Cenric Group Pty Ltd v Bundanoon Sandstone Pty Ltd

On 15 November 2018 Cenric Group Pty Ltd approached Ball J ex parte and obtained a freezing order restraining Bundanoon Sandstone Pty Ltd from dealing with or diminishing the value of its assets in Australia up to the unencumbered value of $3,958,651.08.

That figure is the amount of the judgment entered by McDougall J against Bundanoon on 25 October 2018 following delivery of his Honour's judgment on 18 October 2018 in Cenric Group v TWT Property Group Pty Ltd [2018] NSWSC 1570.

The proceedings before McDougall J concerned the harvesting of sandstone by Bundanoon at a site in Pyrmont. TWT Property Group Pty Ltd was the developer of the site. TWT contracted with Cenric to carry out demolition and excavation work. Cenric subcontracted to Bundanoon the task of harvesting the sandstone on the site. The harvested sandstone was sold to the New South Wales Department of Finance, Services and Innovation. The Department uses such sandstone to repair and maintain the many public buildings in Sydney that are made from sandstone.

McDougall J determined the dispute between Cenric and Bundanoon substantially in Cenric's favour. His Honour entered judgment in the amount of $3,958,651.08. His Honour had concluded this amount was due from Bundanoon to Cenric for unpaid royalties of the sandstone.

His Honour also declared that Bundanoon held on trust for Cenric "all sale proceeds resulting from the sale of [TWT’s] sandstone" from the Pyrmont site to be distributed in accordance with the contractual arrangements between the parties.

Bundanoon has appealed McDougall J's decision. Bundanoon does not challenge its obligation to pay $566,426.97 of the $3,958,651.08.

On 7 November 2018 Macfarlan JA ordered that McDougall J's judgment be stayed pending the appeal to the extent it exceeded $566,426.97. Macfarlan JA granted the stay on the basis that Bundanoon cannot pay the amount of the judgment and, if it goes into liquidation, the appeal will be stultified: Bundanoon Sandstone Pty Ltd v Cenric Group Pty Ltd [2018] NSWCA 256.

The evidence before Ball J included aerial photographs taken of Bundanoon's quarry (which is at Bundanoon) in a Drone Footage Report. Those photographs show large numbers of sandstone blocks laid in what appears to be an orderly pattern. "Zoomed in" copies of those photographs show some sandstone blocks which appear to have been split. Some appear split approximately in half; others appear to be split less evenly.

The state of those sandstone blocks was an important, if not vital, basis on which Cenric sought the ex parte orders from Ball J. Other matters were also relied upon but the state of these sandstone blocks was emphasised. Thus Mr Hughes, who appeared for Cenric on the application, said in his written submissions:

Mr Hughes's submissions concluded:

Before Ball J, Mr Hughes advanced a numbers of reasons why the freezing order should be made but said that "it's the block destruction that's the new issue". Mr Hughes took Ball J through the photographs in the Drone Footage Report.

In relation to the point Mr Hughes made at [10] above, Mr Hughes said to Ball J:

Mr Hughes did not take Ball J to the evidence that was said to underlie that submission, although it was referred to in the passage from Mr Hughes’s submissions set out at [10] above. That evidence was from Mr Hughes's instructing solicitor, Mr Kon Nakousis.

Mr Nakousis gave this evidence on the basis of information given to him by Mr Yanni Kouzinos, a Project Manager employed by Cenric. Some of this evidence was objected to before me. But it was all before Ball J.

As to Mr Kouzinos's "estimate" that 100 per cent of the 562 sandstone blocks said to be in the quarry were damaged, I cannot see how the drone photographs to which I have been taken could justify that conclusion; let alone that the sandstone blocks are no longer in a "saleable condition". Nor did the evidence reveal what expertise or other basis Mr Kouzinos had for expressing the opinions that Mr Nakousis repeated in his affidavit.

More importantly, Mr Nakousis said this in par 74:

That evidence shows that the "third party" that "proffered", "second hand", the explanation to which Mr Hughes somewhat dismissively referred was Mr Ronald Powell, an architect and stone consultant employed as the manager of the New South Wales Government's stone program. Mr Nakousis said he spoke to Mr Powell on 14 November 2018; the day after Mr Nakousis received the Drone Footage Report and the day before Cenric approached Ball J.

Mr Powell said that the sandstone blocks "are" in the process of being "resized or reshaped".

Mr Powell is not reported to have expressed any alarm or concern about that matter. And Mr Nakousis said such resizing and shaping of sandstone blocks was, to his understanding, something Bundanoon “does…prior to sale”.

Mr Nakousis's account of his conversation with Mr Powell suggests that Mr Powell knew what was happening at Bundanoon and had no concern about it. If anything, Mr Powell's comments suggest that to his knowledge and evident approval, the blocks have been split to accommodate use as "resized or shaped" pieces of sandstone.

However that may be, this evidence casts a very different light on the matter than was shed by the account given by Mr Hughes in his submissions.

Ball J's attention should have been drawn to this evidence. Had that occurred it may very well be, indeed I think it highly likely, that Ball J would not have made orders ex parte.

The principles associated with a duty of candour and disclosure required in an ex parte application are well known.

Mr Ashhurst SC, who appeared with Mr Gee for Bundanoon summarised those principles in his submissions.

Those principles are:

These matters compel the conclusion that Ball J's orders must be set aside.

During argument Mr Newlinds SC, who appeared with Mr Hughes and Ms Thrift before me, foreshadowed that, if that were my conclusion, Cenric would seek to renew its application for a freezing order. However Mr Newlinds accepted, with his usual candour, that he could not suggest that the matter was so urgent that that application required attention immediately.

I set aside the order made by Ball J on 15 November 2018.

I propose to make directions concerning the time by which Bundanoon should serve its evidence to resist the foreshadowed further application for a freezing order.

I list the matter for motion before the Technology and Construction List Judge on 30 November 2018.