose Pty Ltd [2023] NSWCA 144 at [21]ff. Plainly, there is little risk of prejudice if the contractual claim is weak. Here, however, Ceerose has not established that the risk of insolvency is sufficiently great to require consideration of that question.

In weighing the balance of convenience, Ceerose submitted that the Court should have regard to what it contends to be a plain calculation error by the adjudicator. It appears that the supposed error has only recently come to Ceerose’s attention. It has raised that error with the adjudicator in a letter dated 31 July 2023. The adjudicator has power to correct the error under s 22(5) of the Act. The application to the adjudicator to correct his determination is opposed by A-Civil.

If the adjudicator accepts that he has made an error of the type that can be corrected under s 22(5) of the Act and he amends his determination accordingly, that may require an amendment to the orders made by Darke J. However, those matters do not provide a discretionary reason for granting a stay. The Act provides a procedure for dealing with the issue raised by Ceerose. Ceerose should not be entitled to obtain through a stay relief that is available to it under the Act. And if that relief is no longer available to Ceerose because of its delay, it should not be entitled to overcome the consequences of that delay through an application for a stay.

In the light of the conclusions I have reached, it is not possible to make orders until the Court of Appeal hands down its decision in relation to Ceerose’s appeal. At that time, I propose to make orders consistently with this judgment and with the decision of the Court of Appeal.

The only order I make at this stage is to grant liberty to the parties to apply on two business days’ notice. I expect that liberty to be exercised as soon as the Court of Appeal hands down its decision.